Goliath Cement Holdings Ltd v Cement Investments Pty Ltd

[1989] TASSC 104

Serial No. B26/1989
List “B”

COURT:  SUPREME COURT OF TASMANIA

CITATION:              Goliath Cement Holdings Ltd v Cement Investments Pty Ltd [1989] TASSC 104; B26/1989

PARTIES:  GOLIATH CEMENT HOLDINGS LTD
  v
  CEMENT INVESTMENTS PTY LTD

FILE NO:  M218/1989
DELIVERED ON:  5 July 1989
JUDGMENT OF:  Wright J

Judgment Number:  B26/1989
Number of paragraphs:  17

Serial No B26/1989
File No M218/1989

GOLIATH CEMENT HOLDINGS LTD v CEMENT INVESTMENTS PTY LTD

REASONS FOR JUDGMENT  WRIGHT J

5 July 1989

1. This is an application for an interim injunction restraining Cement Investments Pty Ltd, (hereinafter "Cement Investments") its servants or agents from despatching to the shareholders of Goliath Cement Holdings Ltd, (hereinafter "Goliath") a Part A Statement and offers to shareholders in the form in which those documents have been lodged with, and registered by, the Commissioner for Corporate Affairs.

1. It is contended by the applicant Goliath that the proposed Part A Statement does not comply with the requirements of pars4(f) and 5A of Part A of the Schedule to the Companies (Acquisition of Shares) (Tasmania) Code and that the proposed offers are not offers to acquire shares made under a takeover scheme which complies with s16(2) of the Code.

1. It was originally submitted that there were seven specific defects in the Part A Statement, but one of these grounds was abandoned by counsel for the applicant during the course of proceedings before me. The alleged defects relied upon are that the proposed Part A Statement does not disclose:

(aa)A response from the Trade Practices Commission dated 23 June 1989 resulting from matters referred to in clause 15.5 of the purported Part A Statement.

(a)The steps that Cement Investments proposes to take in relation to Goliath's business as part of the rationalization of the Australian cement industry.

(b)The fact that Cement Investments' parent company, Australian Cement Ltd, (hereinafter "ACL") has determined that, if Cement Investments takeover scheme for Goliath is unsuccessful, ACL will not extend its existing long term cement purchasing contract with Goliath upon its expiry in 1992 and will not enter into any further long term cement purchasing contract with Goliath.

(c)Cement Investments' intention regarding future pricing and sale policies for cement manufactured by Goliath, including in particular, policies relating to the supply of cement to CSR Ltd, Pioneer International Ltd, (hereinafter "CSR" and "Pioneer") and their respective related companies.

(d)Cement Investments' intentions regarding the continued operation and effect of the voting restrictions contained in Goliath's Articles of Association, and

(e)Cement Investments' intentions regarding the future composition of the Board of Directors of Goliath.

1. It was submitted that by reason of these defects the Part A Statement fails to disclose, firstly, information material to the making of a decision by the shareholders of Goliath whether or not to accept the proposed offers, being information that is within the knowledge of Cement Investments and secondly, the intentions of Cement Investments regarding the continuation of Goliath's business and the major changes which are to be made to that business.

1. The Part A Statement in question was registered and served on the 14 June 1989. The offeror is Cement Investments Pty Ltd which is, through a number of intermediaries, effectively jointly owned by CSR and Pioneer. The Part A Statement relates to proposed offers to acquire shares in Goliath at $1.70 per share. The offeror is already beneficially entitled to something in excess of 20% of Goliath's shares. The proposed offer is conditional upon acceptance by sufficient shareholders to give Cement Investments Pty Ltd a total entitlement to not less than 50.1% of all shares in Goliath.

