In the matter of an application for orders pursuant to section 739 of the Corporations Law. Australian Securities Commission v Resource and Mineral Equities Ltd
[1993] FCA 310
•13 MAY 1993
Re: AUSTRALIAN SECURITIES COMMISSION
And: RESOURCE AND MINERAL EQUITIES LTD; CHELSEA SECURITIES LTD and GEOFFREY
FRANK BRAYSHAW
No. WAG3004 of 1993
FED No. 310
Number of pages - 6
Corporations - Costs
COURT
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J(1)
CATCHWORDS
Corporations - proposed takeover - allegedly contrary to provisions of Corporations Law - application for declarations and injunctions to restrain takeover from proceeding - undertakings offered by company - concession dispositive of proceedings - costs - whether proceedings reasonably instituted - whether reasonably arguable case - costs in favour of applicant.
Costs - no substantive trial - concession by respondent disposing of proceedings - whether costs should be ordered in favour of applicant - whether applicant acted reasonably in instituting proceedings - strength of case - exercise of discretion - costs ordered.
Corporations Law ss.634, 637, 647, 739, 746, 750, 1022
South East Queensland Electricity Board v. Australian Telecommunications
Commission (Fed Ct 10/2/89 unrep. Pincus J)
HEARING
PERTH, 29 March 1993
#DATE 13:5:1993
Counsel for the Applicant: Mr M. Howard
Solicitors for the Applicant: Regional General Counsel for
Western Australia
Counsel for the First Respondent: Mr S. Watson
Solicitors for the First Respondent: Simon Watson
ORDER
The Court orders that:
1. The first respondent pay the applicant's costs of the proceedings.
Note: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
FRENCH J On 18 March 1993, the Australian Securities Commission filed an application seeking orders in relation to a proposed takeover of Chelsea Securities Ltd (CSL) by Resource and Mineral Equities Ltd (RME). The principal activities of RME as set out in its Annual Return for 1992 are to "seek out and invest in strategic investment opportunities". CSL's principal activity is described as "invest in strategic investment opportunities in resource industry and share trading". Both companies are listed on the Australian Stock Exchange.
On 13 October 1992 RME announced its intention of making a takeover bid for CSL by offering four fully paid ordinary shares of 20 cents in RME for five fully paid ordinary shares of 20 cents in CSL. An independent expert report prepared by Geoffrey Frank Brayshaw, a partner in Bentleys, Chartered Accountants, was sent to shareholders of RME for the purposes of compliance with r.3J(3) of the Official Listing Rules of the Australian Stock Exchange. On 10 December 1992, upon the application of RME, the ASC granted an extension of time pursuant to s.746 of the Corporations Law to enable RME to make the proposed takeover offer for CSL's shares. On 14 January 1993, RME lodged with the ASC a Part A Statement pursuant to ss.637, 750 and 1022 of the Corporations Law together with a copy of its offer to acquire ordinary shares in CSL. On 27 January 1993, CSL lodged its Part B Statement with the ASC pursuant to s.647 of the Corporations Law and an expert's report prepared by Mr Brayshaw.
According to an affidavit sworn by Richard Thomas, a financial analyst employed by the ASC, the Part A and Part B Statements omitted information considered material in assisting CSL's shareholders to determine whether or not to sell their shares to RME. The alleged inadequacies were raised by telephone and in conference between representatives of RME and CSL and of the ASC. They were also set out in correspondence between the parties. On 2 February 1993, the ASC received a letter from Mr Simon Watson, the solicitor acting for RME and CSL. In the letter Mr Watson said that the companies did not accept the ASC's criticisms but were willing to dispatch a letter to shareholders "clarifying the matters raised". A memorandum of additional information had also been prepared. A notice of dispatch of offers was lodged with the ASC on 2 February 1993 together with the memorandum of additional information.
An analysis of the Part B expert report gave rise to further concerns on the part of the ASC which were raised in a letter to Mr Brayshaw of 15 February 1993. A memorandum contained with the letter contended, inter alia, that the analysis of market value of the shares was totally inadequate and might be positively misleading. A meeting was held between Mr Brayshaw and one of his partners and representatives of the ASC on 17 February 1993 to discuss the matters raised. On 23 February the ASC received a letter dated 22 February from Mr Brayshaw dealing with each of the issues raised in the ASC letter of 15 February.
A "comprehensive post lodgment vetting" of the Part A Statement and offer and the Part B Statement and Part B expert report was carried out by the ASC in early February. As a result, the ASC had concerns about a number of matters including:
1. The adequacy of disclosure of information in the Part A Statement relating to the business of the Roy Weston group of companies which had been acquired by RME through its acquisition of a holding company called Westraint No. 19 Pty Ltd.
