Magellan Petroleum Australia Ltd v Sagasco Amadeus Pty Ltd
[1992] QCA 361
•23/10/1992
| IN THE COURT OF APPEAL | [1992] QCA 361 |
| SUPREME COURT OF QUEENSLAND | Appeal No. 214 of 1992 |
| BETWEEN: |
MAGELLAN PETROLEUM AUSTRALIA
LIMITED A.C.N. 009 728 581
(Plaintiff) Appellant
AND:
SAGASCO AMADEUS PTY LTD A.C.N.
056 420 396
(First Defendant) First Respondent
AND:
SAGASCO HOLDINGS LIMITED A.C.N.
008 181 066
(Second Defendant) Second Respondent
REASONS FOR JUDGMENT OF THE COURT
Delivered the 23rd day of October 1992
This is an expedited appeal from a refusal by the Chamber Judge, on 8 October 1992, of interlocutory injunctions (i) restraining the first respondent, Sagasco Amadeus Pty. Ltd. ("Sagasco"), from dispatching takeover offers to the shareholders in the appellant, Magellan Petroleum Australia Limited ("Magellan"), pursuant to a Part A Statement given by Sagasco to Magellan dated 9 September 1992 and (ii) restraining Sagasco and the second respondent, Sagasco Holdings Limited ("Sagasco Holdings"), from acquiring shares in Magellan pursuant to section 620 of the Corporations Law.
Sagasco is a wholly owned subsidiary of Sagasco Holdings and they are, accordingly, associates within the meaning of the Corporations Law. Pending the decision of this appeal, Sagasco and Sagasco Holdings have undertaken not to dispatch takeover offers to the shareholders in Magellan pursuant to the Part A Statement or to acquire shares in Magellan in excess of 20% of its share capital in reliance on the Part A Statement and Magellan has given an undertaking as to damages in the usual form.
On 3 September 1992, Sagasco Holdings, on behalf of Sagasco, entered into two interdependent contracts with each of the third respondents, Permanent Trustee Company Limited, B.T. Custodians Limited and Pendal Nominees Pty Ltd. By one of its contracts with each third respondent, Sagasco Holdings, on behalf of Sagasco, contracted to acquire a number of ordinary 50 cent fully paid shares in the capital of Magellan for a consideration of $2.75 per share, which was substantially in excess of the listed share price of Magellan at the time. By the other of its contracts with each of the third respondents, Sagasco Holdings, on behalf of Sagasco, contracted to acquire a number of one cent undesignated shares in Magellan Petroleum Corporation ("Magellan U.S.") for a price which was considerably higher than the current market price of such shares. Magellan US is the holder of approximately 50.5% of the issued share capital in Magellan.
In all, Sagasco Holdings on behalf of Sagasco contracted to acquire from the third respondents 6,136,208 ordinary 50 cent fully paid shares in the capital of Magellan, aggregating 13.8049% of its issued capital. By the contracts, each of the third respondents is required to exercise the voting power attached to the shares in Magellan which it sold in accordance with the directions of Sagasco Holdings, which is in turn required to exercise that voting power in accordance with the directions of Sagasco.
The total number of one cent undesignated shares in Magellan U.S. acquired by Sagasco Holdings on behalf of Sagasco was 3,305,869 shares, representing approximately 13.5% of the issued shares in Magellan U.S..
On the same day, 3 September 1992, Sagasco announced that it proposed to dispatch offers to acquire all of the ordinary 50 cent fully paid shares in Magellan. A notice of substantial shareholding under sub-s.709(1) of the Corporations Law dated 4 September was given disclosing the entitlements of Sagasco and Sagasco Holdings to 13.8049% of Magellan's shares, and a Part A Statement dated 9 September 1992 given by Sagasco to Magellan was registered by the Australian Securities Commission on 10 September 1992.
According to the Part A Statement and the pro forma offer, the consideration to be offered by Sagasco for each ordinary 50 cent fully paid share in Magellan is $2.75 cash.
