In the Matter of Allied Queensland Coalfield Ltd Super John Pty Ltd & Ors v Marsford Investments Pte Ltd
[1997] FCA 258
•18 APRIL 1997
CATCHWORDS
CORPORATIONS LAW - Compulsory acquisition under section 701 - dissenting offeree - application for order by dissenting offeree under section 701(6) - Application for summary dismissal on the grounds that it discloses no reasonable cause of action or action is frivolous or vexatious.
Corporations Act 1989 (Cth) ss 701
Foreign Acquisitions and Takeovers Act 1975 (Cth) ss 26
Trade Practices Act 1974 (Cth) ss 52
Elkington v. Vockbay Pty Ltd 10 ACSR 785
SUPER JOHN PTY LTD & ORS v. MARSFORD INVESTMENTS PTE LTD (IN THE MATTER OF ALLIED QUEENSLAND COALFIELDS LTD ACN 010 178 551)
No. NG 3041 of 1997
Emmett J
Sydney
18 April 1997
IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 3041 of 1997 ) GENERAL DIVISION )
In the matter of: ALLIED QUEENSLAND COALFIELDS LIMITED
ACN 010 178 551
BETWEEN: SUPER JOHN PTY LTD ACN 000 375 093 & ORS
ApplicantAND: MARSFORD INVESTMENTS PTE LTD ARBN 075 488 836
RespondentCORAM: EMMETT J PLACE: SYDNEY DATED: 18 APRIL 1997
REASONS FOR JUDGMENT
The Applicants are the holders of shares in Allied Queensland Coalfields Limited (“the Company”). The Respondent (“Marsford”) also holds shares in the Company, having acquired most of them pursuant to offers under a takeover announcement made on 23 September 1996. Marsford holds sufficient shares in the Company to entitle it to give a notice under section 701(2) of the Corporations Law (“the Law”).
Section 701(2) of the Law relevantly provides as follows:
“Where:
(a)........ .a takeover announcement has been made in respect, of a class of shares;
(b)during the takeover period the number of shares in that class to which the offeror is entitled has become not less than 90% of the shares in that class,...and
(c) if the shares subject to acquisition constitute less than 90% of the shares in that class:
(i) three quarters of the offerees have disposed of to the offeror...the shares subject to acquisition that were held by them; or
(ii) at least three quarters of the persons who were registered as holders of shares in that class immediately before the day on which...the takeover announcement was made are not so registered at the end of one month after the end of the offer period,
the offeror may...give notice, as prescribed, to a dissenting offeree to the effect that the offeror desires to acquire the outstanding shares held by the dissenting offeree.”
Under section 701(5), where such a notice is given, the offeror is entitled and bound, subject to the provisions of section 701, to acquire the shares to which the notice relates. However, under section 701(6) that provision does not apply in relation to a dissenting offeree where, on an application made by the dissenting offeree, the Court orders that 701(5) is not to apply in relation to that dissenting offeree.
On 6 January 1997, Marsford gave to the applicants notice pursuant to section 701(2). In these proceedings, the applicants seek an order under section 701(6). Alternatively, the applicants seek an injunction restraining Marsford from acquiring the shares in the Company held by the applicants on the basis of an alleged contravention of section 52 of the Trade Practices Act.
The proceedings were originally commenced by application supported by an affidavit sworn by Mr R.J.C. Catto. Shortly after commencement of the proceedings, Marsford filed a notice of motion seeking orders that the application be dismissed on the grounds that the application discloses no reasonable cause of action or alternatively that it is frivolous or vexatious.
On the first return of the motion on 7 March 1997, I directed that the applicants file, on or before 17 March 1997, a statement of claim setting out all material facts relied upon by them in support of the relief sought in the application, together with a document setting out the material presently relied on by them for each assertion made in the statement of claim.
The applicants did not comply with that direction. The only explanation for failing to do so was that the solicitor for the applicants was too busy. However, on the day fixed for the further hearing of the notice of Marsford’s motion, the applicants filed in Court an amended application seeking the relief outlined above, a statement of claim and a document in accordance with my directions (“the Supporting Document”). Both parties agreed that the hearing of the motion could proceed on the basis that Marsford’s motion for dismissal related to the proceedings as constituted by the documents so filed.