1. Section 11 of the Code provides a general prohibition against the acquisition of more than 20% of voting shares in a company, but s16 provides that the embargo contained in s11 may be avoided by launching a takeover scheme. One of the requirements of such a scheme is that a Part A Statement must be served upon the target company containing information of the kind specified in the Schedule to the Code and generally complying with the requirements of that Schedule. Some of those requirements are to be found in par4(f) of Part A of the Schedule which requires the offeror to set out in the Statement any information material to the making of a decision by an offeree whether or not to accept an offer, being information which is within the knowledge of the offeror and has not previously been disclosed to the holders of shares in the target company. There are some exceptions to this requirement which are not material for present purposes. Other requirements of Part A of the Schedule are set out in par5A which provides that the Statement shall set out particulars of the offeror's intentions regarding:

(a)the continuation of the business of the target company,

(b)any major changes to be made to the business of the target company including any redeployment of the fixed assets of the target company; and

(c)the future employment of the present employees of the target company.

1. Counsel for the applicant drew attention to s44 of the Code which provides that where a Part A Statement or offer is served upon a target company when it contains matter which is false in a material particular or is materially misleading or there is an omission of material matter from the Statement or offer, the offeror is guilty of an offence.

1. Counsel for the applicant also drew attention to s16(3) which enables an offeror to include information additional to that required by the Schedule in a Part A Statement provided that such information is not false or misleading.

1. Against this background of statutory regulation counsel outlined the commercial history of Goliath as appearing from the affidavits filed in support of the application.

1. Goliath is a producer of cement. So too, is ACL a company jointly owned by CSR and Pioneer. At the present time ACL purchases 350,000 tons of cement per annum from Goliath. This represents approximately 60% of Goliath's total output. Of the total volume purchased by ACL, 250,000 tons is supplied under a long term contract which is due to expire in 1992. ACL itself produces 1.4 million tons of cement per annum, but sells 1.9 million tons per annum. The 500,000 tons which are sold over and above its own production come principally from Goliath. Counsel also drew attention to Article 18A of the Articles of Association of Goliath which provide as follows:

"18A    Entitlement to Votes.

Subject to any rights or restrictions for the time being attached to any shares, every member present in person or by proxy, attorney or corporate representative at any meeting of the company and entitled to vote shall on a show of hands have one vote, and upon a poll every member present in person or by proxy, attorney or corporate representative and entitled to vote shall have one vote for every five shares held by him up to one hundred; one vote for every ten shares held after the first hundred and up to two hundred; and one vote for every twenty five shares held after the first two hundred and up to one fourth of the total number of issued shares. Any shares held beyond one fourth of the total number of issued shares shall confer no further right to vote. In calculating numbers of shares for the purposes of this article, each contributing share which was allotted otherwise than pursuant to a pro rata offer to share holders shall be counted as a fraction of a share pro rata to the proportion of the total issue price paid up."

1. Counsel referred to the observations of Beach J. in Cumberland Credit Corporation Ltd v TNT Australia Pty Ltd (1988) 13 ACLR 371 at pp373, 375 and 378 where his Honour discussed the scope, purpose and sufficiency of Part A Statements and in particular, the need for such a statement to disclose to shareholders of a target company, inter alia the likely profitability of the company in the future whatever the outcome of the takeover offer, and the necessity of the offeror in compliance with Clause 5A of the Schedule to ensure that the acquisition of shares takes place in an informed market by the offeror making known to shareholders of the target company, not only courses of conduct which had been firmly resolved upon, but also those conditional, prospective or alternative courses which may properly be regarded as "intentions" within the meaning of Clause 5A.

1. Passing then to the specific defects alleged to exist in the proposed Part A Statement, counsel referred to a letter from the Trade Practices Commission to the offeror dated 23 June 1989 in which the Commission drew attention to the possibility of contravention of s50(2C) of the Trade Practices Act if the proposed acquisition of shares were to take place. The Commission sought an undertaking that the offers would not be despatched before 27 July 1989 or alternatively, an undertaking that upon the despatch of the Part A Statement to shareholders, it should be accompanied by a copy of a letter from the Commission to shareholders in the following form:

"Dear Shareholder,

The Trade Practices Commission has informed Cement Investments Pty Ltd that the Commission is concerned that the proposed takeover of Goliath Cement Holdings Ltd may contravene s50 of the Trade Practices Act 1974 (the merger provisions).

The Commission is considering whether or not it should take legal action to prevent the takeover. The Commission is not yet in a position to reach a final conclusion on that question or to decide whether, in the public interest, such legal proceedings should or should not be commenced if, indeed, it considers that there is a contravention of the Trade Practices Act.

