Coopers Brewery Ltd v Lion Nathan Australia Pty Ltd
[2005] SASC 334
•2 September 2005
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
COOPERS BREWERY LTD v LION NATHAN AUSTRALIA PTY LTD
Judgment of The Honourable Justice Perry
2 September 2005
CORPORATIONS
ARTICLES - CONSTRUCTION
The plaintiff's Articles of Association conferred a third ranking pre-emptive right of purchase of its shares upon the defendant, on condition that the plaintiff might revoke the provision if any person acquired a relevant interest as that term is defined in the Corporations Law in 40 per cent or more of the voting shares of the defendant - on the trial of a preliminary issue, held that the acquisition by a foreign corporation of 45 per cent of the voting shares in the defendant's parent company, which held a controlling interest in the defendant, gave rise to a deemed acquisition in excess of 40 per cent of the voting shares in the defendant, in consequence of which it was open for the plaintiff to revoke the articles conferring the pre-emptive right of purchase.
Corporations Law s 9, Div 5, s 30 - s 45 inclusive, s 615, s 633, s 730 and s 731, referred to.
Skip A/S Nordheim and Ors v Syrian Petroleum Co Ltd and Anor [1984] 1 QB 599; Hamilton & Co v Mackie & Sons (1888-9) 5 TLR 677; Homestake Australia Ltd v Metana Minerals NL (1994) 11 WAR 435; Modern Building Wales Ltd v Limmer and Trinidad Co Ltd [1975] 1 WLR 1281; Tradigrain SA and Ors v King Diamond Shipping SA (the "Spiros C") [2000] 2 Lloyds Law Reports 319; ASIC and Ors v Yandal Gold Pty Ltd (1999) 32 ACSR 317; Target Petroleum NL v Petroz NL (1987) 16 FCR 1; 73 ALR 274; 12 ACLR 11; Green v Crusader Oil NL (1985) 10 ACLR 120; Re Stockbridge Ltd (1993) 9 ACSR 637; Aberfoyle Ltd v Western Metals Ltd (1998) 84 FCR 113; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, considered.
COOPERS BREWERY LTD v LION NATHAN AUSTRALIA PTY LTD
[2005] SASC 334Civil
PERRY J. The plaintiff (“Coopers”) is a company incorporated in South Australia which conducts the business of a brewery.
The defendant, Lion Nathan Australia Pty Ltd (“Lion Nathan Australia”), is:
– a registered proprietary company incorporated in the ACT
– a wholly owned subsidiary of Lion Nathan Limited (“Lion Nathan”).
In the proceedings, Coopers claims declarations that certain pre-emptive rights of purchase of shares in Coopers conferred on Lion Nathan Australia by Coopers’ Articles of Association have ceased to have effect.
On 25 August 2003 I ordered that:
–an issue which I defined in the order be tried ahead of all other issues in the proceedings; and
–the trial proceed on affidavits, with liberty to the parties to require the attendance of any deponent at the trial for the purpose of cross-examination.
On 23 February 2005 I ordered that there be substituted for the question formulated in the order of 25 August 2003, a question cast in somewhat different terms.
The question as reformulated, which became the issue to be tried, is:
… whether in April 1998, Kirin Brewery Company Ltd acquired a relevant interest in more than 40% of the issued share capital of Lion Nathan Ltd within the meaning of article 44 of the plaintiff’s articles of association, and if so, whether there has been a change in control of the defendant within the meaning of regulation 8 of the plaintiff’s Memorandum of Association …
The trial of that issue took place on Monday 15 August 2005.
The evidentiary material upon the basis of which the trial proceeded comprised a statement of agreed facts; the plaintiff’s book of tender documents; and two corporate charts showing the structure of the Lion Nathan group of companies pre-June 2000 and post-June 2000.
The plaintiff’s book of tender documents largely comprised documents which had been exhibited to various affidavits filed during the course of the preliminary stages of the proceedings.
At the hearing, Mr Wells QC, who appeared for Lion Nathan Australia, sought leave to tender an affidavit of Jamie Clifford Tomlinson, the chief financial officer of Lion Nathan. I heard argument on the admissibility of the affidavit from Mr Wells and from Mr Whitington QC, who appeared for Coopers, following which I reserved my ruling.
I do not propose to receive the affidavit in evidence. My grounds for so ruling appear later in these reasons.
Apart from the evidentiary material to which I have referred, most of the relevant factual allegations in the statement of claim are admitted in the defence.
In the result, the preliminary issue stands to be determined on a factual basis which is not in contest between the parties.
Background
Lion Nathan was registered in New South Wales as from 2 June 2000, when its registration was removed to that State from the New Zealand Register of Companies.
It is agreed between the parties that both before and after 2 June 2000, Lion Nathan had the power to direct the management and policies of Lion Nathan Australia, and that Lion Nathan therefore, directly or indirectly, controls Lion Nathan Australia.
Lion Nathan Australia has never been a member of Coopers.
The following two corporate charts set out the corporate structure through which Lion Nathan exercised control over Lion Nathan Australia before and after June 2000:
LION NATHAN CORPORATE CHART PRE JUNE 2000
LION NATHAN LTD
100% – 1000 RDPA redeemable preference shares
– 1133 R931 redeemable preference shares
– 1 of 2 ordinary shares (from 30/4/00)
L D NATHAN & CO LTD
100%
L D NATHAN & CO NOMINEES LTD
100% .00001%
L D NATHAN INVESTMENTS
LTD99.99999%
LION NATHAN FINANCE
(AUSTRALIA) PTY LTD
99%
(until 30/4/00 when “LNABI” amalgamated with LNL)
1%
(until 30/4/00
when “LNABI”
amalgamated
with LNL)
LION NATHAN AUSTRALIAN
BREWING INVESTMENTS LTD1 of 2 ordinary
shares1 of 2 ordinary shares until
30/4/00, when Lion Nathan
Australian Brewing Investments
amalgamated with LNLLION NATHAN BREWING
INVESTMENTS PTY LTD100%
LION NATHAN AUSTRALIA
PTY LTDLION NATHAN CORPORATE CHART POST JUNE 2000
LION NATHAN LTD
– 1 of 2 ordinary shares
– 1000 RDPA redeemable preference shares
– 1133 R931 redeemable preference shares
100%
LION NATHAN BREWING
INVESTMENTS PTY LTDLION NATHAN FINANCE
(AUSTRALIA) PTY LTD– 1 of 2 ordinary shares
100% LION NATHAN
AUSTRALIA PTY LTD
On 3 March 1995 Coopers and Lion Nathan Australia entered into an agreement entitled “Coopers Shares Agreement” (“the agreement”).
The recitals to the agreement record that in August 1993 Coopers commenced proceedings (described as the “Bottle Proceedings”) against the South Australian Brewing Co Pty Ltd and others, and that at about the time those proceedings were instituted, a deed was entered into between Lion Nathan Australia and Southcorp Holdings Ltd, known as the “Coopers Deed”.