Mr Blanks, solicitor for the applicants, in outlining the bases upon which the applicants seek the relief claimed, eschewed reliance upon any proposition that the terms of the offers made by Marsford were unfair. Rather, it is said that there was unfairness in the manner in which Marsford satisfied the requirements of section 701(2)(b) and section 701(2)(c).
The contention as to section 701(2)(b) is put on two alternative bases. First, it is said that there were contraventions of various statutes by Marsford in reaching the position where it was entitled to give a notice under section 701(1). Alternatively, it is said that unfairness resulted from the circumstances in which proceedings to which I shall refer below were dismissed, contrary to the expectations of the applicants.
It is also asserted that there was unfairness as to the manner in which Marsford satisfied the requirements of section 701(2)(c). The unfairness is said to arise from conduct of Marsford alleged to have been in contravention of section 52 of the Trade Practices Act.
In Elkington v Vockbay Pty Limited, 10 ACSR 785 at 793-794, Owen J. of the Supreme Court of Western Australia cited a number of authorities in support of seven propositions relating to the exercise of jurisdiction under section 701(6). I consider that those propositions are correct and that they are an appropriate starting point in considering an application under that section. The seven propositions are as follows:
The onus is on the dissenting shareholder to establish that the offer is unfair.
The test of whether an offer is fair is whether it is fair to the body of shareholders as a whole rather than whether it is fair to the particular shareholder in the peculiar circumstances of his case.
The evidentiary burden to show that the offer is unfair will be greater where it is the fact that the offeror has already received acceptances from a large proportion of shareholders holding a large proportion of the issued capital. That is to say, the level of acceptances received from the body of shareholders as a whole will be a relevant factor in determining fairness.
It is not sufficient to demonstrate that the offer is open to criticism or could be improved upon.
In the absence of very strong grounds, the court should be guided by what commercial people, who are concerned with the transaction, think about the offer and should be slow to substitute its own view of the fairness of the scheme in opposition to the stance about to be taken by the majority of those who are more directly involved.
The degree of compliance with statutory formalities is a factor which could impinge on notions of fairness.
When determining whether the offer is fair, the court is not restricted to examining the amount of the consideration offered, but may investigate the conduct of the offeror in a period preceding the making of the offer.
I shall deal separately with each of the three bases relied on by the applicants as constituting grounds for the relief claimed.
Marsford’s “entitlement” to shares
In the statement of claim the following relevant assertions are made:
The acquisition by Marsford of 4,141,187 shares in the Company on about 11 June 1996 was in breach of section 26 of the Foreign Acquisitions and Takeovers Act.
The acquisition by Marsford of 774,700 shares in the Company between 15 July 1996 and 21 August 1996 was in breach of section 615(1) of the Corporations Law (“the Law”).
The Part C Statement delivered by Marsford on or about 23 September 1996 was false, in breach of section 704 of the Law.
A representation to the share market made by Marsford on 7 November 1996 was misleading and deceptive in breach of section 52 of the Trade Practices Act.
An essential element in each of those assertions is the further assertion made in the statement of claim that, during about May and/or June 1996, Glendale International Consultants Ltd, a corporation incorporated or otherwise located in the British Virgin Islands (“Glendale”) became entitled, within the meaning of the Law, to a parcel of shares in the Company representing 8.9% of the issued capital (“the 8.9% parcel”) and that Marsford became entitled, within the meaning of the Law, to the 8.9% parcel at the same time as and by virtue of Glendale becoming so entitled to that parcel.
No particulars were included in the statement of claim or in the Supporting Document as to the facts and circumstances relied upon by the applicants to support that assertion. If the assertion is not made out, all four of the allegations of breach of statute referred to above must of necessity fail.
The Supporting Document contains some further information said to justify the assertions in the statement of claim. Reference is made to newspaper reports and a media release published by Australian Securities Commission (“the ASC”). The newspaper reports and the media release relate to proceedings brought in this court by the ASC against, inter alia, Marsford, Glendale and the Company (“the ASC Proceedings”).
