Capricorn Diamonds Investments Pty Ltd v Catto

[2002] VSC 105

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

CORPORATIONS LIST

No. 6725 of 2001

CAPRICORN DIAMONDS INVESTMENTS PTY LTD	Plaintiff
v
ROBERT JOHN CHARLES CATTO & ORS	Defendant

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JUDGE:	Warren J
WHERE HELD:	Melbourne
DATE OF HEARING:	19, 20, 21, 22 and 26 November 2001
DATE OF JUDGMENT:	10 April 2002
CASE MAY BE CITED AS:	Capricorn Diamonds Investments Pty Ltd v Catto & Ors
MEDIUM NEUTRAL CITATION:	[2002] VSC 105

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Corporations – compulsory acquisition – minority interests – majority interests

Unit Trust – minority unitholders' interests

Valuation – methodology – inclusion of additional factors – special benefits – premium for forcible taking – "fair value" – foreign exchange rates – time of distribution – method of distribution

Notice – compulsory acquisition - adequacy of notice to minority unitholders – disclosure – material information

Parties - representation – minority unitholders – representative defendants

words and phrases – "fair value" – "materiality" – "just terms"

The Constitution (Cth) – s.51(xxxi)

Corporations Act 2001 – ss.664, 664A, 664B, 664C, 664D, 664E, 664F, 666A, 666B, 667A, 667C, 1322, 1325D, 1350, 1383.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr A.C. Archibald QC with Mr P. Fox	Allens Arthur Robinson
For the Defendants	Mr S.P. Whelan QC with Ms J. Dodds-Streeton SC	Arnold Bloch Leibler
For the Attorney‑General of the Commonwealth intervening	Mr D. Bennett QC, Solicitor‑General (Cth), with Mr G. Hill and Mr D. Star	Australian Government Solicitor

TABLE OF CONTENTS

Introduction........................................................................................................................................ 2

Background Facts............................................................................................................................... 2

The Legislative Scheme – Part 6A.2 Division 1 of the Corporations Act................................ 3

Background to Legislation............................................................................................................... 5

The Issues.......................................................................................................................................... 11

The Evidence..................................................................................................................................... 12

Fair value........................................................................................................................................... 13

(1)  The Concept of Fair Value................................................................................................... 13
(2)  Time of determination of fair value................................................................................... 34
(3)  Distributions.......................................................................................................................... 35

(a) The Statutory Provisions................................................................................................... 35
(b) Cum Benefits..................................................................................................................... 36
(c) The Unitholders' interest in the Trust............................................................................... 37
(d) Conclusions as to Distributions......................................................................................... 38

Conclusions as to Fair Value.......................................................................................................... 39

The Constitutional Arguments...................................................................................................... 40

(1)  The Just Terms Argument.................................................................................................... 40
(2)  The Section 1350 Argument................................................................................................. 46

Description of the Evidence........................................................................................................... 48

(1)  The Evidence of Creese........................................................................................................ 49
(2)  The Evidence of Appleyard – the May Report................................................................. 49
(3)  The Evidence of Lonergan – the LEA report..................................................................... 51
(4)  The Evidence of Perry.......................................................................................................... 54
(5)  The Evidence of Wingrove.................................................................................................. 64
(6)  The Additional Evidence of Appleyard – the November Report.................................. 67

Findings on the Evidence............................................................................................................... 72

(1)  Trading History..................................................................................................................... 72
(2)  Special Value.......................................................................................................................... 75
(3)  Value of the Company as a Whole..................................................................................... 75
(4)  Application of the Exchange Rate....................................................................................... 76
(5)  Adoption of Highest Value.................................................................................................. 79
(6)  Confidentiality Benefits........................................................................................................ 80
(7)  Marketing Benefits................................................................................................................ 80
(8)  Special Benefits...................................................................................................................... 81
(9)  Savings and Benefits............................................................................................................. 81

1. Premium for Forcible Taking.......................................................................................... 84

2. Additional Value Over Base Value................................................................................. 85

3. Apportionment of Special Benefits................................................................................. 86

4. Conclusions on the Expert Evidence.............................................................................. 87

Procedural issues.............................................................................................................................. 88

Conclusion......................................................................................................................................... 99

HER HONOUR:

Introduction

1. The plaintiff made an offer to compulsorily acquire the remaining minority units in a company in which the plaintiff held over 90 per cent of the units in the company.  The plaintiff issued these proceedings relying upon new provisions of the Corporations Act 2001, namely ss.664(3) and 664F(1), to seek court approval of the proposed compulsory acquisition of the remaining minority units in the company.

1. The defendants, being the minority unit holders, oppose the application to the Court principally on the basis that the offer made for the units did not give fair value.  The defendants contended, also, that the statutory provisions relied upon by the plaintiff were unconstitutional and, therefore, invalid.  The defendants were Robert John Charles Catto, John Warwick Cox, John David Joshua, Ian Edward Morton, Terranora Securities Pty Ltd, Susan Marcia Benny and Colbern Fiduciary Nominees Pty Ltd.  The parties called witnesses, tendered evidence and made extensive submissions in support of their respective positions.  The Attorney‑General of the Commonwealth of Australia intervened to make submissions to the Court on the constitutional issues.  The Australian Securities and Investments Commission ("ASIC") provided written submissions to the Court on the construction of the subject legislation.  The submissions on behalf of the Attorney‑General and ASIC supported the plaintiff's position. 

1. At the outset, it is appropriate to set out the background facts.

Background Facts

1. The plaintiff is a subsidiary of Rio Tinto Ltd, ("Rio Tinto") a company engaged in multi‑national mining projects, including mines located in Zimbabwe.  By way of background, in November 2000 Rio Tinto acquired another mining entity, Ashton Mining Ltd.

1. The plaintiff and its related entities own 96.95 per cent of the units in the Western Australian Diamond Trust ("WADT").  WADT in turn owns a 5 per cent interest in the Argyle Diamond Mine Joint Venture and has other assets.  The responsible entity or manager of WADT is AML Nominees Ltd ("AML").  It receives a trust management fee for its services.  On 9 May 2001 the plaintiff gave notice of compulsory acquisition to the 927 holders of the minority 3.05 per cent of the WADT units offering $2 per unit. 

1. Capricorn's offer was $2.00 for each unit covered by its compulsory acquisition notice.  This amount was $0.78 above the highest valuation in the range of values for the units determined by an independent expert appointed under the statute, AMC Corporate Pty Ltd (the independent expert  or "AMC").  It is also $0.84 higher than the independent expert's preferred value of $1.16.

1. Of the 927 unit holders, 323 unit holders objected.  The objectors hold approximately 60 per cent of the minority units.  By way of this proceeding the plaintiff seeks an order approving the acquisition to compulsorily acquire all of the minority, including the 323 objectors.  The plaintiff selected the first five defendants as representatives of the entire body of 323 objectors.  The sixth and seventh defendants sought to be joined as separate defendants and were joined by order of the Court. 

1. The plaintiff, Capricorn, seeks the Court's approval of the terms set out in its notice for the compulsory acquisition of those units in Western Australian Diamond Trust ("WADT") that are not already owned by Capricorn or a related body corporate of Capricorn pursuant to s.664F(1) Corporations Act 2001. 

The Legislative Scheme – Part 6A.2 Division 1 of the Corporations Act

1. Part 6A.2 Division 1 of the Corporations Act provides for the compulsory acquisition of minority securities by a 90 per cent holder of securities in the subject entity. The procedure is novel and took effect from 13 March 2000. The legislative scheme provides that within a specified period of six months after becoming that holder, a 90 per cent holder can give a notice of compulsory acquisition setting out a cash price for the minority securities (see ss.664AA(6); 664C(1)). The price must only be cash and not differentiate between minority holders (see s.664B). No benefit outside the price formally notified can be offered to any individual holder at any time (see s.664D). Under the statutory regime, minority holders are entitled to object to the acquisition (see s.664E). Where persons who hold at least 10 per cent of the minority securities object to the acquisition then the acquisition can proceed only if the Court gives approval (see ss.664F; 664A(3)(b)). The Court must approve the acquisition if the 90 per cent holder establishes that the terms set out in the notice "give a fair value for the securities" (see s.664F(3)). Where fair value is not established the Court must confirm that the acquisition will not take place (see s.664F(3)).

1. Specifically, the relevant sub-sections of s.664F of the Corporations Act provide:

"664F The Court's power to approve acquisition

(1)     If people who hold at least 10% of the securities covered by the compulsory acquisition notice object to the acquisition before the end of the objection period, the 90% holder may apply to the Court for approval of the acquisition of the securities covered by the notice.  (2)  The 90% holder must apply within 1 month after the end of the objection period.  (3) If the 90% holder establishes that the terms set out in the compulsory acquisition notice give a fair value for the securities, the Court must approve the acquisition of the securities on those terms.  Otherwise it must confirm that the acquisition will not take place. 

…..

(4)     The 90% holder must bear the costs that a person incurs on a legal proceedings in relation to the application unless the Court is satisfied that the person acted improperly, vexatiously or otherwise unreasonably.  The 90% holder must bear their own costs." 

1. Section 667A provides that the report of the expert must be prepared by a person nominated by ASIC. The section provides, also, that the expert report must state whether in the opinion of the expert the terms proposed in the notice give a fair value for the securities and set out the reasons for that opinion (see s.667A(1)). In this matter AMC was the expert nominated by ASIC and generally referred to as "the independent expert".

1. Section 667C of the Corporations Act prescribes the method of valuation.  It provides:

"667C Valuation of securities

(1) To determine what is fair value for securities for the purposes of this Chapter:

(a)       first, assess the value of the company as a whole; and

(b)then allocate that value among the classes of issued securities in the company (taking into account the relative financial risk, and voting and distribution rights, of the classes); and

(c)then allocate the value of each class pro rata among the securities in that class (without allowing a premium or applying a discount for particular securities in that class).

(2) Without limiting subsection (1), in determining what is fair value for securities for the purposes of this Chapter, the consideration (if any) paid for securities in that class within the previous 6 months must be taken into account."

Background to Legislation

1. Part P6A.2 of the former Corporations Law was inserted in the law of the Australian Capital Territory by the Corporate Law Economic Reform Programme Act 1999 (Cth) ("the CLERP Act"). The amendment was adopted and applied as Victorian Law by virtue of s.7 of the Corporations (Victoria) Act 1990 (Vic). Following on from references of power from the States to the Commonwealth under s.51(xxxvii) of the Constitution, in particular by Victoria under the Corporations (Commonwealth Powers) Act 2001 (Vic), the Corporations Act re‑enacted the provisions of the former Corporations Law as a law of the Commonwealth.  Part 6A.2 of the Corporations Act is cast in the same terms of Part 6A.2 of the former Corporations Law of Victoria. The Corporations Act commenced operation on 15 July 2001. 