The recitals to the agreement include the statement:
Coopers has disputed the applicability of the pre-emptive rights in the Articles of Association of Coopers to the interest of [Lion Nathan Australia] in shares in the capital of Coopers, being those interests created by virtue of the Coopers Deed.
The recitals further record that Coopers and Lion Nathan Australia had agreed to settle their differences in relation to the Bottle Proceedings and the Coopers deed on the terms and conditions which appear in the agreement.
In the agreement, Coopers agreed to use its best endeavours to ensure that its Memorandum and Articles of Association were amended in the terms set out in a schedule to the agreement.
Subsequently, amendments to the Memorandum and Articles of Association of Coopers were effected in accordance with the agreement.
In the result, at least since 7 March 1995, the Memorandum of Association and the Articles of Association of Coopers have included the following provisions, being provisions which are relevant to the determination of the question now at issue:
[Coopers Memorandum of Association]
6.A special resolution:
(a) altering or omitting Articles 38 to 54 (inclusive) or 143 of the Articles of Association of the Company; or
(b) purporting to amend or delete an existing article or [insert] a new article, which is inconsistent with the rights granted to Lion Nathan Australia Pty Limited (ACN 008 596 370);
does not have any effect unless and until the consent of Lion Nathan Australia Pty Limited (ACN 008 596 370) is obtained.
7.A special resolution altering or omitting regulation 6 of the Memorandum of Association of the Company, does not have any effect unless and until the consent of Lion Nathan Australia Pty Limited (ACN 008 596 370) is obtained.
8.Regulations 6 and 7 of this Memorandum of Association will cease to have effect on a Change in Control (as that term is defined in Article 44 of the Articles of Association as at the date of adoption of this Regulation) of Lion Nathan Australia Pty Limited (ACN 008 596 370) or if Lion Nathan Australia Pty Limited (ACN 008 596 370) and its related bodies corporate cease to be substantial brewers of beer.
[Coopers Articles of Association]
44.If there is a Change in Control in any member, that member is deemed to have offered to sell all of its shares to the other members. In such event that member irrevocably authorises and empowers the Directors and for such purposes appoints the Directors as its agent and attorney to serve a Transfer Notice under Article 40 with respect to the shares held by such a member. The price of the shares will be the value as certified by the auditor under Article 42.
For the purposes of this Article, ‘Change in Control’ means any transfer of any shares or other equity interest in a member or in any entity that directly or indirectly controls or influences the member or any reconstruction, amalgamation or reorganisation of a member or any entity that directly or indirectly controls or influences the member if, after such transaction, there would be a change in the person having the power to direct its management and policies, or if no one person has such power, a change in the majority of such persons who, acting together, have such power or, without limiting the generality of the foregoing, if any person acquires a relevant interest (as that term is defined in the Corporations Law) in 40% or more of the voting shares of the member.
Articles 38 to 54 referred to in regulation 6(a) of the Memorandum of Association create certain pre-emptive rights, including pre-emptive rights of last resort, in favour of Lion Nathan Australia.
The manner in which the pre-emptive rights in favour of Lion Nathan Australia arise, and may be exercised, appear from the following provisions in the articles.
Articles 40 and 41 oblige any member proposing to sell shares to notify Coopers, who, as agent for the proposed vendor, through its directors will endeavour to find another member, or a member’s relative, willing to purchase the same.
Pursuant to article 46, if Coopers and its directors are unable to find a member or member’s relative willing to purchase the shares, the company must offer the shares to Australian Mutual Provident Society (“AMP”) or to any other trustee of a superannuation fund of a kind answering to the description set out in the article.
In the event that neither AMP nor the trustee of the superannuation fund purchase the shares, pursuant to article 49, they must be offered to Lion Nathan Australia at the same price as they were offered to other members.
If Lion Nathan Australia does not in those circumstances exercise its pre-emptive right of purchase, Coopers may offer the shares for sale to any other person (article 52).
It will have been seen from the terms of article 44, that if there is a change in control in any member within the meaning of that article, that member is deemed to have offered to sell all of its shares to the other members.
Regulations 6 and 7 of the Memorandum of Association entrench Lion Nathan Australia’s rights, in the sense that:
–under regulation 6, the articles pursuant to which it is given a third-ranking pre-emptive right of purchase of shares may not be altered or omitted, or affected by any inconsistent change in other articles or by the insertion of any new article, unless Lion Nathan Australia consents;
–under regulation 7, regulation 6 may not be altered or omitted unless Lion Nathan Australia consents to a special resolution to that end.
But under regulation 8, a change in control of Lion Nathan Australia (as the term “change in control” is defined in article 44), will cause articles 6 and 7 to cease to have effect, with the result that Coopers may then, if it should so desire, revoke the articles providing for Lion Nathan Australia’s pre-emptive right of purchase.
Coopers claims in these proceedings that the effect of the purchase of shares in Lion Nathan by Kirin Brewery Limited (“Kirin”) in circumstances which I outline below, operated as a change in control which triggered the operation of regulation 8, with the result that regulations 6 and 7 have ceased to have effect.
Kirin’s share purchase was effected by the following transactions.
In April 1998, Bankers Trust New Zealand Nominees Limited (“BT”) acquired in two tranches a total of 246,454,275 ordinary shares (“the shares”) in Lion Nathan. It is agreed between the parties that the shares were acquired by BT on behalf of Kirin, and that BT became the holder of the shares as the nominee of Kirin.
It is admitted by Lion Nathan Australia in its defence that by reason of BT’s acquisition of the shares, Kirin acquired “an interest” in the shares. However, in its pleading, Lion Nathan Australia does not identify the nature of the interest.
The shares are voting shares, and constitute approximately 45 per cent of the issued share capital of Lion Nathan Ltd, its issued share capital comprising 547,676,166 shares.
Consequent upon Kirin’s acquisition of the shares in Lion Nathan, in May 1998, four new directors, being nominees of Kirin, became directors on the board of Lion Nathan. Those directors were Mr Satoh, Mr Osano, Mr Ohta and Mr Kobayashi.
At that time, the Kirin representatives comprised four out of ten directors of Lion Nathan.
The arguments
Mr Whitington developed Coopers’ case by addressing two questions:
– Did Kirin acquire a relevant interest in the shares?
– Has there been a “change in control” of Lion Nathan Australia?
Before addressing those two questions specifically, I will address some more general matters, more particularly, the meaning of “Change in Control” where those words appear in regulation 8 of Coopers’ Memorandum of Association.
That regulation uses the words “Change in Control” as that term is defined in article 44 of the Articles of Association.
I have quoted article 44 above. It will have been seen that the definition of “Change in Control” in that article falls into two limbs, the second of which is an alternative to the first.
Put shortly, the first limb of the definition refers to any transfer of shares or other transaction which would have the effect of changing the identity of the person having the power to direct the management and policies of the member, or a change in the majority of such persons who, acting together, have that power.