In the ASC Proceedings, orders were made ex parte, on 4 October 1996, restraining Glendale from disposing of the 8.9% parcel and restraining Marsford from acquiring shares in the Company pursuant to its takeover announcement and Part C statement. Marsford was also restrained from exercising any rights attached to the shares which it had acquired at that stage.
The ASC Proceedings came before the court again on 8 October 1996 when the injunction restraining Marsford from acquiring shares in the Company expired and was not extended. In addition, the court noted an agreement between the ASC, Marsford and the Company that a statement would be made to Australian Stock Exchange Limited (“ASX”) for the information of the market.
Pursuant to that agreement, a statement was made which included the following:
“(a) The ASC commenced these proceedings on 4 October 1996 on the basis of information available to it suggesting that Marsford is entitled to a parcel of shares in AQC representing approximately 8.9% of the share capital of AQC which has not been disclosed in Marsford’s Part C statement and substantial shareholder notices relating to AQC.
(b) Marsford denies that it has an entitlement to those shares.
(c) Whether Marsford in fact has an entitlement to the shares will be the subject of continuing enquires by the ASC and may be the subject of a future determination by the court.
........ ........ ........ ........ ........ ........ ......
(f) The ASC expresses no view about the merits of competing offers which have been or may be made for shares in AQC, but ...... the ASC has not today pressed for a continuation of interlocutory injunctions restraining Marsford from acquiring shares in AQC pursuant to its takeover announcement after today.”
The newspaper reports relied on by the applicants relate to statements said to have been made by an ASC spokesman that the proceedings against Marsford were over a possible breach of the Law. The reports state that the ASC’s concerns stemmed from its findings that Marsford and Glendale had a common director, a Mr David Robinson, and that, as a result, both companies could claim entitlement to each other’s shares.
On 8 November 1996, the ASC distributed a media release saying as follows:
“ASC SETTLES MARSFORD/AQC CASE
The Australian Securities Commission (ASC) today described as a good regulatory outcome the settlement today in Marsford Investments Pty Ltd takeover bid for Allied Queensland Coalfields (AQC).
In the settlement Marsford accepted that the ASC had reasonable grounds and was justified in undertaking an inquiries into certain share acquisitions in AQC by Morsand Business Ltd, Glendale International Consultants Limited and Marsford.
Marsford also accepted that it was reasonably arguable that it may be entitled to shares in AQC held on behalf of Glendale.
It agreed that the inquiries undertaken by and the subsequent legal proceedings instituted by the Commission were justified.
Glendale International Consultants accepts that it failed to answer notices in breach of Section 722 of the Corporations Law and has agreed to vest its shares in AQC and in the ASC and has also agreed to the subsequent sale of those shares.
All costs in relation to the sale of the shares are to be deducted from the proceeds as is a payment of $85,000 which is to be made to the Commission to reimburse the costs of its inquiries and the legal costs associated with the proceedings.
The ASC believes that this is good timely regulatory outcome which reinforces its determination to ensure that there is strict compliance with Australian takeover laws.”
On 12 December 1996, by consent of all parties to the ASC Proceedings, the remaining injunctions were dissolved and the ASC’s action against all of the parties, including Marsford, Glendale and the Company, was dismissed.
It is against that background that the applicants in these proceedings make the assertion that Marsford was entitled to shares in the Company to which Glendale was entitled. Although there is a hint in the newspaper reports of the basis for the allegations made in the ASC Proceedings, there is no detailed exposition of the matter. Nor was one attempted by Mr Blanks in the course of argument before.
The allegations made in the present proceedings involve serious contraventions of the Law and of the Foreign Acquisitions and Takeovers Act. The essential element in those allegations is not explained or particularised.
The statement of claim therefore does not satisfy Order 12 Rule 1 which requires that a party pleading must state the necessary particulars of any claim. That is a requirement that an applicant be given sufficiently detailed information to put him on guard as to the case he has to meet and to enable him to prepare for trial.