1. The transitional provisions of the CLERP Act are relevant because the present proceeding was pending as of 15 July 2001, the date when the new legislative scheme came into operation.  There was agreement between the parties in the present proceeding such that the rights under the Commonwealth Corporations Act were recognised as being substituted for rights that existed before 15 July 2001 as a result of the application of s.1383 of the Corporations Act. Arising from s.1383 a new proceeding is taken to have been brought in this Court exercising Federal jurisdiction under Part 6A.2 of the Corporations Act. The proceeding brought under Part 6A.2 of the former Corporations Law of Victoria is terminated by virtue of the effect of s.7(3) of the Corporations (Ancillary Provisions) Act 2001 (Vic) ("the Ancillary Provisions Act"). 

1. The Originating Process in the proceeding brought under the former Corporations Law of Victoria was filed by the plaintiff on 13 July 2001. Clearly, s.1383 of the Corporations Act applies to a proceeding other than a "federal corporations proceedings" that was commenced in a court before 15 July 2001, that was under a provision of the former Corporations Law of a State or Territory in "this jurisdiction",[1] was not an enforcement, appeal or review proceeding in relation to an order of a court, had not been terminated before 15 July 2001, and was a proceeding in respect of which no final determination of any of the existing rights or liabilities at issue in the proceeding had been made before 15 July 2001.[2] Thus, all the pre‑requisites of s.1383(1) were satisfied in the present case.

   [1]Which means the geographical area that includes each referring State .  See the definition of "this jurisdiction" in s.9 of the Corporations Act.

   [2]See s.1383 of the Corporations Act.

1. Furthermore, the proceeding brought under the former Corporations Law of Victoria was not as at 15 July 2001 a "federal corporations proceeding" as that phrase is used in s.1383(1) of the Corporations Act. The expression "federal corporations proceeding" is defined in s.1382(1) of the Corporations Act.[3]  Paragraphs (a), (b), (ba), (bb), (bd) and (c) of that definition clearly did not apply.  Paragraph (bc) of that definition also did not apply,[4] even though the defendant raise a constitutional issue.  Reliance on a provision of the Constitution as a basis for invalidity means that a proceeding involves a matter "arising under [the] Constitution, or involving its interpretation" for the purposes of s.76(i) of Constitution.[5]  Accordingly, a proceeding involving reliance on such a provision involves the exercise of federal jurisdiction.  In the present case, however, there was no reliance on a provision of the Constitution as a basis for invalidity immediately before the commencement of the Corporations Act.  Consequently, as at that date, the proceeding brought under the former Corporations Law of Victoria could not have been characterised as being within federal jurisdiction. The proceeding, therefore, was not a "federal corporations proceeding" within the meaning of ss.1382(1) and 1383(1) of the Corporations Act. 

   [3]as amended by item 15 Schedule 2 of the Corporations (Repeals, Consequentials and Transitionals) Act 2001 (Cth).

   [4]paragraph (bc) refers to "any other proceeding in relation to a matter to which a provision of the old corporations legislation of a State in this jurisdiction applied that was in the exercise of federal jurisdiction". 

   [5]Croome v Tasmania (1997) 191 CLR 119, 126 per Brennan CJ, Dawson and Toohey JJ, 130 per Gaudron, McHugh and Gummow JJ; Felton v Mulligan (1971) 124 CLR 367, 373 per Barwick CJ, 403-404, 411-413 per Walsh J.

1. The effect of s.1383 in the present case is that a new application has been brought to this Court exercising federal jurisdiction under s.664F of the Corporations Act.  Further, the parties to the proceeding are taken to be the same and all steps taken in the former proceeding are treated as having been taken in the new proceeding.[6] Section 7(3) of the Ancillary Provisions Act terminates the previous proceeding. 

   [6]ss 1383(3) and (4). To date, there has been little judicial consideration of ss.1382 and 1383 of the Corporations Act.  However, see Brown v DML Resources (No. 3) [2001] NSWSC 719 (29 August 2001) per Austin J at [99]-[104].

1. It is relevant to consider the explanatory memorandum for the Corporations Bill 2001.  Paragraph 2.4 of the explanatory memorandum provided:

"The Bill will, in effect, re-enact the Corporations Law as a Commonwealth Act capable of operating throughout Victoria … Explanatory material for the provisions of the Corporations Law on which the Bill is based may be found in explanatory memoranda for the legislation that enacted or amended those provisions."

1. Section 15AB of the Acts Interpretation Act 1901 (Cth) applies to the interpretation of the Corporations Act (see s.5C of the Corporations Act).  The explanatory memorandum to any Bill amending the former Corporations Law, any relevant report of the Company and Securities Advisory Committee and any relevant report of a Parliamentary committee may be considered in the interpretation of a provision of the former Corporations Law.[7] 

   [7]See s.109J of the Corporations Law

1. Section 15AA of the Acts Interpretation Act expressly requires a court to adopt a construction of legislation which would promote the purpose or object of that legislation in preference to one which would not do so.[8] Section 15AA does not require, as a prerequisite to its operation, any ambiguity in the legislation.[9] 

   [8]see Chugg v Pacific Dunlop Ltd (1990) 170 CLR 249

   [9]see D.C. Pearce and R.S. Geddes, Statutory Interpretation in Australia 4^th ed at p.27 and Newcastle City Council v GIO General Ltd (1997) 191 CLR 85

1. The legislative history reveals that it was the primary intention of the new provisions to:

"make it easier for 90 per cent holders to acquire the benefit; and discourage 'greenmailing'."

1. The Explanatory Memorandum to the Corporate Law Economic Reform Bill[10] ("the explanatory memorandum"), in paragraph 4.4, states that an aim of the reforms was to "make it easier for majority shareholders to obtain the benefits of 100 per cent ownership".

   [10]in paragraph 4.4

1. The explanatory memorandum identifies the purpose of the legislative amendments as follows:

"7.30 The Bill will extend the current legislative mechanisms for the compulsory acquisition of securities.  These are intended to balance the interests of facilitating changes in corporate ownership with the need to protect the rights of minority shareholders. 

7.31 Extending the power to compulsorily acquire securities will:

·…

·discourage minority shareholders from demanding a price for their securities that is above a fair value (often referred to as 'greenmailing')

…

7.45 The issue of valuing companies for the purposes of compulsory acquisition is a difficult one and the draft provisions provides (sic) guidance to experts as to how they should go about valuing a company ...  It is proposed that experts would not account for premiums on account of the special value of the outstanding securities to the acquirer, or discounts on account of the lack of a market for particular securities."[11]

(Emphasis added).

[11]Explanatory memorandum [7.30-7.45].

1. It is also relevant to consider the Report by the Legal Committee on Compulsory Acquisitions for the Companies and Securities Advisory Committee ("the Legal Committee Report").  It expressed the view that compulsory acquisitions:

" …  can be a necessary and desirable means of corporate rationalisation.  They may produce considerable economic, administrative and taxation benefits including:

·     facilitating financial restructuring

·     permitting the transfer of tax losses between wholly owned grouped companies;

·     reducing administrative and reporting costs;

·     avoiding greenmailing;

·     protecting the confidentiality of commercial information and otherwise eliminating possible conflicts of interest in partially owned companies."[12]

[12]"Compulsory Acquisitions Report", Legal Committee of the Companies and Securities Advisory Committee, January 1996, [1.11].

1. The committee considered, also, that the regularity objective was " … to balance the interests of all shareholders, to avoid either minority oppression or minority dictation".[13]

   [13]ibid, [1.13].

1. In relation to the new compulsory acquisition power the Report states:

"10.1…

It would assist a controlling entity to achieve the legal and economic advantages of full ownership, ensure equal and fair treatment of minorities and reduce the opportunity for greenmailing.

…

10.21

…

In determining fair value, an independent expert should:

·Assess the value of the company as a whole and determine the value of each class of issued security, taking into account its relative financial risk and its distribution rights;

·Expressly disregard whether the remaining securities of the offer class should attract a premium or discount". 

(Emphasis added).

1. Thus, the issue of special benefits was specifically discussed in the Explanatory Memorandum[14], the Legal Committee Report[15] and also by the Parliamentary Joint Committee Report.[16]

   [14]paragraph 7.45

   [15]paragraph 2.89

   [16]paragraphs 3.66-3.68

1. In particular, it is evident from the explanatory memorandum[17] that the legislature was seeking to balance the interests of the two groups of parties that is, the interests of facilitating changes in corporate ownership with the need to protect the rights of the minority shareholders.  Part of the process was the discouragement of minority shareholders from demanding a price for their securities that is above a fair value, the practice of greenmailing.  The explanatory memorandum[18] shows that part of the objective of the legislative scheme was to remove that potential that is, to remove the matters that would otherwise operate to force a price above fair value were there to be the ordinary commercial bargaining context in which consent of both parties is required before a transaction can be concluded.  Furthermore, in the explanatory memorandum[19] the provisions of s.667C are explicitly addressed and it is stated that it is proposed that experts would not account for premiums. It is to be noted that the expression "premiums" is cast in the plural. The memorandum refers to premiums on account of the special value of outstanding securities to the acquirer, that is, the extent to which the acquirer may be prepared to pay a sum above fair value in order to secure its objective. This is the classic situation of the anxious buyer rather than non‑anxious buyer of the Spencer[20] formulation. 

   [17]paragraphs 7.30, 7.31 and 7.45

   [18]paragraph 7.31

   [19]paragraph 7.5

   [20]Spencer v Commonwealth (1907) 5 CLR 415

1. Against this legislative background I turn to consider the issues in the present proceeding. 

The Issues

1. The first and primary question in the proceeding is whether the terms proposed by Capricorn in the compulsory acquisition notice give "a fair value" for the units covered by the notice. If a finding is reached that the terms proposed give a fair value for the securities then the Court must approve the compulsory acquisition in accordance with ss.664(3) and 664F(1) of the Corporations Act. The defendants, in their exploration of the meaning of "fair value" expanded the question to include does "fair value" permit or require allowance to be made for "special benefits" to the prospective acquirer or allowance for the benefits of "forcible taking" on the prospective vendor. In determining whether the terms give a "fair value", s.667C prescribes that "fair value" is to be determined by assessing the value of the company as a whole (see s.667C(1)(a)), by allocating "that value" among the classes of issued securities in the company (taking into account the relative financial risks, and voting and distribution rights, of the classes) and by allocating "the value of each class pro rata among the securities in that class (without allowing a premium or applying a discount for particular securities in that class)."

