In the matter of CSR Limited

[2024] NSWSC 502

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of CSR Limited [2024] NSWSC 502

Hearing dates:

26 April 2024

Date of orders:

26 April 2024

Decision date:

02 May 2024

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Order convening scheme meeting and associated orders made.

Catchwords:

CORPORATIONS – Arrangements and reconstructions – Schemes of arrangement or compromise – Application under s 411 of the Corporations Act 2001 (Cth) for orders convening meeting of members to consider and, if thought fit, to agree to proposed scheme of arrangement – Whether requirements to order scheme meeting are satisfied.

Legislation Cited:

- Australian Securities & Investments Commission Act 2001 (Cth) s 30

- Corporations Act 2001 (Cth) ss 411, 1319

- Court Suppression and Non-Publication Orders Act 2010 (NSW)

- Supreme Court (Corporations) Rules 1999 (NSW) r 3.4

Cases Cited:

- Re Cashcard Australia Ltd (2004) 48 ACSR 738

- Re CSR Ltd (2010) 183 FCR 358

- Re DWS Ltd [2020] FCA 1590

- Re ELMO Software Pty Ltd [2023] NSWSC 12

- Re Foster’s Group Ltd (No 2) [2011] VSC 547

- Re Great Mines Ltd [2004] ATP 101

- Re InvoCare Ltd [2023] NSWSC 1180

- Re Kidman Resources Ltd [2019] FCA 1226

- Re Link Administration Holdings Ltd [2024] NSWSC 331

- Re Villa World Ltd [2019] NSWSC 1207

Category:

Principal judgment

Parties:

CSR Limited (Plaintiff)

Representation:

Counsel:
D F C Thomas SC (Plaintiff)
T E O’Brien (Bidder)
M Bevins (ASIC – part hearing)

Solicitors:
Herbert Smith Freehills (Plaintiff)
Corrs Chambers Westgarth (Saint Gomain BidCo Pty Ltd)
Australian Securities & Investments Commission (Interested Party – part hearing)

File Number(s):

2024/134678

Judgment

Nature of the application

1. By Originating Process filed on 11 April 2024, the Plaintiff, CSR Limited (“CSR”) seeks orders under ss 411 and 1319 of the Corporations Act 2001 (Cth) (“Act”) to convene a scheme meeting in respect of a proposed scheme and in respect of ancillary matters. I made the orders sought by CSR at the conclusion of two hearings on 26 April 2024, which were separated by a brief adjournment. These are my reasons for doing so. I have drawn on the helpful submissions of Mr Thomas, who appeared for CSR, in this judgment.

2. By way of background, CSR is a company admitted to the official list of the financial market operated by the Australian Securities Exchange Limited (“ASX”). CSR is a building products company in Australia and New Zealand, which provides building products for residential and commercial construction, and also receives earnings from its property division, typically from the sale of former operating sites, and holds an effective 25.2% interest in the Tomago Aluminium Smelter, through its substantial interest in Gove Aluminium Finance Ltd.

3. On 26 February 2024, CSR announced to ASX that it had entered into a scheme implementation deed (“SID”) with Compagnie de Saint-Gobain (“Saint-Gobain”) which provided for the acquisition of all of the issued shares in CSR by way of a scheme of arrangement. Under the proposed scheme, CSR shareholders will receive $9.00 in cash per CSR share, which may include a fully franked dividend up to a specified amount paid to shareholders before implementation, with the amount of that dividend deducted from the cash offer price. It appears that CSR’s directors currently intend to determine that CSR should pay a fully franked dividend of $0.12 cash per CSR share before the implementation of the scheme, conditional on the scheme becoming Effective (as that term is defined in the SID). If this occurs, the transaction consideration would consist of the scheme consideration of $8.88 cash per CSR share plus the CSR Permitted Dividend (as defined) of $0.12 cash per CSR share. An additional $0.0006575 per CSR share, accruing on a daily basis, is payable if the effective date of the scheme is delayed beyond 26 June 2024.