In the circumstances, the statement of claim, in so far as it seeks relief based upon the alleged contraventions, must be struck out. A question may arise as to whether the applicants should be given any further opportunity to particularise the allegations which lead to the conclusion that Marsford was entitled to the 8.9% at the time alleged by the applicants.
Effect of the Media Release
Alternatively, it is asserted by the applicants that, even if Marsford was not entitled to the 8.9% parcel, the manner in which the pre-requisite contained in section 701(2)(b) was satisfied was unfair because of the effect of the settlement of the ASC Proceedings. The unfairness was particularised in the statement of claim as follows:
(a)The manner in which Marsford has fulfilled the technical requirements permitting it to issue compulsory acquisition notices under Section 701(2) is tainted by the conduct alleged to constitute a breach of statute based on Marsford being entitled to the shares of Glendale.
(b)The applicants believed, and were reasonably entitled to do so, that the shares which they acquired would not be subject to compulsory acquisition by Marsford by reason of Marsford not being able to pass the test in section 701(2)(b).
(c)Up to about 3.30 PM on 8 November 1996, the market generally believed, and was reasonably entitled to do so, that the orders restraining dealings in the 8.9% parcel would be continued beyond the close of Marsford’s takeover offer.
(d)Having regard to section 1(2) of the Australian Securities Commission Act and public statements by the ASC concerning the performance of its regulatory functions, the settlement of the ASC Proceedings did not reflect good regulatory control of the market by the ASC because it had the effect of permitting Marsford to pass the test in section 701(2)(b) and also the effect of permitting the retention of the bulk of the proceeds of the sale of the shares vested in the ASC.
(e)The manner in which Marsford has fulfilled the technical requirements permitting it to issue compulsory acquisition notices under section 701(2)(b) does not reflect the operation of a proper market within the Law in relation to shares in the Company.
(f)If a proper market within the Law had operated in relation to shares in the Company, it is probable that minority shareholders in the Company would have been offered a materially higher price for their shares.
As I understand the contentions, the following circumstances are said to give rise to unfairness:
· as at 7 November 1996, Marsford, on the hypothesis that it was not entitled to the 8.9% parcel, was entitled to 74.9% of the issued capital of the Company;
· Centennial Coal Company Limited (“Centennial”) was the holder of approximately 10% of the issued capital of the Company; and
· the 8.9% parcel to which Glendale was entitled was the subject of the injunction ordered on 4 October 1996 restraining Glendale from disposing of the 8.9% parcel.
It is asserted that members of the public had a legitimate expectation as to the continued status of the 8.9% parcel. A member of the public looking at the Company, mindful that the offers made by Marsford under its takeover announcement closed on 8 November 1996, could confidently acquire less than 3% of the issued capital of the Company from Centennial and thereby prevent Marsford from becoming entitled to acquire shares pursuant to section 701 of the Law. That expectation was frustrated, it was said, when the 8.9% parcel became free and Marsford was able to satisfy the requirement of section 701(2)(b) by acquiring those shares, as well as the balance of the shares held by Centennial which had not been acquired by the applicants.
The contention appears to be that, had the applicants known that the 8.9% parcel would become free by reason of the dissolution of the injunction, they would have acquired more of the shares held by Centennial, being sufficient to ensure that Marsford did not become entitled to 90% of the issued capital of the Company and thereby satisfy the requirement of section 701(2)(b). It is said that those circumstances constitute unfairness such as would justify an order under section 701(6) to the effect that Marsford should not be entitled to acquire the outstanding shares held by dissenting offerees, being the applicants.
That claim appears to me to be quite misconceived. No circumstance is alleged in the statement of claim which is capable of constituting any unfairness to the applicants. The argument demonstrates, if anything, that the applicants’ design was to frustrate any attempt by Marsford to acquire 100% of the issued capital of the Company. The applicants, so it appears from the submission, took a stance in the market place on the basis of an expectation, which was not communicated to anybody else, that the ASC Proceedings, to which they were strangers, would not be resolved in a particular way.
Further, the second proposition stated by Owen J. indicates that it not sufficient that an offer is not fair to a particular shareholder in the particular circumstances of his case. The fact that some shareholders may have been induced by their assessment of the likely conduct of third parties can hardly bear on whether the offer made by Marsford is fair to the body of shareholders as a whole. Nor can it have a bearing on whether it is appropriate to prevent Marsford exercising its prima facie entitlement to acquire the shares of the applicants pursuant to section 701(2).
