Goliath Cement Holdings Ltd v Cement Investments Pty Ltd (No 2)

[1989] TASSC 106

Serial No. B28/1989
List “B”

COURT:  SUPREME COURT OF TASMANIA

CITATION: Goliath Cement Holdings Ltd v Cement Investments Pty Ltd (No 2) [1989] TASSC 106; B28/1989

PARTIES:  GOLIATH CEMENT HOLDINGS LTD
  v
  CEMENT INVESTMENTS PTY LTD

FILE NO:  M218/1989
DELIVERED ON:  19 July 1989
JUDGMENT OF:  Underwood J

Judgment Number:  B28/1989
Number of paragraphs:  15

Serial No B28/1989
File No M218/1989

GOLIATH CEMENT HOLDINGS LTD
v CEMENT INVESTMENTS PTY LTD (NO 2)

REASONS FOR JUDGMENT  UNDERWOOD J

19 JULY 1989

1. This is an application for an interlocutory injunction to restrain the respondent from posting to the shareholders of the applicant company, a Part A Statement and an offer to purchase their shares.

1. A previous application for the same order was determined by Wright J on 5 July 1989. His Honour ordered that, until 4.15pm on 13 July 1989, the respondent, by itself, its servant or agents or otherwise howsoever, be restrained from despatching to the shareholders of Goliath Cement Holdings Ltd 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 exhibited by the affidavit of Robert Martin Chadban sworn on 28 June 1989. Since the order expired on 13 July the status quo effected by the order has been maintained by undertakings given by the respondent. The last of those undertakings will expire at midnight on 19 July 1989.

1. The facts detailing the relationship between, and history of the offeror/respondent company (Cement Investments Pty Ltd) and the target/applicant company (Goliath Cement Holdings Ltd) are set out in Wright J's reasons for judgment (B26/1989). It is unnecessary for me to repeat them.

1. At the hearing before Wright J the applicant alleged that there was a prima facie case that in six respects the Part A Statement failed to comply with the provisions of the Companies (Acquisition of Shares) (Tasmania) Code. Two of the matters of complaint were that the Part A Statement did not disclose:

1A 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.

2The fact that Cement Investments' parent company, Australian Cement Ltd has determined that, if Cement Investments' takeover scheme for Goliath is unsuccessful, Australian Cement 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.

1. Wright J concluded that, on the material before him, the failure to disclose to the offerees that the Trade Practices Commission was contemplating intervention in the proposed takeover on the grounds that it may contravene the Trade Practices Act, s50, was prima facie a breach of the provisions of the Code which entitled the applicant in all the circumstances to the interim injunctive relief it sought. However, since the order was made the Trade Practices Commission has advised that it will not take action in relation to the proposed takeover.

1. With respect to the remaining bases upon which the applicant then rested its case his Honour said:

"It is strictly unnecessary to comment on the other grounds of the present applicant, 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 para8(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 paras4(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."

1. The applicant rests the present application solely upon the ground set out in para8(b) of the application which I have set out as para(2) above. It is necessary to set out some matters not referred to in Wright J's reasons for judgment either because they were not material to the conclusion he reached or because they were not put before the court on the hearing of the prior application.

1For over twenty years Goliath has held long term contracts with the parent company of the offeror company for the supply of a very large proportion of its output.

2Michael Tilley, Corporate Advisor, deposed in an affidavit that he was advising Goliath in respect of the takeover bid and that:

"In early June, 1989 Mr Eugene Herbert Deputy Managing Director of CSR Ltd and Director of Australian Cement Ltd, informed me that if the respondent's takeover offer for the applicant was unsuccessful, Australian Cement Ltd would upgrade other plants from which it obtains cement supplies to a level where those plants could satisfy all ACL's cement requirements when the current supply agreement between CSR and the applicant expires."

3Mr Herbert, Chairman of the Board of Directors of the offeror company and a Director of its parent company, by his affidavit denied making the statement attributed to him by Mr Tilley. Mr Herbert further deposed that:

"No decision has been taken by ACL that when the current cement supply agreement between CSR and the applicant expires, ACL would take all of its cement requirements from plants other than those operated by the applicant.

I have no authority whatsoever to make any decision whether or not the current cement supply agreement will be extended or renewed either as a Director of ACL, a Director of the respondent herein or otherwise."

4Mr Gill, solicitor, deposed that he attended a meeting of the Directors of Australian Cement Ltd held on the 7 July last. He exhibited a copy of the minutes of that meeting signed by the Chairman and deposed that such minutes accurately recorded the matters discussed and resolved at the meeting. The minutes disclose that there were three Directors present and "Mr E F Herbert (by telephone)". They state that the Board had not at the 14 June last and has not since that date made any determination or decision with respect to "extension" of the existing contracts or the making of new contracts with Goliath after 1992. The minutes record that "during the course of the meeting Mr E F Herbert indicated by telephone that he fully agreed with the resolutions referred to above."

5At the hearing before me, senior counsel for the respondent drew attention to a press release attached to the Part A Statement. This release is referred to in para15.4 of the statement under the heading "Other Material Information". It provides in part:

"[After referring to the existing contract due to expire at the end of 1992] ACL's strategy to meet the existing competitiveness of the cement market is, where possible, to source its cement purchases from plants it controls. This provides maximum flexibility in the price and volume of purchases to meet fluctuating market demand and price competition while ensuring continuity and security of supply. In the medium term ACL has a number of options to expand its production of cement including acquiring control of existing producers such as Goliath and/or the upgrading and expansion of its existing facilities at Kandos and Geelong and the construction of a clinker grinding plant at Port Kembla.