4. The maximum aggregate amount payable by the bidding company, Saint Gobain BidCo Pty Ltd (“Bidder”), as scheme consideration, having regard to CSR’s current issued share capital and on the basis that CSR did not pay a CSR Permitted Dividend in connection with the scheme, is approximately $4.3 billion. The CSR board has unanimously recommended that CSR shareholders vote in favour of the scheme, in the absence of a superior proposal, and subject to the independent expert continuing to conclude that the scheme is fair and reasonable and in the best interest of CSR shareholders and, subject to the same qualifications, each CSR director intends to vote all CSR shares held or controlled by them in favour of the scheme. It is proposed that the scheme meeting will be held as a hybrid meeting, both in person and online by a virtual meeting platform.

Affidavit evidence

5. CSR reads the affidavit dated 11 April 2024 of its solicitor, Mr Hastings, which annexes the announcement made by CSR to ASX in respect of the proposed scheme and a company search of CSR.

6. CSR also reads the affidavit dated 24 April 2024 of its Chief Financial Officer, Ms Lom. Ms Lom outlines the background to the proposed scheme and refers to the structure of the scheme consideration, to which I have referred above, and to the unanimous view formed by CSR’s directors that it is in the best interests of CSR shareholders, subject to their being no Superior Proposal (as defined) and to the independent expert continuing to conclude that the scheme is fair and reasonable and is in the best interests of CSR shareholders. Ms Lom also notes the proposed treatment of CSR equity incentive arrangements, if the scheme becomes effective, and refers to the treatment of certain incentives held by CSR’s Managing Director and Chief Executive Officer, Ms Coates, which is disclosed in the Chair’s letter contained in the scheme booklet and more fully described in section 9.2 of the scheme booklet. Ms Lom also addresses a reimbursement fee payable by CSR to the Bidder in specified circumstances, the terms of exclusivity provisions and the identity of the Chair and alternate Chair of the proposed scheme meeting, and the process adopted for verification of the scheme booklet.

7. Ms Lom also outlines the manner in which the scheme documents would be sent to CSR shareholders, which adopts an orthodox approach, and identifies several communications to be sent to shareholders, including reminder communications, communications by way of an inbound question and answer script and outbound calls to CSR’s 3,000 largest shareholders. In accordance with current scheme practice, the Court’s approval was not sought for the inbound or outbound call scripts, but I should record that I have no difficulty with them. The inbound question and answer script provides informative answers to the questions asked, reflecting the content of the scheme booklet, and the outbound call script seems to me to achieve an appropriate balance between being sufficiently brief that the information provided could reasonably be absorbed by scheme shareholders within a telephone call of tolerable length, and being informative as to the nature of the scheme and its advantages and disadvantages, again in a manner that is consistent with the scheme booklet.

8. CSR also reads the affidavit dated 23 April 2024 of Mr Vignial who is the Group General Counsel and Corporate Secretary of Saint-Gobain, who refers to the history of Saint-Gobain, the structure of the Bidder, the execution of a deed poll by Saint-Gobain and the Bidder in favour of holders of scheme shares, and the process adopted for verification of information concerning the Bidder and Saint-Gobain in the scheme booklet.

9. CSR also reads the affidavit dated 25 April 2024 of its solicitor, Mr Damian, who outlines several amendments to the scheme booklet which concerned, inter alia, the description of several property valuation reports of the independent expert, Kroll Australia Pty Ltd (“Kroll”), in order to value CSR’s property holdings, which comprise a significant part of its valuation. A controversy as to that matter arose, and was then resolved, in the course of the first Court hearing.

10. CSR also tendered a letter dated 26 April 2024 from the Australian Securities and Investments Commission (“ASIC”) which was partly in customary form, and reserved ASIC’s position as to s 411(17)(b) of the Act to the second Court hearing. ASIC there noted that it had examined the terms of the scheme and the draft explanatory statement in accordance with its policy in Regulatory Guide 60, Schemes of Arrangement; identified a concern arising out of its review of the independent expert report set out in the scheme booklet, which I will summarise below, which was addressed at the first Court hearing; and noted that ASIC did not propose to appear to make submissions or intervene to oppose the scheme at that hearing.