I do not consider that the circumstances relied upon are capable, in the absence of anything further, of constituting unfairness such as to be grounds for an order under section 701(6) to the effect that Marsford is not be entitled to acquire the applicants’ shares pursuant to section 701(5). Accordingly, the statement of claim should be struck out in so far as it claims relief on this alternative basis.
Misrepresentation by Marsford
The final way in which the applicants seek the relief claimed arises from the terms of a letter of 18 November 1996 circulated by Marsford to the remaining shareholders of the Company. The letter is in the following terms:
“If you have sold your shares in AQC please ignore this letter.
Marsford is now eligible to approximately 94% of AQC.
IT IS THE INTENTION OF MARSFORD TO DELIST THE SHARES OF AQC from trading on the Australian Stock Exchange Limited as soon as it is able to do so and therefore may not be a ready market for your shares should you not accept this offer.
Centennial Coal has withdrawn its takeover offer for your shares and has sold all of its holding in AQC.
Marsford, through Morgan Stockbroking Limited, is now offering until 3 December 1996 TO ACQUIRE YOUR SHARES IN AQC AT $0.78 PER SHARE.
MARSFORD WILL PAY ALL BROKERAGE AND STAMP DUTY on your behalf.
To accept this offer please complete and return the form attached to this letter in the prepaid envelope provided or call Morgan Stockbroking Limited on toll free 1800 777 946 or in Brisbane on (07) 3834.4111.
Yours faithfully
MARSFORD INVESTMENTS PTE LIMITED”
It is asserted that the natural meaning of the letter is that, if the recipient shareholders do not dispose of their shares to Marsford, their shares will be delisted by ASX. It was said that shareholders who receive the notice would thereby be induced to dispose of shares to Marsford; that the letter was misleading because it suggests that Marsford was at that stage entitled to have the shares in the Company delisted whereas in fact it would not be so entitled until such time as it had acquired further shares.
The contention is that, because the letter was misleading in that respect, there was unfairness in the manner in which Marsford acquired shares from sufficient shareholders in the Company in order to satisfy the requirement of section 701(2)(c). It was said that when one has regard to the way in which the letter was likely to have been understood by recipients, it contained a misleading or deceptive statement that the shares were likely to be compulsorily acquired or that they would be de-listed whereas if the recipients of the letter had simply retained their shares, neither of those outcomes could have been implemented.
It is significant that no complaint is made by any of the recipients of the letter. That is to say, none of the applicants is alleged to have been induced by the letter to dispose of shares which would not have been disposed of. The complaint is that Marsford acquired shares from shareholders by reason of the so called misleading or deceptive representation contained in the letter, thereby, it is said, by unfair means, satisfying the requirement of acquiring shares from three quarters of the offerees or ensuring that at least three quarters of the persons who were registered as holders of shares immediately before the takeover announcement had ceased to be registered as the holders of shares.
Even if the letter of 18 November 1996 can be given the construction asserted by the applicants, a real question arises as to whether the conduct complained of is capable of disentitling Marsford from acquiring the shares of dissenting offerees pursuant to section 701(5). When no complaint is made by those shareholders who disposed of their shares and nothing else is advanced on behalf of the applicants as to what constitutes unfairness to the applicants, there is no reason why section 701(5) should not apply to the shares held by the applicants.
In any event, I do not consider that the letter of 18 November 1996 has the meaning asserted by the applicants. It says no more than that Marsford has the intention to cause the shares of the Company to be delisted from trading on ASX when it is able to do so. It does not say that it is able to do so. Nor does it say that it is entitled to do so. It is no more than a statement of intention and there is no suggestion in the pleading that the intention was not genuinely held.
Accordingly, this basis for relief could not succeed and the statement of claim should be struck out in so far as it claims relief on this basis.
Appropriate Relief
In the light of the conclusions reached above, the statement of claim must be struck out. The only question remaining is whether the proceedings should be dismissed or whether the applicants should be permitted to file an amended statement of claim as to the alleged entitlement to the 8.9% parcel.