2. Failure to disclose a loan from CSL to RME of $524,499.
3. The existence of a significant number of partly paid shares in CSL.
4. An incomplete disclosure of RME's investments particularly in Vysety Pty Ltd and Basin Petroleum Ltd.
5. The lack of independence of the expert.
6. The inadequacy of the expert's report.
These concerns, according to Mr Thomas, had been brought to the attention of RME and CSL by exchange of correspondence, telephone conversations and a series of meetings. It was the ASC's position that the RME takeover scheme was contrary to the Corporations Law.
The orders sought by the ASC in its application included a declaration that the offer and Part A Statement made by RME did not constitute a takeover scheme within the meaning of s.634 of the Corporations Law. A declaration was also sought that the Part B Statement and Expert's Report did not comply with the requirements of the Corporations Law. Injunctive relief restraining the acquisition or issue of shares pursuant to the purported takeover scheme was sought along with other ancillary injunctive relief.
At a first directions hearing on 16 March, the ASC and RME were represented but the other respondents were not and the directions hearing was adjourned to the following day. On 17 March a consent order was made adjourning the application to a hearing on 19 March 1993. Undertakings were offered by RME and accepted. RME undertook to:
1. Take no steps to be become registered as owner of any shares in CSL pursuant to the purported takeover scheme.
2. Not issue any shares pursuant to the purported takeover scheme.
3. Take no further step pursuant to the purported takeover scheme.
4. Unless the Court ordered otherwise RME would make a takeover offer within the meaning of Chapter 6 of the Corporations Law within twenty eight days of 16 March 1993 on terms not substantially less favourable to offerees than the terms set out in its public announcement of 13 October 1992.
5. Upon RME making such a takeover offer it would return all share certificates in CSL which it had obtained pursuant to the purported takeover scheme.
By a consent order filed on 19 March the hearing date was vacated and the application adjourned to 29 March 1993. On 29 March 1993 the following orders were made by consent:
1. The applicant have leave to discontinue as against the second and third respondents with no order as to costs.
2. The applicant to file and serve on or before 15 April 1993 any affidavit and written submissions in support of any claim for costs against the first respondent.
3. The first respondent to file and serve any affidavit in reply and its written submissions on or before 29 April 1993.
4. The question of costs will be determined on the papers unless on or before 6 May 1993 either party has requested an oral hearing.
5. The ruling on the question of costs will be given on 13 May 1993 at 2.15pm.
6. Costs of the day reserved.
The ASC filed submissions on the costs question on 15 April 1993. It referred to the material set out in Mr Thomas's affidavit and a letter which it wrote to RME's solicitor on 24 February 1993 identifying a number of its concerns about the Part A Statement. In the letter the ASC indicated that one of the options before it was to apply to the Court under s.739 of the Corporations Law for appropriate orders. The letter went on:
"Without pre-empting the Commission's decision in this matter, your client may wish to apply to withdraw its takeover offer pursuant to section 653. If the Commission consented to the withdrawal of the takeover, it would not be necessary to apply to the Court under section 739 for an order to stop the takeover."
The Commission concluded by advising that if RME did not respond by 5pm on 26 February 1993, the Commission would take legal action.
A letter of 26 February 1993 from the solicitors acting for RME substantially rejected the ASC's concerns. These were set out in more detail in the letter from the ASC of 10 March. In that letter the Commission said it was prepared to consider any reasonable proposal that would result in the CSL shareholders being fully informed. The Commission asked whether the solicitor for RME had instructions to accept service on behalf of RME of any application the Commission might make to the Court. No response had been received to the Commission's letter by 12 March 1993 and it again wrote to RME's solicitor stating that it was prepared to consider "any reasonable proposal that will result in the Chelsea shareholders being fully informed". The letter went on to express the Commission's view that the deficiencies identified in the Part A Statement meant that it did not comply with s.750 and that there had been a contravention of s.615 which could not be rectified by the inclusion of additional information and/or the deletion of misleading information. The matter was said to be of particular concern because a significant proportion of CSL shareholders had acted upon the offer. The Commission repeated its view that the only proposal which would remedy the situation without going to Court was one that involved RME withdrawing its present takeover offer. It stated that unless a satisfactory reply were received by 1pm on 15 March 1993, the Commission would proceed to lodge Court documents without further notice. Further to the letter of 12 March 1993 there was evidently a meeting between staff members of the Commission and RME's solicitor.
The ASC seeks an order for costs under O.62 r.3 which provides, inter alia, that:
"3(1) The Court may in any proceeding exercise its powers and discretions as to costs at any stage of the proceeding or after the conclusion of the proceeding."
Where an applicant has acted reasonably in instituting proceedings, had a reasonably strong case and is substantially successful in the disposition of the proceedings because of a concession or capitulation by the respondent then, in the absence of contrary agreement, that applicant could ordinarily expect to recover its costs of the proceedings. That general approach, which reflects the ordinary rule that costs follow the event, is consistent with the approach taken by Pincus J in South East Queensland Electricity Board v. Australian Telecommunications Commission (Fed Ct 10/2/89 unrep. Pincus J).
