Ironbridge Capital Pty Limited v Australian Competition and Consumer Commission

[2005] FCA 1315

FEDERAL COURT OF AUSTRALIA

Ironbridge Capital Pty Limited v Australian Competition and Consumer Commission [2005] FCA 1315

CORRIGENDUM

IRONBRIDGE CAPITAL PTY LIMITED v AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

NSD1597 OF 2005

EMMETT J
13 SEPTEMBER 2005 (C0RRIGENDUM 19 SEPTEMBER 2005)
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD1597 of 2005

BETWEEN:

IRONBRIDGE CAPITAL PTY LIMITED
FIRST APPLICANT

CVC ASIA PACIFIC LIMITED
SECOND APPLICANT

NEW AFFINITY HOLDINGS PTY LIMITED
THIRD APPLICANT

AND:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
FIRST RESPONDENT

RAMSAY HEALTHCARE LIMITED
SECOND RESPONDENT

HEALTHSCOPE LIMITED
THIRD RESPONDENT

JUDGE:	EMMETT J
DATE:	13 SEPTEMBER 2005
PLACE:	SYDNEY

CORRIGENDUM TO REASONS FOR JUDGMENT

1. In the appearances for counsel for the second respondent, “Mr RT Wright SC” should read “Mr RJ Wright SC”.

I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated:            19 September 2005

FEDERAL COURT OF AUSTRALIA

Ironbridge Capital Pty Limited v Australian Competition and Consumer Commission [2005] FCA 1315

IRONBRIDGE CAPITAL PTY LIMITED v AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

NSD1597 OF 2005

EMMETT J
13 SEPTEMBER 2005
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD1597 of 2005

BETWEEN:

IRONBRIDGE CAPITAL PTY LIMITED
FIRST APPLICANT

CVC ASIA PACIFIC LIMITED
SECOND APPLICANT

NEW AFFINITY HOLDINGS PTY LIMITED
THIRD APPLICANT

AND:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
FIRST RESPONDENT

RAMSAY HEALTHCARE LIMITED
SECOND RESPONDENT

HEALTHSCOPE LIMITED
THIRD RESPONDENT

JUDGE:

EMMETT J

DATE OF ORDER:

13 SEPTEMBER 2005

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.        The application be dismissed.

2.        The applicants pay the respondents’ costs.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD1597 of 2005

BETWEEN:

IRONBRIDGE CAPITAL PTY LIMITED
FIRST APPLICANT

CVC ASIA PACIFIC LIMITED
SECOND APPLICANT

NEW AFFINITY HOLDINGS PTY LIMITED
THIRD APPLICANT

AND:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
FIRST RESPONDENT

RAMSAY HEALTHCARE LIMITED
SECOND RESPONDENT

HEALTHSCOPE LIMITED
THIRD RESPONDENT

JUDGE:	EMMETT J
DATE:	13 SEPTEMBER 2005
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. On 13 April 2005, the second respondent, Ramsay Health Care Limited (‘Ramsay’), gave an undertaking to the first respondent, the Australian Competition and Consumer Commission (‘the Commission’), under s 87B of the Trade Practices Act 1974 (Cth) (‘the Act’). On 30 August 2005, the Commission made a decision to consent to a variation of that undertaking. The applicants claim that that decision was invalid and should be quashed because they were denied procedural fairness before the decision was made.

   STATUTORY CONTEXT

2. The object of the Act, as stated in s 2, is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection. One of the provisions of the Act designed to enhance the promotion of competition is s 50, which is concerned with the prohibition of acquisitions that would result in substantially lessening of competition. Under s 50(1), a corporation must not directly or indirectly acquire shares in the capital of a body corporate, or acquire any assets of a person, if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market. Under s 50(2), a person must not directly or indirectly acquire shares in the capital of a corporation or acquire any assets of a corporation if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market.

3. Part VI of the Act, which contains ss 80, 82, 87 and 87B, is concerned with enforcement and remedies, including enforcement and remedies in relation to s 50. Section 50 is contained in Part IV of the Act, which deals with restrictive trade practices.

4. Relevantly, by the operation of ss 80(1) and 80(1A), where, on the application of the Commission, the Court is satisfied that a person has engaged or is proposing to engage in conduct that constitutes, or would constitute a contravention of s 50, the Court may grant an injunction in such terms as the Court determines to be appropriate. It is relevant that the Commission is the only person who has standing to seek an injunction in respect of a contravention of s 50.

5. Section 81 provides that the Court may, on the application of the Commission or any other person, if it finds, or has found, that a person has contravened s 50, give directions for the purpose of securing the disposal by the person of all or any of the shares or assets acquired in contravention of s 50.

6. Section 82 confers an action for damages. Under s 82(1), a person who suffers loss or damage by conduct of another person that was done, relevantly, in contravention of s 50, may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention. Section 87 confers jurisdiction on the Court to make other orders: where, in a proceeding, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in contravention, relevantly, of s 50, the Court may make such order or orders as it thinks appropriate against the person who engaged in the conduct, or a person who was involved in the contravention, if the Court considers that the order or orders concerned will compensate the first mentioned person for the loss or damage or would prevent or reduce the loss or damage.

7. Section 87B is also contained within Part VI. Under s 87B(1), the Commission may accept a written undertaking given by a person in connection with a matter in relation to which the Commission has a power or function under the Act. Under s 87B(2), the person may withdraw or vary the undertaking at any time, but only with the consent of the Commission. Under s 87B(3), the Commission may apply to the Court for an order under s 87B(4), which provides that, if the Court is satisfied that a person has breached a term of an undertaking, the Court may make one of several orders, including an order directing the person to comply with the term of the undertaking, and an order directing the person to compensate any other person who has suffered loss or damage as a result of the breach.

8. Although section 163A is not contained in Part VI of the Act, it is relevant to have regard to the provision. Section 163A(1) provides that a person may, in relation to a matter arising under the Act, institute a proceeding in the Court seeking the making of a declaration in relation to the operation or effect of any provision of the Act. Under s 163A(3)(a), the Federal Court has jurisdiction to hear and to determine proceedings under section 163A(1).

9. Finally, so far as the scheme related to s 50 is concerned, s 88(9), which is contained in Part VII of the Act, dealing with authorisations and notifications in respect of restrictive trade practices, provides that the Commission may, upon application by a person, relevantly grant an authorisation to the person to acquire shares in the capital of a body corporate or to acquire assets of a person. While such an authorisation remains in force, s 50 does not prevent the person from acquiring shares or assets in accordance with the authorisation.

   COMMISSION GUIDELINES

10. The Commission has published a number of guidelines relating to the way in which it might exercise its powers in relation to s 50, and, in particular, in relation to section 87B. Its merger guidelines, published in June 1999, contains section 7, dealing with enforceable undertakings. Paragraphs 7.1 to 7.3 of that section relevantly provide as follows:

    ‘7.1…s 87B allows the Commission to accept written undertakings in connection with matters where it has a power or function under the Act.

    7.2Undertakings pursuant to s 87B are one of the tools available under the Act to further its goals of improved competition and efficiency in markets. Undertakings pursuant to s 87B are a flexible alternative to simply opposing an acquisition where the Commission believes that the acquisition is likely to substantially lessen competition.

    7.3To date the Commission has accepted undertakings pursuant to s 87B of the Act from parties to an acquisition for either of two purposes:

    ·     to ensure that an acquisition is not completed until the Commission has had the opportunity to conduct the appropriate market inquiries;

    ·     or to resolve matters where the proposed acquisition is, in the Commission's view, likely to contravene the Act.’

    7.16 of the guideline indicates that:

    ‘The scope of a s 87B undertaking is potentially wider and the terms more flexible than a court imposed remedy.  For example, the court may be reluctant to make other orders requiring ongoing monitoring and supervision by the court, whereas the Commission does have the resources and functions of an administrative agency and may be prepared to accept undertakings with an ongoing obligation.’

    Paragraph 7.18 refers to parties and says:

    ‘The question of which bodies corporate, or persons, should be parties to a proposed s 87B undertaking is an important one.  The Commission will need to be satisfied that the parties to the undertakings are the relevant legal entities capable of performing the specified obligations.  However, it may not be necessary to have all relevant legal entities sign the undertaking, particularly where a relevant parent company undertakes to cause or procure its relevant subsidiaries to do what is required.’

    Paragraphs 7.19 and 7.21 relevantly provide:

    ‘7.19The Commission will insist that the general terms of any s 87B undertaking accepted are made public as soon as possible. In almost all cases this would mean the publication of the actual provisions of the s 87B undertaking by placing a copy of the undertaking on the public register.