I must point out, however, that if the Commission did decide to take legal proceedings to prevent the takeover and if those proceedings were successful, the court would have a range of powers that it might exercise, one of which would be to make an order under s87(1A) [sic] of the Trade Practices Act that Cement Investments Pty Ltd return your shares to you and that your [sic] refund the money you received from the sale of your shares.

Yours sincerely,

B Baxt"

1. Counsel for the applicant referred to par15.5 of the proposed Part A Statement which reads:

"15.5.   The Trade Practices Commission has been informed of the takeover scheme. It has not issued a response."

1. It is therefore submitted that to issue the Part A Statement to shareholders in its original form would be false and misleading. On the other hand, counsel for the respondent points out that there is no provision in the Code for amendment of a Part A Statement between the date of its service upon the target company and its despatch to shareholders. He also submitted that a Part A Statement which differed from that served upon the target company would not be protected by s16 and therefore would be prohibited by s11 of the Code (although a court could later make an order under s48(2) in effect overriding the statutory consequences of non compliance with s16(2) if satisfied that that non compliance was due to inadvertence, mistake or circumstances beyond the control of the offeror). It was therefore submitted that the court should be slow to intervene at an interlocutory stage because any potential injury and the draconian consequences provided for in s45 of the Code could be overcome by an order under s48(2). It was also pointed that it is incumbent upon the target company to serve a Part B Statement which may overcome any alleged deficiencies in the Part A Statement. It was submitted if the Part A Statement as lodged with the Commissioner for Corporate Affairs was true as at the date of its lodgement, there can be no breach of s44(1) of the Code, and as there is no provision in the Code for amendment of the Part A Statement after its date of lodgement, and before its date of despatch to shareholders, it must be despatched in its current form to comply with the requirements of the Code.

1. It was also submitted that the possible intervention of the Trade Practices Commission under the provisions of s50(2C) of the Trade Practices Act could have no relevance to the shareholders of the target company because the powers of the Commission under the Act, upon being satisfied of a breach of s50(2C) would be essentially to order Cement Investments Pty Ltd to divest itself of surplus shares in the target company after the transfer of such shares had been completed.

1. Notwithstanding these and other arguments advanced by counsel for the respondent, I am quite unable to conclude that the developments with the Trade Practices Commission are of no relevance to shareholders in determining whether or not to accept the respondent's offer, nor can I conclude that the service of a Part A Statement containing par15.5 in its present unamended form, and unaccompanied by any material indicating the course being contemplated by the Trade Practices Commission, constitutes proper compliance with the Code. Prima facie at least, I think that a failure to acquaint Goliath shareholders with the concerns of the Trade Practices Commission would in the circumstances, amount to providing them with false or misleading information. No undertaking has been forthcoming from the respondents in accordance with the letter from the Trade Practices Commission dated 23 June 1989 and no such undertaking has been given to me to consider in the disposition of this application. I have therefore concluded that interim orders in the terms sought by the applicant should be granted. It is strictly unnecessary to comment upon the other grounds of the present application, but I would indicate that on the material presented before me there appears to be little if any substance in those remaining grounds with the exception of that based upon the alleged defect referred to in par8(b) of the application. This allegation is supported by the affidavit of Mr Tilley sworn on 28 June 1989 and on the face of it that affidavit suggests that the requirements of pars4(f) and 5A of the Schedule have not been observed. This in itself would provide sufficient justification for the granting of the interim orders applied for. The applicant by its counsel has provided an undertaking in the usual form to be responsible in respect of any damages which may be sustained by the respondent as a consequence of the making of the orders sought.

1. Accordingly, I grant an interim injunction until 4.15pm on 13 July 1989 restraining the respondent by itself, its servants or agents, or otherwise howsoever from despatching to shareholders of Goliath, firstly, a Part A Statement in the form or to the effect of the proposed Part A Statement, and secondly, offers in the form of the proposed offers. I will certify for counsel and reserve the costs of this interlocutory proceeding to the court dealing with the substantive application.