At this stage, Mr Whitington does not rely upon that limb of the definition. However, he holds arguments as to the application of that limb in reserve, in the sense that Coopers reserves the right to argue that it is of application, if the answer to the question posed by the issue to be tried at this stage is adverse to Coopers.
It follows that determination of the issue to be tried at this stage, turns upon whether or not the second limb in the definition where it appears in article 44 is satisfied. That limb of the definition is satisfied:
… if any person acquires a relevant interest (as that term is defined in the Corporations Law) in 40% or more of the voting shares [of the member]. (Square brackets added)
Insofar as that limb of the definition incorporates the phrase “of the member”, those three words may, on Mr Whitington’s argument, be disregarded. That is because, as Mr Whitington contends, the words “Change in Control” in regulation 8 of the Memorandum of Association, simply pick up the definition of those words in article 44, but in their application to Lion Nathan Australia, which was not at the time of the relevant changes to the Memorandum and Articles of Coopers, or at any other time, a member of Coopers.
Putting it another way, on his argument, the question for the purposes of this case is whether there has been a “Change in Control” of Lion Nathan Australia by reason of the acquisition by Kirin of a relevant interest (as that term is defined in the Corporations Law) in 40 per cent or more of the voting shares of Lion Nathan Australia, irrespective of whether or not at the time, Lion Nathan Australia happens to be a member of Coopers.
Mr Wells joined issue with that contention. He contended that the words “of the member” cannot be ignored; that they are part of the definition of “Change in Control” in article 44; and that whatever else the words “Change in Control” mean, they do not apply unless and until Lion Nathan Australia is a member of Coopers.
On Mr Wells’ argument, if Lion Nathan Australia took out one share in Coopers, any change in control in the relevant sense of the company would trigger the operation of regulation 8, but otherwise, it would not.
I reject that argument.
At the time when, pursuant to the agreement, the Memorandum and Articles of Association of Coopers were amended to include the provisions now in question, Lion Nathan Australia was not a member of Coopers, and never has been.
It would make nonsense of the interaction of regulation 8 and article 44 to confine the operation of regulation 8 to a time when Lion Nathan Australia might be a member of Coopers.
The words “of the member” in article 44 are not part of the definition of “Change in Control”. Rather, they are the object of the definition.
Furthermore, as Mr Whitington points out, the construction contended for by Mr Wells would have the strange result that if Lion Nathan Australia “and its related bodies corporate” ceased at any time, whether or not Lion Nathan Australia was a member of Coopers, to be substantial brewers of beer, regulations 6 and 7 would thereupon cease to have effect, but if a change in control of Lion Nathan Australia was to have that effect, it could only operate, if at the time Lion Nathan Australia was a member of Coopers.
It seems to me, that it would not make any commercial sense for Lion Nathan Australia to be able to suffer a change of control without jeopardising its pre-emptive rights while it remained a non-member, but that it would furnish Coopers with the ability to deprive it of its pre-emptive rights if it became a member of Coopers. To accept such a construction would mean that following a change of control while it was a non-member, Lion Nathan Australia could with impunity acquire any number of shares in Lion Nathan, but having done so, it would then be at risk of losing its pre-emptive rights. But by then, the consequence which article 44 was clearly designed to avoid, would have occurred.
Standing back from the provisions, it seems to me that the only sensible construction is to view them as operating so that, irrespective of whether Lion Nathan Australia is at the time a member of Coopers, either a change in its control in the relevant sense, or a cessation of Lion Nathan Australia or its related bodies corporate to be substantial brewers of beer, would give to Coopers the ability to deprive Lion Nathan Australia of the benefit of its pre-emptive rights.
Did Kirin acquire a relevant interest in the shares?
I begin by referring to the relevant provisions of the Corporations Law (“the Law”) as they stood at the relevant time.
There was no change in the applicable provisions of the Law between March 1995, when the agreement was entered into and the Memorandum and Articles of Association of Coopers were changed in accordance with the agreement, and April 1998 when the acquisition of shares on behalf of Kirin took place.
It follows that the relevant provisions in the Law as I will proceed to identify them, applied throughout that period.
Mr Whitington first referred to the definitions to be found in s 9 of the Law. In that section, subject to exceptions not relevant for present purposes, “voting share” means “an issued share in the body [corporate] that confers a right to vote…”.
It is common ground that Kirin acquired an interest in voting shares of Lion Nathan.
As for the words “relevant interest”, s 9 provides that, in relation to a share, those words have “the meaning given by Division 5 (other than section 44)”.
As will be seen, the importance of that definition for the purposes of Mr Whitington’s argument, is that it picks up all of the sections, being s 30 through to s 45 (inclusive), in Division 5 (other than s 44), or at least such of those sections as incorporate provisions which relate to the meaning of “relevant interest”.
The next step taken by Mr Whitington in his argument, focused on the relationship between Kirin and Lion Nathan. This involves a consideration of s 31:
31(1) Except for the purposes of section 235, a person who has power to vote in respect of a voting share in a body corporate has a relevant interest in the share.
(2)A person who has power to dispose of a share has a relevant interest in a share.
(The exception relating to s 235 is not relevant for present purposes.)
Coopers contend that within the meaning of those words in s 31, Kirin has power both to vote in respect of voting shares in Lion Nathan, and power to dispose of its shares in Lion Nathan.
If either or both circumstances exist, it follows that it has a relevant interest in Lion Nathan.
It should be noted at the outset that pursuant to s 30, the words “power to vote” are to be given an extended meaning. For present purposes, this follows from the following subsections:
30(1)[Application to this Division] This section applies for the purposes of this Division.
30(2)[Power to vote includes control of exercise of vote] Power to vote in respect of a share is power to exercise, or to control the exercise of, the right to vote attached to the share.
30(3)[Power to dispose includes power to control disposal] A reference to power to dispose of a share includes a reference to power to exercise control over the disposal of the share.
30(4)[Extended meaning of “power” and “control”] A reference to power or control includes a reference to power or control that is direct or indirect or is, or can be, exercised as a result of, by means of, in breach of, or by revocation of, trusts, relevant agreements and practices, or any of them, whether or not they are enforceable.
30(5)…
Essentially, Coopers’ contention that Kirin has power to vote in respect of the shares and power to dispose of them is based on inferences which it suggests should be drawn from the totality of a number of agreed or admitted facts.
It is an agreed fact that the acquisition of shares by BT in Lion Nathan in 1998 was on behalf of Kirin.[1]
[1] See Supplementary Statement of Agreed Facts par 8.
It is a further agreed fact that before 4 October 1999, BT merged with Deutsche Bank Aktiengesellschaft NZ (“DB”), and DB became the holder of the shares as nominee of Kirin.
For simplicity, I will continue to refer to the merged entity as BT.
Although the evidence falls short of proving what precise arrangement was in place between BT and Kirin at the time of acquisition of the shares, there are a number of documents which serve to make the nature of the relationship sufficiently clear for present purposes.
