Maritime Workers of Australia Credit Union Limited v MSB Credit Union Limited
[2005] FCA 1211
•29 AUGUST 2005
FEDERAL COURT OF AUSTRALIA
Maritime Workers of Australia Credit Union Limited v MSB Credit Union Limited [2005] FCA 1211
TRADE PRACTICES – application for interlocutory relief – special general meeting called by the respondent regarding proposed merger with a third party credit union - claim that the respondent engaged in misleading and deceptive conduct by failing to inform its members about merger proposals made by the applicant - whether there is a serious question to be tried – whether balance of convenience is in favour of granting the relief
Australian Securities and Investments Commission Act 2001 (Cth) ss 5(3), 12BAA, 12BAB, 12DA
Trade Practices Act 1974 (Cth) ss 4, 51AF, 52
Corporations Act 2001 (Cth), s 92, Pts 1.2 and 1.3
Financial Sector (Transfers of Business) Act 1999 (Cth) ss 11-18, 43Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148
Ballas v Theophilos (1957) 98 CLR 193MARITIME WORKERS OF AUSTRALIA CREDIT UNION LIMITED
(ABN 11 087 650 315) v MSB CREDIT UNION LIMITED (ABN 81 087 650 235)NSD 1493 of 2005
TAMBERLIN J
SYDNEY
31 AUGUST 2005
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 1493 OF 2005
BETWEEN:
MARITIME WORKERS OF AUSTRALIA CREDIT UNION LIMITED (ABN 11 087 650 315)
APPLICANTAND:
MSB CREDIT UNION LIMITED (ABN 81 087 650 235)
RESPONDENTJUDGE:
TAMBERLIN J
DATE OF ORDER:
29 AUGUST 2005
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1. The application for interlocutory relief is refused.
2. The parties will be heard on the question of costs at an appropriate time.
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
NSD 1493 OF 2005
BETWEEN:
MARITIME WORKERS OF AUSTRALIA CREDIT UNION LIMITED (ABN 11 087 650 315)
APPLICANTAND:
MSB CREDIT UNION LIMITED (ABN 81 087 650 235)
RESPONDENT
JUDGE:
TAMBERLIN J
DATE:
31 AUGUST 2005
PLACE:
SYDNEY
REASONS FOR JUDGMENT
These reasons concern an application by the applicant, the Maritime Workers of Australia Credit Union Limited (“MWACU”), for an order restraining the respondent, MSB Credit Union Limited (“MSB”), from proceeding with any business at a special general meeting of members convened for 2 September 2005. The purpose of this meeting is to consider and, if thought fit, to approve a special resolution submitted by the Board of Directors:
“That the members of the MSB Credit Union Limited approve the proposed total transfer of business by MSB Credit Union Limited to Australian National Credit Union Limited, and that the proposed transfer take effect on 1 October 2005 or on such other date as the Australian Prudential Regulation Authority determines.”
The application is made on the ground that there has been misleading or deceptive conduct by MSB in relation to the proposed merger.
When the matter came on for urgent hearing on 29 August 2005, both parties were represented by counsel. After hearing submissions, I dismissed the interlocutory application and indicated that I would give reasons in the near future.
MWACU alleges that, on 1 August 2005, MSB informed its members by letter that the Board of Directors had reached the unanimous view that it was in the best interests of all its members for it to merge with a large credit union and that Australian National Credit Union Limited (“ANCU”) had been selected as the best merger partner. The letter from MSB enclosed an Information Document. In the Information Document, MSB and ANCU stated that:
“The Boards of both MSB and ANCU are not aware of any other information that is material to members’ decision whether or not to approve the merger.
…
In the event, therefore, that the proposed merger is not approved by members, the Board of MSB will need to seek out an alternate merger partner for consideration by the members.”
MWACU alleges that a number of earlier proposals that it made to merge with MSB, which remained current and available, have not been disclosed to the members of MSB. MWACU says that the services, including loan products and on-call deposits, offered by it under the merger proposals were, and remained, generally more competitive than those offered by ANCU. It is said that if the merger proposals made by MWACU are brought to the attention of the members of MSB, then they could have a material effect on the members’ decision whether or not to approve the resolution for MSB to merge with ANCU. For this reason, MWACU alleges that the Information Document was misleading by omission and that, at the time of issue of the Information Document, the members of MSB had not been informed of the extent of the “offer” made by MWACU. The substance of the claim is that there was misleading and deceptive conduct within the meaning of s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (“the ASIC Act”) or, alternatively, s 52 of the Trade Practices Act 1974 (Cth) (“the TPA”).