Given the increasing competitiveness of the cement market it may be difficult, when the existing long term contract with Goliath expires in 1992, to justify its extension. Long term contracts deny ACL the needed price and volume flexibility to meet changing market circumstances. Further, as long term contracts provide less security and reliability of supply than production from ACL's own plants, ACL's growing dependence on other cement producers for an increasing part of its' customers' cement requirements is commercially unattractive."

Counsel submitted that the forgoing accurately sets out the position of the offeror company and its parent company with respect to the future of long term contracts with the target company after 1992 and that there is no prima facie case that Australian Cement Ltd has made a decision not to "renew" or enter into long term contracts with the target company after the expiry of the present agreement.

1. Senior counsel for the applicant submitted:

1That evidence of Mr Herbert's statement deposed to by Mr Tilley raised a prima facie argument or serious issue to be tried that such a decision had in fact been made, that Mr Herbert's affidavit of denial merely raised an issue which could only be determined at trial and that the affidavit of Mr Gill did not tend to prove the state of mind of any individual director as at the 14 June 1989.

2Alternatively, inferentially, there was a high probability that, if the bid was unsuccessful, no long term contract would be entered into in 1993, that the offeror would be likely to upgrade its own plant to provide the cement presently being purchased from the target company pursuant to the agreement, and that these matters are not referred to in the Part A Statement.

3By reason of the matters referred to in (1) and (2) the Part A Statement did not comply with the provisions of the Code in particular, the schedule, Part A, paras 4(f) and 5A.

1. Counsel for the applicant conceded that the Part A Statement accurately disclosed all material information with respect to the future of the target company in the event of the bid being successful and confined the applicant's complaint to an omission to provide information in the event of the bid being unsuccessful; a somewhat curious complaint in that the alleged defect would tend to mislead shareholders into rejecting the offer rather than accepting it. Counsel for the respondent conceded that compliance with the provisions of the Code required full and accurate disclosure of the intentions of the offeror company and Australian Cement Ltd with respect to long term contracts after 1992. However, it was his submission that there had been such disclosure and there was no evidence to suggest to the contrary.

1. In the determination of this interlocutory application I apply the principles expounded by Dawson J in A v Hayden (No 1) [1985] ALJR 1 and the Full Court of Victoria in Magna Alloys and Research Pty Ltd v Coffey [1981] VR 23.

1. Assuming, but obviously not deciding, that Mr Herbert did tell Mr Tilley that, in the event that the bid was unsuccessful, Australian Cement would upgrade other plant to satisfy its cement requirements when the current agreement with Goliath expires, this does not necessarily lead to the conclusion that a corporate determination so to do had been made by the Board of Directors. See Re Haycraft Gold Reduction and Mining Co [1900] 2 Ch D 230. The uncontradicted evidence of Mr Gill is to the effect that, on the 7 July 1989, the corporate body, Australian Cement Ltd, had not made any decision with respect to entering into long term contracts with Goliath for the supply of cement after the expiry of the subsisting contract. The minutes note that Mr Herbert agreed by telephone that this was correct. Mr Tilley's affidavit does not assert that Mr Herbert said that the Board of Directors of Cement Investments Ltd had made any decision about this matter. The alleged statement made to Mr Tilley does not purport to be a verbatim account of the conversation between the two men and is just as consistent with the contents of the press release as it is with the claim made by the applicant that a corporate decision has been reached on this question.

1. The press release makes it quite clear that dependence by the offeror company on the target company for the supply of cement by virtue of long term contracts is commercially unattractive to the offeror. Upgrading the offeror's own plant in the event of the bid being unsuccessful is disclosed as being an option which is and will be under consideration. Given that the existing contract has more than three years to run the claimed absence of a firm decision by Australian Cement Ltd at this stage is far from unlikely.

1. Not to grant the interim order sought will not lead to irreparable harm in the event of it being established at trial that the respondent had determined not to "renew" the contract after 1992 and that accordingly, the Part A Statement does not comply with the Schedule, Part A, para4(f). The Code makes provisions for remedies in the event of it being established that a Part A Statement does not comply with the provisions of the Code. See ss44(9), 45(1).

1. The respondent company, by its counsel, is prepared to give an undertaking to the court to include in its offer booklet to be sent to all shareholders of the target company, a letter in the form of the document sent with a letter dated the 7 July 1989 from the solicitors for the respondent to the solicitors for the applicant. This letter refers to these proceedings and to the assertion made by the applicant to ground the interlocutory order it now seeks. The letter denies the accuracy of that assertion and states that Australian Cement Ltd has not made any determination with respect to long term contracts with Goliath after 1992. The letter then sets out that part of the press release quoted earlier in these reasons for judgment and asserts that it accurately states the present position. It is intended to conclude the letter with a reference to the fact that the Trade Practices Commission does not to propose to take any action with respect to the proposed takeover.

1. In all these circumstances the applicant has failed to establish that it is entitled to the interlocutory relief sought. Upon the respondent by its counsel undertaking to include in the offer booklet sent to all shareholders of the target company, a letter in the form of the document sent with the letter dated 7 July 1989 and referred to above, with the addition of a paragraph concerning the Trade Practices Commission as drafted in a letter from the solicitors for the respondent to the solicitors for the applicant dated 14 July 1989, this application is dismissed.