In a notice given in April 1998 pursuant to the New Zealand Securities Amendment Act 1988, Kirin gave notice that it had the beneficial interest in shares in Lion Nathan, representing a 40 per cent holding.[2]
[2] It must be assumed that the remaining 5 per cent was represented by the second tranche of shares taken up by Kirin, which it appears were not taken up at the time of the notice.
In the 1998 annual report of Lion Nathan, it is recorded that BT does not have a beneficial interest in the shares.
In a letter dated 27 April 1998 from Kirin to the board of Lion Nathan, Kirin gives a lengthy explanation as to its motives in acquiring a substantial shareholding in Lion Nathan, and what it envisaged would be the manner in which the two companies would work together.
Extracts from the letter are as follows:
Kirin Brewery Company Limited has, contemporaneously with this letter, advised you of a proposal to acquire a significant shareholding in Lion Nathan and to become the new long term, committed strategic shareholder in the Company.
Kirin is writing to record the principles and understandings which we have offered in respect to our proposed investment in Lion Nathan Limited. These principles and understandings are proposed in a spirit of co-operation and goodwill to address the issues you have raised in your consideration of our proposed investment. The principles and understandings are:
1.Background and Intent
Our intention is to become a long term, committed strategic shareholder in Lion Nathan, a role which over the last decade of Lion Nathan has been fulfilled by Mr Myers, to an extent in conjunction with some of his fellow directors.
Our proposed investment recognises the increasing trend towards globalisation in the brewing industry and in our view provides the opportunity for our two companies to work together as “partners” in the Asia Pacific region and internationally where ever mutually beneficial opportunities arise.
…..
2. Board Representation Understandings
Kirin would seek to have board representation proportionate to its shareholding rounded down to the nearest whole number, on the basis of our understanding that Lion Nathan policy is to have a board of ten directors. As our proposal is to acquire 45% of voting shares in Lion Nathan, we would seek four directors. We would ask the Board of Lion Nathan to minute this as a policy of the Board.
Kirin would initially seek the appointment of two non-resident non-executive directors to the board of Lion Nathan.
In addition, Kirin would initially seek the appointment of at least one resident executive director who would be based at the corporate office of Lion Nathan in Auckland, New Zealand. The appointee would be an employee of Lion Nathan reporting directly to the Executive Director, Mr P M Smith, with an indirect line to Mr A D Myers, Chairman of the Company. The role of such director would be to manage liaison responsibility between Kirin and Lion Nathan, to identify value-added opportunities between Kirin and Lion Nathan, to review monthly management reports and board reports and generally to facilitate liaison and communication between the two companies, with particular focus on the development of mutually beneficial opportunities.
…..
3. Lion Nathan Shareholding Understandings
To reflect the long term committed shareholder nature of our proposed investment in Lion Nathan and the “partnership” basis to our intended relationship, there are certain understandings and principles it is appropriate to record in respect of any shareholding we acquire. These are as follows:
–Kirin will not increase its shareholding beyond 45% or reduce its shareholding below the initial strategic stake for three years, without the prior consent of the Lion Nathan Board. After this period Kirin will only increase its shareholding after prior advice to and consultation with the Board of Lion Nathan.
–As Kirin intends to remain a long-term committed strategic shareholder in Lion Nathan, it is unlikely that it would seek to dispose of any shareholding in Lion Nathan, especially within the three year period. However, if through a change in circumstances or for other commercial reasons Kirin wishes to dispose of all or part of its shareholding, Kirin would consult and in good faith use all reasonable endeavours to co-operate with Lion Nathan to seek an alternative strategic shareholder.
Neither of these understandings will preclude Kirin from dealing in shares of Lion Nathan in the unlikely event that an unrelated third party makes a take-over offer, stands in the market for 25% or more of Lion Nathan or acquires or seeks to acquire a material stake in the Company which, in the reasonable opinion of Kirin, is likely to be adverse to its interests.
4. Operational Understandings
Kirin intends that its investment in Lion Nathan will create the opportunity for Kirin and Lion Nathan to generally co-operate on operational and market development opportunities, particularly internationally in countries where neither group has a significant market position. …
In my view, that letter, quite apart from other items of evidence, is sufficient to indicate that Kirin’s beneficial interest in the shares which had been bought on its behalf by BT, carried with it the power by Kirin to exercise the voting rights attached to the shares, to the exclusion of BT. It could hardly fulfil a role as a “… long term committed strategic shareholder” in Lion Nathan were it to be otherwise. Neither could the two companies work together as “partners” in the Asia Pacific region, if BT had the ability to exercise voting rights with respect to the shares independently of Kirin.
Kirin’s request to have board representation “proportionate to its shareholding” tends to confirm that position.
The paragraph numbered 3 of the letter not only confirms the “‘partnership’ basis to … [the] intended relationship”, but includes the statement that “Kirin will not increase its shareholding beyond 45% or reduce its shareholding below the initial strategic stake for three years, without the prior consent of the Lion Nathan Board”. In the next paragraph Kirin confirms that “it is unlikely that it would seek to dispose of any shareholding in Lion Nathan”.
Clearly, Kirin regarded itself as being in control of the acquisition of further shares in Lion Nathan and the disposal of its shareholding in the company.
By letter of 27 April 1998, Lion Nathan wrote to the New Zealand Stock Exchange. The letter included the following statements:
A new regional brewing alliance has been created with the announcement that Lion Nathan’s major shareholder, Mr Douglas Myers, has accepted an offer for the majority of his stake from Japan’s Kirin Brewery Company.
Mr Myers has sold a 15% stake in the company at a price of $5.40 per share cum dividend. He will, however, continue in his role as Chairman and maintain a significant investment of around $25 million in the company.
…..
Kirin has advised Lion Nathan that it will be standing in the market for an additional 30% stake, with an offer at the same price of $5.40 per share, cum dividend.
To assist smaller shareholders to participate in the Kirin offer the Lion Nathan Directors requested, and Kirin agreed, to reserve approximately 27,000,000 shares representing 5% of the company, for acceptance in parcels of a maximum of 10,000 shares per shareholder. Small shareholders have 24 hours to 12.30 pm NZST on Tuesday 28th April 1998 to take up this offer – which should enable all who wish to participate to do so.
…..
Particulars of the stand in the market, which is being conducted by BT Securities on behalf of Kirin, are attached.
…..
“Business as usual” central to partnership principles
Mr Myers said a number of key principles and understandings have been offered by Kirin, including their commitment to be a long term strategic shareholder and support the current management team and business strategies of Lion Nathan.
…..
“Kirin will maintain a 45% shareholding in the company for at least three years and will have board representation in proportion to their shareholding. This will give Kirin four of the 10 seats of the Lion Nathan board,” he said.
Better placed to take advantage of new opportunities
Mr Myers said with Kirin as a new partner, Lion Nathan will be able to compete more effectively with other emerging global alliances and take advantage of opportunities for expansion in the regional and international brewing market.
