Glencore International AG v Takeovers Panel

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FEDERAL COURT OF AUSTRALIA

Glencore International AG & Anor v Takeovers Panel & Ors

[2005] FCA 1290

CORPORATIONS – review of decision of Takeovers Panel – validity of Panel’s decision to make declaration and orders– declaration of unacceptable circumstances – need for determination of effect of circumstances on control or acquisition of substantial interest – remedial orders – need to identify rights and interests to be protected – whether declaration of unacceptable circumstances and remedial orders is exercise of judicial power

Australian Securities and Investments Commission Act 1989 (Cth) s171
Australian Securities and Investments Commission Act 2001 (Cth)
Corporations Act 2001 (Cth), ss 602, 657A, 657C, 657D, s657F, 657EA, s659B
Financial Services Reform Act 2001 (Cth), schedule 3
Judiciary Act 1903 (Cth), s39B

Precision Data Holdings Ltd v Wills (1991) 173 CLR 167- referred to

GLENCORE INTERNATIONAL AG & ANOR V TAKEOVERS PANEL & ORS

NSD1301 of 2005

EMMETT J
14 SEPTEMBER 2005
SYDNEY


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD1301 OF 2005

BETWEEN:

GLENCORE INTERNATIONAL A.G.
ACN 114 271 055
FIRST APPLICANT

FORNAX INVESTMENTS LTD
SECOND APPLICANT

AND:

IAN RAMSAY, NORMAN O'BRYAN and DAVID GONSKI in their capacity as members of the TAKEOVERS PANEL
FIRST RESPONDENT

CENTENNIAL COAL COMPANY LIMITED
ACN 003 714 538
SECOND RESPONDENT

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
THIRD RESPONDENT

AUSTRAL COAL LIMITED ACN 069 071 816
FOURTH RESPONDENT

CREDIT SUISSE FIRST BOSTON INTERNATIONAL
ACN 062 787 106
FIFTH RESPONDENT

ABN AMRO BANK NV
ACN 079 478 612
SIXTH RESPONDENT

JUDGE:

EMMETT J

DATE OF ORDER:

14 SEPTEMBER 2005

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The declaration made by the First Respondent under s 657A(1) of the Corporations Act 2001 (Cth) on 20 July 2005 be quashed.

2.The orders made by the First Respondent under s 657D(1) of the Corporations Act 2001 (Cth) on 25 July 2005 be quashed.

3.The matter consisting of the application by the Applicants for review under s 657EA of the Corporations Act 2001 (Cth) be remitted to the First Respondent for determination according to law.

4.The Third Respondent pay the Applicants’ costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD1301 OF 2005

BETWEEN:

GLENCORE INTERNATIONAL A.G.
ACN 114 271 055
FIRST APPLICANT

FORNAX INVESTMENTS LTD
SECOND APPLICANT

AND:

IAN RAMSAY, NORMAN O'BRYAN and DAVID GONSKI in their capacity as members of the TAKEOVERS PANEL
FIRST RESPONDENT

CENTENNIAL COAL COMPANY LIMITED
ACN 003 714 538
SECOND RESPONDENT

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
THIRD RESPONDENT

AUSTRAL COAL LIMITED ACN 069 071 816
FOURTH RESPONDENT

CREDIT SUISSE FIRST BOSTON INTERNATIONAL
ACN 062 787 106
FIFTH RESPONDENT

ABN AMRO BANK NV
ACN 079 478 612
SIXTH RESPONDENT

JUDGE:

EMMETT J

DATE:

14 SEPTEMBER 2005

PLACE:

SYDNEY

REASONS FOR JUDGMENT

  1. Shares in the fourth respondent, Austral Coal Limited (‘the Company’), are listed for quotation on Australian Stock Exchange Limited (‘ASX’). On 20 July 2005, the Takeovers Panel, established…

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Details
Case
[2005] FCA 1290
Decision Date

CaseChat Overview and Summary

Glencore International AG and Fornax Energy Ltd challenged the decisions of the Takeovers Panel under the Corporations Act 2001 (Cth), specifically sections 657A and 657D, which pertain to the declaration of unacceptable circumstances and the making of orders by the Panel. The dispute centred on the Panel's determination that Glencore's failure to disclose certain financial arrangements with other entities constituted unacceptable circumstances that warranted a declaration and subsequent orders. The central legal issues revolved around the interpretation of the statutory provisions and the scope of the Panel's powers in making such declarations and orders.

