Direct Share Purchasing Corporation Pty Ltd v AXA Asia Pacific Holdings Ltd
[2008] FCA 935
•19 June 2008
FEDERAL COURT OF AUSTRALIA
Direct Share Purchasing Corporation Pty Ltd v AXA Asia Pacific Holdings Ltd [2008] FCA 935
CORPORATIONS – register of members – request for a copy of the register – electronic copy of register provided in PDF format – company entitled to reasonable fee – fee not to exceed marginal cost – whether amount charged reasonable
Corporations Act 2001 (Cth) ss 173, 174, 177, 1306
Corporations Regulations 2001 (Cth) reg 1.1.01Oakes v Turquand (1867) LR 2 HL 325
R v Liverpool, Manchester and Newcastle-Upon-Tyne Railway Company (1852) 21 LJQB 284
R v Wilts and Berks Canal Navigation (1874) 29 LT 922
William Inglis & Sons Baking Co v ITT Continental Baking Company Inc 668 F 2d 1014 (1982)Second Reading Speech, First Corporate Law Simplification Bill 1994 (Cth) (House of Representatives, Parliamentary Debates (1995) vol HR 199)
H Hovenkamp, Federal Antitrust Policy: The Law of Competition and its Practice (2nd edition, 1999)DIRECT SHARE PURCHASING CORPORATION PTY LTD v AXA ASIA PACIFIC HOLDINGS LIMITED
VID 110 of 2008
FINKELSTEIN J
19 JUNE 2008
MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VID 110 of 2008
IN THE MATTER OF AXA ASIA PACIFIC HOLDINGS LIMITED
BETWEEN:
DIRECT SHARE PURCHASING CORPORATION PTY LTD
Plaintiff
AND:
AXA ASIA PACIFIC HOLDINGS LIMITED
Defendant
JUDGE:
FINKELSTEIN J
DATE OF ORDER:
19 JUNE 2008
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.The defendant refund to the plaintiff the sum of $16,945.39.
2.The defendant pay the plaintiff’s taxed costs of the proceeding.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VID 110 of 2008
IN THE MATTER OF AXA ASIA PACIFIC HOLDINGS LIMITED
BETWEEN:
DIRECT SHARE PURCHASING CORPORATION PTY LTD
Plaintiff
AND:
AXA ASIA PACIFIC HOLDINGS LIMITED
Defendant
JUDGE:
FINKELSTEIN J
DATE:
19 JUNE 2008
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
Companies have always been required to keep registers of their members. The register is a public document which is open for inspection by a member without charge and by any other person upon payment of a fee. When copies are requested they must be provided in exchange for a fee. The provisions dealing with the maintenance of and access to registers are currently found in Chapter 2C of the Corporations Act 2001 (Cth). According to the Attorney-General these provisions were intended to facilitate “rapid and easy access” by the public to a company’s register and to do so “at reasonable cost”: Second Reading Speech, First Corporate Law Simplification Bill 1994 (Cth) (House of Representatives, Parliamentary Debates (1995) vol HR 199), pp 709, 712. The issue in this case is about the quantum of the fee that can be charged for a copy of the register. Each side engaged senior counsel to put its case. Experts have been called to give their views. Witnesses have been examined and cross-examined. The cost to each party is in the tens of thousands of dollars. So much for easy access at a reasonable cost.
The facts, so far as they are relevant, are these. The defendant, AXA Asia Pacific Holdings Ltd, is a public company whose shares are quoted on the ASX. The plaintiff, Direct Share Purchasing Corporation Ltd, makes unsolicited offers to purchase shares in listed companies, usually at below market price or on terms that are unfavourable to the selling shareholder. Only the very vulnerable or unsophisticated would ever accept these offers. The offers are in writing and posted to shareholders. To discover the identity and addresses of the shareholders the plaintiff needs access to the register.
On 7 January 2008, the plaintiff’s agent wrote to AXA requesting a copy of its register. Enclosed with the letter was a cheque for $20,000 to cover the fee. The letter stated that the amount would significantly exceed the maximum prescribed amount under the Act and requested a refund of the difference.