In an announcement to the Australian Stock Exchange dated 12 September 2001, Lion Nathan confirmed what it described as a renewal of the “partnership principles” existing between Lion Nathan and Kirin.
The announcement stated that Lion Nathan and Kirin had signed a “letter of understanding” “reconfirming the partnership principles which provide a framework for the two companies to work together”.
The announcement states:
This agreement replaces the one entered into at the time Kirin acquired its shareholding in Lion in April of 1998.
The announcement confirmed that there was an ongoing intention
… on Kirin’s part to remain a long term committed shareholder in Lion …
and further that Kirin had
… an intention not to move to majority ownership of Lion.
I have referred to the main documents in which there is an acknowledgment of matters from which the only sensible inference is that BT was in the position of a bare trustee, and that not only did the beneficial interest in the shareholding in Lion Nathan vest in Kirin, but that it had the capacity to vote in respect of the voting shares in Lion Nathan, and the power to dispose of them. I do not pause to refer to a number of other documents relied upon by Mr Whitington to support that conclusion.
Amongst other things, this means that Kirin at all relevant times has held a relevant interest in the shares within the meaning of that expression in Division 5 of the Law.
I think it fair to say that Mr Whitington’s contentions leading to my findings as to the nature of Kirin’s interest and power over the shares, were not challenged in the arguments put forward by Mr Wells. Rather, the arguments which he adduced depended upon a different construction of the relevant provisions in Division 5, and a different approach to the meaning of the definition of relevant interest for the purposes of Coopers’ Articles of Association.
The findings which I have made so far lead to a consideration of the second question posed by Mr Whitington.
Has there been a change in control of Lion Nathan Australia within the meaning of regulation 8 of Coopers’ Memorandum of Association?
In order to deal with this question, it is necessary to refer to some other sections falling within Division 5 of the Law.
I have already referred to s 30(2), (3) and (4).
Section 32:
32Where a body corporate has, or is by this Division deemed to have:
(a) power to vote in respect of a share; or
(b) power to dispose of a share;
a person shall be deemed for the purposes of this Division to have in relation to the share the same power as the body has, or is deemed to have, if:
(c) the body is, or its directors are, accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of the person in relation to the exercise of the power referred to in paragraph (a) or (b); or
(d) the person has a controlling interest in the body.
Section 33:
33Where a body corporate or an associate of a body corporate has, or is by this Division (other than this section) deemed to have:
(a) power to vote in respect of a share; or
(b) power to dispose of a share;
a person shall be deemed for the purposes of this Division to have in relation to the share the same power as the body or associate has, or is deemed to have, if:
(c) the person has;
(d) an associate of the person has;
(e) associates of the person together have; or
(f) the person and an associate or associates of the person together have;
power to vote in respect of not less than the prescribed percentage of the voting shares in the body.
With those sections in mind, the steps in Mr Whitington’s argument are:
ØKirin has power to vote in respect of 45 per cent of the voting shares in Lion Nathan and power to dispose of the same proportion of voting shares.
This conclusion is justified, having regard particularly to s 30(2), (3) and (4). For the above reasons, BT is in the position of a bare trustee or nominee of Kirin and the power of control over the shares rests with Kirin.
ØLion Nathan:
(i) has a controlling interest in Lion Nathan Australia;
(ii) has a relevant interest in Lion Nathan Australia;
(iii) has power to vote in respect of the Lion Nathan Australia shares and power to dispose of them
These conclusions may be justified by following two routes. They are:
–through the interposition of companies of which it has a 100 per cent shareholding, both before and after June 2000 (see the tables set out above), Lion Nathan had indirect power to control the right to vote attached to the Lion Nathan Australia shares and the power of disposal of the Lion Nathan Australia shares (see s 30(2), (3) and (4)).
Alternatively,
–Lion Nathan’s power to vote and dispose of the Lion Nathan Australia shares means that it is deemed to have a controlling interest in Lion Nathan Australia, having regard to s 32(d).
ØKirin is deemed to have the same power as Lion Nathan to vote in respect of and power to dispose of Lion Nathan Australia shares
This consequence follows from the fact that within the meaning of s 33, Lion Nathan has power to vote and dispose of all of the shares in Lion Nathan Australia, and Kirin has power to vote and dispose of more than the prescribed percentage (20 per cent) of shares in Lion Nathan.
ØKirin therefore has a relevant interest in Lion Nathan Australia’s shares (s 31)
This conclusion must follow from the preceding steps. If, pursuant to s 33, Kirin is deemed to have the same power over the shares of Lion Nathan Australia as may be exercised by Lion Nathan, it must be regarded as having the same power to vote in respect of Lion Nathan Australia’s shares and the same power to dispose of them, as is held by Lion Nathan.
In my opinion, that chain of reasoning is sound. I reject the contrary arguments advanced by Mr Wells.
The first of Mr Wells’ arguments was predicated on the proposition that regulation 8 of Coopers’ Memorandum of Association could only be invoked in circumstances where Lion Nathan Australia was a member of Coopers. I have already indicated the reasons why I reject that argument.
The second argument put forward by Mr Wells is that the term “relevant interest” for the purposes of article 44 is defined in s 31 of the Law, and that in the context of this case it is not possible to have recourse to the deeming provisions which find expression in s 32 and s 33.
From that position, Mr Wells argues that if one has regard only to s 31, and ignores the deeming provisions which appear in the two succeeding sections, Kirin cannot be regarded as having acquired a relevant interest in Lion Nathan Australia, let alone a relevant interest in 40 per cent or more of Lion Nathan Australia’s voting shares.
For the purposes of this part of his argument, Mr Wells was prepared to accept Mr Whitington’s contention that the provisions of article 44 dealing with a change in control, refer to a change in control of Lion Nathan Australia, even although it was not a member of Coopers.
Mr Wells then addressed the question of the meaning to be given to the words “as that term is defined in the Corporations Law”. He argued that use of that expression gave rise to a need to address the principles upon which the courts approach the construction of provisions providing for what he described as “incorporation by reference”.
He submitted that consistently with authority, if any part of the definition of the term “Change in Control” in the Law is fundamentally inconsistent with the basic operation of this part of Coopers’ articles, it must be disregarded. Putting his submission another way, he contended that only that part of the definition in the Law of the phrase “relevant interest” was incorporated, as was otherwise consistent with article 44 construed in the context of the articles as a whole.
Mr Wells referred to a number of authorities in support of that contention.
Skips A/S Nordheim and Ors v Syrian Petroleum Co Ltd and Anor [3] concerned a charterparty which provided that:
… any disputes arising under this charter shall be settled in London by arbitration”,
and further, that:
… all bills of lading issued pursuant to this charter shall incorporate by reference all terms and conditions of this charter including the terms of the arbitration clause …”.
[3] [1984] 1 QB 599.
The bill of lading relating to the carriage of a cargo of crude oil stated:
… all conditions and exceptions of [the] charterparty including the negligence clause are deemed to be incorporated in [the] bill of lading.
The bill of lading did not specifically provide for the arbitration of disputes.