The writ by which this action was commenced was issued on 21 September 1992 and the statement of claim was delivered on 30 September. The final relief claimed in the action is as follows:
1.1 A declaration that the first defendant and the second defendant contravened Section 698(2) of the Corporations Law by giving or offering to give or agreeing to give to the third defendants or some of them a benefit that the first defendant was not proposing to provide for under takeover offers proposed to be sent to the shareholders in the plaintiff;
1.2 A declaration that the first defendant threatens to contravene Section 641(1) of the Corporations Law in that the amount per share of the cash sum under each of the offers proposed to be sent by the first defendant to the ordinary shareholders in the plaintiff is less than the price paid for such shares by the second defendant to the third defendants;
1.3 Relief pursuant to Section 739 of the Corporations Law
including remedial orders as follows:
1.3.1 an order directing the disposal of the shares in the plaintiff acquired by the second defendant pursuant to agreements made between the second and third defendants for the acquisition by the second defendant from the third defendants of shares in the plaintiff and Magellan Petroleum Corporation all dated 3 September 1992; 1.3.2 alternatively, against the first, second and third defendants an order cancelling the said agreements; 1.3.3 alternatively, an order that the shares in the plaintiff acquired by the second defendant pursuant to the said agreements be vested in the Australian Securities Commission.
1.4 An injunction pursuant to Section 1324(1) of the Corporations Law restraining the first defendant from dispatching offers to the shareholders in the plaintiff pursuant to the part A statement made by the first defendant and dated 9 September 1992.
2. In addition, a declaration that the first defendant has contravened Section 750 of the Corporations Law because the Part A statement does not:
2.1 Set out:
2.1.1
the persons who are to provide funds and particulars of the arrangements by which cash will be provided by those persons to satisfy the payment of the consideration for the acquisition of shares to which the takeover offers relate in the event that UBS does not provide the funds;
2.1.2 the arrangements made to provide the cash
required in that event;2.1.3 alternatively, the fact that no arrangements
exist.2.2 Set out:
2.2.1
that the contracts for the acquisition of the third defendants' shares in the plaintiff and Magellan Petroleum Corporation were interdependent;
2.2.2
the price per share paid by the second defendant on behalf of the first defendant for the third defendants Magellan Petroleum Corporation shares; or
2.2.3
the market price of Magellan Petroleum Corporation shares at the date of acquisition or thereafter.
Pending the trial, Magellan seeks interlocutory injunctions on three bases; namely, sub-s.641(1)(c), sub-s.698(2) and s.750 of the Corporations Law. The third of Magellan's complaints is that Sagasco has failed to comply with clause 17 of the requirements concerning Part A Statements in that it has omitted material information, namely that:
(a) Sagasco gave the third respondents a benefit by way of a premium paid on the Magellan shares; and
(b) Sagasco regards the takeover of Magellan as related to its defence of a takeover of Sagasco by Santos Limited.
The first of these alleged nondisclosures is closely related to Magellan's other two points based respectively upon sub- s.641(1)(c) and sub-s.698(2) of the Corporations Law.
Magellan's contention based upon sub-s.641(1)(c) is that the cash sum to be offered by Sagasco to the holders of Magellan shares under the takeover scheme will be less than the true price per share paid or agreed to be paid to the third respondents for such shares on 3 September 1992 (which is during a period of four months prior to the day upon which the takeover offers are to be sent). It is contended by Magellan that, although the price for the third respondents' shares in Magellan was stated to be $2.75 in the contracts between Sagasco Holdings on behalf of Sagasco and the third respondents, the premium paid by Sagasco Holdings on behalf of Sagasco to the third respondents under the interdependent contracts for the Magellan U.S. shares was in truth part of the price paid for the Magellan shares, not the Magellan U.S. shares.
This somewhat speculative argument effectively requires this Court to conclude on the limited material before it in these interlocutory proceedings that the contracts between Sagasco Holdings on behalf of Sagasco and the third respondents are arguably shams. The available material is not sufficient for that purpose. Accordingly, Magellan's claim for interlocutory relief based upon sub-s.641(1)(c) of the Corporations Law is rejected.
Further, Magellan's argument based on ss.641(1)(c) does not sit entirely squarely with its claim founded upon s.698 of the Corporations Law, which provides:
"698(1) Subject to subsection (5), if a Part A statement is served on a target company, the offeror, or an associate of the offeror, shall not, during the takeover period, give, offer to give or agree to give to a person whose shares may be acquired under the takeover scheme, or to an associate of such a person, any benefit not provided for under the takeover offers or, if the takeover offers are varied in accordance with Division 5 of Part 6.3, under the takeover offers as so varied.