AXA does not maintain its own register. It has retained Computershare Investor Services Pty Ltd to keep the register on its behalf. The propriety of a company arranging for some other person to keep its register has been recognised at least since the Uniform Companies Acts 1961: see ss 152 and 154. AXA notified Computershare of the plaintiff’s request. It told Computershare: “At this stage, we are trying to work out how we can legally refuse to provide the register.” In the meantime it obtained from ASIC an extension of the time within which to comply with the request. Section 173(3) of the Act provides that a copy of the register must be provided within seven days unless ASIC extends the time. The reason for ASIC’s intervention is not known. I guess it was because for good reason ASIC does not look with favour upon Mr Tweed, who is behind the plaintiff.
As events turned out, the plaintiff withdrew its request and made another request on 16 January 2008. This time it requested that the copy of the register be provided “on floppy disk (or CD Rom), in Microsoft [E]xcel format, comma delineated”. AXA instructed its lawyers to respond. They advised the plaintiff that their client was “mindful of its obligations under Part 2C.1 of the Act and is entirely supportive of the proper use of the information contained in the company’s register of members”. Nonetheless they sought from the plaintiff an undertaking not to use the register except as “is relevant to the holding of the interests recorded in the register or the exercise of the rights attaching to them”. No doubt the solicitors had in mind s 177(1) which limits the use of information contained in the register. It is interesting to compare this section with rules laid down in R v Wilts and Berks Canal Navigation (1874) 29 LT 922; compare R v Liverpool,Manchester and Newcastle-Upon-Tyne Railway Company (1852) 21 LJQB 284.
In due course the plaintiff gave the undertaking. Then, on 23 January 2008, AXA provided the plaintiff with a CD Rom containing the register. The CD Rom was not in comma delineated format. Instead, the CD Rom was in PDF format. AXA charged a fee of $17,195.39 for providing the CD Rom. It received payment by deducting that amount from the money in hand and returning the difference to the plaintiff. The question in issue is whether AXA was entitled to charge this amount.
No question arises regarding the permissibility of AXA providing the CD Rom in PDF format. I observe that s 1306(1) permits a company to maintain all registers on a computer and that s 1306(4) provides that where a copy must be provided it must be in “a document containing a clear reproduction in writing” of the register. However, s 173(3) states that “[i]f the register is kept on a computer and the person asks for the data on floppy disk, the company … must give the data to the person on floppy disk. The data must be readable but the floppy disk need not be formatted for the person’s preferred operating system”.
A floppy disk is a portable computer storage device. It stores data magnetically. These discs are flexible, low in cost and easy to use. But they have been rapidly replaced by newer and better technology. Since the late 1990s the CD Rom has become the standard means of storing and transferring data. USB flash drives and DVD Roms are also gaining popularity. If it is not yet entirely obsolete soon the floppy disk will be a thing of the past. Fortunately, the parties here have proceeded on the basis that the statutory obligation to provide a copy of a register that is kept on a computer can be satisfied by the provision of the register on a CD Rom.
Access to a register which is stored on a computer has obvious advantages. One is the ease with which the information can be used and manipulated, especially if it is in a comma delineated format. On the other hand, if the information is reproduced in a different format, such as PDF, it is not capable of being used and manipulated as easily. It requires specialist software for that purpose which may be quite expensive to acquire and time consuming to use.
There are many circumstances in which a company may not want a person to have easy use of its register. Some may be morally defensible and some may not be. Several examples follow. Shareholders may be the target of an unwelcome off-market bid. A director in dispute with the board may wish to write to shareholders to advance his or her position or to attack an opposing view. If a company refuses to convene a meeting of members following a requisition for that purpose, a shareholder may wish to convene the meeting. In each of these examples (and many others can be thought of) the company may wish to make it difficult for the person wanting to contact members and so may supply the register in a difficult to use format. It is, I think, quite unsatisfactory that the legislation allows a company to do so. On one view it is inconsistent with the purpose of having a public register of members that a company can decide when and to whom it will provide a useful copy of its register. I appreciate that the original object of access to a register was to enable creditors to discover the identity of shareholders and the extent to which they were liable to contribute to the company’s capital: Oakes v Turquand (1867) LR 2 HL 325, 366. Things have moved on since then and the legitimate reasons for access are now much wider.
