ENT Pty Ltd v Sunraysia Television Ltd - [2007] NSWSC 270

No judgment structure available for this case.

Reported Decision:
61 ACSR 626
(2007) 25 ACLC 399

New South Wales

Supreme Court

CITATION: ENT v Sunraysia [2007] NSWSC 270

HEARING DATE(S): 23 March 2007

JUDGMENT DATE :
27 March 2007

JURISDICTION: Equity

JUDGMENT OF: Austin J

DECISION: Injunction granted to restrain defendant from proceeding with any business at meeting, other than adjournment

CATCHWORDS: CORPORATIONS - general meeting of shareholders - directors recommend that shareholders approve sale of main undertaking - directors' fiduciary duty of disclosure to shareholders - whether directors have a duty to take steps to obtain information - whether disclosure in explanatory materials for meeting was adequate - shareholder's claim to inspect books of company - whether court should make order limiting use so as to exclude use for takeover purpose TRADE AND COMMERCE - misleading and deceptive conduct - explanatory materials for meeting of shareholders to approve sale of main undertaking of company under ASX Listing Rules - appropriate form of remedy

LEGISLATION CITED: Australian Stock Exchange Listing Rules, Listing Rule 11.2
Corporations Act 2001 (Cth) ss 247A, 247B, 249L, 1324
Trade Practices Act 1974 (Cth) ss 52, 80

CASES CITED: Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344
Barrack Mines Ltd v Grants Patch Mining Ltd [1988] 1 Qd R 606
Chequepoint Securities Ltd v Claremont Petroleum NL (1986) 11 ACLR 94
Cleary v Australian Co-operative Foods Ltd (Nos 2 and 3) (1999) 32 ACSR 701
Fraser v NRMA Holdings Ltd (1995) 55 FCR 452
ICAL Ltd v County NatWest Securities Aust Ltd (1988) 39 NSWLR 214
Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2005) 55 ACSR 583
Metal Manufacturers Ltd v Marsh Electrical Pty Ltd (1998) 29 ACSR 245
Pancontinental Mining Ltd v Goldfields Ltd (1995) 16 ACSR 463
Re Augold NL [1987] 2 Qd R 297
Re Imperial Chemical Industries Ltd [1936] Ch 587
Samic Ltd v Metals Exploration Ltd (1993) 60 SASR 300
Unity APA Ltd v Humes Ltd [1987] VR 484
Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666

PARTIES: ENT Pty Ltd (P)
Sunraysia Television Ltd (D)

FILE NUMBER(S): SC 1860/07

COUNSEL: J C Sheahan SC with K C Morgan (P)
N Hutley SC with K Williams

SOLICITORS: Atanaskovic Hartnell (P)
Deacons (D)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

AUSTIN J

TUESDAY 27 MARCH 2007

1860/07 ENT PTY LTD V SUNRAYSIA TELEVISION LTD

JUDGMENT (Revised to correct typographical errors, 27 March 2007)

1 HIS HONOUR: This is an urgent application by the plaintiff for a final injunction to enjoin the holding of a shareholders' meeting, pursuant to s 1324 of the Corporations Act 2001 (Cth), or alternatively s 80 of the Trade Practices Act 1974 (Cth) or the general law, and for other relief.

Facts

2 The defendant company ("Sunraysia") is a listed Australian company. The plaintiff is a shareholder in Sunraysia, holding approximately 26.7% of the issued shares. It has done so since approximately 1994. The plaintiff's ultimate holding company is WIN Corporation Ltd. Another wholly owned subsidiary of WIN Corporation, WIN Television Tas Pty Ltd, holds about 17.9%, taking the total holding of the WIN group to 44.6%.

3 Eva Presser, chairman of directors of Sunraysia, holds about 0.24% in her own name. However, she has voting power in respect of holdings of Sunraysia shares by Sabtel Pty Ltd, Benver International Pty Ltd and Advil Pty Ltd, amounting to a little over 49.7% of Sunraysia. The other directors of Sunraysia hold about 0.06%.

4 Therefore if, in respect of any question for determination by the shareholders, the WIN and Presser shareholding blocks are committed to vote in a particular way, the "free float" of voting shares in respect of that question is no more than 6.6% of the issued shares. It may well be less than that: for instance, three of the shareholders identified in ASIC's Company Extract for Sunraysia have the surname "Presser" and the same residential address as Ms Presser, and hold together about 0.85%. One of those shareholders provided an affidavit in support of the defendant.

5 On about 23 February 2007, Sunraysia issued a Notice of General Meeting ("Notice") to its shareholders, convening a meeting for 28 March 2007. Enclosed with the Notice was an Explanatory Memorandum ("EM"), a letter from the chairman, and a document entitled "Frequently Asked Questions" ("FAQs"). I shall refer to these four documents together as "the Explanatory Materials".

6 The purpose of the meeting is to approve the sale of the whole of the issued share capital in Swan Television & Radio Broadcasters Pty Ltd ("Swan TV") by Sunraysia to PBL Media Pty Ltd ("PBL Media") for $136,360,000 ("the Sale Price"). I shall refer to this transaction as "the Sale Proposal".

7 Swan TV is at present a wholly owned subsidiary of Sunraysia. Sunraysia and PBL Media have entered into a sale agreement dated 21 February 2007 ("the Share Purchase Agreement"), which is expressed to be conditional upon (inter alia) approval by the shareholders of Sunraysia. If the shareholders approve the sale, the directors of Sunraysia intend to propose a share buy-back for all of the company's issued shares, funded by the proceeds of sale of Swan TV.

8 Swan TV operates Sunraysia's main undertaking, an independent television station in Perth, Channel 9. Swan TV represents approximately 95% of the net consolidated assets of Sunraysia (based on the audited balance sheet dated 30 June 2006), and about 99.7% of Sunraysia's revenue. Although (as I shall explain) its contemplated economic effect is very similar to the effect of a takeover of Sunraysia, the Sale Proposal is structured as a sale of assets rather than a takeover bid, and hence (generally speaking) it is not governed by Ch 6 of the Corporations Act. In particular, s 659B, which would prevent the commencement of court proceedings in relation to a takeover bid or proposed takeover bid before the end of the bid period, is inapplicable.