The Court of Appeal held that the judge at first instance had correctly held that the bill of lading could not be construed as incorporating the arbitration clause of the charterparty. In the course of his reasons for judgment in the Court of Appeal, Oliver LJ said:[4]
The purpose of referential incorporation is not – or at least is not generally – to incorporate the intentions of the parties to the contract whose clauses are incorporated but to incorporate the clauses themselves in order to avoid the necessity of writing them out verbatim. The meaning and effect of the incorporated clauses has to be determined as a matter of construction of the contract into which it is incorporated having regard to all the terms of that contract.
He went on to observe that:
There are … likely to be two stages in the inquiry, for it inevitably happens that an incorporation in very wide general terms is appropriate to incorporate into the bill of lading terms not strictly appropriate for such a contract. One then had to see whether the terms are so clearly inconsistent with the contract constituted by the bill of lading that they have to be rejected or whether the intention to incorporate a particular clause is so clearly expressed as to require, by necessary implication, some modification of the language of the incorporated clause so as to adapt it to the new contract into which it is incorporated. The question of consistency is, however, a quite separate question.
[4] Ibid at 619.
Oliver LJ went on to accept the argument that the words “all conditions and exceptions” in the context of a bill of lading had what he described as:
… a well-established and well-recognised commercial meaning. They mean such conditions and exceptions as are appropriate to the carriage and delivery of goods and do not, as a matter of ordinary construction, extend to a collateral term such as an arbitration clause even if that clause is expressed … in terms which are capable, without modification, of referring to the bill of lading contract.
The decision in Skips A/S Nordheim is consistent with an earlier decision of the Court of Appeal in Hamilton & Co v Mackie & Sons.[5] In that case, a bill of lading included the words “all other terms and conditions as per charterparty”. The charterparty included an arbitration clause.
[5] (1888-9) 5 TLR 677.
In his judgment, with which Cotton and Lindley LJJ agreed, Lord Esher MR said:
Where there was in a bill of lading such a condition as this, “All other conditions as per charterparty,” it had been decided that the conditions of the charterparty must be read verbatim into the bill of lading as though they were there printed in extenso. Then if it was found that any of the conditions of the charterparty on being so read were inconsistent with the bill of lading they were insensible, and must be disregarded. The bill of lading referred to the charterparty, and therefore when the condition was read in, “All disputes under this charter shall be referred to arbitration,” it was clear that that condition did not refer to disputes arising under the bill of lading, but to disputes arising under the charterparty. The condition therefore was insensible, and had no application to the present dispute, which arose under the bill of lading.
The principle is illustrated by other authorities referred to by Mr Wells, notably Homestake Australia Ltd v Metana Minerals NL,[6] Modern Building Wales Ltd v Limmer and Trinidad Co Ltd[7] and Tradigrain SA and Ors v King Diamond Shipping SA (the “Spiros C”).[8]
[6] (1994) 11 WAR 435 per Ipp J at 442.
[7] [1975] 1 WLR 1281.
[8] [2000] 2 Lloyds Law Reports 319.
I accept, as Mr Wells submitted, that the interpretation to be placed upon an incorporated clause is generally to be decided by reference to the context into which it has been incorporated. This necessarily means that the incorporated clause may not necessarily bear the same meaning as it bears in its original context.
Mr Wells went on to submit that if the principles identified in the line of authority to which I have referred were to be applied in the context of article 44, all that would be “picked up” out of the Law would be s 31 and possibly s 30.
As I understand his argument, he advanced that proposition in two ways.
He first submitted that the words “as that term is defined in the Corporations Law” in article 44 justified the incorporation of s 31 only (with the possible inclusion of s 30) because it was only in s 31 that the words “relevant interest” are defined. He sought to obtain some support for that argument by reference to the heading of s 31 which is “Section 31 Basic Rules”.
I reject that argument. I accept the contrary proposition advanced by Mr Whitington, that the definition of “relevant interest” is that which is contained in s 9, namely:
“Relevant interest”:
(a)in relation to a share - has the meaning given by Division 5 (other than section 44);
(b)….
In my view, article 44 is apt to incorporate the whole of Division 5, or at least those parts of it to which sensible operation may be given in the context of Coopers’ articles, more particularly article 44.
This leads to Mr Wells second contention, that insofar as s 32 and s 33 of the Law incorporate deeming provisions which artificially extend the concept of relevant interest, such provisions, while apt in the context of the takeover provisions in Part 6.2 of the Law, do not have a sensible operation in the context of article 44, and should therefore be disregarded.
In advancing his argument, Mr Wells concentrated on the concept of change in control. He suggested that what the draftsman of article 44 was concerned to deal with was an actual change in control, not a “deemed” change in control, which did not operate in any real sense as an effective change in control.
At one stage, he put his argument in this way:
What we come down to here is a simple proposition, that is: assuming, for the purposes of argument, that Kirin has acquired 40 per cent voting power in Lion Nathan, which gives them the right to have a minority of directors on the board, it doesn’t result in a conclusion, can’t result in a conclusion that by virtue of that they acquire more than 40 per cent in Lion Nathan Australia. The reality is they don’t control Lion Nathan. Even if Lion Nathan controls Lion Nathan Australia, Kirin doesn’t control Lion Nathan. That is the present fact of the matter.
What is sought to be done is to suggest that, by pulling in selected provisions of Division 5, that reality can be overcome in a way which doesn’t reflect the purposes of the article at all. There has been no change in control of Lion Nathan. Lion Nathan continues to control Lion Nathan Australia through its subsidiaries and Lion Nathan is not, itself, the subject of control by Kirin.
Mr Wells attempted to buttress that argument by reference to the first limb of the definition of change in control in article 44.
I repeat the words in the first limb of the definition of change in control:
For the purposes of this Article, ‘Change in Control’ means any transfer of any shares or other equity interest in a member or in any entity that directly or indirectly controls or influences the member or any reconstruction, amalgamation or reorganisation of a member or any entity that directly or indirectly controls or influences the member if, after such transaction, there would be a change in the person having the power to direct its management and policies, or if no one person has such power, a change in the majority of such persons who, acting together, have such power …
Use of the word “influences” in that limb of the definition might on one construction suggest that the definition may be satisfied if there is a change in control within the meaning of this part of the definition if a transaction results in another person or entity having an influence short of control over the member.
However, assuming for the purposes of argument that, as Mr Wells suggests, the change in control identified in that limb of the definition is a real and effective change in control, in the full sense of that expression, it seems to me that the second limb of the definition may nonetheless be satisfied with something short of such an absolute change in control. That this is necessarily so is apparent from the fact that the second limb of the definition is satisfied if any person acquires a relevant interest in 40 per cent or more of the voting shares of the member.
Putting aside the question whether the words “relevant interest” have the more extended meaning which would result from an application of s 32 and s 33 of the Law, a 40 per cent shareholding does not connote a change in absolute control, although it may signal the fact that the 40 per cent shareholder would be in a position to bring a significant level of influence to bear.