The problem with the legislation that is in issue in this case is of a different order. The fee that a company is permitted to charge for a copy of its register is regulated. Section 173(3) provides the company must give a person a copy of the register (or a part of the register) if a person asks for a copy and “pays any fee (up to the prescribed amount) required by the company”. The Corporations Regulations 2001 (Cth) (the Regulations) specify that in the case of a register kept on a computer the fee that can be charged is “a reasonable amount that does not exceed the marginal cost to the company of providing a copy”: reg 1.1.01 and sch 4, item 3(b). In other words, the fee must satisfy two conditions: (1) it must be a reasonable amount; and (2) the amount must not exceed the marginal cost to the company of providing a copy of the register.
I propose to deal first with the second condition. On this topic, I have had the assistance of Dr Williams, formerly Professor of Law and Economics in the Melbourne Business School and now chairman of Frontier Economics Pty Ltd. He was called by AXA. That it was necessary to call Dr Williams, one of Australia’s leading economists, for purposes of deciding what is an appropriate fee to charge for a copy of a register is the fault of the legislation, not the parties.
According to Dr Williams, and it could hardly be challenged, the term “marginal cost” is a technical term of economics. He explained that its meaning has been settled for over 100 years and is not the subject of any debate. I would go so far as to say almost every student of elementary economics (and many judges who know only a little of economics) understands what the concept means. Marginal cost is the cost of producing or supplying one more unit of output, whether the output is a good or a service. While it seems to be a simple enough concept, its application is not. First of all it is necessary to know something about cost. The cost of production or supply can be divided into two categories: fixed costs and variable costs. Fixed costs are those that do not vary with output; they would continue even if there was no output. The cost of plant and equipment, tax, interest on loans, depreciation and fixed overheads are common examples of fixed costs. Variable costs, by contrast, change with output. Typically they include raw materials, wages, transportation costs and the like. Marginal cost, then, is a function of variable costs alone.
Marginal cost may be easy to define in theory. But it is notoriously difficult and exceedingly expensive to calculate in practice. Two of the problems, among many, are these. First, it is necessary to decide which costs are to be classified as fixed and which are variable. This is a topic about which views will differ. The second problem is how one should account for joint or common costs when multiple products or services are supplied. Moreover, for analytical purposes marginal cost has its shortcomings. The problem is that marginal cost will vary from one moment to the next and between wide extremes. One reason is that the cost of production constantly changes. Another is that the circumstances of production may differ from time to time.
All competition lawyers are familiar with the concept of marginal cost. At one time predatory pricing was defined as charging a price below that of marginal cost. That approach did not survive for long. According to Professor Hovenkamp the reason was that “[m]arginal cost generally cannot be computed in litigation”. He explained that “[t]he primary value of marginal cost … is conceptual”: H Hovenkamp, Federal Antitrust Policy: The Law of Competition and its Practice (2nd ed, 1999) at 337. See also William Inglis & Sons Baking Co v ITT Continental Baking Company Inc 668 F 2 d 1014 (1982). When Dr Williams was giving his evidence I suggested that “marginal cost” found its way into the Regulations because its difficulty of application was not appreciated. Prompted by my comment, Dr Williams said: “It is astonishing [that marginal cost] is in the statute at all”.
The facts of this case put in stark relief the problem of having marginal cost stand as a cap to a reasonable fee. As I have mentioned, AXA’s register is kept by Computershare. This imposes upon Computershare both the obligation to make the register available for inspection and to provide a copy to any person entitled to receive a copy: s 174. It is, I think, implicit in the legislation that the satisfaction by Computershare of its obligations is the means by which the company itself satisfies its duty to do those things.
As the evidence shows the marginal cost to Computershare of providing a company register is not great, but the marginal cost to AXA is substantial. It is necessary to explain why. For Computershare the work involved in producing a CD Rom containing the register consists of keying instructions into a computer, waiting for the report to run, downloading the information onto a CD Rom and sending the CD Rom to AXA. The variable costs incurred are the cost of an administrative staff member operating the computer, the cost of purchasing a CD Rom and the cost of delivering the CD Rom to the client. The evidence of Ms Guyer, Computershare’s State Manager for Victoria, suggests that the cost is likely to be no more than $100 – $150.