9 It is necessary, however, for Sunraysia to obtain shareholder approval for the sale under ASX Listing Rule 11.2, which is in the following terms:

11.2 Change involving main undertaking

10 There is no evidence before me as to any dealings between Sunraysia and the ASX with respect to the meeting. For present purposes what is important is that the listing rule (which the parties acknowledge to be applicable) requires Sunraysia to "get the approval of holders of its ordinary securities" to the "significant change" which involves Sunraysia disposing of its main undertaking. Consequently the Notice convening the meeting says that the following resolution will be put to the meeting as an ordinary resolution:

"That in accordance with the requirements of ASX Listing Rule 11.2 approval is given for the disposal of Sunraysia's wholly-owned subsidiary Swan Television & Radio Broadcasters Pty Ltd, which operates Sunraysia's main undertaking, in accordance with the Share Purchase Agreement described in the Explanatory Memorandum that accompanies this Notice of Meeting."

11 The directors of Sunraysia state in the EM that they unanimously recommend that the shareholders vote in favour of the proposed resolution, in the absence of a superior proposal.

12 The principal relief sought by the plaintiff is a final injunction enjoining the shareholders' meeting or enjoining any business of the meeting other than adjournment, on the grounds that the directors of Sunraysia have not complied with their fiduciary duty of full and fair disclosure to their shareholders, or that the documentary disclosure that has been made constitutes misleading or deceptive conduct contrary to s 52 of the Trade Practices Act, or that it contravenes s 249L(3) of the Corporations Act. There is an ancillary issue, to which I shall return at the end of these reasons for judgment, concerning whether the plaintiff's use of information obtained by it upon inspection of Sunraysia's books under s 247A should be limited under s 247B so as to prevent it from being used for a takeover-related purpose.

13 Section 249L(3) of the Corporations Act requires that information included in a notice of meeting must be worded and presented in a clear, concise and effective manner. In my opinion the disclosure problems in the present case do not arise out of any lack of clarity or concise expression, or failure to word or present information in an effective manner. The problems under consideration, if they are deficiencies, are deficiencies arising from failure to make adequate substantive disclosure of material matters. Problems of that kind are addressed by the directors' fiduciary duty of disclosure and the law of misleading and deceptive conduct, rather than s 249L(3).

(i) The directors' duty of disclosure

14 Section 249L(1)(b) requires that a notice of a meeting of a company's members must state the general nature of the meeting's business. The plaintiff does not contend that the Notice in the present case fails to comply with this statutory provision in a formal sense, but it argues that the disclosure in the Explanatory Materials is inadequate.

15 The plaintiff contends that the court should interfere with the meeting process, by injunction, because the directors of Sunraysia have not discharged the duty they owe to the shareholders of the company to provide such material as will fully and fairly inform the shareholders of what is to be considered at the meeting and enable them to make a properly informed judgment on the matters in question, including an assessment of the financial effect of the sale proposal on the company and on their interest in the company. The duty they invoke is sometimes called "the Bulfin v Bebarfald's duty", identifying the leading judgment by Long Innes CJ in Eq, (1938) 38 SR (NSW) 423 (generally, see Austin, Ford and Ramsay, Company Directors: Law and Corporate Governance (LexisNexis Butterworths, 2005), at [12.16]-[12.18]).

16 Although the plaintiff contends that the directors of Sunraysia have not discharged their duty, the directors have not been joined as parties to the proceeding. Senior counsel for both parties informed me that their clients do not raise any issue as to the absence of joinder of the defendants. I infer that senior counsel for the defendant made that statement to the court with the authority of the board of directors of Sunraysia. Even so, in the absence of separate representation of the directors, it would not be appropriate for me to decide that any breach of the directors' duty has already occurred. It is enough, for the purposes of the present case, to consider and determine whether there would be a breach of the directors' duty if the shareholders' meeting proceeded with no more information than has been provided. I shall proceed in that manner.

17 The plaintiff places particular reliance on the decision McLelland J in Chequepoint Securities Ltd v Claremont Petroleum NL (1986) 11 ACLR 94. Like the present case, that case involved a meeting of shareholders to approve a sale of assets by their company, though on that occasion the shareholders were also asked to give effect to a reduction of capital, subject to confirmation by the court as required by the law of that time. Unlike the present case, there the application was for an interlocutory injunction, and so the plaintiff had only to establish an arguable case and show that the balance of convenience favoured the making of the order.

18 After finding that the directors of the company had complied with the company's constitution by giving a notice that disclosed the general nature of the business of the meeting, his Honour turned to consider the fiduciary obligation of the directors, and said (at 96):

Bulfin v Bebarfald's

Devereaux Holdings Pty Ltd v Pelsart Resources NL

19 The obligation to make full and fair disclosure does not oblige the directors to give shareholders every piece of information that might conceivably affect their voting. The adequacy of the information provided in documentation is to be assessed in a practical, realistic way having regard to the complexity of the proposal (Fraser v NRMA Holdings Ltd (1995) 55 FCR 452, at 468). Speaking of the statutory obligation to avoid misleading or deceptive conduct, while relying on cases concerning the directors' duty of disclosure, the Full Federal Court said in Fraser v NRMA Holdings, at 468:

Devereaux Holdings Pty Ltd v Pelsart Resources NL (No 2)

Re Dorman Long & Co Ltd

20 The question is not whether the explanatory documents provided to the shareholders could have been drafted differently, but what effect the documents will have on "the ordinary shareholder who scans or reads the document quickly, not as a lawyer, but as an ordinary man or woman in commerce or as an ordinary investor" (Devereaux Holdings, at 958). If a deficiency is identified, the court considers whether there is any reasonable ground for supposing that the deficiency would cause shareholders to vote, or abstain from voting, under a serious misapprehension of the position (Devereux Holdings at 958-9 per Young J, citing Re Imperial Chemical Industries Ltd [1936] Ch 587 at 618 per Clauson J).