As I have said, no attempt is made in the statement of claim to articulate the serious charges made against Marsford of breach of the Law and of the Foreign Acquisitions and Takeovers Act. Mr Blanks acknowledged that he was unable, in court, to formulate any argument in support of a conclusion that there was a contravention. He said that he was not then in a position to explain the legal argument that leads from common directorship to entitlement on the part of Marsford but that he would need some time overnight. No further time was then sought and I received no further submission as to that critical question.
Mr Blanks indicated that some attempt had been made to gain access to the court file in relation to the earlier proceedings brought by the ASC but that access had been denied. He said that with the benefit of such access he may be in a position to formulate an argument as to Marsford’s entitlement to the 8.95% parcel. The position of the applicants is apparently that they want to make whatever claim the ASC had made in the ASC Proceedings.
Thus, the applicants will be able to formulate an argument to support the claim that Marsford was entitled to the 8.9% parcel, only to the extent that the file in relation to the ASC Proceedings may disclose an argument. Unless that file discloses such an argument, the applicants do not have any basis for making the serious allegations made in the statement of claim that Marsford was entitled to the 8.9% parcel.
There is no reason to think that the ASC would abandon a claim against Marsford based on Marsford’s having an entitlement to the 8.9% parcel if there were a reasonable basis for proceeding with that claim. The ASC consented to the ASC Proceedings being dismissed as against Marsford. It was made clear that the basis for Glendale bearing the ASC’s costs out of the proceeds of the sale of the 8.9% parcel was failure to comply with the provisions of section 722 of the Law. Accordingly, there is no reason to think that inspection of the file relating to the ASC Proceedings would disclose any case against Marsford.
I am mindful of the sixth an seventh propositions formulated by Owen J. concerning the conduct of an offeror. I am also mindful that a case must be very clear indeed to justify the summary intervention of the Court to prevent a party from submitting his case for determination in the appointed manner by the Court.
However, there is nothing in the statement of claim which attempts to demonstrate why, once the pre-requisites of section 701(2) had been satisfied, it should matter how they were satisfied. The Law provides a remedy for contravention of section 615 and for the giving of a Part C Statement which is misleading and deceptive. Part 6.10 of the Law empowers the Court to make appropriate orders where there has been such a contravention in relation to takeovers offers.
For example, section 737 empowers the Court to make such order or orders as it thinks just where a person has acquired shares in contravention of section 615. They were the provisions called in aid by the ASC. It is curious, if such alleged contraventions are of concern to the applicants, that the applicants did not themselves bring proceedings under section 737 of the Law. If there has been a contravention and the applicants were concerned about that contravention, the appropriate remedy would have been to seek orders under such provisions. The failure to do so may be indicative of a design on the part of the applicants to frustrate the acquisition of 100% of the shares in the Company rather than to complain about contravention of section 615 of the Law.
I would have been prepared to entertain an application for leave to file an amended statement of claim but only if an argument had been advanced which shows that there is a triable question as to entitlement on the part of Marsford to the 8.9% parcel. None has been advanced. The mere fact that Marsford and Glendale had a common director has not been suggested as sufficient, by itself, to result in Marsford being entitled to shares to which Glendale is entitled.
Having regard to those considerations and to the conclusions which I have reached in relation to the other bases relied upon by the applicants, there appears to be no point in permitting further repleading. Permitting the applicants to file an amended statement of claim would be futile. I consider, therefore, that the proceedings should be dismissed pursuant to Order 20 Rule 2 and that the applicants should pay the respondent’s costs of the proceeding, including the notice of motion.
I certify that this and the preceding eighteen pages are a true copy of the Reasons for Judgment of his Honour Justice Emmett.
Associate
Dated: 18 April 1997
Heard: 24 March 1997
Place: Sydney
Decision: 18 April 1997
Appearances:
Counsel for the applicant: W. Sofronoff QC
L. Kelly
Solicitor for the applicant: Clayton Utz
Counsel for the respondent: -
Solicitor for the respondent: S. Blanks
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