Applicable principles

11. Mr Thomas notes that the principles governing an application for orders to convene a meeting of members under s 411(1) of the Act refers to my judgment in Re InvoCare Ltd [2023] NSWSC 1180 (“InvoCare”) at [14], where I observed that:

“… subject to the matters in s 411(2), s 411 of the Act confers a power on the Court to order a meeting of members where a compromise or arrangement is proposed between a Part 5.1 body and its members or any class of them (s 411(1)); an application for the order is made in a summary way by the body (s 411(1)); 14 days' notice of the hearing of the application, or such lesser period of notice as the Court or ASIC permits, has been given to ASIC (s 411(2)); the Court is satisfied that ASIC has had a reasonable opportunity to, first, examine the terms of the proposed compromise or arrangement to which the application relates and a draft of the explanatory statement relating to the proposed compromise or arrangement and, second, to make submissions to the Court in relation to the proposed compromise or arrangement and the draft explanatory statement (s 411(2)).”

12. Mr Thomas also rightly notes that the Court will wish to be satisfied that the procedural requirements of the Supreme Court (Corporations) Rules 1999 (NSW) (“Rules”) have been met; the scheme booklet provides proper disclosure to shareholders; and there is no apparent reason why the scheme should not, in due course, receive the Court’s approval if the necessary majority of votes is achieved.

13. Mr Thomas submits, and I accept subject to the particular matters that I address below, that each of these requirements is met in the present case. I accept that ASIC has been given the necessary notice and an opportunity to consider the scheme and I refer to its position below. The relevant requirements of the Rules have been satisfied, although CSR seeks dispensation of the requirement under r 3.4 of the Rules requiring the future publication of a notice in the form of Form 6, consistent with Practice Note SC Eq 4 at [26(f)]. CSR has obtained a report from Mr Jedlin and Ms Oakley of Kroll as to whether, in their opinion, the scheme is fair and reasonable and in the best interest of CSR shareholders, and they express the view that the scheme is fair and reasonable and therefore is in the best interest of CSR shareholders, in the absence of a superior proposal. The verification procedures undertaken in respect of the information in the scheme booklet concerning CSR on the one hand and the Bidder and Saint-Gobain on the other was apparently comprehensive.

14. Mr Thomas also refers to my summary of the principles which apply to the exercise of the Court’s discretion in Re Villa World Ltd [2019] NSWSC 1207 at [17]-[19], as follows:

“The Court will not ordinarily convene a scheme meeting unless the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the meeting, the Court would be likely to approve it on the hearing of an application that is unopposed: F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72, approved in Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504. In Re Foundation Healthcare Ltd [2002] FCA 742; (2002) 42 ACSR 252 at [36] and [44], cited with apparent approval in Re CSR Ltd [2012] FCAFC 34; (2010) 183 FCR 358 at [58], French J observed that:

“… It is however important to bear in mind that, by granting leave to convene the meeting, the court does not give its imprimatur to the proposed scheme. If the arrangement is one that seems fit for consideration by the meeting of members or creditors and is a commercial proposition likely to gain the court’s approval if passed by the necessary majorities, then leave should be given: Re ACM Gold Ltd (1992) 34 FCR 530; 107 ALR 359; 7 ACSR 231; 10 ACLC 573 (O’Loughlin J). The court is not required to give close consideration to the effects of the scheme upon individual members of the classes of members or creditors affected. So to do would be to “introduce burdensome and to a large extent ineffectual consideration at this interlocutory stage”: Re Jax Marine Pty Ltd [1967] 1 NSWR 145 at 148 (Street J).

The court at the stage of ordering a meeting to approve a scheme does not ordinarily go very far into the question of whether the arrangement is one which warrants the approval of the court … That question is to be answered when the scheme returns to the court for final approval. That is not to exclude the possibility that a scheme may appear on its face so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further.”