21 The Full Federal Court's decision in Fraser v NRMA Holdings Ltd is authority for the proposition (stated at 466) that "a proper discharge of the duty may require that the directors take reasonable steps to ascertain relevant information for communication to members if that information is not known to the board". That, in turn, is qualified by the proposition that in considering whether the directors should seek out additional information, it is relevant to take into account the time and cost of acquiring and preparing such information, and the delay involved in doing so (Cleary v Australian Co-operative Foods Ltd (Nos 2 and 3) (1999) 32 ACSR 701, 719). But I do not agree with the suggestion in the defendant's submissions that the duty to take steps to ascertain additional information is confined to cases where additional information is required to give a proper explanation of a change of circumstances or to ensure that members are not misled by information already provided.

22 The application of the principle by McLelland J in the Chequepoint case is also of assistance in the present case because of the similarity of the facts. While the directors' explanatory letter in Chequepoint drew the shareholders' attention to the benefits they would derive from the transaction, which would permit them to deal with their gold and oil interests separately, McLelland J held that the letter did not deal adequately with the effect of the transaction in financial terms. He found that the directors had in fact carried out a calculation of the financial effect of the transaction, but no reference was made to this in the material sent to the shareholders.

(ii) Misleading or deceptive conduct

23 There is a close relationship between the operation of the directors' fiduciary duty of disclosure, and the application of s 52 of the Trade Practices Act. In Fraser v NRMA Holdings, the Full Federal Court made the following points (at 465-7):

· the fiduciary and other duties of directors under the general law, including the directors' duty of disclosure, may assist in determining whether in the circumstances of the case s 52 is contravened by a failure to give information, or by the provision of information only to a limited extent;

· s 52 does not give rise to a duty to provide information, but when information is in fact given in purported discharge of the directors' fiduciary duty, s 52 requires that the information that is given is not misleading or deceptive or likely to mislead or deceive;

· the section also requires that if the directors withhold information, that conduct must not be misleading or deceptive or likely to mislead or deceive;

· there is an overlap between the fiduciary duty of disclosure and the operation of s 52, in that a failure properly to discharge the fiduciary duty may itself constitute a contravention of s 52;

· in the specific context of disclosure of information to shareholders for the purposes of a meeting, if the information given is not full and fair disclosure of all material facts to enable the members to make a properly informed decision, "the combination of what is said and what is left unsaid may, depending on the full circumstances, be likely to mislead or deceive the membership" (at 467).

(iii) Material disclosure for the purpose of approving a commercial decision

24 I generally agree with the plaintiff's submission that the level of disclosure in the present case is influenced by the nature of the decision that the shareholders are being asked to make. Under a typical corporate constitution (and see the replaceable rule in s 198A), the directors are empowered to manage or direct the management of the business of the company. Therefore, the decision to dispose of the company's main undertaking is the directors' decision. The Listing Rule gives shareholders the function of approving the directors' decision (or their proposed decision), and so the shareholders' meeting supplements the directors' decision rather than usurping the directors' power.

25 The shareholders do not need to have all of the information required by the primary decision-makers, the directors. For example, they do not need to be presented with information about the range of alternative proposals that would need to be considered before a particular transaction is chosen. Reviewing all the alternatives is a task for the primary decision-makers. The shareholders' task is limited to approving or rejecting the particular proposal that the directors present to the meeting, and it is not their role to choose or advocate a transaction of some other kind. The question for the shareholders is not whether the directors have selected the best possible transaction, but whether the transaction they have selected should be approved. However, the shareholders are entitled to receive all of the information that is material to the question whether the transaction proposed by the directors should be approved, including all the commercial information that is material to that question. That includes the material commercial information known to the directors, and also other commercial information that is material and accessible to the directors even if they are not aware of it.

26 Listing Rule 11.2 is to be distinguished from some other listing rules (for example, Listing Rules 10.1, 10.11 and 10.14) that require shareholder approval of related party transactions of various kinds. On those occasions the focus of attention is not so much on the commercial desirability of what is proposed, as on whether the shareholders are satisfied that the board has acted with an appropriate degree of independence and objectivity. This is not to say that information bearing upon independence and objectivity of the board is irrelevant for shareholder approval under Rule 11.2. In Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666, for example, where the directors placed a proposal before shareholders for their approval before entering into it, the Court of Appeal of New South Wales held that it was material for the shareholders to be told the real purpose of the transaction and consequently that in the absence of shareholder approval there would be a breach of duty (at 685 per Samuels JA; 703-5 per Mahoney JA). Disclosure of that kind may well be required under Rule 11.2. Nor is it to say that commercial considerations are irrelevant under the other listing rules that I have mentioned. The point is that the level of disclosure of commercial matters is enhanced by virtue of the circumstance that the purpose of the meeting under Rule 11.2 is to obtain shareholder approval of a commercial decision.

(iv) Analogy with Ch 6 disclosure

27 The plaintiff also submits that, in assessing the quality of the material given to shareholders in this case, it is relevant to have regard to the standards applied to disclosure documents in a takeover under Chapter 6 of the Corporations Act. I agree that the transaction in the present case is closely similar to a takeover, in its economic effect. If the proposal goes ahead, Sunraysia will dispose of its only substantial business asset and will have no further business purpose, and its cash (its only substantial asset after the sale) will be distributed to its shareholders; apart from different tax treatment and some uncertainty as to the amount of the ultimate distribution, that outcome is substantially equivalent to the outcome of a cash takeover of Sunraysia. The plaintiff also draws attention to some of the terms of the sale agreement between Sunraysia and PBL Media, noting that some of the provisions reflect the usual conditions of off-market takeover bids and that the parties appear to have adopted the Takeovers Panel's guidance (Guidance Note 7 - Lock-up Devices) as to the amount of the break fee and the requirements for "fiduciary outs" to the "no shop" and "no talk" restrictions in the agreement.