    7.21In most, if not all, cases the Commission will want to consult with relevant market participants before accepting a substantive s 87B undertaking. While the Commission will usually have already undertaken extensive consultation through its market inquiries process, this consultation may not be sufficient to address all issues relevant to a decision to accept a proposed undertaking or not. Once having formed the view that an acquisition would be or is likely to be anti-competitive, and having received the offer of undertaking, the Commission will need to undertake a separate assessment of the impact of the proposed undertakings. This will almost always require further consultation with market place participants.’

    Paragraphs 7.25 to 7.29 deal with third party interests, relevantly, in the following terms:

    ‘7.25The Commission may also need to assess the impact of third party rights and interests.  Any merger will achieve some measure of structural change in a market and, therefore, any merger will be likely to impact on firms and consumers not party to the transaction.

    7.27:An assessment of these ‘third party’ interests is in effect subsumed within the general assessment of the competition effects of a merger and the capacity of the proposed undertakings to address those effects.

    7.28:However, there may be other more specialised third party interests which need to be considered by the Commission and the merger parties. For example, merger parties which are proposing s 87B undertakings will need to consider their own obligations to third parties, for example whether the undertakings are consistent with existing contractual obligations with another party or whether the performance of the undertakings may give rise to some claim against the merger parties.

    7.29:Generally it would not be appropriate for the Commission to conduct this assessment of the rights and obligations as between the merger parties and other third parties. Generally, that would be a matter for the merger parties. However, in some cases where the presence of third party rights may give rise to a challenge to the s 87B undertakings or the undertakings being rendered impossible to comply with, it may be necessary for the proposed s 87B undertakings to make specific provision for those rights, for example, by way of indemnification of the third party. This likely to arise only in rare cases.’

    Paragraph 7.32 deals with variation and review of Commission decisions:

    ‘A party to a s 87B undertaking may seek to have it varied with the Commission's consent s 87B(2).  If the Commission does not consent it may be open to the party requesting the variation to seek judicial review of the Commission's decision.  The Commission's refusal to consent may also be a matter the Court may take into account in the exercise of its discretion to grant remedies for failure to comply with an undertaking and any action taken by the Commission to enforce the undertakings.’

11. In August 1999, the Commission published a guideline on the Commission's use of enforceable undertakings under s 87B. The introduction to those guidelines states that:

    ‘This publication is a guide to the Commission's current approach to administration of s 87B in connection with its enforcement activities.’

    An overview of enforcement of the Act contains the following statement:

    ‘The Commission's Corporate Plan describes its mission as fostering competitive, efficient, fair and informed Australian markets with the following four goals: 

    ·     compliance with the Trade Practices Act;

    ·     improvement in market conduct;  

    ·     a community educated and informed about the Trade Practices Act and its implications for business and consumers; and

    ·     efficient and effective use of the Commission’s resources.’

    In particular matters the Commission seeks such specific outcomes:

    • as ensuring that conduct in apparent breach of the Act is stopped,
    • establishing mechanisms to prevent that conduct recurring,
    • achieving compensation for any victims of the conduct,
    • deterring others from similar conduct, and educating those at fault.

    In the guidelines under the heading ‘Publicity’, the Commission states its view that:

    ‘ …all s 87B undertakings should be a matter of public record and open to public scrutiny: 

    ·     Its policy is to publicise undertakings in news media statements, reports in Commission publications and in any other manner appropriate to the particular matter.’

    Under the heading, ‘Consultation and third party interests’, the following statements are made:

    ‘In most, if not all, cases the Commission will want to consult with relevant market participants before accepting a substantive s 87B undertaking.  While the Commission will usually already have undertaken extensive consultation through its market inquiries process, this consultation may not be sufficient to address all issues relevant to a decision to accept a proposed undertaking or not.  Once having formed the view that an acquisition would be or is likely to be anti-competitive, and having received the offer of undertakings, the Commission will need to undertake a separate assessment of impact of the proposed undertakings.  This will almost always require further consultation with marketplace participants.’

    Under the heading, ‘Compliance with undertakings’ the Commission says:

    ‘Following acceptance of an undertaking, the Commission requires that its implementation and effectiveness be monitored. 

    Monitoring will generally be the responsibility of the business concerned. However, …the Commission will require a commitment to an independent audit of compliance with the undertaking at regular intervals (usually annually), for a specified period (usually three years). 

    Where it has reason to believe that a business has not complied with an undertaking the Commission will usually first try to resolve the matter by consultation. 

    If this approach fails, it will not hesitate to apply to the court for appropriate orders.  The Commission will make public its application to the court and will seek legal costs from the offending party where appropriate.’

    Under the heading, ‘Variations’, the Commission says:

    ‘Under s 87B(2) parties may withdraw or vary undertakings with the consent of the Commission. 

    This allows negotiations for change if undertakings are subsequently found to be too hard to comply with, not practical or where changes in circumstances occur. 

    The Commission will sympathetically consider such requests as long as they not alter the spirit of the original undertaking.  Variations will be made public and put on the Commission's public register.’

12. Finally, in October 2004, the Commission published Guideline for informal merger reviews.  That guideline contains the following under the heading ‘Section 87B Undertakings’:

    ‘In circumstances where the [Commission] has identified a number of competition issues, it is sometimes possible for the merger parties to overcome these by offering the [Commission] a court enforceable undertaking under s 87B. The current Merger guidelines discuss in detail the nature and purpose of s 87B undertakings and the [Commission]'s approach to accepting them for mergers. 

    Where a s 87B undertaking is accepted by the [Commission], in most cases it will be placed on public register.  This applies to merger and non-merger undertakings.  Previously, the negotiation of undertakings has generally been confidential and conducted directly between the merger parties and the [Commission] (usually involving a Commissioner) while substantive undertakings have in some cases involved further consultation with interested parties. 

    In the case of a s 87B undertaking the [Commission] will seek comment from market participants, where appropriate.  This may include placing the draft undertaking, or a summary of it, on the [Commission]'s website.  The length of time made available for public comment will be identified in the secondary timeline.

    If interested parties raise concerns the [Commission] cannot guarantee that changes will be made to the proposed undertaking as those undertakings must be offered by the merger parties.  However, the [Commission] will take these comments into consideration in deciding whether to accept the proposed undertaking. 

    Once finalised, the undertaking will be publicly available on the public register, subject to limited confidentiality considerations.’

13. The applicants in the proceeding are Ironbridge Capital Pty Limited, (‘Ironbridge’); CVC Asia Pacific Limited (‘CVC’), and New Affinity Holdings Pty Limited (‘New Affinity’).  Ironbridge and CVC are owners of some of the shares in certain Luxembourg entities that indirectly control Affinity Health Limited (‘Affinity’). 

14. In April 2005, Affinity was, through various subsidiaries directly or indirectly the owner and operator of some 49 private hospitals in various parts of Australia (‘the Affinity Business’). In early April Ramsay proposed to enter into an agreement with the owners of the shares in the Luxembourg entities to acquire the Affinity Business (‘the Proposed Acquisition’). The Commission had concerns that the likely effect of the Proposed Acquisition might be to lessen competition in a market in Australia and, therefore, that the Proposed Acquisition might contravene s 50 of the Act.

15. On 8 April 2005, Ramsay informed the Commission that it was intending to complete the Proposed Acquisition on 11 April 2005.  The Commission was concerned that the merged entity would have by far the largest share in the market for the provision of private hospital services in Australia.  Discussions between the Commission and Ramsay ensued, the net result of which was that certain undertakings were given by Ramsay that they would not enter into the transaction proposed without giving some prior notice to the Commission.  The Commission, therefore, abandoned proposals to commence proceedings in the Court, pursuant to s 80(1A), to restrain the Proposed Acquisition. 

1. Ramsay approached the Commission to obtain informal clearance of the Proposed Acquisition. The Commission was not prepared to give informal clearance at that stage. Ramsay accepted that the Commission had not had the opportunity to consider the competition implications of the Proposed Acquisition and that the Commission was not satisfied it would not result in a contravention of s 50 of the Act.

2. Ramsay urged on the Commission commercial imperatives for the Proposed Acquisition to proceed as soon as possible and proposed that, if the Commission was prepared to forego injunction proceedings to restrain the Proposed Acquisition, Ramsay would be prepared to give an undertaking that it would divest any hospital or hospitals the subject of the Proposed Acquisition as may be nominated by the Commission for divestiture, in order to address any competition concerns identified by the Commission in its investigation. 