The court examined whether the Panel had the authority to declare circumstances unacceptable and to make orders without determining the actual effect of the circumstances on control or acquisition, as required by the statute. Additionally, the court considered whether the Panel's decision was rational, logical, and supported by factual findings. The court also scrutinized the constitutional validity of the statutory provisions, questioning whether they improperly conferred judicial power to a non-judicial body.

The court concluded that the Panel had indeed exercised its power incorrectly by failing to determine the actual effect of the circumstances on control or acquisition before declaring them unacceptable. This omission rendered the Panel's decision a jurisdictional error. Furthermore, the court found that the Panel's decision was not supported by logical grounds or factual inferences, thereby rendering it unreasonable. The court also ruled that the statutory provisions were constitutionally invalid as they purported to confer judicial power to the Panel, which is not a court.

As a result, the court quashed the declaration made by the Panel on 20 July 2005 and the orders made on 25 July 2005. The matter was remitted to the Panel for redetermination according to law, and the Third Respondent was ordered to pay the Applicants’ costs.

Orders

Orders of the court

1. The declaration made by the First Respondent under s 657A(1) of the Corporations Act 2001 (Cth) on 20 July 2005 be quashed.

2. The orders made by the First Respondent under s 657D(1) of the Corporations Act 2001 (Cth) on 25 July 2005 be quashed.

3. The matter consisting of the application by the Applicants for review under s 657EA of the Corporations Act 2001 (Cth) be remitted to the First Respondent for determination according to law.

4. The Third Respondent pay the Applicants’ costs.

Background

Background to the litigation

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Evidence

Evidence Before The Court

Having regard to the clear policy evinced by the privative provisions of s 659B of the Act, the Court should be slow to interfere with a decision of the Panel, in circumstances where the market is significantly volatile by reason of the currency of takeover offers. However, in the present case, while Centennial’s bid is still current, there is probably unlikely to be any significant volatility in the market since Centennial already has a relevant interest in more than 85 per cent of the shares in the Company and the combined holding of Fornax, CSFB and ABN Amro exceeds 11 per cent of the shares. EVIDENCE Glencore and Fornax sought to rely on affidavits sworn by Messrs Malcom McComas and Peter Kennedy as to market practice and expectations prior to April 2005. The Commission objected to the evidence on the basis that it was not relevant. The evidence was to the effect that, according to such practice and expectations, interests under a cash settled equity swap arrangement would not be disclosed and would not be expected to be disclosed, simply by reason of the fact that the exposure of a party to the swap arrangement and its voting power in shares, combined with that of the other parties, exceeded 5 per cent of the issued capital of the company to which the swap relates. The evidence was not before the Panel. The object of judicial review based on jurisdictional error is not to show that the decision-maker made a wrong or incorrect decision. A question may arise as to whether the decision was open to the decision maker, on the material before it. However, it was not suggested by Glencore and Fornax that the Review Panel’s conclusion, that the market would have expected disclosure, was not open to it on the evidence before it. I consider that the affidavits are irrelevant and should not be admitted. REVIEW PANEL’S DECISION UNDER SECTION 657A The exercise of the power to make a declaration under s 657A of the Act is not predicated upon it appearing to the Panel that particular circumstances have an effect on: the control or potential control of a company; or the acquisition or proposed acquisition, by a person, of a substantial interest in that company. The exercise of the power to make a declaration is predicated upon it appearing to the Panel that particular circumstances are unacceptable, having regard to the effect of the circumstances on those matters. Thus, the premise upon which the exercise of power is predicated is that the circumstances have a particular effect: the power is predicated upon a judgment of unacceptability, having regard to that effect. It is therefore necessary, before the Panel considers whether it appears that particular circumstances are unacceptable, having regard to the effect of the circumstances, to make a determination as to the effect of those circumstances. It is only unacceptability of the effect that must appear to the Panel and the Panel must make a finding as to that effect before it considers whether that effect is unacceptable. In a sense, it is a precondition of the making of a declaration that the Panel make a finding as to the effect, on control, or acquisition as, referred to in s 657A(2), that the relevant circumstances had. Thus, the Review Panel was required to make a finding that the circumstances will have some effect on either of those matters.