At the first Court hearing, the Court is concerned not with whether final approval should be given to the scheme, but whether the scheme is one which is adequately explained to those who have a financial interest in it, and whether there is any obvious flaw in the scheme, such that it would be inappropriate even for it to be submitted for shareholders’ consideration: Re Abacus Funds Management Ltd [2005] NSWSC 1309; (2006) 24 ACLC 211 at [23]. [Counsel] also points out that the Court is not required to be satisfied that no better scheme could have been proposed, and the question is instead whether it is reasonable to suppose that sensible business people might consider the arrangement proposed is of benefit to members: Re Centrebet International Ltd [2011] FCA 870 at [29]; Re SAI Global Ltd [2016] FCA 1312 at [18].

[Counsel] also refers to Farrell J’s summary of the manner in which the Court’s discretion to convene a scheme meeting will be exercised in Re Associated Advisory Practices Limited [2013] FCA 761 at [22], which reflects a number of the principles to which I have referred above:

“The court will not ordinarily convene a meeting of members to consider a scheme of arrangement unless the court is satisfied that the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the meeting of members, the court would be likely to approve the scheme on the hearing of an unopposed application: Re Central Pacific Minerals NL [2002] FCA 239 at [8]; Re CSR Ltd (2010) 183 FCR 358 at [12]; Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504. By granting leave to convene the meeting, the court does not give its imprimatur to the proposed scheme or foreshadow its approval at the second court hearing for the purposes of s 411(4)(b): Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [36]; Australian Securities Commission v Marlborough Gold Mines Ltd at 504–505. The question for the Court is whether it is reasonable to suppose that sensible business people might consider the arrangement proposed as being beneficial to members: In Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 243; Re CSR Ltd at [80]. The court does not need to be satisfied that no better scheme could have been proposed: Re Foundation Healthcare Ltd at [44]. Ultimately, the question is for the members themselves: see FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72.”

15. Mr Thomas also recognises that the Court will wish to be satisfied that the scheme is fit for consideration at the proposed scheme meeting in the sense that it is of such a nature and cast in such terms that, if it achieves the statutory majority at the meeting, the Court would be likely to approve it on the hearing of a petition which is unopposed; and members are to be properly informed as to the nature of the scheme before the scheme meeting. He points out that the scheme is an all-cash acquisition scheme and submits that there is nothing in the terms of the scheme, or in its effect on CSR shareholders, that would warrant the Court declining to permit its consideration by members. He also submits that the Court can be satisfied that the scheme is of such a nature and cast in such terms that, if it achieves the statutory majorities at the scheme meeting, the Court would be likely to approve it, and that it is therefore appropriate to make the orders sought by CSR. Subject to dealing with the particular issues that I address below, I accept that submission.

Several additional matters

16. Mr Thomas recognises that, consistent with the ex parte nature of the application, several aspects of the scheme should be brought to the Court’s attention.

17. First, Mr Thomas points out that an issue arose in a scheme of arrangement propounded by CSR in 2010 (“2010 Scheme”) as to the effect of the scheme and related transactions on CSR’s future ability to satisfy claims that may be made for asbestos related injuries, arising from the historical mining by CSR of asbestos and the manufacture of products containing asbestos: Re CSR Ltd (2010) 183 FCR 358 (“CSR 2010”) at [18]. He submits that that issue arose in that case because a condition precedent to that scheme was a capital reduction under s 256B of the Act that was intended to facilitate the demerger of a new listed entity from “New CSR”: CSR 2010 at [2]. He also notes that the effect of the 2010 Scheme would be that assets of CSR that could otherwise have been used to satisfy asbestos related claims would no longer be held by New CSR by reason of the proposed demerger. He notes that the Full Court of the Federal Court concluded that a possible effect of the reduction in capital in increasing the risk of non-payment of CSR’s creditors, in a theoretical rather than material way, would not have warranted a refusal to convene the scheme meeting as a matter of public policy or commercial morality; and that the prospect that the then proposed reduction in capital may materially prejudice the ability of CSR to pay all its creditors, including asbestos claimants, was not so clear as to warrant a conclusion that the scheme could never be approved: CSR 2010 at [68].