28 There are, however, important differences between the statutory requirements for disclosure in a bidder's statement and the duty of the directors to provide shareholders with the information material for their decision at a meeting. Although the statute requires a bidder's statement to disclose all material information (s 636(1)(m)), the contents of the bidder's statement are also prescribed with some particularity by s 636, and in my view the case law on takeover disclosure is influenced by that prescriptive statutory approach. Moreover, materiality for the purposes of disclosure in a bidder's statement is assessed having regard to the choices available to the target shareholders, which are somewhat wider than the choices presented to shareholders at a Rule 11.2 meeting (cf ICAL Ltd v County NatWest Securities Aust Ltd (1988) 39 NSWLR 214 at 235; Metal Manufacturers Ltd v Marsh Electrical Pty Ltd (1998) 29 ACSR 245 at 248; Pancontinental Mining Ltd v Goldfields Ltd (1995) 16 ACSR 463; Samic Ltd v Metals Exploration Ltd (1993) 60 SASR 300 at 303 (the matter was not considered by the High Court on appeal: (1994) 181 CLR 109)). For these reasons the analogy between disclosure in a bidder's statement and disclosure for the purposes of a Rule 11.2 meeting is not strong, and so the case law on takeover disclosure needs to be approached with caution in a case about disclosure to a shareholders' meeting.

(v) Relevance of the buy-back proposal

29 The proposed resolution is a resolution to approve the Sale Proposal. Completion of the sale will leave the company as a cashbox without any business. The sale will not directly confer any tangible benefit on the shareholders. It may have been open to the directors to put before the shareholders for approval the simple proposition that they should approve the Sale Proposal so as to convert the company into a cashbox. Then it would have been arguable that the only matters material to the shareholders' decision would have been matters strictly relating to the sale, and (arguably) it would not have been material to disclose any proposal to deal with the cash generated by the sale.

30 However, it is evident from the Explanatory Materials that the directors see the sale as the first step in a two-step process. They contemplate that the shareholders will benefit from the sale by means of a shareholder-approved share buy-back, under which all of the shares of accepting shareholders will be cancelled in return for a cash payment. Having that intention, they have quite properly told the shareholders in the Explanatory Materials that a share buy-back is intended to follow the sale. I shall say more about the buy-back proposal later. Importantly for present purposes, while the buy-back proposal is disclosed in the Explanatory Materials, the shareholders are not being asked to approve the buy-back at this stage. It is intended that the buy-back will be put forward to a separate meeting of shareholders after the sale transaction has been approved. The defendant has not explained why the directors have chosen a two-stage process, but there is some evidence that a tax ruling as to the effect of the buy-back on assessable income might have been sought, but has not yet been made.

31 In my opinion it is impossible to assess the adequacy of disclosure for the Rule 11.2 meeting in isolation from disclosure about the buy-back proposal, given the intention of the directors and the way they have approached their disclosure task. I accept that it is not necessary for the shareholders' decision on the Sale Proposal to be made at the same time as their decision on the buy-back. There may well be good commercial or other reasons for deferring a meeting to approve the buy-back for the time being. However, from the shareholders' perspective, the desirability of the asset sale as part of a two-stage process is vitally affected by the directors' intentions for the second stage, the part of the process which will confer a benefit on the shareholders. That being so, it is incumbent on the directors to tell the shareholders enough about the buy-back that they can make a sensible decision about the Sale Proposal in the context of the overall process of which the sale is the first part.

(vi) Matters of interest for some major shareholders

32 It follows that what is material for the "ordinary shareholder who scans or reads the document quickly" (Devereaux Holdings, at 958-9) is information about the commercial merits of the Sale Proposal and the impact on him or her of the two-stage process of which it is a part. To put the matter colloquially, and approximately, the ordinary shareholder needs to be given material information so that he or she can assess:

· whether the sale is for a fair price, and whether the terms and conditions of sale are onerous or disadvantageous;

· how and when he or she will benefit from the proceeds of sale, in terms of distribution of the benefit and tax effect of distribution.

33 In my opinion, the Explanatory Materials fail to supply basic information on these matters. They are therefore deficient, and in my opinion the deficiencies are sufficiently substantial that they are capable of causing shareholders to vote, or abstain from voting, under a serious misapprehension of the position. If the directors do not provide supplementary information to the shareholders in sufficient time to enable them to take the additional information into account when deciding whether to attend or appoint a proxy at the adjournment of the meeting, they will fail to discharge the fiduciary duty to shareholders identified in the case law, and in those circumstances Sunraysia itself will have engaged in misleading or deceptive conduct or conduct likely to mislead or deceive.

34 In the circumstances of the present case, the evidence given by Mr Bram Presser, a shareholder, to the effect that he does not require additional information, does not detract from my assessment. Mr Presser has not explained why he is content to make his decision in the absence of information of the kind that is missing from the Explanatory Materials. It is relevant that his surname suggests that he may be related to and influenced by the chairman of directors, Ms Presser.

35 As I have said, in the present case there appears to be only a limited "free float" of voting shares. On the question of shareholder approval of the Sale Proposal, 49.8% of the shares are under the control of the directors, who recommend that approval be given and say they will vote in favour of the proposed resolution in the absence of a superior proposal. It may be that, in practical terms, the outcome of the meeting is a foregone conclusion, whatever the level of disclosure. That does not mean, however, that the directors are to be exonerated from reaching the standard of disclosure that the law requires. The cases (especially Fraser v NRMA Holdings, at 466) show that the directors' duty is a fiduciary duty owed to each shareholder. It is not open to the court to reduce the required level of disclosure upon the basis of a prediction about the outcome of the meeting.

The plaintiff's criticisms of the Explanatory Materials

36 In its Point of Claim, the plaintiff criticises the Notice and the EM in eight numbered subparagraphs. The defendant replies to each of those points in its Points of Defence. I shall deal with the plaintiff's complaints, one by one.

37 Although the Points of Claim are directed specifically towards the Notice and the EM, argument proceeded on the basis that it is necessary to read the Explanatory Materials as a whole (that is, taking into account the FAQs and the chairman's letter as well as the Notice in the EM). I agree that the adequacy of disclosure must be assessed by reviewing the Explanatory Materials as a whole.

(a) & (c) Directors' opinion as to fair price and the interests of members

38 Para 8a of the Points of Claim says:

"The Directors have not informed members whether they have an opinion as to whether the Sale Price reflects a fair price for Swan TV, and if they do, what that opinion is and the basis for it."

"The Directors have not informed members of the basis upon which it should be concluded that the Sale Proposal is in the members' best interests."