The ASC submits that it acted reasonably in commencing the proceedings having regard to its objects which require, inter alia, that it maintain the confidence of investors in the securities market by ensuring adequate protection for such investors - Australian Securities Commission Act 1989 s.1(2)(b). It was submitted also that in the context of the takeover offer it had given RME ample opportunity to terminate the purported bid. When it refused to do so the ASC had no choice but to commence the proceedings. It could not be said that RME had resisted the substance of the application or the relief sought as it indicated at the first directions hearing that it would give undertakings substantially in conformity with the final relief sought by the ASC. The failure of RME to contest the proceedings in any meaningful sense and its immediate giving of the undertakings could be seen as an indication of the strength of the ASC's case against it. In any event it was submitted that Mr Thomas' affidavit demonstrated that the ASC had cogent and well-reasoned grounds for commencing the proceedings. It was submitted that the proceedings would not go to trial because of undertakings given by RME. Those undertakings were given without there having been any change of circumstance from the commencement of the proceedings to the date they were given.
In opposing the application for costs, the solicitor for RME, Mr Simon Watson, filed an affidavit in which he referred to a meeting which had taken place on 29 January 1993 between himself and Mr Panos of RME on the one hand and officers of the ASC on the other. He said that although RME did not agree with the propositions put to it by the ASC relating to the Part A statement at that meeting, Mr Panos advised the ASC that RME was willing to provide all reasonable information, including the information requested by the ASC, which the ASC considered should be made available to CSL's shareholders. On the morning of 16 March 1993, according to Mr Watson, he attended in another Court and returned to his office at 10am. On his return to his office he was telephoned by Mr Panos who advised him that RME was willing to agree to withdraw the takeover offer as requested by the ASC. He contacted the solicitor for the ASC to advise him. In that telephone conversation the solicitor for the ASC, Mr Howard, informed him that the ASC had commenced these proceedings. They then agreed to formulate minutes of consent orders to dispose of the proceedings issued.
Significant elements of the written submissions from RME on the question of costs go into matters of evidence which are not before the Court. In referring to the letters of 10 and 12 March 1993 written to RME's solicitors by the ASC, it is said that on 15 March 1993 the solicitors for RME wrote to the ASC and advised:
1. RME considered it had made all disclosures necessary to comply with the Corporations Law.
2. RME was and always had been prepared to co-operate in any reasonable way to resolve the ASC's concerns.
3. RME had looked at various ways in which additional information could be supplied to the shareholders of CSL.
4. RME had offered to dispatch to shareholders of CSL an additional memorandum fully setting out information relating to all of the matters raised by the ASC.
5. RME would extend the offer for a further period of two months which would give the shareholders of CSL the opportunity to withdraw any acceptance of the offer.
This proposal, it was said, had been rejected by the ASC in a facsimile transmission received at 4.15pm that day. It was submitted by RME that the orders sought by the ASC were consistent with the issues raised in its correspondence. Each of the orders sought was independent of any of the other orders sought by the ASC. It was only as a question of practicality that the resolution of these proceedings followed the undertakings given by RME because these satisfied the ASC to the extent that no further action was taken by it.
It was submitted for RME that the disclosure requirements in the Corporations Law and the Regulations require subjective judgment as to the information to be included in the Part A Statement. In attempting to satisfy the requirements of the Corporations Law and the Regulations it was submitted there is a balance between satisfying those requirements concisely and providing so much information that the recipients are overwhelmed by its complexity. RME endeavoured, it was said, to satisfy all the requirements of the Corporations Law in the supply of information in the Part A Statement.
In giving undertakings to the Court, RME said it had not accepted the ASC's right to any of the orders sought. Its first concern was to act in the best interests of its shareholders and it did not see that it would achieve anything by lengthy and expensive litigation by defending the proceedings. It was in order to avoid lengthy and expensive litigation that RME decided the takeover offer would be withdrawn and recommenced. It was submitted that the ASC had not acted reasonably in commencing the proceedings. Its primary concerns were said to have been directed to the independent report issued by Mr Brayshaw and these were resolved by RME withdrawing the takeover offer. It was submitted the chronology of events suggested that RME was not given ample opportunity to recognise that the ASC was not willing to accept any proposition other than a withdrawal of the takeover offer no matter how unreasonable RME considered that to be. The undertakings given by RME were not to be seen as a lack of resistance by RME to the substance of the application or the relief sought, but merely a willingness to achieve a practical resolution in the interests of its shareholders.
Notwithstanding RME's submissions, it is my opinion that the position of the ASC was made quite clear in its letters of 24 February and 10 and 12 March 1993. On the face of it it had an arguable case for non-compliance with the requirements of the Corporations Law. RME was repeatedly offered the opportunity to withdraw the takeover offer before the commencement of the proceedings. It did not avail itself of that opportunity until after the proceedings had been commenced. The ASC in the circumstances acted reasonably in commencing the proceedings. The proceedings have been resolved because of RME's concession. In the circumstances, I consider that the proper exercise of my discretion requires that an order be made in favour of the applicant for the costs of these proceedings.
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