On the other hand, the cost to AXA is much higher. Dr Williams explained that the marginal cost to AXA of providing a copy of the CD Rom is the cost of acquiring the copy of the register on the CD Rom plus the cost of making the arrangements to obtain the copy and send it to the plaintiff. The cost of the CD Rom is regulated by the Registry Services Agreement pursuant to which Computershare provides share registry and other services to AXA. According to that agreement Computershare was entitled to charge $17,195.39 for supplying the CD Rom. Why is the fee so high? I do not think there is a sinister explanation. AXA has online access to the register as part of the services provided by Computershare. If it needs to send information to shareholders Computershare undertakes the task. Thus AXA has no need for a copy of its register, save in exceptional circumstances. Indeed, in the last four or five years it has only requested four copies, one for its major shareholder and the other three for the plaintiff. In the first example the fee charged by AXA was passed on. In these circumstances AXA has little incentive to bargain down the rate.
By the same token I am sure Computershare would have agreed to take less for providing a copy of the register. Under its contract, Computershare receives around $1.3 million per annum for its services. Ms Guyer suggested that charging a high fee for one service was an example of cross-subsidisation. It is true that on the demand side, multiple products or services are often used to subsidise one another. I do not, however, accept that there was any expectation for cross-subsidisation from a service so rarely used.
We can now see the problem of applying the concept of marginal cost to the facts at hand. The marginal cost to Computershare of producing a copy of the register on a CD Rom is less than $100 (my own calculation based on the evidence of Ms Guyer is that it is around $50). The marginal cost to AXA is in excess of $17,195.39; the price paid to Computershare is only part of the marginal cost, the balance has not been worked out either because the amount is so small or because the task is too difficult. This is in circumstances where AXA does nothing more than receive the CD Rom from Computershare and send it to the plaintiff, the cost of which cannot be more than a dollar or two.
I can now deal with the principal issue in dispute which is whether the fee charged by AXA is a reasonable amount. Ordinarily one would begin by examining the market price for CD Roms containing a register. There is no evidence, however, of any market for the supply of such a product.
In the absence of a market price, the price paid by the supplier of the product can sometimes be a useful guide to what is a reasonable fee. That price would, however, only be useful if it were arrived at in negotiations where the supplier was attempting to purchase the product at the lowest possible price. Self-evidently that is not true of the price paid by AXA, at least as regards the provision under its agreement with Computershare of a copy of the register.
Another method of determining what is a reasonable fee to charge is the cost of production plus (if it were not otherwise included) a reasonable return on capital. That is how price is set in a competitive market to give the producer enough profit to maintain his or her investment. It would, of course, be necessary to specify what costs are to be taken into account. The costs might be limited to variable costs or, as I would prefer, include fixed costs. There is simply no evidence in this case upon which such a calculation can be based.
What I do have is the evidence of Mr Farrelly, an information technology expert called by the plaintiff. Mr Farrelly has considerable experience in managing document databases for clients which are of similar size to AXA’s register of members. A typical fee charged to supply a CD Rom copy of the data is between $50 and $300. Mr Farrelly also undertook a rough assessment of what it would cost Computershare to produce a copy of the register (if the work was performed by an employee). His estimate was a rather generous $480. He also made an assessment of how much an external consultant would charge Computershare for producing a copy. He assumed the external consultant would charge a one day fee regardless of how long the task took. He said the fee would be between $1500 and $2200.
In my view a reasonable (if somewhat generous) fee to charge for the CD Rom supplied to the plaintiff is $250. I accept that this amount is something of judicial guesswork but the evidence does not permit me to be any more precise. In arriving at a fee of $250 I have had regard to the fact that the CD Rom was in PDF format and difficult to use.
In the circumstances there will be orders that AXA refund the plaintiff the sum of $16,945.39 and pay the costs of the action.
I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.
Associate:
Dated: 19 June 2008
Counsel for the Plaintiff: Mr I G Waller SC and Ms G King-Siem Solicitor for the Plaintiff: Piper Alderman Counsel for the Defendant: Mr J Santamaria QC and Dr M Collins Solicitor for the Defendant: Corrs Chambers Westgarth
Date of Hearing: 13 May 2008 Date of Judgment: 19 June 2008
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