3. Ramsay therefore offered undertakings under s 87B of the Act, that were intended by Ramsay to ensure that:

   ·the Commission would be given a reasonable opportunity to conduct its inquiries with respect to the proposed acquisition;

   ·the current Ramsay hospital business would be held separate from the whole of the Affinity hospital business until the Commission had considered the competition ramifications of the proposed acquisition;

   ·the Affinity business would be maintained by Ramsay as an ongoing concern, in good condition, while it was held separate, so as to ensure that any part, or all of the Affinity business, could be divested by Ramsay to address any competition concerns that the Commission might have; and

   ·Ramsay immediately divest those parts of the Affinity business that CVC and Ironbridge were willing to buy.

   The Commission agreed to accept such undertakings in order to assist Ramsay in its commercial objectives.  At the same time, the Commission made it clear to Ramsay that Ramsay might be required to divest all of the Affinity Business in order to satisfy competition concerns of the Commission.

4. On 13 April 2005, Ramsay signed an undertaking pursuant to s 87B (‘the Ramsay Undertaking’). The Ramsay Undertaking was accepted by the Commission on the same day. The Ramsay Undertaking came into effect upon execution by Ramsay and acceptance by the Commission.

5. The Ramsay Undertaking runs to some 7 pages and contains 4 annexures. Relevantly, it contained the following paragraphs:

   ‘6.1Ramsay undertakes that it will not from the Control Date to the Hold Separate Termination Date, except in accordance with this Undertaking, sell or transfer the ownership of the Affinity Business or any assets within that business, or make any material change to the attributes or extent of that business.

   …

   7.1      Ramsay undertakes that it will:

   (a)divest the New Affinity hospitals (as identified in Annexure C and in accordance with the Memorandum of Understanding at Annexure D) to New Affinity;

   (b)subject to any direction in writing to the contrary by the Commission, divest [certain specified hospitals] currently owned and/or operated by Ramsay; and

   (c)divest such other hospitals … or other assets (if any) that are, in its absolute discretion, identified by the Commission, at such times and on such conditions (including as to price) as are approved from time to time by the Commission.

   Control date was defined as the date on which the sale and purchase of shares in Affinity was completed by Ramsay.  Hold Separate Termination Date was defined as meaning the date on which the Commission advised Ramsay that it did not have any competition concerns in respect of the Proposed Acquisition. New Affinity was defined as the vendors of shares in Affinity who had agreed (by way of the Memorandum of Understanding to be executed by Ramsay, Ironbridge and CVC), to acquire the hospitals, 14 in number, specified in annexure C to the undertaking.  The New Affinity hospitals meant the hospitals defined in annexure C.

   8.1 If circumstances arise which make some modification of this Undertaking due to changed circumstances desirable, Ramsay and the Commission will review the Undertaking and negotiate in good faith the amendment or revocation of all or any part of the Undertaking in light of such circumstances and having regard to the paramount need to maintain and promote competition in all markets in Australia for the provision of private hospital services.’

6. Ironbridge and CVC also executed an undertaking under section 87B on 13 April 2005 (‘the Affinity Undertaking’). The Affinity Undertaking was to come into effect when it was executed by CVC and Ironbridge and accepted by the Commission. That undertaking was also accepted by the Commission on 13 April 2005.

7. Clauses 2.1 and 2.2 of the Affinity Undertaking provided:

   ‘2.1[CVC] and Ironbridge jointly and severally undertake that they will execute a confidential Heads of Agreement with Ramsay identical in terms to the one set out at confidential Annexure 1 to this Undertaking… immediately after Ramsay executes the share sale agreement for the Proposed Acquisition. …

   2.2[CVC] and Ironbridge, jointly and severally, undertake that they will procure that a special purpose company be formed to acquire the hospitals listed in Annexure C to the Undertaking proffered by Ramsay … on the terms and conditions set out in the confidential Heads of Agreement entered into with Ramsay as referred to in clause 2.1 of this Undertaking.’

   Paragraph 3.1 of the Affinity Undertaking provided:

   ‘If [CVC] and/or Ironbridge are unable to comply with their obligations in clause 2 of this undertaking or believe it is necessary to seek some modifications to those obligations due to changed circumstances, [CVC] Ironbridge and the Commission will review the Undertaking and negotiate in good faith the amendment or revocation of all or any part of the Undertaking in light of such circumstances having regard to the paramount need to maintain and promote competition in all markets in Australia for the provision of private hospital services.’

8. Although both Undertakings referred to a ‘memorandum of understanding’, the document annexed to the Undertakings was entitled ‘Heads of Agreement – Divestment’.  A document in that form (‘the Heads of Agreement’) was executed by Ramsay, and by Ironbridge and CVC on 13 April 2005.  The form of the document is expressed to be made between Ramsay, as Seller, and Newco, as Buyer.  Newco was described as ‘a new company to be formed by funds managed or advised by Ironbridge … and CVC…’.  Curiously, neither Ironbridge nor CVC is expressed to be a party to the Heads of Agreement.  However, the attestation provision contemplates execution as an agreement by each of Ramsay, Ironbridge and CVC. 

9. Clause 1 of the Heads of Agreement sets out the objectives of the parties relevantly in the following terms:

   ‘1.1The Seller intends to acquire control of the Affinity Hospitals from a number of parties including entities controlled by funds managed or advised by Ironbridge and CVC. 

   1.2Upon acquiring the Affinity Hospitals the Seller will wish to sell and the Buyer, will wish to purchase all of the Hospitals.  Ironbridge and CVC will form the Buyer, as new (sic) company, to negotiate to acquire and to acquire the Hospitals.  The purpose of this document is to set out the indicative terms, conditions and bases upon which Ironbridge and CVC, on the one hand, and the Seller, on the other, will negotiate for the Seller to sell and the Buyer to purchase all of the Hospitals.

   1.3It is intended that the sale of the Share Sale Hospitals will be effected by the sale of shares in the entity that operates those Hospitals.

   1.4It is intended that the sale of the Assets Sale Hospitals will be effected by way of an asset sale for those Hospitals.’

10. Clause 2 dealt with the purchase price. Clause 2.1 said the Buyer will pay a purchase price of $406,154,000 on a cash free/debt free basis to the Seller or its relevant related entity for all of the hospitals.  Clause 3 dealt with completion and provided:

    ‘3.1Completion of the Divestment Share Sale Agreement and the Divestment Asset Sale Agreements…will occur on a date to be agreed by the parties which will be not less than 2 weeks, and no later than 4 months, after all of the conditions precedent are fulfilled.

    3.2The purchase price will be paid in full on completion.’

    Clause 4 dealt with Conditions Precedent:

    ‘4.1This document is conditional on the conditions precedent set out in Schedule 2 … The Divestment Share Sale Agreement will be conditional on items 1 and 3 in Part 1 of Schedule 2.

    4.2In the event that the conditions precedent (other than the Regulatory conditions precedent as items 1 and 3 of Schedule 2) are not satisfied within 3 months of the date of this document, this document will terminate.  This period may be extended by agreement.’

11. Clause 8 dealt with the extent to which the Heads of Agreement were to be legally binding and relevantly provided: 

    ‘The parties intend to be immediately legally bound by the terms of clauses 4, 9 and 11 to 16 which are proposed as the basis of a binding contract only (but not by the terms in the other clauses of this document).  The parties must negotiate in good faith to reach agreement to sell the Hospitals at the price set out in clause 2.  This commitment to negotiate in good faith is legally binding. The remaining provisions of this document are subject to contract.  In the case of ambiguity or uncertainty… the parties agree in good faith to have regard to the discussions preceding this document …and to negotiate in good faith to resolve that ambiguity or uncertainty in a manner calculated to give effect to the terms expressed in this agreement…The parties agree to exclude the remedy of specific performance in respect of breach of this agreement.’

    Clause 9 dealt with the preparation of transaction documents:

    ‘9.1The Seller agrees to, and to procure that its related entities… and advisers do, negotiate exclusively for a period of 8 weeks from the date of execution of this document, with Ironbridge, CVC and the Buyer (once formed) with respect to any transaction involving or relating to the sale, purchase, option, right or refusal, merger, joint venture or reconstruction with respect to the Hospitals or any one of the Hospitals. … The Seller must not, and must procure that its related entities and advisers do not, solicit any person or entity to discuss or make proposals in relation to any Dealing or possible Dealing except Ironbridge, CVC and the Buyer.  The Seller must not, and must procure that none of its related entities or advisers, discuss or negotiate any dealing or proposal in connection with the possible Dealing with any person or entity except Ironbridge, CVC and the Buyer.

    9.2The parties must within a period of 8 weeks of execution of this document negotiate in good faith and in a timely manner the terms of an Umbrella Divestment Deed, the Divestment Share Sale Agreement and the Divestment Asset Sales Agreement(s) in relation to the respective Hospitals which will reflect the price and terms set out in this agreement and provide for further detail in relation to mechanics and provisions to give effect to the intentions of the parties and the essential terms set out in this agreement. …

    9.3The Umbrella Divestment Deed will set out the relationship generally between the parties, the interrelationship between the Divestment Share Sale Agreement and the Divestment Assets Sales Agreement(s) including the manner in which the Seller will procure the sale of the Hospitals.’