The principles to be applied in considering whether to grant an interlocutory injunction are well settled and involve two questions. The first is whether, on the material before the Court, a serious question to be tried is raised. The second is whether, if a serious question to be tried is raised, as a matter of discretion having regard to the balance of convenience, an order ought to be made by the Court: see Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 153, per Mason CJ.
The Information Document sent by MSB to its members on 1 August 2005 is entitled “Proposed Transfer of Business by MSB Credit Union Limited to Australian National Credit Union Limited”. It recites that MSB proposes to merge with ANCU by transferring all of its business to ANCU and that the merger will be able to proceed if MSB’s members approve the transfer by special resolution and the Australian Prudential Regulation Authority (“APRA”) grants the necessary regulatory approval. The Information Document notes that the Special General Meeting is to be held on 2 September 2005.
The Information Document records that APRA has approved the Information Document and that, in so doing, APRA consulted with the Australian Securities and Investment Commission (“ASIC”). However, the Information Document qualifies this with a statement that neither APRA nor ASIC accept responsibility for the accuracy or otherwise of any matters contained in, or attached to, the Information Document.
Under the heading “Background”, the Information Document refers to the fact that MSB was formed in 1958 and has 3,200 members and assets of $19 million. It records that ANCU is an amalgam of over eighty credit unions whose origins date back to 1947. ANCU has a total membership of over 175,000 and assets of $2 billion.
The Information Document contains a list of advantages and disadvantages of the merger for members. Under this heading, there is a statement that the Board does not believe that there are any material disadvantages for members arising from this merger. This is a matter to which counsel for MWACU adverted in support of a submission that the Information Document did not properly disclose all relevant matters.
One matter canvassed in the Information Document concerns what is to happen if the merger does not proceed. It is stated that if the proposed merger is not approved by MSB’s members, the Board of MSB will need to seek out an alternative merger partner for consideration by the members. This statement was referred to by counsel for MWACU as a misrepresentation because it does not refer to the fact that there was already in existence an alternative merger partner, namely, MWACU, and it is submitted that this should have been drawn to the attention of MSB’s members.
As alleged in the Statement of Claim, the Information Document states that MSB and ANCU are not aware of any other information that is material to members’ decision whether or not to approve the merger. This is said by MWACU to be misleading and deceptive.
BACKGROUND FACTS
Between 22 April and 18 November 2004, MWACU wrote a number of letters to MSB in order to explore possible opportunities to discuss “mutually beneficial initiatives” with a view to a merger. On 18 May 2004, MSB responded to the first of these letters by informing MWACU that the Board had decided not to accept MWACU’s request and that MSB considered an alliance with MWACU was not aligned with its current strategic direction. A request for further consideration as to a closer relationship was made by MWACU on 1 June and, on 22 June 2004, MSB responded that it maintained its position that such a proposal was declined.
In a further letter dated 4 August 2004, MWACU referred to its previous proposals, spelt out the benefits of the merger to both parties and requested a meeting to discuss “the merger framework” in more detail. MWACU had prepared and enclosed an unsolicited draft Memorandum of Understanding (“MOU”) in order to “help facilitate those discussions”. The MOU portrayed a relationship between the MWACU and MSB for which there was no real basis when considered in the light of the two previous outright rejections by MSB.
The purpose of the MOU unilaterally drafted by MWACU was expressed as being to record a “broad framework within which a merger could be undertaken … to indicate the preliminary intention of both parties with respect to certain post-merger issues, and to establish an indicative timetable for completion of key merger-related processes.”
On 14 September 2004, MSB again wrote to MWACU rejecting outright its suggestion that the Board of MSB reconsider a decision which it had made at about that time to transfer its assets to a third party credit union. This merger proposal did not proceed.
Undaunted by these repeated rejections of its proposals, MWACU sent yet a further letter to MSB thanking it for its response, extending a fourth offer to meet with the Board of MSB to discuss the merger proposal and seeking “a reassessment” of the refusals to sit down and discuss the merits.
On 9 November 2004, MSB wrote to MWACU referring to a meeting between the two, which was described as “open and frank”, and again firmly declining MWACU’s invitation to pursue alliance discussions.