1. The second question concerns the constitutional validity of Part 6A of the Corporations Act. The defendants raised the question that depending upon the answer to the primary question, that is, what is the proper meaning of "fair value", do the relevant provisions provide for the acquisition of property on "just terms"? The defendants contended that if the statutory scheme precludes or inhibits a proper allowance for "special benefits" and the consequences of forcible acquisition on the prospective vendor and allocate those allowances in a way which is unjust in the circumstances then the relevant provisions contravene s.51(XXXI) of the Constitution. 

1. The defendants raised additional matters. They asked, what information is "material" to be disclosed within the meaning of s.664C? They asked, are "special benefits" to the prospective acquirer and potential detriments to the prospective vendor information that is "material"? They asked further, what is the consequence of a failure to disclose material information? In addition, the defendants asked whether the compulsory acquisition notice served by Capricorn disclosed all information that was material within the meaning of s.664C?

1. A remaining issue was whether there had been compliance with the requirements of Part 6A. Capricorn answered that it had complied with all the requirements of Part 6A. In any event, Capricorn submitted it should be relieved if needs be from the effects of any alleged non-compliance by orders under sections 1322 and 1325D of the Corporations Act as sought by Capricorn in the application which it has made in its interlocutory process filed in this proceeding. 

The Evidence

1. By way of overview, evidence was given for the plaintiff at trial by Stephen Ernest Creese, a solicitor and director of Capricorn; Geoffrey Robert Appleyard, a geologist and a director of AMC, the independent expert; Gary Michael Wingrove, a chartered accountant and a director of KPMG Corporate Finance Pty Limited ("KPMG"), who provided assistance to the independent expert; and Paul Perry, an equity partner and director of corporate finance at JB Were Limited, a licensed securities dealer and investment adviser.  An affidavit of Dr Stephan Meyer, geologist, was also relied upon by Capricorn, but Dr Meyer was not required to attend for cross-examination.  Wayne Richard Lonergan, a chartered accountant and a director of LEA, was called as the defendants' expert.

1. More specifically, the plaintiff relied upon the independent expert's report retained pursuant to s.667A of the Corporations Act as prepared by AMC dated 4 May 2001 ("the May report").  The principal author of the report was Geoffrey Robert Appleyard of AMC.  The plaintiff relied, also, upon a supplementary report dated 8 November 2001 prepared by the independent expert, AMC ("the November report").  Appleyard was the principal author of this report, also.  The plaintiff relied also upon a report prepared by JB Were Limited dated 7 November 2001 ("the Were report").  Mr Paul Perry was the principal author of the Were report.  The plaintiff relied further upon a report of KPMG Corporate Finance P/L.  (Mr Gary Wingrove was the principal author of that report.)  

1. The defendants relied upon the report of Lonergan Edwards & Associates ("LEA"), generally known as "the LEA report".  Mr Wayne Lonergan was the principal author of that report.  The defendants also filed a number of affidavits setting out their particular interests and exhibiting the various notices of objection.  These were adverted to in submissions.  The defendants further relied upon internal documents of Capricorn and Rio Tinto, in particular, memoranda of one Albart‑Diaz, as to cost savings arising from the acquisition.  These matters were referred to in submissions. 

1. I turn then to consider the three primary issues of fair value and constitutional validity and thereafter address my findings on the expert evidence. 

Fair value

1. The submissions on fair value may be conveniently broken up into three sections: (1) the concept of fair value; (2) the time of determination of fair value; and, (3) the distribution of fair value.  I consider each of these sections in that order. 

(1)       The Concept of Fair Value

1. With respect to the conceptual approach to fair value, it was the case of the defendants that the criteria relevant to determining fair price and fair value generally include five aspects.  First, a premium for the acquisition of 100 per cent control of an entity or enterprise.  Secondly, a special value of a purchase to a particular purchaser.  Thirdly, consideration of the exchange market as evidence of the true market value of the particular shares.  Fourthly, the allocation of a liberal estimate compensating a compelled vendor for expected future benefits.  Lastly, the recognition of the achievement of total control and the commensurate administrative advantages to the acquirer. 

1. Mr S. Wheelan QC who appeared with Ms J. Dodds-Streeton SC for the defendants, relied upon the observations of Santow J in Holt v Cox,[21] and as approved by the Court of Appeal[22] for the submission that the usual meaning for the fair value of an asset constitutes:

"Its fair equivalent in money ascertained by a supposed sale by a voluntary bargaining between vendor and purchaser, each of whom is both willing and able, but not anxious, to trade and with a full knowledge of all circumstances which might affect value."

[21]supra, at 334

[22](1997) 23 ACSR 590

1. For the defendants it was argued that where there is a market it can be reasonably expected that fair value would be equivalent to market value.  Santow J in Holt v Cox[23] observed:

"It is thus appropriate to look at matters first from the vendor's point of view, in considering the rights of the shares, and what, to the vendor, they may be expected to yield him in the future by way of benefits, for loss of which a fair sale price is compensation.  This is particularly when, as here, the vendor has no choice but to sell.  It is necessary to ask what a willing, but not anxious vendor would consider a 'fair price' for being deprived of the shares and all [their] existing advantages and with all [their] possibilities  ……  not what the purchasers with their greater bargaining power might in reality be able to exact on a compulsory sale …  A liberal estimate of the shares in the approach to be taken.

Furthermore, their value to the purchaser, ignoring the purchaser's expropriatory power (except as justifying a liberal estimate) must reciprocally be taken into account in determining a fair price.  This is precisely as [the vendors] continued shareholding rights do detract from the value of the remaining shares."

[23]at 337

1. In Holt v Cox Santow J concluded that while he would not go so far as to hold that the forced sale justified a premium for forcible taking, nevertheless, the concept of a fair price in circumstances of expropriation required the valuer to make an estimate on "the liberal side". 

1. The defendants relied on the observations in Holt v Cox to support the proposition that the assessment of the value to the purchaser involves the question of special benefit.  A special benefit is "some special potentiality which only one person would buy [which] is to be valued on the basis of a notional sale to that person": see Mordecai v Mordecai [24].

   [24](1988) 6 ACLC 370

1. The argument for the defendants placed much reliance on the observations of McClelland J in Melcann Limited v Super John Pty Ltd.[25]  In that case the company sought to acquire a 100 per cent holding in a target company pursuant to a selective reduction of capital.  One of the advantages for the acquiring company was that it would achieve synergies from the merger of its activities with substantial elements of the activities of the target company.  McClelland J concluded[26] that such synergies would entail "substantial advantages" for the acquiring company if it obtained 100 per cent ownership so that costs of distribution, integrated marketing and the elimination of a separate board would secure substantial cost savings.  McClelland J concluded, therefore, that 100 per cent ownership would give rise to a special value for the acquiring company of considerable significance.  The learned judge concluded that the special benefit should be taken into account for the purposes of determining the fair value of the shares that were to be acquired for the very purpose of conferring such special benefits on the acquiring company. 

   [25]supra

   [26]at 93-94

1. In Winpar v Goldfields Kalgoorlie[27], Santow J revisited the subject of "special value" where it is derived from 100 per cent ownership through acquisition.  Santow J considered that such special benefit should be included in calculating the total value of a company.  In Winpar the Court was concerned with events surrounding an extraordinary general meeting of a company to consider a selective reduction of capital.  The capital reduction proposed involved the cancellation of shares of particular shareholders in consideration of payment to them of a nominated sum per share.  The resolution for the capital reduction was passed.  Winpar brought proceedings challenging the validity of the capital reduction on a number of grounds.  Santow J dismissed the proceeding.  The judgment was subject to an appeal to the New South Wales Court of Appeal.[28]  Consideration of the judgment at first instance in Winpar and subsequently on appeal reveals that the matter was concerned entirely with a selective reduction of capital and, further, was subject to the provisions of the Corporations Law as in force prior to 15 July 2001.[29] 

   [27](2000) 34 ACSR 737

   [28]Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2001) NSWCA 427 (12 December 2001)

   [29]So much is apparent from the date of judgment at first instance and, furthermore, from the observations of Giles JA on appeal at para 6.

1. At first instance Santow J in Winpar was concerned with the requirements of s.256C of the then Corporations Law relating to reduction of capital, whether a scheme of arrangement was required under s.411 of the Law, whether the acquisition arising from the reduction of capital was "fair and reasonable to the company's shareholders as a whole" pursuant to s.256B(1)(a) of the Law, whether the Gambotto principles were met, whether the capital reduction was not shown to be "fair and reasonable" by reason of the receipt of less value and the non‑distribution pro rata of "special benefits", whether "special benefits" had been identified and taken into account, whether there had been satisfactory disclosure of matters relating to value and valuation methods and whether the capital reduction was "fair and reasonable" where a single dominant shareholder could determine the outcome of the vote on the capital reduction and related matters. 

1. For the defendants in the present case it was argued that the construction placed by Santow J in Winpar was more in accord with the goals and equitable application of Part 6A.2 of the Corporations Act. It was argued that s.667C(1)(a) does not proscribe any particular method for the assessment of the value of a company as a whole. Consequently, it was urged, the method of valuation is at large and hence the fair value crucial to approval under s.664F(3) could be determined by reference to any matter that may reasonably relate to the value of the company. As a consequence, it was argued that all relevant factors could be taken into account including assets, market value dividends, the nature of the corporation, its likely future and any other elements that affect the intrinsic or inherent value of the stock. In this way reliance was placed upon the Gambotto principles: see Gambotto v WCP Limited[30]. 

   [30](1995) 182 CLR 432, 447, 457

1. The defendants urged, also, the apportionment of special benefits.  It was argued on their behalf that while permitting special benefits accruing to a 100 per cent holder to be taken into account when assessing the value of the company as a whole, Santow J in Winpar considered that s.667C required the value of any such special benefit to be allocated pro rata within the relevant class. The defendants relied upon the following observations of Santow J:[31]

"It is true this premium, or reciprocal discount, may reflect particular special benefits for the acquirer in getting 100% ownership. But I consider that the references to premium (and discount) is primarily directed to the situation where a key holding within the acquired minority (say QBE in this present case) might command a 'premium' price to acquire; that is, absent the statutory definition in s. 667C of 'fair value' which precludes such circumstances in favour of a pro rata allocation of the total value including any such special benefits ... In that sense, pro rata allocation of value reflected in price paid is certainly the invariable norm within classes where 10% or less is being acquired... But by parity of reasoning, the acquirer's 90% or more is not allowed to command any (notional) premium as against the minorities'] 0% or less, in calculating what is paid for the minority under s. 667C".