18. Mr Thomas submits and I accept that no corresponding issue arises in this matter. The present scheme does not involve any reduction of capital in CSR and is not conditional on any such reduction, and does not involve a demerger or disposal of CSR’s assets. An all-cash acquisition of all of the shares in CSR by the Bidder, replacing the present shareholders of CSR with a new shareholder, has no apparent impact on creditors or contingent creditors of CSR, and that is a complete answer to any concern of the kind that arose in CSR 2010. I accept the submission by Mr Thomas that there is no reason to conclude that the scheme will have any impact, let alone a negative impact, on the ability of CSR to satisfy product liability claims that may be made against it. This matter gives rise to no reason not to convene the scheme meeting.

19. Mr Thomas also points out, for completeness, that CSR’s recent provision balances for all known claims and reasonably foreseeable future asbestos related claims are disclosed in section 5.6 of the scheme booklet, which also indicates that CSR includes a product liability provision covering all known claims and reasonably foreseeable future asbestos related claims in its financial statements, and this provision is reviewed every six months. Mr Thomas notes that, although CSR shareholders already have access to these provision balances in CSR’s financial statements, the repetition of the information in the scheme booklet will assist CSR shareholders in reaching a view as to whether they wish to vote in favour or against the proposed scheme. I accept that information may well be relevant to CSR shareholders’ decisions as to whether to support the scheme and is properly disclosed in the scheme booklet for that reason.

16. Second, Mr Thomas points to section 9.2 of the scheme booklet, which indicates that CSR operates equity plans that are governed by the Plan Rules (as defined), which allow for CSR employees, CSR executives and senior leaders to receive CSR Performance Share Rights and/or CSR Restricted Shares (as defined) (“CSR Equity Incentives”). Clause 4.5(a) of the SID in turn provides that CSR may deal with the CSR Equity Incentives at the CSR board’s discretion but must take such action as is necessary to ensure that no CSR Equity Incentives are in existence on the Scheme Record Date (as defined) and all rights attached to any CSR Equity Incentives have been extinguished. The manner in which CSR intends to satisfy this condition is described in section 9.2(b) of the proposed scheme booklet. Mr Thomas submits and I accept that holders of performance rights or similar rights to receive CSR shares who are also CSR shareholders are not in a separate class of members by reason only that they also hold such rights: Re Foster’s Group Ltd (No 2) [2011] VSC 547 at [38]-[43]; Re Cashcard Australia Ltd (2004) 48 ACSR 738; Re Link Administration Holdings Ltd [2024] NSWSC 331 (“Link”) at [13].

17. Mr Thomas also points out that Ms Coates holds CSR Equity Incentives. He also notes that the manner in which CSR intends to deal with CSR Equity Incentives of Ms Coates is described in a footnote to the Chair’s letter and in section 9.2(b) of the proposed scheme booklet, which disclose the money amount that Ms Coates would receive on the accelerated vesting of her unvested CSR Performance Share Rights and on the release of restrictions on her CSR Restricted Shares prior to the scheme record date or the scheme being implemented. Mr Thomas rightly recognises that, where a director of a scheme company makes a recommendation to shareholders and will receive a substantial benefit in relation to a scheme which other shareholders will not receive, that benefit should be disclosed as a matter for shareholders to take into account when considering that director's recommendation: Re Kidman Resources Ltd [2019] FCA 1226 at [115]; Re DWS Ltd [2020] FCA 1590 at [41]-[49]; Link at [14]. I accept that the interest of Ms Coates is sufficiently disclosed and quantified in the Chair’s letter and scheme booklet. These matters also give rise to no reason not to convene the scheme meeting.

18. Third, Mr Thomas notes that, under cl 12.2 of the SID, CSR must pay the Bidder a break fee in specified circumstances. I accept that the circumstances in which that fee is payable do not depart from common practice and, importantly, that fee is not payable merely because the resolution submitted to the scheme meeting is not approved by the required majorities. That fee represents just under 1% of the equity value of CSR (based on the transaction consideration of $9.00), which accords with the Takeovers Panel’s guideline in that regard. This matter also gives rise to no reason not to convene the scheme meeting.