39 In answer to paras 8a and 8c, the defendant refers to the following disclosures in the Explanatory Material:

40 The defendant contends that this information is sufficient to discharge the directors' duty of disclosure, and they have no obligation to go further. I disagree. It is inconceivable that the directors would have recommended the Sale Proposal without first forming a view as to whether the Sale Price is a fair price for Swan TV (or, if not a fair price, one that in the circumstances should be accepted). In my opinion information about their opinion on this vitally important matter, and the basis for their opinion, is highly material to the shareholders' decision whether to approve the Sale Proposal. It is fundamental. It might be that information about the directors' opinion on the question whether the Sale Proposal is in the shareholders' best interests would not be material to a simple decision to approve the sale of an asset, even a substantial one. But in the present case, as I have said, the directors have presented the Sale Proposal as the first step in a two-stage process, the second stage involving a cash distribution to the shareholders that makes it relevant for the shareholders to consider whether the whole process should be implemented, in their interests, by embarking on the first step.

41 Of the items of disclosure relied on by the defendant, items (i), (ii), (v), (viii) and (ix) are relevant to the question whether Swan TV should be disposed of, but they do not assist the shareholders to decide whether the sale is at a fair price. Items (vi) and (vii) seem to be directed to the question whether, if Swan TV should be sold, it should be sold to PBL Media. Again, they do not go to the assessment of the sale price. Items (iii) and (iv) identify financial information, some of which may be relevant to the assessment of the value of Swan TV and therefore the adequacy of the price in the Sale Proposal, but the bare reference to the financials does not assist the ordinary shareholder who is not trained as a business valuer. That information is no substitute for a statement of the directors' opinion as to the adequacy of the price, and their basis for forming that opinion. Items (x) and (xi) are relevant to the interests of members but the wording of these disclosures appears to go out of its way to avoid any commitment to the view that the distribution of the proceeds of sale by a buy-back will be in the best interests of the shareholders.

42 The defendant relies on the following statement in the chairman's letter:

"The Directors believe that the sale of Swan TV to PBL Media will provide an excellent result for Shareholders, with the purchase price resulting in net profit on sale, after tax, costs and expenses, of approximately $58.7 million."

43 In my opinion this disclosure does not meet the plaintiff's objections in paras 8a and 8c. It seems to attribute the "excellent result" to the fact that the purchase price will result in a certain level of net profit. It does not address the question of adequacy of the price, as such, or whether (and why) the sale proposal is in the best interests of shareholders.

44 The defendant also refers to its Program Supply Agreement with the Nine Network, which (it says) expired on 31 July 2006, and notes that a new Program Supply Agreement with the Nine Network has not been finalised. These matters are not disclosed in the Explanatory Materials, but information about them appears on page 12 of the Notes to the Consolidated Financial Statements for Sunraysia and its controlled entities for the half-year ended 31 December 2006, and in ASX Announcements made on 5 January and 21 February 2007.

45 In my opinion, if the directors regarded this as a material matter for the shareholders to take into account in considering the Sales Proposal, they should have disclosed it in the Explanatory Materials. Shareholders are entitled to assume that the information material to their decision will be disclosed in the materials distributed by the directors in support of their proposal. While ASX announcements and half-year consolidated financial statements are accessible by investors, they are not necessarily read by existing shareholders. The directors cannot exclude material disclosure to shareholders simply on the ground that the information has already been disclosed to the ASX.

46 Further, the information about the Program Supply Agreement relied upon by the defendant is at best incomplete. While it might provide a reason, or part of a reason, for the directors to consider selling Swan TV, there is insufficient disclosure to enable shareholders to assess the effect of the absence of a Program Supply Agreement on the value of the subsidiary. The half-yearly report says that it is only the "detailed terms" of the new Program Supply Agreement that remain to be finalised, and that progress towards finalisation has been halted because of the Sale Proposal. That suggests that the absence of a new Program Supply Agreement has no impact on the value of the subsidiary (in which case the issue is not material for the shareholders), but the disclosure is unclear.

(b) External assessment of value

47 Para 8b of the Points of Claim says:

"The Directors have not informed members whether they have any independent or other assessment of the value of Swan TV. If there is such an assessment they have not said what the effect of the assessment is. If there is no such assessment they have not said why they thought the Sale Proposal appropriate in the absence of such an assessment."

48 In its Points of Defence, the defendant admits para 8b, but says that the directors' duty does not require them to inform shareholders about these matters. I disagree. In my opinion, the directors' duty of disclosure requires them to disclose the basis upon which they have formed their opinion as to the fairness or adequacy of the price, and the basis of their decision to commit the company to the Share Proposal and to recommend it for the approval of shareholders. The directors' duty of care and diligence required them to have a proper basis for committing the company to the Sale Proposal and recommending it to the shareholders, when they decided to do so. This is not to say that they were required to obtain an independent or other external expert's report as to the value of Swan TV (cf Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2005) 55 ACSR 583). Unlike some other listing rules, Rule 11.2 does not require an expert's report. But if the directors choose to proceed without external expert advice, their duty of care and diligence requires them to identify some other proper basis for their decision. Their duty of disclosure to the shareholders requires that the basis for their decision and their opinion on value be explained, so that the shareholders have the material information they need for the purpose of deciding whether to approve the Sale Proposal. The absence of an independent expert's report does not exonerate the directors from giving such an explanation.

(d) Comparison with historical market price for Sunraysia shares

49 Para 8d of the Points of Claim says:

"The Directors have not informed members that the Sale Price is significantly less than the value of Swan TV implied by the market price for Sunraysia shares since July 2006, and why the Sale Proposal remains in the best interests of members in the light of that fact."

50 There is evidence of the trading history in Sunraysia shares during the period from 10 March 2006 to 9 March 2007. The total volume traded over the one-year period is 0.021% of the market capitalisation, which is stated to be $154,237,500. Over that period the daily closing share price has fluctuated from a low of $10 in May-June 2006 to a high of $14.30 in October 2006. On most days there is no trading at all, and the largest parcel of shares traded was 4000 shares on 15 February 2007.

51 The defendant denies that the value of Swan TV may be implied by the market price of Sunraysia shares since July 2006, and denies that the directors' duty requires them to provide such information to the shareholders.