698(2) Subject to subsection (5), a person who proposes to send takeover offers within the next following 4 months (in this subsection called the "proposed offeror"), or an associate of such a person, shall not give, offer to give or agree to give to a person whose shares may be acquired under the takeover scheme, or to an associate of such a person, any benefit that the proposed offeror is not proposing to provide for under the takeover offers.
698(3) Subject to subsection (5), if a takeover announcement is made in relation to shares in a company, the offeror, or an associate of the offeror, shall not, during the takeover period, give, offer to give or agree to give to a person whose shares may be acquired pursuant to the takeover announcement, or to an associate of such a person, any benefit not provided for under the terms of the takeover announcement or, if those terms have been varied under section 681, under the terms as so varied.
698(4) Subject to subsection (5), a person who proposes to cause a takeover announcement to be made within the next following 4 months (in this subsection called the "proposed offeror"), or an associate of such a person, shall not give, offer to give or agree to give to a person whose shares may be acquired pursuant to the takeover announcement, or to an associate of such a person, any benefit that the proposed offeror is not proposing to provide for under the terms of the takeover announcement.
698(5) Nothing in this section prohibits:
(a) the variation of a takeover offer as provided by Division 5 of Part 6.3; or
(b) the acquisition of shares in a company at an official meeting of a stock exchange in the ordinary course of trading on the stock market of that stock exchange."
Magellan's argument related to sub-s.698(2) starts with the premise (which for the purpose of the present interlocutory proceedings Sagasco and Sagasco Holdings do not dispute) that Sagasco Holdings, on behalf of Sagasco, gave each of the third respondents a benefit in the form of the premium paid for the Magellan U.S. shares, which Sagasco is not proposing to provide for under its proposed takeover offer for the shares in Magellan. The debate between the parties centres upon whether each of the third respondents was, when the benefit was given or offered or agreed to be given, "a person whose shares may be acquired under the takeover scheme" proposed by Sagasco.
Subsection 698(2) is not well drafted. It is somewhat elliptical in its terms, with mixed tenses, and its specific focus on conduct anterior to a proposed takeover scheme tends to disguise its true purpose of ensuring that, so far as practical, shareholders in a target company participate equally in benefits provided by the offeror or proposed offeror.
The essential point of departure between Sagasco and Magellan is that Sagasco limits the section's operation to those who are still shareholders in the target when the takeover offers are made. According to Sagasco, additional benefits may be provided in the relevant four month period to those who are then shareholders provided that their shares are acquired before the takeover offers are made.
The prohibition is only upon providing benefits during the four months prior to the takeover offers to persons who continue as shareholders, and hence offerees, when the takeover offers are made. It is argued that any wider construction would produce results unlikely to have been intended; for example, would prohibit the buying of shares off-market for cash during the four month period because the vendor would receive the benefit of immediate cash payment.
Thus, it is said for Sagasco, the third respondents were never "persons whose shares may be acquired under the takeover scheme" proposed by Sagasco which was not to be, and was not, initiated unless and until the third respondents' shares in Magellan had been acquired. (It is unnecessary to pause to consider whether this interpretation, if correct, would avail Sagasco in this instance if, when the proposed takeover offers are made, the third respondents are still registered as shareholders and thus are offerees).
Magellan argues for a broader, less literal construction of the subsection, which effectively involves reading the subsection as if the words "if it were made immediately" were inserted after the words "takeover scheme" where they last appear in the subsection. According to Magellan, once there is a proposal to send takeover offers within the following four months, the test of whether an additional benefit may be given or offered or agreed to be given to a person is whether that person is then a person whose shares may be acquired under the takeover scheme. Unless this is so, a benefit offered during the four month period to a shareholder for the acquisition of his shares after the commencement of a takeover scheme, as defined in s.603, is prohibited whereas a similar benefit offered during that period in connection with the immediate acquisition of the same shares would not be, notwithstanding that the latter would seem to be a much more likely occurrence than the former.
An element in the interpretation of s.698(2) contended for by Sagasco is that the expression "persons whose shares may be acquired under the takeover scheme" has the same meaning in both s.698(1) and s.698(2). There is a definition of the words "takeover scheme" in s.603 of the Corporations Law.
If it is applied, the expression in question cannot be given
the same meaning in both subsections (1) and (2) of s.698.
The definition of "takeover scheme" in s.603 imports the
provisions of s.634, which has as one of its elements that
"the requirements of this Division have been complied with".