12. I shall say something about the effect of the Heads of Agreement in due course.  It is of significance, however, that the document was not intended to create any legally binding obligation other than to negotiate in good faith for a period of eight weeks. 

13. On 14 April 2005, the Commission published a news release referring to the acquisition by Ramsay of the Affinity Business.  The news release relevantly said:

    ‘The [Commission] has not made a decision to clear the transaction and is yet to undertake its market inquiries…. 

    However, to facilitate the transaction and to enable it to proceed, Ramsay and Affinity have provided undertakings to the [Commission].  These will preserve the Affinity business as a separate and independently viable going concern until such time as the [Commission] has completed its inquiries. 

    Ramsay and Affinity have also undertaken to divest 14 hospitals in New South Wales, Victoria, Queensland and Western Australia back to some of the current investors in Affinity.’

    NEGOTIATIONS BETWEEN RAMSAY AND NEW AFFINITY

14. While negotiations apparently took place thereafter between Ramsay, on the one hand, and Ironbridge and CVC, on the other, those negotiations have so far come to nought.  There may ultimately be a dispute as to the reasons, but that is not presently a question before the Court. 

15. On 15 June 2005, Ms Sharon Henrick of Mallesons Stephen Jaques (‘Mallesons’), who were acting for Ironbridge and CVC, had a telephone conversation with an officer of the Commission.  The officer recorded Ms Henrick as saying that Ramsay had been doing everything to frustrate and thwart the required divesture of the 14 hospitals to her client despite all the terms and conditions for such divestiture having been agreed under a memorandum of understanding between them.  Ms Henrick is also recorded as having said that she intended to send a chronology of events to the Commission and that it would be useful if there were ‘a time frame on the 14 divestitures’. 

16. On 23 June 2005, Ms Henrick wrote to the Commission referring to that telephone conversation and stating that CVC and Ironbridge had fully complied with all of their obligations under the Affinity Undertaking.  Ms Henrick’s letter said that Ironbridge and CVC had executed the Heads of Agreement on 13 April 2005 and had incorporated the proposed new company on 11 May 2005.  The letter ended by saying:

    ‘I understand that [Ramsay] expects that legally binding documents to divest the 14 hospitals specified in the Heads of Agreement to New Affinity Acquisition Pty Limited substantially in accordance with the Heads of Agreement, will be executed within the next three weeks.’

17. On 1 July 2005, the Commission published a Statement of Issues concerning Ramsay’s acquisition of Affinity.  The Statement of Issues relevantly said:

    “This Statement of Issues is published in accordance with the [Commission]’s Guideline for Informal merger reviews dated October 2004.  The Statement of Issues outlines the preliminary view of the [Commission] on Ramsay's acquisition of Affinity… and discusses a number of competition issues identified generally and in specific regions, the extent to which such issues may be resolved by the divestitures already proposed by Ramsay and the extent to which the [Commission] considers further divestiture may be required to address any outstanding competition concerns.  The Statement should in no way be interpreted as the Commission expressing a concluded view or a decision with respect to the competition effects of the acquisition of Affinity by Ramsay. Rather, the Statement of Issues is intended to inform the public of the issues being considered by the [Commission] and to provide a basis for market participants to make further submissions to the [Commission] in relation to any of the issues raised.”

    Under the heading ‘The transferee: [CVC]/[Ironbridge]’ the following appeared:

    ‘Both Ramsay and New Affinity have given the [Commission] undertakings which have the effect of requiring Ramsay to divest 14 hospitals to New Affinity that have been identified by Ramsay and New Affinity.  The undertakings, which identify the hospitals, have been published on the [Commission] website …. 

    Although New Affinity will be significantly smaller by hospital number and revenue to Affinity, New Affinity will retain much of its management and will be owned by [CVC] and [Ironbridge] who were two of the shareholders of Affinity. 

    In addition to the identified hospitals which are to be divested to New Affinity, the Ramsay Undertaking acknowledges that the [Commission] was not afforded the opportunity to conduct market enquiries prior to the Acquisition and so provides a mechanism for the divestment of additional hospitals in the event the Commission forms the view that such divestments are required to address competition concerns that the [Commission] might have. The Ramsay undertaking also requires Ramsay to operate the Affinity hospitals as separate businesses from the Ramsay hospitals while the [Commission] considers the competitive effects of the Acquisition.’

    Under the heading ‘Divestitures to New Affinity and others’, the Statement of Issues said:

    ‘The [Commission] considers at this stage of its assessment that the divestiture of the 14 hospitals to New Affinity is likely to result in the existence of a viable and experienced competitor in the form of New Affinity, constrain to some degree the scope that Ramsay will have to use its market power in dealing with health insurers and, more importantly, result in a more competitive distribution of hospitals in each of the relevant regional areas.  The [Commission] also has the view that divestiture of two of the three other hospitals… will further address possible concerns relating to the south east suburbs of Melbourne. 

    In particular the [Commission] has reached a view that the proposed divestiture of hospitals in Melbourne, Sydney and Perth redresses competition concerns identified in those cities. 

    However this view of the divestitures in these regions currently proposed in the undertakings is subject to the [Commission] resolving to its satisfaction the concerns identified above with regard to: the acute care and psychiatric hospitals in [certain other areas] and the two hospitals in south Sydney and three hospitals in Newcastle; in addition to its concerns regarding the hospitals discussed above in other regions.’

18. On 13 July 2005, the Commission wrote to Blake Dawson Waldron, the solicitors for Ramsay, in relation to Ramsay's obligations to provide information to the Commission pursuant to the Ramsay Undertaking. The letter requested provision of copies of any sale agreements for the assets to be divested by Ramsay to New Affinity, together with a written report regarding Ramsay’s compliance with the other undertakings and details of the progress of the sale of the Affinity Business to Ramsay.

19. Blake Dawson Waldron replied on 21 July 2005, relevantly saying:

    ‘Ramsay is not able to provide the Commission with sale agreements in respect of the assets being divested by Ramsay to New Affinity as the documents that will ultimately record this sale are still in the process of being negotiated.’

    In response to the inquiry about the progress of the sale of Affinity to Ramsay, Blake Dawson Waldron said:

    ‘On 13 April 2005, Ramsay agreed to acquire all the shares in [a Luxembourg company] which was the primary holding company for [Affinity].  The transfer of those shares was completed on the same day. This transfer meant that Ramsay acquired [Affinity] and all of the companies downstream from Affinity.  As a result Ramsay acquired the entire Affinity hospital portfolio… consisting of 51 hospitals.”

20. On 19 July 2005, the Commission also wrote to Mallesons, referring to the undertakings given by Ramsay and by CVC and Ironbridge.  The letter said:

    ‘The [Commission] is concerned to ensure that Ramsay and New Affinity are continuing to comply with the Undertakings and that, in particular, the divestment of hospitals by Ramsay to New Affinity is progressing.

    To assist the [Commission] monitor compliance with the Undertakings, would you please provide the [Commission] with a document summarising the steps that have been taken in relation to the divesture of hospitals by Ramsay to New Affinity.  Such summary should identify the progress made in relation to the divestment of each New Affinity hospital and the terms and conditions Ramsay is seeking in relation to each sale including any trade restriction clauses. …’

1. By letter of 23 July 2005, Mallesons responded to the Commission’s letter, relevantly saying:

   ‘We summarise the progress that has bee made in relation to the divestiture of the 14 hospitals as follows: 

   ·     The Heads of Agreement- Divestment… contained all the essential terms to be reflected in binding transaction documents to effect the divestment.

   ·     Despite this, Ramsay and New Affinity have not yet agreed or entered binding transaction documents to divest the 14 New Affinity hospitals. 

   ·     Negotiation of binding transaction documents has been characterised by delay or lack of expedition on the part of Ramsay and Ramsay taking positions at odds with the [Heads of Agreement], including the imposition of restrictions of New Affinity's ability to compete. 

   ·     These delays prompted New Affinity to compromise commercially on many points in an endeavour to expedite, finalise and execute binding transaction documents including by agreeing to certain restrictions on competition and increasing the purchase price for the 14 hospitals from $406 million to $430 million.