52 In my opinion, disclosure of the matters identified in para 8d is unnecessary, subject to one qualification. The qualification is that if the directors have formed their opinion as to the value of the subsidiary and the adequacy of the price upon the basis of historical trading information, information about that matter should be included in their explanation of the basis for their opinion, for the reasons I have already given. But if, in the present case, the directors have not taken historical trading information into account, there is no obligation to disclose it. The position might be different in a case where the parent entity's shares are traded in a highly liquid and efficient market where historical trading information may be very helpful in assessing value and adequacy of price. But the evidence indicates this is far from the case with Sunraysia. It would be consistent with discharging their duties for the directors to have formed the view that historical trading information is unreliable and should be excluded from their assessment of value and the adequacy of price.

(e) Alternatives to the Sale Proposal

53 Para 8e of the Points of Claim says:

"The Directors have unanimously recommended members vote in favour of the resolution to sell Swan TV shares to PBL Media on the terms of the Share Purchase Agreement but have not informed members whether any steps were taken to ascertain if there were other bidders who might offer more either for Swan TV or for the shares in Sunraysia (for example WIN Corporation and Macquarie Media); nor whether Sunraysia had considered or been offered or sought any alternatives to the Sale Proposal and if so, why the Sale Proposal was preferable to those alternatives."

54 The defendant admits this paragraph in substance, except for pointing out that the directors' unanimous recommendation was expressed to be in the absence of a superior proposal, and that they informed the members that they intend (again, in the absence of a superior proposal) to vote in favour of the resolution. But they say that the directors' duty does not require them to disclose such matters.

55 The question whether directors should disclose negotiations with other potential bidders and the exploration of alternatives to the proposal they have decided to put to the shareholders is a difficult one. It may be that the directors' duty of care and diligence obliges them to investigate alternative ways of achieving their objectives, and to weigh up the advantages and disadvantages of their preferred proposal against the alternatives, before committing their company to any major transaction. Assuming that to be so, it does not necessarily follow that the directors must on every occasion disclose to the shareholders their consideration of alternatives, and their assessment of the advantages and disadvantages of each. Their duty of disclosure depends upon the question that the shareholders are asked to consider.

56 If the question is whether to adopt a new corporate constitution so as to achieve the demutualisation of a mutual organisation, the members' decision is the only operative decision and they may need to be given some information about alternatives and their relative advantages and disadvantages (see Fraser v NRMA Holdings, at 487). But when the question for the shareholders is whether to approve the sale of the company's main undertaking, the operative decision under the typical corporate constitution is the directors' decision, and the shareholders are required to be consulted only because of the listing rule. The directors' formulation of the proposal for approval by shareholders sets the metes and bounds of the shareholders' decision. It is not a case of the shareholders reviewing a range of possibilities and selecting the one that they prefer. The directors have done so, and their decision is binding on the shareholders. The shareholders are merely asked to approve the directors' proposal. In such a case, it seems to me, it is unnecessary to disclose alternative proposals and their relative advantages and disadvantages.

(f) Warranties and possible warranty claims

57 Para 8f of the Points of Claim says:

58 The defendant draws attention to the following disclosures in the Explanatory Materials:

59 The defendant submits that the directors' duty does not require them to make the further disclosures identified in para 8f. They say that it would be irresponsible to do so, because it may give members the erroneous impression that there is some certainty about whether and in what amount warranty claims will be made, and because it may invite or encourage claims by PBL Media. But in my opinion a carefully drafted disclosure can avoid these risks.

60 The Share Purchase Agreement is, as one would expect, a lengthy, legally-drafted agreement which contains a substantial number of warranties, most of which are not specifically disclosed in the Explanatory Materials. However, having perused the document, I have not identified any warranties that should have been but were not the subject of specific disclosure in the Explanatory Memorandum. The plaintiff did not identify any such particular clauses in submissions. In my view the description of the warranties in items (i) and (ii) above is adequate. I would apply, mutatis mutandis, the observations of the Full Federal Court in Fraser v NRMA Holdings, at 468, to the effect that the disclosure requirement must be tempered by the need to present an intelligible document.

61 I agree with the plaintiff, however, that it is material for the directors to tell shareholders whether they are aware of any circumstances likely to give rise to claims and if so, what those circumstances are, and whether they have any belief as to whether substantial claims are likely, and if they do, what is their belief and the basis for it. Statements about these matters are basic pieces of material information for shareholders in circumstances where the benefit of the Sale Proposal, namely the receipt of cash, may conceivably be substantially reduced or even eliminated if successful warranty claims are made.

(g) Whether the Share Buy-Back is the best alternative, and tax implications

(h) Disclosure about the Share Buy-Back

62 Para 8g of the Points of Claim says:

"The Directors have not informed members as to whether they consider the buy-back proposal set out in the EM (the " Share Buy-Back") is in the best interests of members, their reasons for preferring the Share Buy-Back course over other options of returning the proceeds of the Sale Proposal to members, and have not provided sufficient details regarding the Share Buy-Back (including, but not limited to, the tax implications for members) to enable them to properly assess the Sale Proposal in the context of the indication that the Share Buy-Back will be proposed and recommended."

63 Para 8h of the Points of Claim says:

64 The defendant draws attention to the following disclosures in the Explanatory Materials:

65 The defendant also draws attention to the disclosure in the EM (pages 12-15) about the financial and taxation effect of the Sale Proposal on the defendant. It says that this disclosure is sufficient to discharge the directors' duty, and it denies that the directors are required to provide the additional information identified in paras 8g and 8h of the Points of Claim.

66 I do not regard it as necessary for the directors to set out and review alternatives to distribution of the sale proceeds by share buy-back. It seems to me that it would be premature for the directors to express their opinion at this stage as to whether a share buy-back will be in the best interests of the shareholders, given that the specifics of the proposal have apparently not yet been finalised and there may be good reasons for that (such as the need to obtain a tax ruling). However, I agree with para 8g to the extent that it claims that the directors have not provided sufficient details regarding the buy-back proposal to enable the shareholders properly to assess the Sale Proposal.