19. Fourth, Mr Thomas addresses the question of the funding of the scheme consideration and performance risk. He notes that the Scheme adopts the conventional mechanism of making the transfer of CSR shares to the Bidder conditional on the payment of the total scheme consideration into a trust account maintained by CSR, and that CSR shareholders are therefore protected against the risk that their CSR shares are transferred without receiving the scheme consideration. He notes that CSR shareholders also have the protection of a Deed Poll entered into by the Bidder and Saint-Gobain in their favour, which is governed by NSW law. He submits and I accept that these are well-established means of managing performance risk: Re ELMO Software Pty Ltd [2023] NSWSC 12 at [27]-[28].

20. Fifth, Mr Thomas recognises that, where the Bidder is a special purpose vehicle, evidence should be adduced concerning its ability to fund the scheme consideration, and that matter is addressed in section 6.4 of the scheme booklet and in Mr Vignial’s affidavit. As Mr Thomas points out, the evidence discloses that the Bidder is an indirect wholly owned subsidiary of Saint-Gobain, which is a worldwide supplier of light and sustainable construction materials and services, is listed on Euronext Paris and, as at 31 December 2023, had approximately EUR 8.602 billion (AUD 14 billion) cash on deposit and cash reserves. An amount of these funds which is at least equal to the balance of the aggregate scheme consideration, which is not subject to security interests, rights of set off or required for other arrangements, has been allocated by Saint-Gobain solely to pay the aggregate scheme consideration for the purpose of satisfying the Bidder’s obligations under the scheme, and will be provided to the Bidder by a mixture of equity subscriptions and shareholder debt. I accept that these matters are sufficient to address this issue.

21. Sixth, Mr Thomas addresses the manner of dispatch of scheme documents to CSR shareholders, which is in conventional form and gives rise to no reason not to convene the scheme meeting.

22. Seventh, Mr Thomas draws attention to proposed communications with CSR shareholders, including reminder emails which will be sent to CSR shareholders on or around 13 May, 30 May and 5 June 2024; reminder text messages which will be sent to CSR shareholders on or around 10 May, 29 May, and 4 June 2024; courtesy emails which will be sent to the largest 100 institutional CSR shareholders who have elected to receive email correspondence instead of phone calls, on or around 1 May 2024; an outbound call campaign; and a shareholder information line which CSR shareholders can call to have their questions answered and obtain information about the transaction. CSR draws these proposed communications to the Court’s attention, although no orders are sought approving them, consistent with current scheme practice as noted in InvoCare (at [26]) and Practice Note SC Eq 4 (at [26(k)]). No matter emerges from those communications which I should draw to CSR’s attention, as likely to cause difficulty at the second Court hearing.

A further issue as to property valuations

27. As I noted above, CSR tendered a letter dated 26 April 2024 from ASIC in this hearing, which reserved ASIC’s position as to s 411(17)(b) of the Act to the second Court hearing and noted that ASIC did not propose to appear to make submissions or intervene to oppose the scheme at that hearing. That letter also identified an issue arising from ASIC’s review of Kroll’s independent expert report contained in the scheme booklet. I should first note that, in my view, it will generally be helpful for ASIC to identify any material unresolved issue which arises from its review of documents submitted to it in respect of a scheme in a letter of this kind, even if it does not propose to appear to make submissions or to oppose the approval of a scheme at the first Court hearing. That approach allows the Court the opportunity to engage with that issue if, as here, it is potentially of significance.

28. In its letter dated 26 April 2024, ASIC noted it had reviewed Kroll’s draft independent expert’s report and noted that:

“Kroll has assessed CSR’s enterprise value (on a control basis) as the sum of the value of CSR’s operating business (on a control basis) and CSR’s property portfolio, less the product liability provisions. Kroll has assessed the value of CSR’s property assets to be in the range of $803.8 million to $828.0 million.”

Plainly, the value of CSR’s property portfolio is very substantial in money terms, although Mr Thomas rightly notes and accept that it is a relatively smaller proportion, less than 20%, of the overall value of CSR implied by the scheme consideration.