   ·     At a high-level meeting with Ramsay on 22 June 2005, all outstanding commercial issues were resolved… and Ramsay indicated a commitment to execute binding transaction documents within two to three weeks:

   ·     After execution of binding transaction documents New Affinity wishes to take ownership and control of the entire portfolio of 14 hospitals as soon as practicable…

   …

   ·     Following the meeting with Ramsay on 22 June 2005, when New Affinity last wrote to the Commission, it was optimistic that binding transaction documents would be entered into within two to three weeks (by early July).  This has not occurred and Ramsay's advisers have indicated at least a further two to three weeks is required.

   …

   ·     Based on Ramsay's approach to date, New Affinity believes it is unlikely that execution of binding transaction documents and partial completion of the divestment on 31 August 2005 will occur, even though it should now be possible to execute the binding transaction documents within one week.

   ·     Whilst there is an expectation that eventually Ramsay will contract with New Affinity, there is no certainty as to timing. New Affinity no longer has the benefit of exclusivity in negotiations with Ramsay. New Affinity has obtained all of the approvals within its control to the transaction. It has incurred significant costs. It has compromised, particularly on competitive restrictions and price. Yet New Affinity is at risk that Ramsay will continue to delay the sale and to allow other approaches, or will seek to change the mix of divestment hospitals in a manner that is not commercially attractive to New Affinity, resulting in yet further delay and uncertainty as to the divestment contemplated by the [Heads of Agreement] in the section 87B undertakings.

   ·     Based on comments made by Ramsay, New Affinity believes it is in Ramsay's financial interest to retain ownership of each of the 14 hospitals and access to the earnings at least until 31 December 2005. This is contrary to the purpose of the section 87B undertakings proffered by Ramsay and CVC and Ironbridge.’

2. The letter of 23 July 2005 clearly expresses concern that Ramsay had had a change of heart because it may no longer be in its commercial interest to proceed with the transaction contemplated by the Heads of Agreement.  It is clear enough that, at that stage, Mallesons recognised that the continuing obligation under the Heads of Agreement had effectively come to an end, since its only operation had been to confer exclusivity of negotiation in good faith for a period of eight weeks. 

3. On 25 July 2005, a meeting took place between representatives of the Commission and representatives of Ramsay.  On 28 July 2005, the Commission wrote to Blake Dawson Waldron referring to that meeting and relevantly saying:

   ‘We refer to the meeting between Ramsay and the [Commission] on 25 July 2005 where Ramsay indicated it would provide further information to the [Commission] in response to its competition concerns including information on the referral rights of doctors to particular hospitals.  We look forward to receiving that information.  In addition the Commission also requests information on the following:

   …

   3.a copy of the Umbrella Agreement between Ramsay and New Affinity (if incomplete please provide a copy in its most current form), including details of any proposed arrangements or restrictions with regard to market development opportunities; and

   4.taking account of your letter dated 21 July, a further update by 10 August 2005 regarding Ramsay's compliance with the Undertaking and progress of the proposed divestitures.’

4. On 1 August 2005, the Commission responded to the letter from Mallesons of 23 July 2005, relevantly saying:

   “The [Commission] is concerned to ensure that the divestiture of the 14 hospitals occurs in a timely manner and that New Affinity is in a position to operate as a vigorous competitor to Ramsay.

   As you will appreciate, while the [Commission] is very concerned to ensure compliance with the Undertakings, a distinction must be drawn between compliance with the Undertakings and commercial issues which are best resolved by Ramsay and New Affinity without interference from the [Commission].

   The [Commission] has raised the concerns expressed in your letter directly with Ramsay. The [Commission] has made it clear to Ramsay that compliance with the Undertaking must be timely.  New Affinity should also be aware that obligations with respect to timeliness are shared between Ramsay and New Affinity.

   The [Commission] has sought information from Ramsay as to the intended nature of the overall divestiture terms including any restrictions being sought by Ramsay in relation to New Affinity's ability to take advantage of opportunities that arise in relation to private health facilities.

   …

   If you have any information that would assist the [Commission], identify the right or interest acquired by Ramsay with respect to any opportunity with respect to the acquisition or development of private health facilities previously identified by Affinity, it would be of assistance if you could provide us with that information.’

   VARIATION OF THE RAMSAY UNDERTAKING

5. On 10 August 2005, Mr Peter Armitage of Blake Dawson Waldron informed an officer of the Commission about the resignation of two senior executives at Affinity.  On 15 August 2005, Mr Armitage attended a meeting with Commission officers, at which reference was made to the departure of senior officers of Affinity.  Statements were also made that ‘CVC does not have a management team’, ‘[New Affinity] has to get funding and a new management team’ and ‘if CVC and Ironbridge fall over, would have to start from scratch’.

6. Following that meeting, Blake Dawson Waldron wrote to the Commission on 15 August 2005, relevantly saying

   ‘We refer to the meeting earlier today concerning the ramifications of the resignations of Mr Robert Cooke and Mr John Hickie, respectively, the CEO and CFO of [Affinity]. 

   Ramsay is concerned that these resignations, together with the continuing uncertainty as to the other hospitals which Ramsay will be required to divest, have the potential to damage the Affinity Hospitals including, in particular, the Divesting Hospitals.  Ramsay proposes putting in place arrangements as follows:

   1.There will be different management and confidentiality arrangements for the Divestment Hospitals and for the Retained Hospitals…

   2.Changed management arrangements are required with effect from 19 August, the date on which the resignation of Messrs Cooke and Hickie take effect.  Ramsay recognises that, at this time, the [Commission] will not have made its decision identifying, for divestment, any additional Affinity Hospitals.  Accordingly, it is Ramsay's intention that as at 19 August, all of the Affinity Hospitals specified in the Statement of Issues would be treated as Divestment Hospitals. …

   3.The provisions of the Undertaking, and, in particular, clause 6 will continue to apply to the Divestment Hospitals.

   …

   5.Ramsay confirms that it is prepared to amend the current Undertaking, or to give a fresh Undertaking, confirming that it will divest the 14 hospitals, whether to New Affinity or to another party subject to the [Commission]’s approval.

   We will be grateful if you could indicate the [Commission]'s position on these issues as soon as possible, having regard to the imminent departures of Messrs Cooke and Hickie. 

   We would also be grateful, in light of the discussion this morning, if you could clarify whether the [Commission] requires, at this time, a further update in relation to Ramsay's compliance with the Undertaking.’

   That seems to have been the genesis of a proposal for variation of the Ramsay Undertaking that gives rise to the complaint in this proceeding.

7. On 16 August 2005, the Commission sent an email communication to Mr Armitage.  After referring to the fact that Ramsay’s position had been considered by the Commission's Mergers Review Committee that morning, the email said:

   ‘The first point that the Committee would like to impress upon you is that the Commission expects to make its decision in relation to the divestment hospitals… next Wednesday.  Without pre-empting a Commission decision and on a without prejudice basis, the number of hospitals in the “Rump” is very likely to reduced next Wednesday.  In those circumstances, the Commission would be prepared to consider a variation of the Undertaking given by your client offered after the Commission's meeting next Wednesday. 

   However, if your client feels that it must act before this coming Friday, 19 August 2005, the Commission will consider any revised Undertaking offered by your client which has the effect of:

   1.ensuring that the divestiture of the 14 “New Affinity” hospitals is not contingent on a sale to New Affinity of those hospitals and that the divestiture of those hospitals (other than to New Affinity) is at the discretion of the Commission;

   …

   In the event that your client offers a revised undertaking tomorrow week, the hospitals in the “Rump” might be confined having regard to any decision by the Commission.  Any revised Undertaking would otherwise need to be in the same terms. 

   A draft of the proposed Undertaking should be given to the Commission staff… by no later than close of business tomorrow (preferably earlier).’

8. On 17 August 2005, Mr Armitage sent to the Commission a draft variation to the Ramsay Undertaking and on that day the Commission made a decision as follows:

   ‘The Commission agreed that the Chairman would consider a variation to the Ramsay undertaking and that if that variation covered the following issues that it could be accepted by the Chairman:

   -Ramsay could roll those hospitals that were not identified in the Statement of Issues into the Ramsay portfolio;

   -Ramsay would have to continue to hold separate those hospitals to be divested to New Affinity and those identified in the Statement of Issues (other than existing Ramsay hospitals); and

   -in the event the New Affinity sale is not possible that the 14 hospitals to be sold to New Affinity be held separate and divested together with other hospitals identified by the commission for divestiture.’

9. On 19 and 22 August 2005, further drafts of the proposed variation of the Ramsay Undertaking were exchanged between Blake Dawson Waldron and the Commission. On 22 August 2005, Mr Morris of the Commission sent a minute to the Mergers Review Committee relevantly saying:

   ‘3.On 15 August 2005 Ramsay informed the [Commission] that due to the sudden resignation of Affinity's CEO and CFO there was a need to vary the undertaking to deal with the need to preserve value in both businesses by removing hold separate obligations for those hospitals that will not be divested… and to deal with the situation where New Affinity may not be the acquirer of certain hospitals. 