[31]at 751

1. His Honour concluded:

"I therefore consider that s. 667C in its particular context is a clear legislative indication in its context that the collective value of the company as a whole, including any special value derived from 100% ownership is to be allocated without attributing a premium or discount to particular securities first within a class (including for example, a key holding from within this minority holding compulsorily acquired) and second as between majority or minority. Thus that the value should be allocated pro rata though clearly the acquirer may chose to be more generous. Thus while an expert is ordinarily required to take into account the special value 100% ownership may have to be to a majority holder in working out the total value of the company, fairness requires that special value should be allocated pro rata".[32]

[32]at 751

1. Hence, in Winpar Santow J, considered that "special benefits" should be taken into account. In that context, the learned judge did not appear to distinguish between the "normal" special benefit of acquiring 100 per cent control and the particular special benefit to an individual acquirer. Santow J referred to both kinds of special benefit.  He noted:

"An example would be where the special value derives not only from 100% ownership but also extraordinary efforts on the part of the 100% parent such as to exploit a particular resource. There is also the converse case where 100% ownership is of such unique value to the 100% parent, that it may be arguable that more should be attributed to the minority than the pro‑rata amount. Even so one would not expect 100% to go to the minority."[33]

[33]at 752

1. His Honour distinguished between special benefits that should lead to the minority shareholders receiving more than a pro rata proportion and the normal advantages of having a wholly-owned subsidiary as against partial ownership.  These advantages include the ability to group tax losses for tax purposes and the rationalisation savings derived from combining head offices. 

1. On appeal the leading judgment of the Court in Winpar was delivered by Giles JA with whom Beazley JA and Davies AJA agreed. The appeal was dismissed. Giles JA in his reasons was predominantly concerned with the application of s.256C of the Corporations Law. He considered, also, the application of s.1322 of the Corporations Law to the circumstances of the matter refer to those observations later in these reasons in the context of the application of s.1322 of the Corporations Act to the present proceeding. 

1. The New South Wales Court of Appeal in Winpar, held that there was no impropriety in the meeting procedure or non‑compliance for the purposes of s.256C(2) of the Law and, therefore, the challenge to the capital reduction by force of s.256D(2) failed.  It was held also that in so far as necessary, if non‑compliance with statutory requirements had occurred such non‑compliance constituted a procedural irregularity capable of remedy by virtue of s.1322.  In the leading judgment Giles JA held, further, that in any event such irregularity did not cause substantial injustice.  It was also held that it was not necessary that the capital reduction be achieved by way of a scheme of arrangement provided the requirements of s.256B(1) of the Law were satisfied or more was not required under the Gambotto principles.  Giles JA held that the Gambotto principles did not have to be satisfied because the relevant section of the legislation, namely s.256A(b) of the Law ensured fairness between shareholders.  Giles JA held, in addition, that the matter of inadequate disclosure was not made out because factors relating to subjects such as special value were capable in the context of the case of ready calculation and further detail was unnecessary.  For the purposes of the appeal the New South Wales Court of Appeal held that the special value attributable to a factor such as single ownership is an advantage to both the acquiring majority and the acquiring minority as on acquisition the latter obtain an enhanced price for their shares; hence, no unfairness or unreasonableness arose because the advantage is shared.  It is to be emphasised that in his judgment in Winpar, Giles JA did not specifically consider the application of special value in a valuation context.

1. For present purposes, the judgments in Winpar both at first instance and on appeal have no or limited application to the present case.  This is so primarily because Winpar was concerned with a capital reduction and thereby the construction and application of an entirely separate section, namely s.256C of the Law, as distinct from s.667C of the Corporations Act.  In addition, the allocation of special value at first instance in Winpar prompted observations by way of obiter only.  Santow J was not faced by the same statutory regime and imperative as applies here.  On appeal in Winpar the Court of Appeal did not consider the relevance of special benefits in the context of a valuation under s.667C of the Corporations Act.  Hence, whilst Giles JA described and adverted to special benefits he did so on a different basis and for another purpose than that which applies in the present case. 

1. It was argued for the defendants that if a pro rata allocation of special benefits was an invariable, inflexible rule, it would allow expropriation on unjust terms.  It was said that circumstances might arise where there is a very small minority but there are significant special benefits to be obtained.  It was said that in such circumstances the allocation of special benefits pro rata would distort and undermine the fundamental requirement that fair value should be a fair equivalent in money based on a supposed sale by a voluntary bargaining between vendor and purchaser according to general principles. 

1. However, the special benefits do not form part of the value of the trust as a whole. The defendant's expert, Lonergan, accepted that the special benefits which he said he had identified were not part of the enterprise that was being valued. The benefits do not exist unless the transaction is consummated and do not exist until after the transaction is consummated. On that basis they cannot be part of the value of the company (here the trust) as a whole. The special benefits are external to the value of trust and they do not exist at the time at which the value is to be established. Nor does the premium for forcible taking form any part of the value of the trust as a whole. It is founded upon idiosyncratic features of particular unit holders not on elements of their unit. Still less is it founded on the assets or elements of the trust as a whole. The alleged premium is, in truth, compensation to a unit holder suffering divestment of the units. The content of the premium must vary according to the characteristics of the unit holder whereas those characteristics form no part of the subject-matter of the valuation addressed by s.667C. The suggested premium is akin to the solatium allowed on the occasion of compulsory acquisition of land: solatium is compensation for the distress caused by the taking. It is not part of the value of the land taken; it is a separate amount by way of allowance for inconvenience: see March v City of Frankston.[34] Part 6A confines fair value to the subject matter which is acquired and no allowance for inconvenience or distress is included. Indeed, the express ouster of premia from Part 6A of the Corporations Act ensures that any such ingredient is removed even if it would otherwise have been included.

   [34][1969] VR 350

1. However, any special value derived from 100 per cent ownership that arises because that is the purpose of the acquisition in this case ought be disregarded when determining the "value" of the company for the purposes of s.667C(1)(a). Such assessment is consistent with the long-standing common law principle,[35] reflected in Commonwealth land acquisition legislation dating back to federation[36] to the effect that the value of that which is acquired pursuant to a compulsory acquisition should be determined without regard to the purpose for which the acquisition occurs. 

   [35]Emerald Quarry Industries Pty Ltd v Commissoiner of Highways (SA) (1979) 142 CLR 351, 367 per Mason J. See also Lucas v The Chesterfield Gas and Water Board [1090] 1 KB 16; Cedar Rapids Manufacturing and Power Company v Lacoste & Ors [1914] AC 569, 576; Fraser v City of Fraserville (1917) AC 187, 194; Pointe Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands [1947] AC 565, 572; Grace Bros Pty Ltd v The Commonwealth (1946) 72 CLR 269, 280, 286, 291-292, 295, contra 301-302; Housing Commissdion of NSW v San Sebastian Pty Ltd (1978) 140 CLR 196, 205.

   [36]See s.60(c) of the Lands Acquisition Act 1989 (Cth). Section 60(c) provides that in assessing compensation, there shall be disregarded "any increase or decrease in the value of the land caused by the carrying out of, or the proposal to carry out the purpose for which the interest was acquired". See also s.19(1) of the Property for Public Purposes Acquisition Act 1901(Cth); s.29(2) of the Lands Acquisitoin Act 1906 (Cth) and Minister for Home and Territories v Lazarus (1919) 26 CLR 159, 165 per Isaacs and Rich JJ; Smith v Minister for Home and TerritoriesU 1920) 28 CLR 513, 521 per Poers J; Grace Bros Pty Ltd v The Commonwealth (1946) 72 CLR 269, 280 per Latham CJ, 285-286 per Starke J, 291 per Dixon J; s.23(2) of the Lands Acquisition Act 1955 (Cth).

1. In any event, authority on the meaning of "fair" or "fair and reasonable" or "fair price" has limited relevance for the construction of s.667C. Santow J in Winpar[37] recognised that "fair value" in s.667C had a different connotation to the concept of "fair and reasonable" and the like used elsewhere in the Corporations Act. The meaning of "fair value" in s.667C was addressed by Douglas J in Pauls Limited v Dwyer and (in obiter dicta) by Santow J in Winpar.  Further general guidance on the question of fairness may be found in Holt v Cox[38] (at first instance) and the cases to which it refers.  Consideration of the authorities enables the extraction of a number of principles. 

   [37]751-752

   [38]332-336

1. First, fair value of an asset is its fair equivalent in money ascertained by a supposed sale by voluntary bargaining between vendor and purchaser, each of whom is both willing and able, but not anxious, to trade and with a full knowledge of all the circumstances which might affect value: Holt v Cox[39]; Gregory v FCT[40]; McCathie v FCT[41].  Secondly, the fact that the units must be disposed of at a fair value should not be a factor leading to a discount or lower valuation than would otherwise obtain: Holt v Cox.[42]  Conversely, it should not be a factor leading to a premium or higher valuation.  Thirdly, a fair value does not require that any amount should be included in respect of ransom value or a power of veto:  Edwards v Minister of Transport.[43]  Fourthly, the value of special benefits to the acquirer is not properly to be included in the calculation of the value of the company as a whole:  Pauls Limited.[44] Fifthly, generally, apart from s.667C, fairness requires that the value of any special benefits should be allocated pro rata amongst securities in the same class: Winpar.[45] Sixthly, if the value of special benefits is to be included under s.667C, their value should be allocated pro rata under s.667C: Winpar[46]; Pauls Limited.[47] 

   [39]333-334

   [40](1971) 123 CLR 547

   [41](1944) 69 CLR 1 at 6

   [42]at 336

   [43][1964] 2 QB 134, 156 per Harman LJ, 158 per Russell LJ

   [44]at [28]

   [45]at [68] and [69]

   [46]at [63] and [69]

   [47]at [29]

1. The seventh principle to be extracted from the authorities is that when deciding whether the consideration is fair the proper approach is to consider whether it is fair to all shareholders, rather than whether it is fair to a particular shareholder or class of shareholders in the peculiar circumstances of the case: Elkington v Vockbay Pty Ltd.[48]  Consequently, a shareholder's individual taxation position and like matters said to give rise to a premium for forcible taking are not relevant to the value of the company as a whole.  Nor are the acquirer's individual circumstances relevant.  Further, the market price cannot be a safe indicator of fair value as the market may not provide a fair indication of the value of shares in circumstances of limited trading: Catto v Ampol.[49]  In addition, the market may not be a fair indicator of value because of the effect of a takeover offer on the market: Kingston v Keprose Pty Ltd [No 2].[50]

   [48](1993) 19 ACSR 785

   [49]()1989) 16 NSWLR 342

   [50](1988) 6 ACLC 111

1. Finally, the eighth principle to be extracted from the cases is that fair value may require a more liberal estimate of value within a range of possible values where there is a compulsory acquisition of property (Commissioner of Succession Duties (SA) v Executor Trustee & Agency Co of SA Ltd (Re D Clifford).[51]  Nevertheless, it does not permit or require a premium for forcible taking: Holt v Cox.[52]  The Australian authorities have not adopted the Canadian concept of a forcing out premium (instead applying a more liberal estimate of value), and indeed that concept has more recently lost support in Canada.[53] 

   [51](1947) 74 CLR 358, 373 per Dixon J

   [52]at 336-7

   [53]Cheffins and Dine, "Shareholder Remedies: Lessons from Canada" 13 The Company Lawyer No. 5, 89 at 93.