It would seem to follow from that analysis that a construction which would bring into play the deeming provisions of s 32 and s 33 of the Law in considering whether or not, within the meaning of article 44, a person has acquired a relevant interest in Lion Nathan Australia, could not be said to be fundamentally inconsistent with the purport of article 44.
Those considerations also seem to me to provide an answer to the other way in which Mr Wells put this part of his argument.
He submitted that it could not be said that Kirin has acquired power to vote in 40 per cent or more of the shares in Lion Nathan Australia by reason of its shareholding in Lion Nathan. Lion Nathan remained the actual shareholder in its subsidiary Lion Nathan Australia, and was the only entity that had a power (through the intervening intermediary companies) to exercise the power to vote attached to the shares in Lion Nathan Australia.
But that argument presupposes that s 31 is the only relevant section which is “picked up” out of the Law for the purposes of the definition of relevant interest in article 44. To approach the matter in that way begs the question. The question is whether for present purposes the power to vote referred to in s 31 is necessarily given the extended meaning which would follow from an application in an appropriate case of s 30, s 32 and s 33.
I note that under the first limb of the definition of change in control in article 44, a change in control can occur at any level, in the sense that it does not necessarily connote a direct change in control; it may apply where there is a chain of ownership and a change in control in the entities at any level in that chain of ownership.
On the other hand, on Mr Wells’ argument, the only change in control that would result from an acquisition of a relevant interest in 40 per cent of the voting shares of the member is one where the acquisition is a direct acquisition in Lion Nathan Australia, and the definition of relevant interest should be read down accordingly.
To adopt that approach would give a more restricted meaning to the second limb of that definition than that which applies to the first limb, and in my view, there is no justification to read down the second limb in that way. As Mr Whitington pointed out, it is notorious that a change in control can occur anywhere in any link in a chain of companies.
In my view, the incorporation of s 32 and s 33 as well as s 31 in the definition of relevant interest is not antithetic to the operation of article 44.
One has only to see what has actually happened with respect to the composition of the board of directors of Lion Nathan as a result of the acquisition of the 45 per cent shareholding by Kirin, to accept that Kirin clearly now exercises a significant degree of influence over the management of Lion Nathan. Insofar as Lion Nathan Australia is a wholly owned subsidiary of Lion Nathan, there is no reason to suppose that that significant degree of influence does not extend to Lion Nathan Australia.
The reality then is that by reason of the transaction pursuant to which it acquired a 40 per cent shareholding in Lion Nathan, Kirin must be taken to be able to bring to bear an influential role, both with respect to Lion Nathan and its wholly owned subsidiaries.
In considering Mr Wells’ arguments, I have been much assisted by the judgment of Merkel J in ASIC and Ors v Yandal Gold Pty Ltd.[9]
[9] (1999) 32 ACSR 317.
During the course of his judgment in that case, Merkel J addressed the question of the function which the concept of “relevant interest” served in the Law. He said:[10]
[93]The concept of “relevant interest” serves two main functions in the Corporations Law. First, it is the determinant of whether a person has an entitlement to shares for the purposes of, inter alia, Ch 6 (see s 609). Second, it is the determinant of whether or not there has been an acquisition of shares for the purposes of, inter alia, Ch 6: see s 51(1)(a). Although an entitlement to shares provides the basis for measuring whether an acquisition of shares is prohibited by s 615, the subject matter with which that section is concerned is the prohibition of an acquisition of a relevant interest in shares other than in accordance with Ch 6. It is in that context that the role of the deeming provisions in Div 5 of Pt 1.2 are to be considered.
[10] Ibid at 340.
The fact that the concept of relevant interest serves the two main functions in the operation of the Law which are identified by Merkel J in that passage, standing alone, does not throw any light on the determination of the question now at issue. On the contrary, having regard to the terms of article 44, one would be entitled to adopt as a starting point, the view that what is intended is that the acquisition of a relevant interest for the purposes of the Law, is to be regarded as the acquisition of a relevant interest for the purposes of article 44.
To reason otherwise and to regard the concept of relevant interest for the purposes of article 44 as identifying a more limited and restricted meaning of the words “relevant interest”, would only be justified if there was a good reason to read it down in that way.
I am unable to see that there is any reason to do so.
The reasons which may readily be identified as explaining why one finds the concept of “relevant interest” engrafted into the Law, seem to me to be on a par with the reasons why one sees the concept incorporated into article 44. That reason, as it was put in ASIC and Ors v Yandal Gold by Merkel J, is a reflection of the fact:
… that companies may exercise power or dominion over shares in many and diverse ways, whether direct or indirect …[11]
[11] Ibid at 339, citing Target Petroleum NL v Petroz NL (1987) 16 FCR 1 at 10; 73 ALR 274; 12 ACLR 11.
Merkel J went on to observe that those considerations:
… led the legislature to use artificial concepts and deeming provisions to ensure that the scheme provided for in Ch 6 is not circumvented.
One might likewise take the view that the draftsman of article 44 intended to ensure that the consequences of a change in control for the purposes of article 44, could not be avoided by strategies involving the use of indirect holdings.
Looked at in that way, to have regard to s 31 of the Law but to ignore s 32 and s 33 for the purposes of article 44, would be an unwarranted emasculation of article 44, which would tend to defeat the purport of the second limb of the definition of “change in control”.
It is true, as Mr Wells pointed out, that in ASIC and Ors v Yandal Gold, Merkel J acknowledged that the artificial concepts and statutory fiction surrounding the provisions in the Law as to the acquisition of a relevant interest may sometimes give rise to anomalies. In such circumstances, Merkel J suggested that the powers of ASIC under s 730 and s 731 to modify the provisions of Ch 6 of the Law, and its powers under s 633 to give written approval for an acquisition of shares which might otherwise infringe s 615, operate as a safety mechanism pursuant to which any such anomalies might be addressed.
Clearly, those powers of ASIC could not be invoked to ameliorate what might otherwise be an anomalous consequence of the adoption of the definition of relevant interest from the Law for the purposes of article 44.
Mr Wells also referred to s 38 and s 39. Those sections respectively provide that a relevant interest is to be disregarded in certain circumstances, relating to moneylenders and trustees.
A provision that a relevant interest is to be disregarded does not mean that the relevant interest does not exist.
No doubt the sections should be taken to mean that the relevant interest is to be disregarded for the purposes of the Law.
It is unnecessary to consider whether or not they should be disregarded for the purposes of article 44, as however the matter is approached, the sections could have no application to this case.
As for the question of possible anomalies which might arise by reason of the deeming provisions in s 32 and s 33, without identifying a particular situation which might be thought to attract a positive exercise of ASIC’s ameliorating powers under the sections to which I have referred, it is impossible to say whether any such situation would cause what might be thought to be an unintended or anomalous result in the context of article 44.