Decision

Reasons for decision

EMMETT J
The Review Panel stated in its reasons that the orders were made to protect the interests of those persons who sold shares in the Company during the relevant period in transactions on ASX. However, the Review Panel made no other findings about such interests. Thus, no finding was made as to whether any such person had actively suffered any detriment by reason of the non-disclosure. GLENCORE’S GROUNDS FOR QUASHING THE PANEL’S DECISIONS In the Amended Application, Glencore and Fornax claim all relief on the following grounds:‘Ground 1The Panel was required, in exercising its power under s657A(1) of the [Corporations Act] to declare circumstances to be unacceptable circumstances, to have regard to the effect of the circumstances on the control or potential control of a company, or the effect of the circumstances on the acquisition or proposed acquisition by a person of a substantial interest in the company: see s657A(2)(a)(i) and (ii) of the Corporations Act.The Panel purported to determine that there was the requisite effect because it considered that the disclosure of the “Combined Holding”:(a) would have been likely to lead to speculation by market participants about a possible rival bid by Glencore, or the possible purchase of shares at a higher price in order to build a position (at [56], [58], [65]);(b) might have led [the Company’s] shareholders to make different decisions in relation to their acceptance of the Centennial bid (at [59]); and(c) might have led to the emergence of other bidders for [the Company] (at [63]).None of those matters, whether individually or in combination, amounted to the circumstances having an effect as required by s657A(2)(a).In considering that those matters did constitute the requisite effect, thereby enlivening the power to make a declaration under s657A(1), the Panel asked itself the wrong question, and failed to ask the right question – namely, what actual effect on the market did the non-disclosure of the “Combined Holding” have? - with the result that the conditions for the exercise of the power did not exist in law.Ground 2Alternatively to ground 1, the Panel’s determination that the circumstances had an effect as required by s657A(2)(a) was irrational, illogical and not based on findings or inferences of fact supported by logical grounds, or alternatively was so unreasonable that no reasonable Panel could reasonably have so determined.Ground 3Alternatively to grounds 1 and 2, in the light of the Panel’s finding that there had been no contravention of the Corporations Act and the fact that transactions of the nature entered into by Glencore with ABN AMRO and CSFB were commonplace and not hitherto disclosed to the market by the parties thereto (except in the case of some actual takeover bidders or publicly announced proposed takeover bidders), no reasonable Panel could reasonably have concluded that the circumstances were unacceptable circumstances.Ground 4Further, the power to make orders required the Panel to form the opinion that the orders were appropriate, relevantly, to protect the rights or interests of any person affected by the circumstances, or to ensure that the takeover bid proceeded so far as possible in a way that it would have proceeded if the circumstances had not occurred: s657D(2)(a) and (b), s657D(2)(c) and (d) not being applicable. The Panel’s opinion that the orders were appropriate to ensure that the takeover bid proceeded so far as possible in a way that it would have proceeded if the circumstances had not occurred was irrational, illogical and not based on findings or inferences of fact supported by logical grounds, or alternatively was an opinion that no reasonable Panel could reasonably have held.The Panel's opinion that the orders were appropriate to protect the rights or interests of the persons affected by the circumstances was irrational, illogical and not based on findings or inferences of fact supported by logical grounds, or alternatively was an opinion that no reasonable Panel could reasonably have held.Ground FiveFurther, the Panel was prohibited, by reason of section 657D(1), from making orders if it was satisfied that the orders would unfairly prejudice any person, and, on the true construction of that provision, was only empowered to make orders if it were satisfied that the orders would not unfairly prejudice any person. In making the orders it made on 25 July 2005, the Panel’s opinion that the orders would not unfairly prejudice [Glencore] and [Fornax] was irrational, illogical and not based on findings or inferences of fact supported by logical grounds, or alternatively was so unreasonable that no reasonable panel could reasonably have held that opinion.Ground SixSubdivision B of Division 2 of Part 6.10 of the Corporations Act, contrary to Ch III of the Constitution, purports to confer the judicial power of the Commonwealth in a body which is not a court. In particular, s657A purports to authorise the Takeovers Panel to make declarations of unacceptable circumstances and s657D purports to authorise the Takeovers Panel to make orders. The provisions in Subdivision B of Division 2 of Part 6.10 of the Corporations Act are as a consequence invalid. Pursuant to the provisions in Subdivision B of Division 2 of Part 6.10, the Panel purported to exercise judicial power by purporting to make a declaration of unacceptable circumstances in relation to the failure of Glencore to disclose that it had entered into cash settled equity swap arrangements with the Fifth and Sixth Respondents on 20 July 2005, and by purporting to make the Orders on 25 July 2005 requiring Glencore to sell shares in [the Company].’

Ratio Decidendi

Legal Principle Established

Established by: EMMETT J

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