67 First, the Explanatory Materials do not make it expressly clear whether the proposed buy-back is to be an equal access scheme or a selective buy-back. That is a material matter for the shareholders, who may well take a different attitude to the Sale Proposal depending upon whether the proceeds of sale are to be distributed unequally and in a manner that favours some shareholders over others. If I were asked to guess what the directors have in mind, I would say that they contemplate an equal access scheme, but the matter should not be left to guesswork.

68 Secondly, the Explanatory Materials leave the reader in doubt as to how the amount to be distributed in the buy-back will be calculated. At no point in the Explanatory Materials is it said, in so many words, that what will be distributed in the first instalment of the buy-back is the Sale Price less the escrowed amounts and expenses. The closest one comes to such a statement is in the answer to question 4 in the FAQs, where it is said that Sunraysia intends to distribute "the Sale proceeds" to shareholders through an off-market buy-back. But the expression "Sale proceeds" is not defined. It appears from the Explanatory Materials that there is a concept of "Buy-Back Price", but that expression is not defined and, as the plaintiff submits, no explanation is given as to what the Buy-Back Price is expected to be and whether Sunraysia intends to make any deductions for further reserves over and above the escrowed amounts. There is no indication that any allowance is to be made for Sunraysia's administrative expenses for the distribution and for the maintenance of the escrow accounts during the escrow period, and no estimate is given of what those expenses might be and by how much they are likely to reduce the amount available to be distributed to shareholders.

69 Thirdly, there is the question of the tax effect of the proposal on members. This issue is not addressed in the Explanatory Materials, except by the statement that further details about the buy-back will be provided in advance of the meeting to approve it. And yet, in circumstances where the directors have referred to the buy-back as part of their case for recommending the Sale Proposal to the shareholders, the tax outcome is an essential component of the shareholder's assessment of the likely benefit of the scheme as a whole, and hence an important input into the shareholder's decision to approve or reject the Sale Proposal.

70 In circumstances where a tax ruling may have been sought but not obtained, at least in respect of the position of Ms Presser, one can understand that disclosure of the tax effect of the proposal would have to be expressed cautiously. Presumably it will be necessary to address the matter by reference to a number of categories, depending upon such matters as whether the shareholder is an individual, a company, a superannuation fund, or foreign resident. No doubt any tax disclosure will be accompanied by a warning to the effect that the details of the buy-back proposal are not yet finalised and that in any case, shareholders should rely on their own tax advice in assessing the outcome in their particular circumstances. Even so, general tax advice is, in my view, capable of being informative and of assistance, and is material information for the shareholders to have, for the purpose of deciding whether to approve the Sale Proposal, as the first step in a process which is intended to confer a benefit on them.

Conclusions as to the adequacy of disclosure

71 The Explanatory Materials are deficient for failing to disclose the matters identified in the Points of Claim, paras 8a, 8b, 8c, 8f(i) and(ii), 8g (but only with respect to the last part of that paragraph, relating to failure to provide sufficient details regarding the buy-back), and 8h. These deficiencies relate to material information that the ordinary shareholder needs to have in order to decide whether to approve the Sale Proposal, and would expect to be provided with. The deficiencies are not mere matters of drafting and they do not relate to areas where reasonable minds may differ from one another as to what is and is not material. Having regard to the nature of the deficiencies, I have formed the conclusion that there is strong ground for supposing that the deficiencies would cause shareholders to vote, or abstain from voting, under a serious misapprehension of the position. Therefore, the court should make orders having the effect that, in the absence of corrective disclosure, the meeting should not proceed to any substantive business.

The appropriate orders

72 In its Amended Originating Process, the plaintiff seeks an injunction either:

· to restrain the defendant (by itself, its officers, employees, agents or assigns) from taking without the leave of the Court any action, including but not limited to holding a general meeting, for the purpose of approving the Sale Proposal; or

· to restrain the defendant (etc) from proceeding without the leave of the court with any business at the general meeting of members scheduled on 28 March 2007 as identified in the Notice, other than by the taking of such steps as are necessary or appropriate to adjourn the meeting.

73 In my view the first alternative form of order goes too far, to the extent that it would prevent the defendant from doing anything for the purpose of approving the Sale Proposal, including the preparation of supplementary disclosure. My view is that the deficiencies that I have identified could be overcome by further disclosure, and I see no good reason for preventing the defendant from attempting to do so.

74 In its Points of Defence, the defendant contends that the court should in the exercise of its discretion decline to grant relief to the plaintiff on the basis that it would be futile. I disagree. Relief will be granted so as to prevent shareholders from being placed in the position of having to make a decision about the meeting without having adequate material information. The orders can and should be structured so that, if adequate information is supplied, the meeting can go ahead at a later date.

75 The defendant also says that if the court finds against its principal submissions, then any relief granted against it should be limited to an injunction restraining it from holding the general meeting for a short period pending the distribution to members of such further notice of meeting and/or supplementary information as the court considers appropriate. I have in mind making an order that will give the defendant the opportunity of providing supplementary disclosure to the shareholders.

76 In all the circumstances, it seems to me that the appropriate course is to make an order in terms of the plaintiff's second alternative, coupled with liberty to apply on, say, 48 hours' notice, so that if the defendant decides to have the meeting adjourned so that supplementary disclosure can be made and any issue arises as to the adequacy of that further disclosure, the matter can be brought back to court.

Limitation of use of information obtained during inspection of books

77 This matter was first returnable in the Monday Corporations List on 19 March 2007. On that day, I arranged to hear the application on a final basis on Friday 23 March. It was necessary, however, to deal immediately with the plaintiff's application to inspect certain "books" of the defendant under s 247A of the Corporations Act. The parties reached a measure of agreement about the substantive question of access, but they could not agree on whether there should be a limitation on the plaintiff's use of the information obtained during inspection. The defendant urged me to invite the plaintiff to state, through its counsel, the purposes of the inspection, and to limit it to those purposes. It informed the court that it was concerned to prevent the plaintiff from using the information for the purpose of making a takeover bid for the defendant. The defendant submitted that the purpose of inspecting books so as to obtain information relevant to a potential takeover offer is not a proper purpose, citing Re Augold NL [1987] 2 Qd R 297 at 310.