This is a reference to the various provisions of Division 1 of Part 6.3, which include the obligation under s.639 of ensuring that a copy of the Part A statement accompanies the offer that must be sent to each holder of shares in the target company : s.636(2).
In construing the expression "persons whose shares may be acquired under the takeover scheme" in s.698(1) it is possible to apply the statutory definition of "takeover scheme". However, to attempt to apply it to the same expression in s.698(2) would deprive that provision of the whole or practically the whole of its intended field of operation. Both subsections (1) and (2) are concerned to prohibit the giving or offering of what may be called differential benefits (cf. s.641); but s.698(2) strikes at benefits given or offered before the takeover offer is made or any Part A statement is served under s.637. It is not possible for the requirements of Division 1 of Part 6.3 to have been complied with by that stage. This particular element of s.634 can never exist before the takeover offer is made, so that the definition of "takeover scheme" in s.603 cannot have been intended to govern the interpretation of those words in s.698(2).
Under s.603 the statutory definition of "takeover scheme" applies "unless a contrary intention appears". As a proposed takeover scheme cannot be a takeover scheme within that definition it becomes necessary to look elsewhere for the meaning of those words. In Australian Consolidated
Press Ltd. v. Australian Newsprint Mills Holdings Ltd.
(1960) 105 C.L.R. 473, 479, Dixon C.J. said:
"'Scheme' is a vague and elastic word. Doubtless it connotes a plan or purpose which is coherent and has some unity of conception. But the rest of the section shows that it is dealing with some plan, proposal or project which contemplates the acquisition of the whole of the shares ... That seems enough to warrant the application of the word 'scheme'".
The expression being considered there, which formed part of earlier legislation regulating takeover offers, was "a scheme ... involving the transfer of shares". In their joint judgment in the same case Fullagar and Menzies JJ. said they could see "no reason why one company's proposal to take over the shares in another company should not be comprehended within the word 'scheme'" (105 C.L.R. 473, 485).
It is, we think, in this broad sense that "takeover scheme" is used in the expression "persons whose shares may be acquired under the takeover scheme" in s.698(2). It may also be the sense of those words in s.698(1); but that is not a question that falls for decision here. Adopting this broad meaning in relation to s.698(2), the substantial effect of that provision is to prohibit the giving or offering of differential benefits to persons whose shares may be acquired under some plan, proposal or project involving the acquisition of shares in connection with the proposed takeover of the company. In order to attract the prohibition in s.698(2) the plan, proposal or purpose need not be precisely formulated. It is enough that, to use the description in s.698(2), the "proposed offeror" should have formed a plan or purpose which includes sending takeover offers within the next following four months. Approached in this way, the shares held by the third respondents in Magellan are among those that Sagasco planned to acquire under its proposal to acquire all the ordinary fully paid shares in Magellan.
We think that this construction of sub-s.(2) gives effect to its evident intention to complement sub-s.(1). And it gives effect to the evident intention of s.698, in the context of Chapter 6, of ensuring equality of opportunity of shareholders to participate in any benefits accruing to shareholders under a proposal such as this. See also ss.641, 676, 731(d). Further, it gives more substantive effect to subs.698(5) and the corresponding introductory proviso to sub-s.698(2), which proceed on the assumption that additional benefits provided in respect of shares acquired on the stock exchange during the prescribed period would otherwise be caught by the section. These provisions would be at least substantially unnecessary if Sagasco's interpretation of sub-s.698(2) were correct.
This application for interlocutory relief therefore falls to be decided on the basis that Magellan has established a probability of final relief in due course on the footing that the premiums paid to the third respondents by Sagasco Holdings on behalf of Sagasco in respect of the Magellan U.S. shares were prohibited by sub-s.698(2).
It is a matter of some significance in determining what, if any, relief should be granted to Magellan on an interlocutory basis that, as Sagasco and Sagasco Holdings asserted in support of their argument that the third respondents were never "persons whose shares may be acquired under the takeover scheme", the scheme was not to be, and was not, initiated unless and until the third respondents' shares in Magellan had been acquired. In other words, the breach of sub-s.698(2) which, for present purposes, must be taken as likely to be established at trial provides the foundation for the proposed takeover scheme with which Sagasco and Sagasco Holdings seek to proceed and which Magellan seeks to restrain.
It seems more consonant with the purpose of the Corporations Law to deny the parties seeking to proceed an opportunity based upon what, for present purposes, must be taken as likely to be established at trial as a breach of the legislation.