1. Turning then to the statute itself, s.667C(1)(a) requires an assessment of "the value of the company as a whole". Hence, no allocation of value may be made that is not included in "the value of the company as a whole". Only that which is within the concept of "that value" is to be allocated among the different classes of securities where there are different classes. The value for each class is then to be allocated among the holders of securities in the different classes of securities concerned. No addition to that value may be made upon the allocation of value among classes of securities and among the holders of securities in a particular class. No additional share of the value to be allocated may be allocated to units held by minority holders disproportionately to the share to be allocated to units held by the majority holders. Section 667C(1)(c) by its express terms does not allow any premium or discount for particular securities in a class of securities and expressly provides that the allocation must be pro rata amongst all the holders of securities of the class concerned.

1. Section 667C addresses the determination of fair value for securities, not the securities themselves, but the value of the company as a whole and that value is then dealt with in particular ways. It is apparent that the subject matter of the valuation, namely, the company as a whole, was selected by the Legislature in order that there might be an accommodation of the competing interests of those involved in the compulsory acquisition process. By addressing the value of the company as a whole the Legislature has struck a balance between those interests. When the value of the company as a whole is valued the departures from fair value that a compulsory acquisition is capable of producing are avoided.

1. It might be suggested that valuing the company as a whole can give rise to disadvantages to minorities for two reasons. First, there is the discount that might be said to attend the minority holding because of the fact it is a minority that lacks the controls over management decisions and the like. Secondly, there is the potential factor for a discount for limited negotiability. By selecting the valuation of the company as a whole the potential disadvantages to the minority are avoided. By addressing the value of the company as a whole the entirety of the advantage that the enterprise is capable of generating for the totality of the shareholder base is derived. Further, by selecting the value of the company as a whole the position of the company as an enterprise, its assets and potential revenues are taken into account. In this respect taking the value of the company as a whole excludes the additional greenmail value that might otherwise have been extracted. Thus, the essential role performed by s.667C(1)(a) is to achieve this effect.

1. In applying s.667C(1) regard must be had to the consideration paid for the securities in the preceding six months: s.667C(2). If the trading price has more likely than not been driven by the prospect of a compulsory acquisition at an inflated price, or if there has been insufficient trading to render the trading price a proper indicator of value, or if takeover activity has distorted the market price, or if the trading in the securities has been too thin to provide any reliable indicator even of market value, no adjustment to the value determined in accordance with s.667C(1) is required.

1. Section 667C is concerned with the adjustment of entitlements between the acquirer and the other holders of securities upon a compulsory acquisition proposal. The section leaves to the expert the determination of the appropriate valuation methodology to assess the value of the company as a whole. The independent expert determined the fair market value of the underlying assets of WADT and used well-accepted standard valuation methodology in doing so. The independent expert was entitled to adopt the fair market value of the underlying assets of WADT as the means of determining the value of the company as a whole in the context of determining fair value as required by s.667C(1): see BTR plc v Westinghouse Brake & Signal Co (Aust) Ltd;[54] Holt v Cox.[55]

   [54](1992) 106 ALR 35; 7 ACSR 122, 137 and 153

   [55](1994) 15 ACSR 313, 333

1. Furthermore, where there are different classes of securities, s.667C(1)(b) requires an allocation amongst the different classes according to the criteria stated in that paragraph. No such allocation falls for consideration in this case. The WADT units are all of the same class and all enjoy the same rights. Section 667C(1)(b) requires an allocation amongst different classes of securities according to the criteria stated in that paragraph. The allocation may result in one class having a disproportionate share of the value of the company as a whole than another as recognised by Santow J in Winpar.[56]  Here the WADT units are all of the same class and all enjoy the same rights.  Santow J in Winpar took the pro rata allocation requirement of s.667C as being a fairness aspect of the concept of fair value in s.667C, because s.667C eliminated any minority discount and any majority premium within a class of securities.[57]

   [56]at [68]

   [57]at 751

1. In addition, it is to be observed that the prohibition in s.667C(1)(c) on allowing any premium for particular securities in a class does not mean that fair value compensation is not full compensation for that which has been lost.[58]  Rather, in my view, the prohibition serves to prevent the compensation becoming artificially inflated to take into account the ransom value that minority security holders might otherwise be able to extract for their securities by reason of their minority status.  In Edwards v Minister of Transport,[59] it was held that compensation payable in respect of a compulsory acquisition of land was not required to take into account the ransom value to which a person having a power of veto over an acquisition might hold the person acquiring the property.  The application of Edwards to the determination of compensation for injurious affection pursuant to s.20 of the Acquisition of Land Act 1967 (Qld) was disapproved by the High Court in Marshall v Director-General, Department of Transport,[60] on the basis that the application of Edwards was inconsistent with the plain meaning of the Queensland statute.  Marshall did not deal with the so-called ransom value able to be asserted by a person having power of veto. Clearly here s.667C(1) requires pro rata allocation of the value of the company as a whole in accordance with paras (b) and (c) of the sub‑section, so that shares in the same class are treated in the same way whether held by the 90 per cent holder or the minority holders.[61] 

   [58]Cf The Commonwealth v WMC Resources Limited (1998) 194 CLR 1, 32 per Toohey J; Commonwealth of Australia v State of Western Australia (1999) 196 CLR 392, 461 per Kirby J; Smith v ANL Ltd (2000) 75 ALJR 95, [111] per Kirby J, [156] per Callinan J.

   [59][1964] 2 AB 134, 156 per Harman LJ, 158 per Russell LJ

   [60](2001) 75 ALJR 1218

   [61]Pauls Limited v Dwyer & Ors, supra

1. Section 667C(1)(c) requires that the value allocated to a class of securities should be allocated on a pro rata basis amongst the securities in that class without any premium or discount. It adopts the ordinary basis as being the fair basis for such an allocation. Both Douglas J in Pauls Limited[62] and Santow J in Winpar[63] were of the view that the allocation of value under s.667C was required to be made pro rata to all the securities in the relevant class and not disproportionately in favour of either the securities to be acquired or the securities of the acquirer.

   [62]at [27]

   [63]at 750

1. For the defendants it was argued that s.667C(1) of the Corporations Act provides non‑exhaustive legislative guidance.  Reliance was placed upon an extract of the the Legal Committee Report: 

"There should be some non-exhaustive legislative guidance for independent experts on determining fair value in these compulsory acquisitions, given the current uncertainty in the case law."[64]

[64]at para 10.21, p.81

1. It was argued that s.667C(1) is differently expressed from s.667C(2) in that the language of sub-s.(1) directs a sequential process. It was argued that consistent with its status as a non-exhaustive guide, the sub-section does not address a number of issues which are highly significant to the valuation of the company as a whole under s.667C(1)(a). It was argued, further, that s.667C(1)(a) does not state the perspective from where the value of the company as a whole is to be assessed. Reliance was placed upon the fact that the sub-section does not proscribe a particular method of valuation, state whether or not special benefits to a particular purchaser is to be allowed for, state whether a premium for control is to be considered or whether compensation may or must be taken into account.

1. It is appropriate to give consideration to the function of sub-s.(2) of s.667C. The defendants by virtue of their arguments seek to breathe into sub-s.(2) a role and operation that is not sustainable. Sub-section (2) works together with sub-s.(1). The function of sub-s.(2) is to cast light on the value of the company as a whole by having regard to the consideration paid for securities of the relevant class within the previous six month period. The sub-section does not subvert in any way the carefully formulated structure and operation of sub-s.(1) of s.667C. Further, sub‑s.(2) does not disturb the goal of balance described in the explanatory memorandum. This is borne out by the introductory language of sub-s.(2) that explicitly disavows any limitation on sub-s.(1) by reason of sub-s.(2). It follows that the assessment of the value of the company as a whole, as proscribed by s.667C(1)(a) is not supplanted or eroded by sub-s.(2). By virtue of the words used in sub-s.(2) the Legislature has provided other subject matter to which reference must be had in determining what is fair value.

1. The legislative history of s.667C shows that the intention of Parliament was to preclude synergies or special benefits from the determination of fair value.[65] The inclusion of s.667C is a legislative indication that premiums attaching to minority holdings should not affect an assessment of the fair value of a minority's securities. The explanatory memorandum supports this view, namely that experts determining fair value should not account for premia arising from the special benefits of the outstanding securities to the acquirer or discounts on account of the lack of a market for particular securities.

   [65]See the Explanatory Memorandum [7.45]; The Legal Committee Report paragraphs 2.82 – 2.89.

1. It is to be observed that special benefits are benefits that do not reside in and are not embodied in the company as a whole. They are not part of the asset or the enterprise that is to be valued under s.667C(1)(a). They are properly construed as external to that asset for they do not exist at the time when the valuation occurs. Special benefits will only ever exist after the transaction has taken place, if it takes place at all. Accordingly neither an expert reporting in accordance with s.667C, nor the Court, would be required, or permitted, to take into account the special value which 100 percent ownership may have to a majority holder in assessing a fair value for a minority's securities in compulsory acquisitions and buyouts under the provisions of Chapter 6A of the Corporations Act.  Further, a requirement to attribute value to what might be described as "Melcann" special benefits would be contrary to the intention, demonstrated by s.667C(1)(a) that, in determining what is fair value for securities for the purposes of Chapter 6A, an assessment must be made first of the value of the company as a whole.

1. Significantly, recommendation 14 of the Legal Committee Report provided that court appraisal "expressly disregard whether remaining securities of the offer class should attract a premium or discount". This suggests that the exclusion of premiums in s.667C was intended to carry with it the exclusion of Melcann type special benefits.[66] The Legal Committee Report recommendation 14 was adopted by Parliament in that the court assessment of a compulsory acquisition procedure under s.664F(3) is effectively confined to determining whether the acquisition is for fair value. For that purpose the court, and the relevant expert, must apply the definition of fair value set out in s.667C. The definition does not allow for premium referable to the particular value of the outstanding securities to the majority shareholder and which requires an assessment of "the value of the company as a whole". Accordingly it is apparent that Parliament settled upon the particular definition of fair value for the purposes of Chapter 6A of the Corporations Act because it promoted fairness and equity among all shareholders and acted to prevent the exploitation by one or a few shareholders of their minority status. 

   [66]As noted in paragraphs 2.82 – 2.89 of the Legal Committee Report, United Kingdom, Canadian and Delaware legislation contain provisions permitting a court to determine "fair value" for the purpose of compulsory acquisition of a dissenting shareholder's shares.  Section 262 of the Delaware General Corporation Law is referred to in paragraph 2.82 (footnote 99) of the Legal Committee Report as providing that a court shall determine fair value "exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation".