29. ASIC noted, in its 26 April letter, that Kroll had had regard to ASIC Regulatory Guide 111 Content of Expert Reports and Regulatory Guide 112 Independence of Experts (“RG 112”) in preparing its independent expert report. ASIC also noted that Kroll did not itself engage property valuers in respect of CSR’s properties and had relied on valuation reports and assessments obtained by CSR from a third party specialist property valuation firm. ASIC noted that it had asked Kroll to disclose the identity of the valuer and provide ASIC with copies of the property valuations and assessments, but Kroll had declined to do so on the basis that CSR did not have the valuer’s consent to do so. ASIC observed that it had then requested that that consent be obtained but had not been provided with those documents. ASIC noted that it had been unable to consider whether any issues of independence existed in respect of the property valuer, or whether the factual circumstances justified a flexible application of aspects of its policy in paragraphs 67-70 of RG 112, without access to that information.

30. ASIC also expressed its understanding of market practice in respect of the disclosure of the identity of property valuers in scheme booklets, and its view as to the applicable policy, as follows:

“ASIC understands that valuers in comparable circumstances may prefer not to be named in scheme booklets due to potential insurance and liability risks. ASIC also understands that certain transactions have disclosed the identity of the valuer without annexing valuation reports, while other transactions may not disclose the valuation report or name the valuer where the identity of the valuer has already previously been disclosed to the market. If that were established as a desirable market practice, the present circumstances may nevertheless be slightly different, because the valuations and assessments were initially prepared for another purpose and raise prima facie questions of independence in RG 112 paragraphs 67-70 that may be material from the prospective of scheme shareholders. Generally ASIC would consider it desirable for valuers’ identities and reports to be disclosed.”

31. ASIC then referred to its observation, in paragraph 69 of RG 112, by reference to observations of the Takeovers Panel in Re Great Mines Ltd [2004] ATP 101 (at [56]), that:

“Wherever a report is reused … shareholders should be advised of the purpose for which the report was prepared. It would be inappropriate to re-use a report in this way to satisfy a requirement for an independent’s report and in general, it would be misleading to describe a report reused in this way as independent.”

32. ASIC also noted that it had requested, and CSR had made, additional disclosures in the explanatory booklet in this respect, but that:

“Uncertainty arises in respect of the identity of the Valuer and the content of its reports and assessments, and the fact the Valuer was appointed by CSR and not Kroll. Accordingly, ASIC is not in a position to suggest further disclosure that may be desirable in respect of those matters prior to the hearing today.”

33. It is possible to deal with this further issue relatively briefly, since CSR adopted a constructive approach to resolving it at the first Court hearing by producing the relevant property valuations, which identified the property valuation firm, for ASIC’s review subject to its claim for commercial confidentiality, and also tendered those valuations, subject to a non-publication order that I was satisfied should be made to preserve their commercial confidentiality. That approach has narrowed the issue and assisted in its resolution.

34. I should first recognise that CSR would reasonably seek to preserve commercial confidentiality in valuations of significant property sites, where the public disclosure of those valuations could readily advantage potential purchasers and disadvantage CSR as vendor in any future sales process for those sites. I also recognise that, where the information sought by ASIC was not voluntarily disclosed to it, ASIC could, but did not, exercise its statutory power under s 30 of the Australian Securities & Investments Commission Act 2001 (Cth) (“ASIC Act”) to require production of the relevant documents, for the purposes of ensuring compliance with the corporations legislation.

35. I also accept that, as Mr Thomas submitted, it will be necessary for the independent expert retained in respect of a scheme to undertake an assessment of any specialist reports, including reports as to property valuation, on which it relies. I accept that Kroll has undertaken such an assessment here, and its expert report indicates its satisfaction that the property valuer was independent of CSR; that the engagement instructions given by CSR to that property valuer were appropriate; that the valuations and indicative assessments were completed by a reputable property valuation firm and by valuers who had appropriate qualifications in accordance with the standards of the Australian Property Institute; that the valuation methodologies adopted were consistent with those generally applied in the property industry; and that inspections were conducted as part of the valuation process in February 2024. Kroll also notes that:

“On this basis, Kroll considers that the values derived by the Valuers are not unreasonable and are, therefore, appropriate for use in determining the value of CSR’s property assets.”