   4.Following discussions regarding the proposed variation at the MRC and the Commission… staff received a variation from Ramsay that appears to deal with the issues appropriately.  Staff are currently getting legal advice on the undertaking to ensure that it satisfies the [Commission]'s requirements. 

   5.Staff attach a copy of the proposed variation of the undertaking.  Staff will update the MRC and the Commission on 23 and 24 August 2005 on any other changes necessary.  It is expected that the undertaking will be in acceptable form by Wednesday.’

10. At a meeting of the Mergers Review Committee on 23 August 2005, a recommendation was considered that the Commission seek divestiture of three hospitals by Ramsay, in addition to the 14 hospitals foreshadowed in paragraph 7.1(a) of the Ramsay Undertaking.

11. On 24 August 2005, the Commission decided that it would not oppose the acquisition of Affinity by Ramsay, on the basis that Ramsay would divest the 14 hospitals identified in paragraph 7.1(a) of the Ramsay Undertaking and several other hospitals pursuant to paragraphs 7.1(b) and 7.1(c) of the Ramsay Undertaking. The Commission also decided to endorse for acceptance by the Chairman, a variation to the Ramsay Undertaking ‘subject to some wording on technical issues to be resolved by staff and [the Australian Government Solicitor]’,

12. On that day, the Commission published a news release saying that, to secure Commission approval for its acquisition of Affinity, Ramsay must sell a further three hospitals in addition to the 16 hospitals that Ramsay undertook by paragraphs 7.1(a) and 7.1(b) of the Ramsay Undertaking to sell when it acquired Affinity in April 2005.

13. On the same day, the Commission wrote to Mallesons saying that, pursuant to the Ramsay Undertaking, the Commission required Ramsay to divest the 14 hospitals identified in paragraph 7.1(a) and certain other hospitals pursuant to paragraphs 7.1(b) and 7.1(c). The Commission also wrote to Blake Dawson Waldron at the same time, saying that it required the divestiture of each hospital by 25 November 2005.

14. At some time on 24 August 2005, Ms Henrick had a telephone conversation with Mr Matthew Blunn of the Commission, in which she expressed a concern to be able to tell her client that the Commission would enforce clause 7.1 of the Undertaking.  Mr Blunn told her that the Commission’s primary concern in relation to the divestment of the hospitals was to ensure that the Commission’s competition concerns were met.  He said that “subject to competition concerns, the Commission is not wedded to New Affinity…”. Mr Blunn said that the Commission’s position with respect to the enforcement of clause 7.1 was entirely a matter for the Commission and he could not anticipate the Commission’s position. 

15. Mr Blunn made no mention of the proposal to vary the Ramsay Undertaking. However, on the same day, further drafts of the proposed variation of the Ramsay Undertaking were exchanged. In fact, a variation of the Ramsay Undertaking was executed on behalf of Ramsay on 24 August 2005 (‘the Variation’), although the executed copy was not forwarded to the Commission until the morning of 26 August 2005.

16. On the afternoon of 26 August 2005, the Commission received an intimation from Mr Armitage that representatives of Ramsay would like to meet with the Commission.  Mr Armitage said that they would be ‘bringing with them another bidder’ and that they wanted ‘to brief [the Commission] on their commercial situation’. At that stage, the Variation had not been accepted by the Commission.

17. On the afternoon of 30 August 2005, an internal email of the Commission records the following:

    ‘A late development of the Ramsay/Affinity matter has come in this afternoon- a proposed acquisition by Healthscope of 13 hospitals subject to an undertaking that it divest hospitals we later find concerns with (if any).  Staff and I would like to orally update the Commission tomorrow during the Mergers section of the agenda and get agreement on the next steps in light of this development…’

18. Shortly after that email, the Commission sent an email to Mallesons, enclosing a copy of the Variation, which had been accepted by the Commission earlier on 30 August 2005. 

19. The significant change that was made to the Ramsay Undertaking by the Variation was to vary clause 7.1 so as to read as follows:

    ‘Ramsay undertakes that it will:

    (a)       divest the New Affinity Hospitals

    (i)to New Affinity in accordance with the memorandum of Understanding at Annexure D; or

    (ii)subject to and in accordance with clauses 7.4 and 7.6 to an alternative purchaser at such times and on such conditions (including as to price) as are approved from time to time by the Commission.’

    Paragraphs (b) and (c) remained more or less unaltered.  Clause 7.6 was amended to read as follows:

    ‘The Commission will, until the Hold Separate Termination Date, be entitled at its absolute discretion to direct Ramsay on competition grounds to reject an offer communicated to the Commission under clause 7.5 from a third party to acquire one or more of the Divestiture Businesses from Ramsay and Ramsay will act in accordance with the Commission's direction.’

20. The Commission recorded in writing its reasons for deciding to consent to the Variation.  After reciting the background and the exchanges that had occurred between the parties and the Commission, the reasons say, relevantly:

    ‘25.The Ramsay and New Affinity Undertakings were given in April.  On 23 June New Affinity had foreshadowed that legally binding documents to divest the 14 hospitals would be executed within three weeks. On 23 July it detailed steps that had been taken and stated that all outstanding commercial issues had been resolved on 22 June, and suggested that there had been delay and a lack of expedition on Ramsay's part in negotiating binding transaction documents.  Ramsay, in a meeting with the Commission staff on 25 July 2005 stated, that it was committed to an expeditious conclusion of agreements. 

    26.Documents had not been finalised on 15 August when the Commission met with Ramsay.

    27.The respective accounts of New Affinity or Ramsay with respect to why agreement had not been reached differed and the Commission did not feel confident that it was in a position to ascertain which was to be preferred, or that it should endeavour to do so.

    28.The Commission had not, in accepting the Ramsay and New Affinity Undertakings, intended to grant preferred or exclusive bidder status to New Affinity, that being a matter for the market (subject to any competition issues arising under the Act). However the Commission had understood that negotiations between Ramsay and New Affinity would be able to be completed expeditiously and that New Affinity would be able to acquire the 14 hospitals within a short period of time subject to the Commission's approval.

    …

    30.…the Commission had formed the preliminary view that if competition concerns about the Ramsay acquisition of Affinity were to become apparent in its market inquiries: (i) on the sale of any or all relevant hospitals by Ramsay to a buyer approved by the Commission would be likely to address those competition concerns; and (ii) with regard with the 14 hospitals, that New Affinity as at 13 April 2005  was such an appropriate buyer.

    31.Securing a prompt divestment of those hospitals after completion of the Commission's inquiries was important to the achievement of the Commission's competition objectives and the Commission had pressed Ramsay and New Affinity to achieve this.

    32.In light of the delays in a binding agreement being created between Ramsay and New Affinity, and their divergent explanations for such delay, the Commission concluded that the Ramsay Undertaking required modification to achieve the Commission's competition objectives. If the divestment to New Affinity was further significantly delayed, competition in the meantime would be reduced and the longer term viability of the hospitals might suffer with possible consequences for competition in the longer term. Similarly, if the divestment to New Affinity did not proceed for any reason, it was considered for the Commission to be able to ensure a divestment to some other entity.

    …

    35.The Commission concluded the proposed variation was consistent with its competitive objectives because:

    (a)the variations addressed the concerns of the Commission set out in the preceding paragraph; and

    (b)under the varied provision the Commission retained the power to decide whether to approve any alternative divestment party.  Moreover, New Affinity would have an opportunity to put submissions to the Commission as to whether an alternative bidder should be approved in lieu of New Affinity, if one eventuated, in the context of market inquiries that the Commission would make in that event.’

    THE PROCEEDING

1. In its Application for an Order of Review under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (‘the ADJR Act’) the applicants claim the following relief:

   ‘1.A declaration that the decision of the Commission on 30 August 2005 to consent to the variation of Ramsay's section 87B undertaking is invalid.

   2. An order quashing or setting aside that decision.

   3. An order directing that the Commission refrain from doing any act or thing in reliance on or otherwise giving effect to or enforcing the decision.’

2. The grounds, in essence, are as follows:

   ‘1.A breach of the rules of natural justice occurred in connection with the making of the decision because the Commission failed to:

   (a)consult with the applicants in accordance with its stated policy in respect of section 87B undertakings;

   (b)provide any, or any adequate, opportunity to the applicants to comment upon, or to make submissions in relation to, the variation or the decision.