1. The language of s.667C(1)(c) is plain. Neither the value of synergies, nor the value of any other special benefits that might be available to a particular acquirer should be taken into account in the valuation required by s.667C. In Pauls Limited[67] Douglas J relied on the legislative history of s.667C in deciding that synergies were not to be taken into account in determining the fair value of securities under s.667C. I consider I should adopt the same approach as Douglas J in Pauls Limited and should not adopt the obiter dicta of Santow J in Winpar to the contrary.  In doing so I adopt the approach that promotes uniformity of interpretation of the Corporations Act:Australian Securities Commission v Marlborough Gold Mines Ltd;[68]  Hamilton Island Enterprises Pty Ltd v FCT.[69]

   [67]at [22]

   [68](1993) 177 CLR 485

   [69](1982) FLR 285, 291-292 per Rogers J

1. The most recent authority on s.667C and its constitutional validity is Kelly‑Springfield Australia Pty Ltd v Green and Ors.[70]  There Santow J was concerned with a challenge to the compulsory acquisition of some preference shares.  The issues to be determined were whether the price proposed under the acquisition constituted fair value under the statute and, also, whether the provisions of Part 6A.2 of the Corporations Act permitted compulsory acquisition of shares that fell short of just terms.  The subject company in Kelly‑Springfield was Good Year Australia Limited, an unlisted Australian public company.  About 93.16 per cent of the relevant preference shares in the company were owned by the plaintiff, Kelly‑Springfield Australia Pty Ltd.  The remaining preference shares, over 20,000 in number, were owned by 23 other shareholders.  The defendants in the Kelly‑Springfield proceeding launched similar arguments to those pressed by the defendants in the present proceeding.  Further, the defendants relied upon the expert evidence of Lonergan who, in essence, postulated the same approach to valuation as in the present case.  In Kelly‑Springfield Santow J observed the divergent view taken by Douglas J in Pauls case with respect to special value.  Santow J acknowledged that in Winpar Holdings his judgment was in the context of a selective reduction of ordinary capital involving no allocation of value between classes such as ordinary and preference shares.[71]  As a matter of analysis, Santow J in Kelly‑Springfield was generally dismissive or at least allocated little weight to the extrinsic material associated with the legislative scheme.[72] 

   [70](2002) NSWSC 53 (unreported judgment of Santow J delivered 14 February 2002).

   [71]See Kelly-Springfield, para 68.

   [72]The extrinsic materials being the explanatory memorandum, the legal committee report and the Parliamentary Committee Report; see Kelly-Springfield paras 58-67 and 69.

1. In Kelly‑Springfield, Santow J concluded that an allocation of special value should be made albeit under a different name.  He held that as the intended outcome of the compulsory acquisition is a single shareholding there will usually be a cost saving e.g. ASX expenses.  As a consequence Santow J held:[73]

"These savings are as much benefits to the company as they are to the would‑be 100% shareholder, whose shareholding will be enhanced in value thereby to the extent such savings are material. In that sense, the special value of the purchase to a particular purchaser is simply the reciprocal of the enhanced value of the company, hence my calling it reflexive value. It is clearly to be taken into account under general principle in determining fair value. Section 667C(1)(a) simply reflects that reality."

[73]Kelly-Springfield para 71

1. Further, in the judgment in Kelly‑Springfield Santow J adopted the approach that the exclusion of "reflexive value" arising from 100 per cent ownership would not accord with the valuation principles for determining fair value.  He held:[74]

"Moreover, to exclude what I will hereafter call in this judgment the reflexive value derived from 100% ownership would not be in accordance with valuation principles for determining fair value.  These require a 'liberal estimate' to compensate a compelled vendor for deprivation of its ownership interest and of the capacity to share in any future benefits to the extent those benefits would otherwise enure to that vendor.  …  ".

[74]Kelly-Springfield at para 72

1. The Gambotto principles were considered both at first instance and on appeal in Winpar and to some extent provided the foundation to the reasoning of Santow J in his judgment in Kelly‑Springfield.  It is appropriate to give consideration to the nature of the matter with which the High Court was concerned in Gambotto.  In that case a special resolution passed at a general meeting of the particular company amended the Articles of Association in order to enable a shareholder with 90 per cent or more of the issued shares to compulsorily acquire for a declared price per share the shares of the minority shareholders.  The High Court held that the amendment was invalid.  The principal judgment was the joint judgment of Mason CJ and Brennan, Deane and Dawson JJ.  In the joint judgment focus was placed upon whether the amendment was oppressive and, therefore, beyond the scope and purpose of the power of alteration of the Articles of Association.  The principles generally referred to as the Gambotto principles are largely set out in the joint judgment (at 444-7).  Having considered the power to amend a company's constitution it was held in the joint judgment:

" …  But it is another thing when a company's constitution is sought to be amended by an alteration of articles of association so as to confer upon the majority power to expropriate the shares of a minority  …   In our view, such a power can be taken only if (i) it is exercisable for a proper purpose and (ii) its exercise will not operate oppressively in relation to minority shareholders.  In other words, an expropriation may be justified where it is reasonably apprehended that the continued shareholding of the minority is detrimental to the company, its undertaking or the conduct of its affairs – resulting in detriment to the interests of the existing shareholders generally – and expropriation is a reasonable means of eliminating or mitigating that detriment." 

1. Consideration turned then in the joint judgment to the topic of fairness:

"As noted in the preceding paragraphs, an alteration to the company's articles permitting the expropriation of shares will not be valid simply because it was made for a proper purpose; it must also be fair in the circumstances.  Fairness in this context has both procedural and substantive elements.  The first element, that the process used to expropriate must be fair, requires the majority shareholders to disclose all relevant information leading up to the alteration [Re John Labatt Ltd (1959) 20 DLR(2d) 159, at p.163] and it presumably requires the shares to be valued by an independent expert …

The second element, that the terms of the expropriation itself must be fair, is largely concerned with the price offered for the shares.  Thus, an expropriation at less than market value is prima facie unfair [Nova Scotia Trust Co v Rudderham (1969), 1 NSR(2d) 379, at p.398, but cf Phillips v Manufacturers' Securities Limited (1917), 116 LT 290], and it would be unusual for a court to be satisfied that a price substantially above market value was not a fair value [Re Sheldon; Re Whitcoulls Group Ltd L (1987), 3 NSCLC 100,058 at p.100,060].  That said, it is important to emphasise that a shareholder's interest cannot be valued solely by the current market value of the shares [Weinberger v UOP Inc (1983), 457 A 2d 701]. Whether the price offered is fair depends on a variety of factors, including assets, market value, dividends, and the nature of the corporation and its likely future [ibid, at p.711]."

1. On appeal in Winpar, Giles JA held that the subject capital reduction did not have to satisfy the Gambotto principles "because the legislature had sought to ensure fairness between the shareholders, in accordance with s.256A(b) of the Corporations Law."[75]  Giles JA held in this respect[76]:

"So far as the Gambotto principles called for procedural and substantive fairness, as well as seeking to ensure fairness between the shareholders the legislature had required disclosure of all material information (s.256A(c)); and it had required that the capital reduction be fair and reasonable to the company's shareholders as a whole (s.256B(1)(a)), thereby providing its own test of substantive fairness which looked to the whole rather than to the class selectively affected and leaving it to that class to make its decision upon fairness through the class meeting.  A discontented shareholder was not without curial protection, and could apply for relief pursuant to s.1324 of the Law: s.1324(1B)(a) specifically referred to contravention of s.256B(1)(b).  The approach to fairness was not identical to that which would flow from the Gambotto principles.  But it was comprehensive, and superadded Gambotto principles would be conflicting and confusing".

[75]see [2001] NSWCA 427, para 95.

[76]at para 96

1. It is apparent that the Gambotto principles are of no or limited application to cases such as the present because the High Court was concerned with a different statutory regime and was not constrained by the particular legislative command enshrined in s.667C of the Corporations Act. 

1. Ultimately in Kelly‑Springfield, Santow J concluded, after placing much reliance upon the observations of the High Court with respect to future events in Gambotto[77]:

"Thus what could be more central to the nature of this corporation and its 'likely future' than that it would become 100% owned by the intended compulsory acquirer of the remaining preference shares?  To the extent 100% ownership in the corporate parent would bring about consequential reflexive benefits such as cost savings and other synergies, it is part of fair value.

Nor does it follow that attributing such reflexive benefits to the value of the company is in conflict with such inhibition on greenmailing as the statute lays down."

[77]Kelly-Springfield at paras 74 and 75

1. Starting from such analysis, therefore, Santow J in Kelly‑Springfield considered the allocation of reflexive benefits or special benefits and concluded that the price proposed under the compulsory acquisition included an ample margin such as to accommodate such portion of the special value, if any, as should be allocated to the preference shares.[78]  Finally, having qualified the allocation of a reflexive benefit or special benefit by allocating it on a non‑discriminatory basis, Santow J concluded:[79]

"This analysis thus leads to three conclusions.  First is that there can be no discrimination in favour of the shares to be compulsorily acquired, as against other shares in the same class.  Second is that the allocation of a reflexive benefit is allowable, but only if carried out non‑discriminatorily, pro rata within the relevant class and fairly between classes.  Third, and in consequence, no premium for forcible taking of the kind Mr Lonergan held to be mandatory is in fact required in order to pay fair value or is indeed allowable, if discriminatory.  Such a premium is, on Mr Lonergan's analysis, only to be paid to the shares to be compulsorily acquired.  That immediately contravenes the directive in sub‑paragraph (c) not to allow a premium for particular securities in the class being acquired.  That means here, the shares being compulsorily acquired as compared to the shares of the same class earlier acquired or already owned.  Such a premium for forcible taking is the very premium by another name which the greenmailer seeks to exact.  It does not lose that character as a greenmail exaction because dressed up as a 'premium for forcible taking'." 

[78]Kelly-Springfield at paras 80-82

[79]Kelly-Springfield at para 87

1. Santow J in Kelly‑Springfield approached the matter of fair value in the context of compulsory acquisition from a different perspective to that which I have adopted.  In Kelly‑Springfield the special benefit or reflective value was of no consequence in light of the price that was the subject of the compulsory acquisition.  In the present matter the circumstances are different.  In addition, for the reasons already set out, I remain of the view that there is no allowance in the statute for the payment of special benefit or premium for forcible taking payable to the minority shareholders. 