Further, the balance of convenience also favours such a course since it is by no means clear at this time what form final relief would appropriately take if Sagasco's proposed takeover scheme were to proceed and be successful, or whether effective, practical relief would then be available.
Certainly, there would no longer be an opportunity to grant
Magellan the permanent injunctive relief which it seeks.
In the circumstances, it is unnecessary to consider the third of Magellan's points.
Subject to the continuation of the undertaking as to damages given by Magellan, orders should be made until trial in terms of the undertakings given by Sagasco and Sagasco Holdings pending this decision. Further, Sagasco and Sagasco Holdings should pay Magellan its taxed costs of and incidental to the proceedings before the primary judge and this appeal, including reserved costs, if any.
IN THE COURT OF APPEAL
| SUPREME COURT OF QUEENSLAND | Appeal No. 214 of 1992 |
| Before the Court of Appeal | |
| The President Mr Justice McPherson Mr Justice Davies | |
| BETWEEN: |
MAGELLAN PETROLEUM AUSTRALIA
LIMITED A.C.N. 009 728 581
(Plaintiff) Appellant
AND:
SAGASCO AMADEUS PTY LTD A.C.N.
056 420 396
(First Defendant) First Respondent
AND:
SAGASCO HOLDINGS LIMITED A.C.N.
008 181 066
(Second Defendant) Second Respondent
REASONS FOR JUDGMENT OF THE COURT
Delivered the 23rd day of October 1992
MINUTES OF ORDER: Appeal allowed.
Subject to the continuation of the undertaking as to damages given by the appellant on 14 October 1992, order that the first and second respondents be restrained until the trial of this action or further earlier order in terms of the undertakings given by them that day.
Order that the first and second respondents pay the appellant's taxed costs, including any reserved costs of and incidental to the proceedings before the primary judge and this appeal.
CATCHWORDS: INJUNCTIONS - Appellant sought to restrain takeover offers to shareholders and restraining company from acquiring shares in its holding company - whether contracts of sale of shares are shams - whether any giving of a 'benefit' to persons whose shares are sought - whether
probability of final belief - CORPORATIONS
LAW ss. 620, 641, 698(2), 709(1)CORPORATIONS LAW - TAKEOVER OFFERS AND STATUTORY CONTROL - Appellant sought to restrain making of takeover offers - whether transactions between associated companies shams - whether any giving of a 'benefit' to persons whose shares are intended to be acquired
| Counsel: | Keane Q.C. with him Freeburn for the Appellant Sofronoff Q.C. with him O'Shea for the Respondents McCormick for the Third Respondents Behan for the Australian Securities Commission |
| Solicitors: | Corrs Chambers Westgarth for the Appellant Feez Ruthning for the Respondents |
| Hearing Date(s): | 14 October 1992 |
IN THE COURT OF APPEAL
| SUPREME COURT OF QUEENSLAND | Appeal No. 214 of 1992 |
| BETWEEN: |
MAGELLAN PETROLEUM AUSTRALIA
LIMITED A.C.N. 009 728 581
(Plaintiff) Appellant
AND:
SAGASCO AMADEUS PTY LTD A.C.N.
056 420 396
(First Defendant) First Respondent
AND:
SAGASCO HOLDINGS LIMITED A.C.N.
008 181 066
(Second Defendant) Second Respondent
__________________________________________________
__
THE PRESIDENT
MCPHERSON JA
DAVIES JA
____________________________________________________
Reasons for Judgment of the Court delivered the
23rd day of October 1992
__________________________________________________
__
"APPEAL ALLOWED.
SUBJECT TO THE CONTINUATION OF THE UNDERTAKING AS
TO DAMAGES GIVEN BY THE APPELLANT ON 14 OCTOBER
1992, ORDER THAT THE FIRST AND SECOND RESPONDENTS
BE RESTRAINED UNTIL THE TRIAL OF THIS ACTION OR
FURTHER EARLIER ORDER IN TERMS OF THE UNDERTAKINGS
GIVEN BY THEM THAT DAY.
ORDER THAT THE FIRST AND SECOND RESPONDENTS PAY
THE APPELLANT'S TAXED COSTS, INCLUDING ANY
RESERVED COSTS OF AND INCIDENTAL TO THE
PROCEEDINGS BEFORE THE PRIMARY JUDGE AND THIS
APPEAL."
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