What may be an anomaly for the purposes of Ch 6 of the Law, may not be an anomaly for the purposes of the application of article 44. Furthermore, the mere fact that what may be described as anomalous situations might arise in the context of Ch 6 because of the breadth of the statutory fictions created by s 32 and s 33 of the Law, does not lead me to the view that resort to the sections must be excluded for the purposes of the definition of a relevant interest in the context of article 44.
Deeming provisions often give rise to problems in their application to particular circumstances. But in my view, it would be going too far to reason that because there might possibly be what remain completely unidentified problems or anomalies which could arise in the future, it is impermissible to resort to s 32 and s 33 in their application as part of the definition of a relevant interest for present purposes.
It remains to deal with one further argument advanced by Mr Wells.
Mr Wells contended that in article 44 the word “acquired” has its ordinary meaning. The word is defined in the Shorter Oxford English Dictionary to mean:
1.To gain, or get as one’s own (by one’s own exertions or qualities); and
2.To receive, to come into possession of …
His argument was that if the word is used in that sense, it would be hardly apt to describe a process by which person is deemed to have a relevant interest, as a process of acquisition of a relevant interest.
A similar argument was considered by Merkel J in ASIC and Ors v Yandal Gold, where in this context he had regard to the decision of Young J in Green v Crusader Oil NL,[12] the decision of Murray J in Re Stockbridge Ltd,[13] and the decision of Finkelstein J in Aberfoyle Ltd v Western Metals Ltd.[14]
[12] (1985) 10 ACLR 120 at 122.
[13] (1993) 9 ACSR 637 at 651.
[14] (1998) 84 FCR 113 at 144.
After referring to those decisions, Merkel J concluded:
[96]In my view, unless a contrary intention appears in a particular statutory provision, it is consistent with the legislative scheme and will better give effect to and promote its objectives … for no distinction to be drawn in Ch 6 between an actual or deemed relevant interest. I do not discern from the use of the word “acquire” in s 51(1) or s 615 a legislative intention that acquisitions are to be limited to actual interests or to acquiring title to or dominion over such interests. It is difficult to discern any policy reason why either an actual relevant interest or a deemed relevant interest should give rise to entitlements for the purposes of the substantial shareholding and the compulsory acquisition provisions, but only actual relevant interests can be acquired for the purposes of the takeover provisions and, in particular, s 615 which is so central to the operation of Ch 6.
It seems to me that the construction of article 44 is susceptible to a similar process of reasoning. It would hardly serve the evident purpose of the change in control provisions in article 44 to think that they were limited in their application to situations in which the change in control has occurred through a positive acquisition of title, as opposed to a passive process which arises reason of the deeming provisions to be found in s 32 and s 33.
In any event, there has been a transaction involving the acquisition in the ordinary sense by an entity, of an interest in the shares, that is, the purchase of a 45 per cent shareholding by Kirin in Lion Nathan’s shares which has led to the consequential acquisition of a relevant interest in Lion Nathan Australia, so that in the circumstances of this case there has in fact been a relevant transaction.
It remains to give reasons for the rejection of the affidavit of Mr Tomlinson which Mr Wells sought leave to tender.
The affidavit and the material annexed to it serve to give a detailed account of circumstances leading up to the acquisition by Lion Nathan Australia of the Brewing Division of SA Brewing Holdings Ltd (“SA Brewing”). Annexed documents include an agreement entered into in August 1993 between SA Brewing and Lion Nathan Australia for the purchase of an interest in certain shares in Coopers then held by SA Brewing; a memorandum dated 11 March 1994 from Mr Wayne Jackson, then Managing Director of SA Brewing, a division of Lion Nathan Australia, to Mr Kevin Roberts, the Chief Executive Officer of Lion Nathan; and other correspondence passing between representatives of Lion Nathan and Coopers.
Some of the material post-dates the Coopers shares agreement and post-dates the consequential amendments to the Memorandum of Association and Articles of Association of Coopers. At all events, the material is said to reveal the mutual intention of the parties to the Coopers shares agreement, more particularly with respect to the grant of the third-ranking pre-emptive right of purchase of shares in favour of Lion Nathan Australia.
Putting the matter broadly, as I understand Mr Wells, his object in seeking to tender this material was to demonstrate that the purpose of Lion Nathan Australia in entering into the Coopers shares agreement, or at least that part of it in which the pre-emptive right of purchase of shares in Coopers was provided for, was to enable Lion Nathan Australia to adopt what he described as a “gatekeeper” role. He meant by that that it would enable Lion Nathan Australia to block any attempt to buy into or take over Coopers by other competitors in the Australian brewing industry, more particularly Carlton United.
He submitted that the affidavit and its annexures demonstrated that there was never any intention on the part of Lion Nathan Australia to become a member of Coopers. He contended that the very existence of the third-ranking pre-emptive right in favour of Lion Nathan Australia would be sufficient to deter any stranger from attempting to buy into Coopers.
There are a number of reasons why this material was clearly inadmissible, apart from the fact that the affidavit was proffered two years after the expiration of the time limited for the filing of affidavits, in my order of 25 August 2003.
In the first place, I do not think that the material proved what Mr Wells suggested. While there was certainly a reference in some of the material to a desire to ensure that Carlton United did not obtain control of Coopers or Coopers’ brands, it does not follow that the mere existence of a third-ranking pre-emptive right of purchase in favour of Lion Nathan Australia would be effective in achieving that goal.
If a third party made a bid for Coopers’ shares sufficiently attractive to encourage members of Coopers to deal with it, rather than with other members, it is hard to see how Lion Nathan Australia could effectively block such a manoeuvre, without being willing to take up Coopers’ shares on more favourable terms.
Furthermore, whatever Lion Nathan Australia’s intention might have been, at the time when the Coopers shares agreement was entered into, under the parole evidence rule, as it was explained, for example, in Codelfa Construction Pty Ltd v State Rail Authority of NSW,[15] the evidence of Lion Nathan Australia’s subjective intentions in entering into the Coopers shares agreement could not be brought into play in construing the meaning to be attributed to the changes in the Memorandum and Articles of Association of Coopers which were made pursuant to the agreement.
[15] (1982) 149 CLR 337, particularly per Mason J at 353-356.
Clause 12 of the agreement reinforces the application of the parole evidence rule. It provides:
12.ENTIRE AGREEMENT
This agreement and the schedules to this agreement constitutes the entire agreement of the parties about its subject matter and any previous agreements, understandings and negotiations on that subject matter cease to have any effect.
What is said to have been Lion Nathan Australia’s subjective intention in that respect, was not only commercially worthless, but is legally irrelevant.
I would answer the questions posed in the preliminary issue to be tried at this stage as follows.
Question
– Whether in April 1998, Kirin Brewery Company Ltd acquired a relevant interest in more than 40 per cent of the issued share capital of Lion Nathan Ltd within the meaning of article 44 of the plaintiff’s Articles of Association.
Answer
Yes
– If so, whether there has been a change in control of the defendant within the meaning of regulation 8 of the plaintiff’s Memorandum of Association.
Yes