1. Before finally disposing of the topic it is appropriate to give some consideration to the role of s.667D. It was suggested on behalf of the defendants that s.667D performs the work required to dispose of greenmailers and that, as a consequence, s.667C should not be regarded as taking on that task. In this respect it was urged that s.667C allows a premium for forcible taking and special benefits. I do not accept that submission. Section 667D addresses the position where an acquirer seeks to give some benefit outside the offer for compulsory acquisition that yields a differential advantage between those who fall within the class of minority security holders. The section is not concerned with the elements that an offer to acquire can or must incorporate.

1. It follows from the analysis of the expert evidence that the evidence relied upon by the defendants is rejected.  Hence, even if the construction placed upon the statutory regime as to the assessment of fair value was erroneous, I nevertheless do not accept the evidence of Lonergan.  In my view, the evidence of Lonergan was not substantiated and was contrary to normal market and valuation practice and methodology.  The expert evidence elicited by the plaintiff is to be preferred. 

1. I make one additional observation as to the evidence.  The expert evidence led by the plaintiff appeared to be more extensive and thorough, if not exhaustive, than the expert evidence before Santow J in Kelly‑Springfield.  In so far as I have adopted a different approach to that case with respect to special benefits or reflexive value I consider it was open to me to do so on the basis of the evidence led by the plaintiff in this case. 

Procedural issues

1. I turn to consider the remaining issue as to whether there was compliance with the requirements of Part 6A of the Corporations Act. In summary, the defendants submitted that there were material matters that had not been properly disclosed to the minority unit holders. As a consequence the defendants challenged whether the compulsory acquisition notice served by Capricorn disclosed all information that was material within the meaning of s.664C of the Corporations Act. There were additional matters relating to technical compliance with the requirements of Part 6A.

1. The plaintiff joined five defendants.  It did so because it appeared to the plaintiff that the grounds of objection included in the objection notices sent by these five defendants were representative of the grounds of objection relevant to the issue of fair value put forward by the other objectors who objected within the objection period.  It appeared to the plaintiff that joining these five objectors as defendants was a convenient way in which to bring the objectors' views on the issue of fair value before the Court.

1. In addition, the plaintiff provided a further notice to the unitholders.  The further notice set out additional details of this proceeding, informed the unitholders of arrangements made for the inspection of the court documents, gave notice of the date, time and place of a directions hearing, and informed the unitholders' that if they wished to be heard, or to be made party to the proceeding, they might do so by attending the Court on a specified date personally or by a legal practitioner.

1. I consider that the unitholders were not required to be named as "defendants" in this proceeding. So much is apparent from the terms of s.664C, which required the plaintiff to give a copy of the expert's report to each unitholder, from the requirement in s.664E(4)(b) that the plaintiff give notice of its application to the court for approval and from the limited question for the court's determination under s.664F(2), that is, fair value.

1. It is also apparent from the definition of "defendant" in Rule 1.5 of Chapter V of the Rules of Court and the fact that no relief in the proceeding is sought against any unitholder.  The application is for approval of the Court to the compulsory acquisition under s.664F of the Corporations Act.  Approval by the Court allows the plaintiff to set in train the steps required to complete the compulsory acquisition under Part 6A.3 of the Act.  The plaintiff was bound to give all unitholders, including non-objectors, notice of its decision to seek Court approval[126] which the plaintiff did on 13 July 2001.  This requirement to give notice under s.664E(4)(b) would be unnecessary if, in addition, the plaintiff was required to join all the unitholders, or all the objectors, as defendants in the proceeding, and to serve them all with the originating process and documents filed with the Court in the proceeding.

   [126]S.664E(4)(b) of the Law

1. Even if this was not a correct analysis, if all the unitholders were required to be  "defendants" for the purposes of Rule 1.5, the Court could give directions for a representative order under Rules 1.8 and 2.13 of Chapter V[127] to relieve the plaintiff from joining more than the five original defendants whom it has named and those two additional defendants whose application to be joined as defendants was granted.  All outstanding unitholders are members of the same class.  The powers of the Court under Rule 1.8 are sufficient to allow an order which relieves a plaintiff from joining any particular defendants, or which limits the defendants to those named.  If necessary, I would make such an order.  In exercising that power the Court is entitled to take into account that where there is a class of possible defendants who are "so numerous that they cannot be made parties to the cause, with any chance of bringing it to a hearing … then you may make two or three of the class Defendants to represent the interests of the class … in the same way as if the whole class had been brought before the Court": see Bromley v Williams.[128] 

   [127]Rules of the Supreme Court

   [128](1863) 32 Beav. 177, 188 per Sir John Romilly, MR

1. Clearly it was impractical to join all 944 unitholders to whom the notice of compulsory acquisition was sent, or even those 323 unitholders who lodged their objections within the objection period and bring this proceeding to a prompt hearing. Furthermore, the inequity for the plaintiff if all unitholders, or all unitholders who have objected to the compulsory acquisition, were required to be joined would be magnified due to the potential expense to which the plaintiff would then be exposed pursuant to s.664F(3).

1. In any event, the Court is entitled, while taking into account the over-arching requirement that justice should be done[129] to actively manage cases to ensure efficiency in the interests of the parties and the public[130] and to deal with the proceeding efficiently and effectively and with the least cost and delay to the parties.[131]  Consistent with the principles of proper case management, the Court can where appropriate circumstances arise, such as the present, limit the number of people joined as plaintiffs or defendants if the number is so large as to make the management of the proceeding difficult and cause delay.[132] 

   [129]Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146

   [130]Howarth v Adey [1996] 3 VR 535, 550 per Brooking JA

   [131]Bank of New Zealand v Spedley Securities Limited (1992) 27 NSWLR 91, 107

   [132]Prisoners A-XX Inclusive v State of New South Wales (1995) 38 NSWLR 622, 635

1. The defendants attacked the procedures adopted by the plaintiff in relation to the notice process and, also, the joinder of defendants in a representative capacity. For the defendants particular emphasis was placed upon the recommendation said to be reflected in the CLERP Bill that the procedure contemplated by Part 6A.2 was conditional upon safeguards that balanced the interest of all shareholders, that is, the 90 per cent majority and the minority. The safeguards were described as equality of treatment, the disclosure of the report of the independent expert and access to the Court without penalty as to costs. These protection factors were said to be reflected in the recommendations of an issues paper distributed by CLERP. As a consequence, it was urged for the defendants that Part 6A.2 must be construed in the context of a legal system where the compulsory acquisition of property is not a prevailing norm but an exception and subject to strict observance of prescribed protections. Hence, it was argued, the failure to satisfy a number of statutory matters would operate to disqualify the 90 per cent holder from enforcing compulsory acquisition. Put even higher, it was argued for the defendants that the failure to include prescribed information in a compulsory acquisition notice under s.664C(1) is fatal to the power of a 90 per cent majority.

1. Commentators have observed that s.664C is framed so that failure to meet its requirements (including disclosure of material information) deprives a majority of the right of compulsory acquisition. Commentators have contemplated that curative relief under s.1322 of the Corporations Act is precluded. Nevertheless, the same commentators have observed that the procedural requirements of s.664C(2) – (5) (as to service and timing) are cast in different terms and that in all likelihood s.1322 would be available to cure procedural defects.[133]  Obviously, s.1322 is available if needed.  The section is cast in terms not confined to any particular part, provision or division of the Corporations Act.  In other words, the section is available wherever and whenever an irregularity may arise.  In particular, s.1322(4) is cast in terms that although it is a section that ordinarily and conveniently is described in terms of dealing with irregularities it extends to the case in which but for the remedial order a step taken under the legislation may be seen to be invalid. 

   [133]Ford, Ramsay, Austin Ford's Principles of Corporations Law, Ch 24, para 24.270

1. In any event, I consider the correct approach with respect to s.1322 is that adopted by Douglas J in Pauls case.  There the learned judge observed that objections of a procedural nature could be excused by the provisions of s.1322, if necessary.[134]  A similar approach was adopted although in a different statutory context by the New South Wales Court of Appeal in Kelly‑Springfield. [135]

   [134]at para 18

   [135]supra at paras 67-72 and 74-79.

1. The argument for the defendants placed emphasis on the requirements of s.664C(1)(e) with respect to disclosure of information in the notice. Particular significance was attached to the expression "material" in relation to the information to be provided in the notice under the sub-section. It was emphasised that the expression "material" is not defined in the Corporations Act.  Hence, the argument for the defendants turned to the body of case law on matters such as materiality of disclosure in the context of takeover bids (see s.636(1)(m)) and schemes of arrangement (see s.412(a)(ii)). 

1. Relevant authority indicates that a matter that might reasonably affect or tend to affect the decision of the ordinary investor whether or not to accept the offer is material: Cackett v Keswick.[136]  Any information that is necessary to enable an offeree to make an informed assessment of the offer has been regarded as material: Australian Consolidated Investments Ltd v Rossington Holdings Pty Ltd.[137]  Further, if the information would have had actual significance to the deliberations of a reasonable offeree, it will be material, even if its disclosure would not have been likely to alter an investor's decision: TSC Industries Inc v Northway Inc.[138]; also Savage Resources Ltd v Pasminco Investments Pty Ltd.[139]  A matter is material if it might reasonably affect or tend to affect the decision of the ordinary investor.  In applying the general tests, it has been held that material information would include sufficient information to enable an offeree to judge how valuable the acquisition will be to the bidder, permitting an informed assessment of whether the bidder might be prepared to pay more: Pancontinental Mining Ltd v Goldfields Ltd.[140]

   [136][1902] Ch. 456 at 464

   [137](No. 2) (1992) 10 ACLC 600, at 601

   [138](1979) 426 US 438; 48Led2d 757; 96 Sct 2126

   [139](1998) 159 ALR 304; 17 ACLC 1 at p.11

   [140](1995) 16 ACSR 463 at 467, 13 ACLC 577 at 581-2

1. In the scheme of arrangement context it is well recognised that the proponent must disclose estimates of the value to it of any special benefits: Re Application of a GIO Building Society.[141]  The defendants submitted that the compulsory acquisition provisions in Part 6A‑2 of the Corporations Act are most closely analogous to schemes of arrangement.  They emphasised that a failure to disclose substantial advantages to themselves from the scheme or elements of special or material interests by directors or associates will be fatal to approval of the scheme.  Re Pheon Pty Ltd;[142] Re Dorman Long & Co Ltd;[143] Re Hudson Conway Ltd;[144] Re Pheon Ltd.[145] 

   [141]Unreported judgment 20 August 2001, per Austin J of the Supreme Court of New South Wales.