78 I decided that the safest course, over the short interval of time between the date of inspection of the books and the final hearing, was to impose the limitation on use sought by the defendant, but to leave the matter open for further argument at the hearing. I made orders authorising certain persons on behalf of the plaintiff to inspect identified books of the defendant, subject to an order under s 247B which limited their use of the information obtained during inspection to:

79 At the final hearing on 23 March 2007, the plaintiff tendered minutes of a meeting of its directors held on 18 March 2007, for the purpose of showing that it has sought inspection of books of the defendant in good faith and for a proper purpose, as required by s 247A(1). The evidence was received subject to a restriction on use, and is not evidence of the truth of any assertions of fact recorded in the minutes. But it is evidence tending to show that the primary purpose of the plaintiff is a proper purpose for the purposes of s 247A(1). The purpose indicated by the minute is to prosecute the present proceeding to enjoin the holding of the meeting on the ground that the directors of the defendant will have failed to discharge their duty of disclosure to their shareholders, including the plaintiff. I accept that evidence.

80 The inspection of books led to the tender of four documents. One is the full text of the Share Purchase Agreement between Sunraysia and PBL Media dated 21 February 2007. The other documents are an e-mail from a PricewaterhouseCoopers partner to advisers at Investec Bank who are advising on the Sale Proposal, and two facsimiles from Investec advisers to Eva Presser, the chairman of directors of the defendant, dated 15 December 2006 and 12 February 2007 respectively. I considered whether there was any justification for a continuing limitation on use of the e-mail and the two facsimiles when they were tendered, and having inspected them, I decided there was not. Now that they have been tendered and received into evidence without limitation, they are effectively in the public domain.

81 The Share Purchase Agreement has been received into evidence subject to a confidentiality order. For the purpose of assessing whether, as a practical matter, a limitation on use should be continued in respect of that document, I invited the parties to identify those clauses which might have significance to a potential takeover offer for Sunraysia. The defendant submitted that the whole of the Share Purchase Agreement is subject to a confidentiality undertaking and should be treated as confidential by the court, and should therefore be subject to a continuing restraint; but if the court is minded to remove the restraint in respect of some of its provisions, then the restraint should be removed in respect of the agreement as a whole because there are no particular provisions which cause the defendant more concern than others. The plaintiff provided me with a long table of provisions which, it submitted, should not be made subject to continuing restraint.

82 Having considered those documents, I have reached the conclusion that the existing limitation on use should be dissolved, as far as it relates to the Share Purchase Agreement, but that document should remain a confidential exhibit. In my opinion the information that might be particularly sensitive in a takeover context cannot be readily isolated so as to be the subject of a special limitation, and indeed any order limiting the use of the information contained in the Agreement to certain purposes excluding any takeover-related purpose would be impossible to administer. In other words, no practically effective means of continuing with a limitation order in respective of the Agreement has presented itself.

83 More generally, while s 247B empowers the court to make a limitation order, it seems to me that such an order should not be made as a matter of course, just because the defendant fears that information sought for a proper primary purpose might also be used in an improper way (see Unity APA Ltd v Humes Ltd [1987] VR 484 at 480 and 482-3; Barrack Mines Ltd v Grants Patch Mining Ltd [1988] 1 Qd R 606 at 616-8). The mere fact that an inspection may benefit the plaintiff for some other purpose is not sufficient to warrant a limiting order (Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344 at [29]). That is sufficient for me to conclude that the limitation on use should be removed. I should add, however, that I am not persuaded that a takeover-related purpose is necessarily improper for the purposes of ss 247A and 247B, in circumstances where the takeover may produce a better offer for the benefit of shareholders and the directors of the potential target are constrained by a "no shop/no talk" clause.

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Citations

ENT Pty Ltd v Sunraysia [2007] NSWSC 270

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CITATION:	ENT v Sunraysia [2007] NSWSC 270
HEARING DATE(S):	23 March 2007
JUDGMENT DATE :	27 March 2007
JURISDICTION:	Equity
JUDGMENT OF:	Austin J
DECISION:	Injunction granted to restrain defendant from proceeding with any business at meeting, other than adjournment
CATCHWORDS:	CORPORATIONS - general meeting of shareholders - directors recommend that shareholders approve sale of main undertaking - directors' fiduciary duty of disclosure to shareholders - whether directors have a duty to take steps to obtain information - whether disclosure in explanatory materials for meeting was adequate - shareholder's claim to inspect books of company - whether court should make order limiting use so as to exclude use for takeover purpose TRADE AND COMMERCE - misleading and deceptive conduct - explanatory materials for meeting of shareholders to approve sale of main undertaking of company under ASX Listing Rules - appropriate form of remedy
LEGISLATION CITED:	Australian Stock Exchange Listing Rules, Listing Rule 11.2 Corporations Act 2001 (Cth) ss 247A, 247B, 249L, 1324 Trade Practices Act 1974 (Cth) ss 52, 80
CASES CITED:	Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344 Barrack Mines Ltd v Grants Patch Mining Ltd [1988] 1 Qd R 606 Chequepoint Securities Ltd v Claremont Petroleum NL (1986) 11 ACLR 94 Cleary v Australian Co-operative Foods Ltd (Nos 2 and 3) (1999) 32 ACSR 701 Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 ICAL Ltd v County NatWest Securities Aust Ltd (1988) 39 NSWLR 214 Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2005) 55 ACSR 583 Metal Manufacturers Ltd v Marsh Electrical Pty Ltd (1998) 29 ACSR 245 Pancontinental Mining Ltd v Goldfields Ltd (1995) 16 ACSR 463 Re Augold NL [1987] 2 Qd R 297 Re Imperial Chemical Industries Ltd [1936] Ch 587 Samic Ltd v Metals Exploration Ltd (1993) 60 SASR 300 Unity APA Ltd v Humes Ltd [1987] VR 484 Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666
PARTIES:	ENT Pty Ltd (P) Sunraysia Television Ltd (D)
FILE NUMBER(S):	SC 1860/07
COUNSEL:	J C Sheahan SC with K C Morgan (P) N Hutley SC with K Williams
SOLICITORS:	Atanaskovic Hartnell (P) Deacons (D)