36. Kroll also fairly disclosed, in its expert report, that its review did not imply that the valuations had been subject to any form of audit or due diligence, and I accept that disclosure was sufficient to draw that limitation to CSR shareholders’ attention. Kroll also noted that it had not disclosed the individual property valuations or indicative assessments due to commercial sensitivity, and I see no difficulty with that course, where the value of CSR’s shares and the value of its of its entire property value portfolio, rather than the value of particular properties, is material to CSR shareholders’ assessment of the proposed scheme. Kroll’s expert report also identified several adjustments that it had made in dealing with the value of the properties in its valuation of CSR, none of which give rise to any apparent difficulty.

37. I also accept that, as Mr Thomas submitted, it will not always be necessary to disclose the identity of a property valuer in a scheme booklet, and it will rarely be necessary to include valuation reports as to particular properties in a scheme booklet, at least where to do so has the risk of compromising any subsequent sale process for those properties. However, it may be necessary or desirable in a particular case that those reports be made available for review by ASIC on request, at least on a confidential basis, and I have noted above that ASIC can issue a notice under s 30 of the ASIC Act requiring production of those documents if it considers it necessary to do so.

38. After CSR made the relevant documents available for ASIC’s review, subject to its claim for commercial confidentiality, and those documents were tendered at this hearing and an order was made under the Court Suppression and Non-Publication Orders Act 2010 (NSW) to preserve their commercial confidentiality, ASIC refined its position by a further email dated 26 April 2024. ASIC there advised CSR’s solicitors that:

“ASIC has undertaken an expedited review of the property reports and indicative assessments prepared [by named property valuer], over which ASIC intends to maintain confidentiality. …

Given the voluminous nature of the reports, ASIC is unable to provide its final position on the materials today. Based on ASIC’s preliminary review, ASIC does not object to the Court making orders for the dispatch of the explanatory statement without the statement disclosing the identity of the Valuer or annexing the Valuer’s reports and assessments. Please note our decision not to object to dispatch of the explanatory statement is not an indication that we agree with the omission of the identity of the Valuer or the approach adopted in relation to engagement of the Valuer and use of its report. ASIC reserves the right to raise the issue at the second Court hearing should it consider it necessary to do so.”

39. ASIC there addressed three particular matters, and I also heard Mr Bevins, who represented ASIC at the resumed hearing, as to ASIC’s position. I have had regard to these matters and to a fourth matter in reaching the conclusion that the Court should approve the dispatch of the scheme documents and convene the scheme meeting at this hearing, although these matters will properly remain open for further review at the second Court hearing. First, ASIC noted limitations on reliance in the property valuers’ reports. It seems to me that matter is not material to CSR’s shareholders. If an issue arises as to the content of the information provided in the scheme booklet, shareholders may have a claim against CSR or Kroll, but would suffer no realistic disadvantage by reason of the fact that those parties may not then have cross-claims available against the property valuers. Second, ASIC addressed the property valuers’ approach(es) to the use of the properties in their valuations, and expressed the view that Kroll’s independent expert report provided limited disclosure of the assumptions that underpinned that approach. I am not persuaded that further disclosure as to that matter is required in the scheme booklet where, as ASIC recognises, Kroll has considered that matter in forming its opinions as set out in the independent expert report. Third, ASIC addresses the position as to less valuable properties to which Kroll referred in its independent expert report, which have been included in its valuation range as to CSR’s properties. Although the value of those properties is plainly not small in money terms, I am satisfied that it is not material to the value of the proposed transaction and I am not persuaded that any further disclosure is required in that respect.

40. Fourth, I note that three of the property valuation reports on which Kroll relied, relating to the properties of larger value, are very detailed and provide a comprehensive review of the relevant properties in the nature of “formal” valuations of those properties. Four of the valuation reports, relating to properties of lesser value, are less detailed and more qualified in character. The value of those four properties is again not small in money terms, but it seems to me that it is also not material to the value of the transaction as a whole.

41. I would not decline to make the orders sought by CSR is respect of the first scheme meeting by reason of this further issue.

Orders

42. For the reasons set out above, I made the orders sought by CSR at the conclusion of the first Court hearing.

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Decision last updated: 03 May 2024