   [142](1986) 4 ACLC 669 at 674

   [143](1934) 1 Ch 635

   [144](2000) 18 ACLC 266

   [145]supra, at 675

1. The defendants urged that in apparent contrast, in the takeover context some authorities have indicated that in a cash bid, a bidder need not set out the rationale for the acquisition and the benefits that would accrue to the bidder, see: Aberfoyle Ltd v Western Metals Ltd;[146] SGIO Insurance Ltd v Wesfarmers Insurance Investments Pty Ltd;[147] AAPT Ltd v Cable & Wireless Optus Ltd];[148] Savage Resources v Pasminco Investments.[149] It was submitted for the defendants that the takeover authorities were influenced by the fact that it is not necessary to include in a bidder's statement material information which has already been disclosed to the security holders whether through a continuous disclosure regime or otherwise. In contrast, under s.664C(1)(e) only an expert's report under s.667A will exempt 90 per cent holder from the obligation to make disclosure in the acquisition notice.

   [146](1998) 84 FCR 113 at 136-7; 16 ACLC 1335 at 1357

   [147](1998) 29 ACSR 207

   [148](1999) 17 ACLC 974

   [149](1999) 17 ACLC 1

1. However, I observe that the authorities relied on by the defendants with respect to schemes of arrangement and takeover bids are of a general kind.  None of those cases is concerned with the materiality of information in the context of a compulsory acquisition under Part 6A.2 of the Corporations Act.  None of the authorities cited consider the inter-relationship of the compulsory acquisition procedures with the determination by the court of fair value under s.664F and the remedy given in respect of misleading statements and omissions in takeover documents (defined to include a compulsory acquisition notice) by s.670A. 

1. The scheme cases are otherwise irrelevant. They are concerned with different issues and different tests. Disclosure with respect to schemes of arrangement is very different to the questions raised by Part 6A or, even, with respect to takeover bids. In those arenas questions of disclosure are concerned with the question as to whether the addressee of the information can achieve or might expect to achieve a better outcome. In the context of a compulsory acquisition a different regime applies. There is a particular offer made by the 90 per cent holder incapable of being altered or varied and to which the court must either give approval or disapproval according to a fixed statutory criterion of fair value. Hence, the disclosure required is not intended to allow some discrete business assessment to be made by a unitholder as to whether a better outcome might be achieved. The disclosure is only to enable a unitholder to decide whether that which has been proffered is in fact fair value or not fair value. In consequence, the materiality of information for a scheme and for a compulsory acquisition under s.664C are different.

1. The defendants raised additional contentions that bear on the efficacy of the compulsory acquisition notice given by Capricorn and the procedure adopted in the provision of the report of the independent expert.  There was a threshold question whether the plaintiff knew about particular exchange rate information at the time the notice was prepared that being the time at which the disclosure obligation existed.  I consider that Capricorn was not obliged to say more about exchange rates.  It was the function of the independent expert to select appropriate exchange rates and to inform unitholders about that selection which the independent expert did in the May Report and included sensitivity analysis in respect of exchange rates. 

1. The defendants' complaints as to non-disclosure were very wide ranging.  There were complaints about the non-disclosure of the potential marketing benefits and arrangements and savings on cost management.  These matters were not considered and quantified by the plaintiff as special benefits until the defendants' expert insisted on some calculation being made of them.  In this context there is no obligation to create information for the purpose of disclosure rather there is an obligation only to disclose existing information: see by way of analogy Savage Resources Limited v Pasminco Investments Pty Limited.[150]  In any event the amounts of special benefits quantified are speculative relating as they did to possible mining projects in Zimbabwe.  They were not material because the disclosure of speculation as to the future is not required and is to be avoided:  Pancontinental Mining Ltd v Goldfields Ltd,[151] Solomon Pacific v Acacia Resources,[152] Cultus Petroleum NL v OMV Australia Pty Limited.[153]  Future plans, matters of speculation and precise estimates of costs savings are not generally required to be disclosed:  SGIO Insurance v Westfarmers Insurance Investments Pty Ltd,[154] especially in the context of a cash payment for the acquisition of securities: Aberfoyle Ltd v Western Metals Limited.[155]  In any event the amount of special benefit derived from the Zimbabwe mines was immaterial in the context of Capricorn's proposed $2.00.  Indeed, Lonergan considered that the amount was not enough to be concerned about.  Furthermore, the independent expert set out its estimate of management cost savings.  On my findings as to the expert evidence there will not be savings of the order set out in the LEA Report. 

   [150](1998) 159 ALR 304 at 314

   [151](1995) 16 ACSR 463, 466

   [152](1996) 14 ACLC 505 at 508

   [153](1999) 32 ACSR 1 at 14

   [154](1998) 29 ACSR 207, 212-214

   [155](1998) 156 ALR 68 at 91

1. Furthermore, Capricorn did not believe that the restructuring cost savings were likely to be saved in fact because the hours purportedly saved were insignificant in the context of the respective duties of the Rio Tinto employees concerned and those employees would use the time saved to deal with other matters.  Even if there were such savings of the order set out in the LEA Report, the amount was not material to deciding whether to object to the acquisition because it did not increase the amount of special benefits that Capricorn believed were in fact available to Rio Tinto and because the independent expert in fact excluded all such savings from its valuation of WADT as a whole. 

1. There were complaints concerning the basis or reason for the offer amount.  Capricorn was not required to include in the notice information as to why it was offering $2.00 per unit.  If it had done so, that explanation would not have been material to deciding whether to object to the acquisition because the independent expert's report provided information as to Capricorn's position.  Further, the size of the margin Capricorn proposed over the independent expert's assessed range of value of WADT as a whole fully provided for the amount of the special benefits that Capricorn had quantified, even if those benefits were allocated to the minority units to the extent of 50:50 rather than pro rata.

1. There were complaints about non-disclosure concerning internal advantages to Capricorn and Rio Tinto as to publication of results.  Capricorn was not obliged to include in the notice a statement that it would obtain a benefit from WADT no longer being required to publish its results.  The independent expert disclosed in the May Report that special benefits were not included in its assessment of the value of WADT as a whole and did so in terms that assumed a pro rata allocation of any such benefits amongst all unitholders if such benefits were to be material.  Capricorn believed that the value of special benefits if included should be allocated pro rata.  It would have been entirely speculative to forecast that a court might in future decide that issue in a different way.

1. Further criticism was levelled at the non-disclosure of a premium for forcible taking.  Capricorn was not obliged to include in its notice a statement that there should be a premium for forcible taking.  For the reasons stated already that factor is not part of an assessment of fair value.  In any case, of the elements said to be included in this concept, the independent expert addressed the most significant in the May Report.  In consequence Capricorn was not required to make any further disclosure.  Still less was it required to include in its notice a statement effectively contradicting the independent expert. 

1. Additional complaint was made as to non-disclosure of the acquisition of all of the unitholders' rights.  Capricorn was not required to state in the compulsory acquisition notice that its compulsory acquisition was of all the unitholders' rights in WADT, including distributions that might be made subsequently.  For the reasons stated already units are traded cum distributions under the ASX Listing Rules.  The proposed consideration was for all of a unitholder's interest in WADT.  So much is confirmed by the circumstance that under the ASX Listing Rules the units are traded cum distributions.  It was not necessary to say more.

1. The independent expert addressed in the May Report as to whether the $2.00 proposed for the compulsory acquisition was fair value.  That was the consideration in fact proposed by Capricorn.  The requirements of Parts 6A.2 and 6A.4 of the Corporations Act for an independent expert's report from a person nominated by ASIC were satisfied.  There was innuendo by the defendants that they eventually disavowed that the independence of the expert had been compromised because of the timing and sequence of the retainer and that Capricorn knew of this fact and should have so informed unithholders.  Having examined the evidence I do not consider the independence of the independent expert was compromised.  As that independence had not been jeopardised, matters relating to the sequence of the retainer, preparation of a draft report, commenting and finalisation of the proposed offer price could not have been material to a unitholder. 

1. Ultimately, there was no evidence that any of the matters relied on by the defendants were material to a unitholders' decision to object and cannot be presumed to be material. Nevertheless, the defendants must show knowledge by Capricorn of the information concerned, that it was material to deciding whether to object to the acquisition, and that it was not disclosed in the expert's report. Materiality is not to be determined on the basis of the LEA Report but by reference to the facts as known to Capricorn at the time of preparing the notice and by reference to the significance of the information concerned to deciding whether to object to the acquisition as set out in s.664C(1)(e) of the Corporations Act.  The evidence showed that Capricorn did not know the amount of marketing savings in May 2001; it did not know the amount of the management cost savings was of the order asserted by Lonergan; it did not know there were restructuring savings; it was debatable whether there was a benefit in WADT no longer having to disclose its results publicly and the value of such a benefit was not known; it did not know that special benefits would be taken into account or that they would be apportioned otherwise than pro rata; and it did not know it might be argued that there should be some forcible taking premium. 

1. If in any respects there had been failure by Capricorn to provide material information known to it, then the prescribed form would not have been completed as required by s.664C(1)(e)(ii), but there would remain substantial compliance for the purposes of s.25C of the Acts Interpretation Act (Cth). Any such failure in this case would constitute a procedural irregularity and Capricorn ought be relieved from any consequences. If any invalidity of the notice were to have resulted, I would validate the notice pursuant to s.1322(4).

1. There is a further remedy available in the circumstances. Section 1325D empowers the court to declare that any act, document or matter is not invalid because of a contravention of Chapters 6, 6A, 6B or 6C of the Corporations Act if satisfied that the contravention ought be excused. If necessary, Capricorn should be granted relief under section 1325D on four grounds. First, because that section expressly allows a remedy for contravention of a provision of Chapter 6A.[156]  Secondly, there has been no substantial injustice to anyone because the requisite 10 per cent objections were made and the matter is now before the Court.  Thirdly, there is an adequate remedy otherwise available pursuant to s.670A.  Fourthly, such failure was by reason of inadvertence or mistake or Capricorn was not aware of a relevant fact or occurrence or was by reason of circumstances beyond the control of Capricorn.

   [156]See s.1325D(1)(a)

1. Furthermore, Creese gave evidence that Capricorn complied with s.667C(1)(c). I accept that evidence. Even if that were not so, I am satisfied Capricorn should be granted the relief sought in the interlocutory process because its non-compliance has caused no substantial injustice to any unitholder, there having been more than the requisite 10 per cent objections in any event. Furthermore, I observe that the information concerned was not material given the size of the additional amount over the fair market value of the assets of WADT that was included in the $2.00 proposed by Capricorn.

1. Finally, I observe that no substantial injustice has been or is likely to be caused to any unitholder if it was necessary to declare that the steps taken in pursuance of the compulsory acquisition to date are not invalid. Hence, if needs be, s.1325DC provides a complete answer to the attack made by the defendants under s.1322 of the Corporations Act. 

Conclusion

1. It follows from these reasons that I am satisfied that the compulsory acquisition notice gives a fair value for the WADT units the subject of the notice. In accordance with the statutory directive in ss.664(3) and 664F(1) of the Corporations Act, therefore, I must approve the compulsory acquisition and I will make orders accordingly. 

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