   2.The making of the decision was an improper exercise of the power conferred by section 87B because:

   (a)The Commission took an irrelevant consideration into account, namely the concerns expressed or opinion held by Ramsay with respect to the applicants’ ability to purchase the New Affinity hospitals; or

   (b) The Commission failed to take a relevant consideration into account, namely:

   (i)the effect of the variation on the rights and interest of the applicants;

   (ii)the effect of the variation on competition in private hospital markets in Australia;

   (iii)the applicants were ready, willing and able to complete the purchase of the New Affinity hospitals.’

3. The matter has been brought on for hearing with considerable urgency, having been commenced last Tuesday, 6 September 2005, when I abridged the time for service of the application.  The matter came before me shortly thereafter for directions.  The final hearing began last Friday, 9 September 2005, and continued until yesterday afternoon, when I indicated that I would give my decision today.  The reason for the urgency is that Ramsay apparently wishes to divest the 14 hospitals to the third respondent, Heathscope Limited (‘Heathscope’).  While the Commission has undertaken to make no decision up to, and including, today as to whether or not to approve the sale of the 14 hospitals to Healthscope, it has intimated that such a decision may be made tomorrow.  There has been no suggestion that the applicants have not been given the opportunity to be heard in relation to any such decision. It is therefore necessary to decide the proceeding on a final basis today, in order to avoid a fairly extensive interlocutory hearing.

4. No question has been raised as to the jurisdiction of the Court to entertain this proceeding under the ADJR Act on the basis that the decision of the Commission was a decision under an enactment, namely the Act. Nor has any question been raised concerning the standing of the applicants to bring the proceeding under the ADJR Act.

5. The applicants say that, notwithstanding the significant commercial interest that they had in maintaining the Ramsay Undertaking in its original form, they were given no opportunity to comment on, or otherwise make, submissions to the Commission about the proposal to consent to the Variation. They refer to circumstances, particularly on 26 August 2005, when it would have been appropriate for the proposed variation to be mentioned, yet the Commission remained silent on that topic. The applicants were told nothing of the proposal for variation of the Ramsay Undertaking until they were presented with it as a fait accompli on the afternoon of 30 August 2005. 

6. They say that the Commission had before it information adverse to the interests of the applicants, that the Commission failed to give them opportunity to explain or rebut.  They refer to the following information:

   (a)The risk that an unknown number of core management staff of New Affinity might resign.

   (b)The allegation of delay on the part of the applicants.

   (c)The possible problems posed by resignation of staff of New Affinity in relation to the ability of New Affinity to compete.

   (d)The possibility that the sale by Ramsay to New Affinity might be frustrated.

   (e)The view of the Commission that negotiations between Ramsay and New Affinity were not able to be completed expeditiously.

   (f)The Commission's apparent view that the delays so far encountered in reaching a binding agreement may mean that the Commission's competition objective of achieving a divestiture of the 14 hospitals as quickly as reasonably possible might not be achieved and there may be other effects on competition.

   (g)The question of whether giving New Affinity the opportunity to put submissions as to whether an alternative bidder should be approved was an adequate or proper substitute for not hearing New Affinity on the question of whether the original undertaking should be varied.

   (h)The concerns expressed by Ramsay with respect to New Affinity's ability to purchase the 14 hospitals.

7. The applicants say the unfairness of the process by which the decision was made is made more manifest in light of the published statements by the Commission in the guidelines, referred to above, concerning the level of consultation that would be adopted and the recognition of affected interests.  They say that the fact that Ironbridge and CVC were asked to, and did give, the Affinity Undertaking gave rise to a reasonable expectation on their part that, if any part of the scheme comprised by the two Undertakings was to be changed, all parties to the Undertaking would be heard in relation to the proposed changes.  They also say that they had a reasonable expectation, based upon the Commission’s guidelines, that they would be consulted before any variation would be accepted by the Commission. 

8. In relation to the complaint that the Commission took into account irrelevant considerations and failed to take account of relevant considerations, the same matters are relied upon, namely, that the Commission took into account Ramsay's concerns with respect to the ability of New Affinity to purchase the hospitals and the Commission failed to take account of the fact that the Variation would have a direct effect on the applicants’ commercial and financial interests. 

   THE RELEVANT LEGAL PRINCIPLES

9. The principles to be applied in relation to an issue such as is presented in this proceeding are not essentially in dispute, having been the subject of pronouncements by the High Court and the Full Court of this Court.  The real difficulty in any such proceeding is how those principles are to be applied to the particular circumstances of the case.  I shall, however, say my understanding of the principles.

10. To ascertain what must be done to comply with the principles of natural justice in any particular case the starting point is the statute creating the power to make the relevant decision.  By construing the statute one can ascertain not only whether the power is conditioned on observance of principles of procedural fairness but also whether there are any special procedural steps that being prescribed by the statute extend or restrict the common law principles as to procedural fairness.

11. An implication that a statutory power is conditioned on observance of the principles of procedural fairness does not prevent the repository of the power, however, from modifying procedure to meet the particular exigencies of the case.  Then a statute is silent.  The intention to be implied is that observance of the principles of procedural fairness conditions the exercise of the power although in some circumstances the content of those principles may be diminished even to nothingness to avoid frustrating the purpose for which the power was conferred.

12. It is one thing to acknowledge that the legislature intends the principles of procedural fairness to condition the exercise of statutory powers which are apt to effect interests not amounting to legal rights, but it is another thing to treat legitimate expectations as the relevant description of the almost infinite variety of interests that are protected by the principles of procedural fairness. What is important is that it is not only a legal right which is accorded a measure of protection but the existence of non-legal interests may also give rise to the requirement for procedural fairness to be afforded.

13. On the other hand, the expectation of an individual whose interests may be effected by an exercise of a power, is not relevant to the construction of the statute that prevents the power.  The construction to be placed on the statute cannot depend upon whether an individual has an expectation that the power will be exercised in his favour, or that he will be consulted and given an opportunity to put a case before the power will be exercised against him.  It is not the state of mind of an individual but the interests which an exercise of power is apt to effect that is relevant to the construction of the statute.  If a power is apt to effect the interests of an individual in a way that is substantially different from the way in which it is apt to effect the interests of the public at large the repository of the power would ordinarily be bound, or entitled, to have regard to the interests of the individual before he exercises the power.

14. No doubt the matters to which the repository is bound, or is entitled to have regard, depend on the terms of the particular statute and if there be no positive indications in its text the subject matter, scope and purpose of the statute must be looked at to determine whether the repository is bound or is entitled to have regard to individual interests.  When the repository is bound or is entitled to have regard to the interests of the individual it may be presumed that observance of the principles of natural justice conditions the exercise of the power.  The legislature can be presumed to intend that an individual whose interests are to be regarded should be heard before the power is exercised.

15. Therefore the presumption applies to any statutory power the exercise of which is apt to effect the interests of an individual either alone or apt to effect his interests in a manner which is substantially different from the manner in which its exercise is apt to effect the interests of the public (see Kioa v West (1985) 159 CLR 550 at pages 616, 617, 619).

16. When a statute confers power on a public commission to destroy, or defeat, or prejudice a person's rights, interests or legitimate expectations the rules of natural justice regulate the exercise of that power unless they are excluded by plain words or necessary intendment.  An intention on the part of the legislature to exclude the rules of natural justice is not to be assumed, nor spelled out from indirect references, uncertain references or equivocal considerations.  Nor is such an intention to be inferred from the presence in the statute of rights that are commensurate with some of the rules of natural justice.  Further there is a common law duty to act fairly in the sense of according procedural fairness in the making of the administrative decisions which effect rights, interests and legitimate expectations subject only to the clear manifestation of the contrary statutory intention.  Common law requirements of procedural fairness will, in the absence of a clear contrary legislative intent, be recognised as applying generally to governmental executive decision-making (see Annetts v McCann (1990) 170 CLR 596-598).

17. There is no general principle to the effect that a statutory authority charged with the duty of considering an application is obliged by the principles of procedural fairness to notify and hear everybody whose economic interests may be damaged by an approval.  To promulgate a general rule imposing such an obligation would be to visit upon statutory decision-makers a potentially massive task of indeterminate reference (See Pharmacy Restructuring Authority v Martin (1994) 53 FCR 589-597).

18. In considering the scheme of legislation relating to the exercise of a particular kind of power it is necessary to pay regard to the practical context in which the decision-maker must consider whether to exercise the power.  That may be of particular importance where the complaint is of a failure by the decision-maker to communicate something to an affected person before a decision is made.  It is the potential for a decision to affect rights, interests or legitimate expectations that attracts the requirement of procedural fairness (See ReMinister ex parte Miah (2001) 206 CLR 57-31). Where Parliament confers a statutory power to destroy, defeat or prejudice a person's rights, interests or legitimate expectations, Parliament is taken to intend that the power be exercised fairly and in accordance with natural justice unless it makes the contrary intention plain (See Jarrett v Commissioner of Police for New South Wales [2005] HCA 50, at [26]).

    REASONING

19. The applicants point specifically to the fact that Ironbridge and CVC gave the Affinity Undertaking and that it and the Ramsay Undertaking each expressly contemplated a divestiture to a body to be formed by Ironbridge and CVC. Thus, they say, the financial and commercial interest of Ironbridge and CVC was clearly in the contemplation of the Commission. When it accepted the Undertakings on 13 April 2005, the Commission must have been aware of the commercial benefit that was afforded to CVC and Ironbridge, in relation the divestiture of the 14 hospitals in accordance with the Heads of Agreement, by reason of paragraph 7.1(a) of the Ramsay Undertaking.

20. However, there are two levels at which the respondents resist the claims, made by the applicants, that the Commission’s decision to accept the Variation, without reference to Ironbridge and CVC, was invalid. First, they say that, by 24 August 2005, when the relevant decision was made, there was no relevant interest on the part of the applicants. Secondly, they say that, when one considers the scheme of the Act and the objects of the Act as stated in s 2, even if there were any relevant interest on the part of the applicants still remaining, as at 24 August 2005, the exercise of the discretion under s 87B(2) does not involve any obligation to afford procedural fairness to any person other than the party that gave the undertaking. Any obligation on the Commission to afford procedural fairness when making a decision whether to accept a variation or release of an undertaking under section 87B(2) is limited to the person who has given the undertaking. In addition, the respondents also say that, even if there were a relevant interest affected and a duty to afford procedural fairness, the Court would exercise its discretion against intervention in this case.

21. Ironbridge and CVC are mentioned in the Ramsay Undertaking, in that they were to execute the Heads of Agreement in accordance with which Ramsay undertook to divest the 14 hospitals, and they gave the Affinity Undertaking. Nevertheless, it is clear, in my view, that the purpose and object of their involvement was not in any way to confer benefit on CVC and Ironbridge. The only purpose for involving specific buyers was to ensure the utility and effectiveness of the Ramsay Undertaking. An undertaking to divest in accordance with a concrete, albeit unenforceable proposal, could be seen as more effective than an undertaking by Ramsay, in gross so to speak, that it would divest itself of 14 hospitals within some fixed time.

22. I consider that the language of the Ramsay Undertaking makers clear that the Commission was not intending to confer any commercial benefit on Ironbridge and CVC. Indeed, while that may have been an incidental consequence, it would have been improper for the Commission to have intended that consequence. The Commission’s function was to give effect to the objects of the Act, namely, to enhance the welfare of Australians through the promotion of competition. It would have been an improper exercise of power to require Ramsay to divest itself of the hospitals in accordance with the Heads of Agreement in order to give some commercial benefit to Ironbridge and CVC.

23. By 24 August 2005, the Ramsay Undertaking was spent. Its obligation was to divest the 14 hospitals ‘in accordance with’ the Heads of Agreement.  However, the Heads of Agreement was intended to create no legally binding obligations other than an obligation to negotiate in good faith for eight weeks, with a view to arriving at a binding agreement for the divestiture.  It could not be thought that the undertaking continued in perpetuity.  If the Heads of Agreement came to nought, as happened, it would not be necessary, from Ramsay's point of view, to seek a variation, so long as Ramsay had in fact negotiated in good faith in accordance with the terms of the Heads of Agreement.  That is as far as the obligation went. 

24. It may be, and of course this is not a question before the Court at this time, that Ramsay did not in fact negotiate in good faith. That is not a matter that has been raised, but, if it were the case, it may be that Ramsay was in breach of the Heads of Agreement. That was not a basis upon which the Commission made its decision, however, and it is not a matter about which I should speculate or express any view. What is clear though, in my view, is that the Ramsay Undertaking had only a limited operation. Notwithstanding comments made in the correspondence, referred to above about the Commission being concerned to enforce the Ramsay Undertaking, if after the period of eight weeks the parties were still apart, the Ramsay Undertaking in effect had no further work to do, so far as the Heads of Agreement were concerned. As I have indicated, even in the middle of June 2005, it was clear that there were still commercial issues outstanding. There were, of course the other parts of the Ramsay Undertaking that continued to have effective operation, such as clause 6.1.

25. I would be disposed to conclude therefore that as at 24 August 2005, the applicants had no relevant interest that would justify the Commission in affording them the opportunity of making submissions or furnishing information in relation to its proposal to consent to the variation that was made. 

26. That is to say the variation did not entitle Ramsay to divest the New Affinity hospitals to anybody other than New Affinity.  If it was to divest the 14 hospitals to anybody other than New Affinity then that was subject to approval from time to time by the Commission as to the timing and conditions including price. 

27. The applicants at no time had any legal right to require Ramsay to divest the 14 hospitals to them.  The most they had was a right to require it to negotiate in good faith; they had had the benefit of that obligation.

28. In any event I would also be disposed to conclude that there is, having regard to the scheme of the Trade Practices Act, no right to be heard on the part of the applicants. As I said, ss 80(1) and (1)(a) authorise the Court to grant an injunction to restrain a contravention of section 50 but only at the behest of relevantly the Commission. There is a good rationale for that limitation, namely, to ensure that opponents of a merger do not seek injunctions for purely commercial motives unrelated to the maintenance of competition. One would assume that the Commission would seek an injunction only in order to preserve competition and not for any commercial reason.

29. Any member of the Community, of course, has standing to seek relief under the other provisions of the Act, namely, section 81 in relation to divestiture, section 82 in relation to damages and section 87 in relation to other orders, the ability to obtain a declaration is also available. Only the Commission can accept an undertaking under section 87B and only the Commission may bring proceedings to enforce an undertaking under section 87B. The power conferred by section 87B is not one to approve or authorise. That power is conferred by section 88. Section 87B is simply a tool to enable the Commission to maintain a greater degree of flexibility in the way in which it enforces the provisions of part (4) relevantly.

1. The exercise of a power conferred by section 87B does not effect the rights or obligations of any person other than the parties to the undertaking. If conduct that is the subject of the undertaking continues contrary to section 50 then neither the giving of the undertaking nor its acceptance by the Commission confers any protection or immunity upon the person giving the undertaking. Even if an undertaking is given under s 87B, the Commission, and any other person, would be entitled to enforce the remedies conferred by ss 81, 82, 87 and 163A. Of course if the Commission granted an authorisation under s 88, the position would be quite different.

2. I do not consider that the parliament would have intended that commercial competitors would have any entitlement to be heard in respect of acquisition arrangements prior to any administrative decision by the Commission. An undertaking under s 87B operates only to constrain the party proffering it and to create rights of enforcement only in the Commission. To confer the discretionary power on the Commission to bring enforcement proceedings reinforces the scheme that I have suggested.

3. The applicants point to the provisions of s 87B(4)(c) which, as I said, provides that if the Court is satisfied that a person has breached a term of an undertaking the Court may make an order directing the person to compensate any other person who has suffered loss or damage as a result of the breach. I do not consider that that recognises the possibility that the applicants had any entitlement to be heard in relation to whether s 87B undertaking should be varied. It is the breach of the undertaking that gives rise to that right. If a breach has occurred, then it would be open to the Court on the Commission's application to make an order directing compensation to any person harmed. That is the equivalent, in a sense, of s 82. That is:

   ‘Any person who has suffered damage by a contravention may recover the amount of that loss or damage.’

4. I do not consider that the scheme of the legislation supports a conclusion that there is a right on the part of the applicants to be heard in relation to the variation of a section 87B undertaking. More for the reasons that I have already indicated do I consider that as at 24 August 2005 the applicants had any relevant interest that could give rise to a duty to afford procedural fairness in the form of giving them the right to be heard before making the variation that occurred on 30 August when the variation was accepted. It follows in my view that the application must be dismissed.

I certify that the preceding eighty-eight (88) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated:            16 September 2005

Counsel for the Applicants:	Mr AJ Sullivan QC and Mr R Lancaster
Solicitors for the Applicants:	Mallesons Stephen Jacques
Counsel for the First Respondent:	Mr NJ Williams SC and Mr TM Howe
Solicitors for the First Respondent:	Australian Government Solicitor
Counsel for the Second Respondent:	Mr RT Wright SC and Dr JG Renwick
Solicitors for the Second Respondent:	Blake Dawson Waldron
Counsel for the Third Respondent:	Mr S Gageler SC and Mr A Leopold
Solicitors for the Third Respondent:	Allens Arthur Robinson
Date of Hearing:	9 and 12 September 2005
Date of Judgment:	13 September 2005