For a fifth time, on 18 November 2004, undeterred by the history of repeated rejections, MWACU advised MSB that their “offer” still remained “formal and current” and noted that they were hopeful that the two credit unions could work towards developing their relationship. There was no follow up by MWACU on this proposal until it was sought to be raised in mid-August 2005.
In about July 2005, the Information Document concerning the proposed ANCU merger was approved by APRA after MSB complied with detailed requirements in order to obtain that approval.
Mr Genovese, the general manager of MWACU, states that on 11 August 2005 he became aware that MSB was proceeding with a merger proposal with ANCU and on the next day he received a copy of the letter of 1 August 2005 sent by MSB to its members and enclosing the Information Document. One week later, on 19 August 2005, Mr Genovese instructed the solicitors for MWACU to send MSB a letter alleging misleading and deceptive conduct in the form of representations and silence. A copy of that letter was sent to ASIC and APRA by MWACU. Three days later, on 22 August 2005, the solicitors for MWACU sent a further letter to MSB stating that it required MSB to send a notice of all its members, no later than 25 August 2005, informing them that the Special General Meeting convened for 2 September 2005 had been postponed to a subsequent date and to include with that notice a supplementary or amended Information Document providing details of MWACU’s merger proposal in a form to be agreed with MWACU. MWACU enclosed a copy of a proposed Supplementary Information Statement with their letter.
These proceedings for declarations and injunctive relief were instituted by an application filed in this Court on 24 August 2005.
TPA SECTION 52 CLAIM
In my view, it is not correct to describe the MOU or any of the correspondence as giving rise to an “offer”. In contractual terms, the proposals by MWACU are so vague and preliminary that they only amount to an exploratory proposal to enter into discussions with a view to possibly reaching a merger arrangement. This proposal was firmly rejected on four occasions and on the fifth occasion it was left from late November 2004 up to August 2005 before any attempt was made by MWACU to reactivate it. In my view, the proposal of 18 November had clearly lapsed by 1 August 2005. Thereafter, the proposal was no longer in force and it was reasonable for MSB to proceed on the basis that there was, prior to late August 2005, no notice of an intention to enter merger discussions still on foot: cf Ballas v Theophilos (1957) 98 CLR 193 at 197, per Dixon CJ.
MWACU submits that a strict contractual analysis is not appropriate when considering misleading and deceptive conduct, which calls for a far broader approach to the circumstances, and I agree with this. The issue in this case is the broader issue of whether there was misleading or deceptive conduct having regard to any misrepresentations, omissions or other conduct.
As at 1 August 2005, when the Information Document was issued, I do not think it could reasonably be said that there was a failure by MSB to disclose material information or that there was misleading or deceptive conduct on the part of, or misrepresentations made by, MWACU. In the course of oral submissions, I raised the question of whether it might be argued that the Information Document, although not misleading when issued, became misleading when it was indicated that there was a proposal on foot based on the letter of 22 August 2005. MWACU thereupon, mid-way through the hearing, filed an Amended Statement of Claim in Court. In substance, the Amended Statement of Claim raises a further allegation that the applicant’s offer to merge had been repeated on 22 August 2005, and that if the Information Document had not been misleading or deceptive when it was issued, it had become incorrect by 22 August 2005 and the failure of MSB to remedy the deficiency amounted to misleading and deceptive conduct.
In my view, in light of the history of the matter and the extremely tentative nature of the proposal to enter into discussions as to a merger, there is no force in the allegations of misrepresentation or misleading and deceptive conduct. Such information was not, in my view, arguably material to the consideration of the proposal by MSB’s members. The circumstances do not give rise to a serious question to be tried in relation to the issue of whether there was any misrepresentation or misleading conduct. Having formed the conclusion that there was no breach of s 52, it is strictly unnecessary for me to decide further matters raised. However, I will outline the substance of the issues sought to be raised.
Counsel for MSB referred to s 51AF, which provides that the consumer protection provisions, including s 52, do not apply to conduct engaged in in relation to financial services. Counsel submits that the representations in the present case are “in relation to financial services.” The term “in relation to” is, of course, of the widest import and should be construed purposefully.
Section 4 of the TPA provides that the definition of a “financial service” for the purposes of the TPA is the same as that given in Division 2 of Part 2 of the ASIC Act. Section 12BAB(1) of the ASIC Act provides the following definition of a “financial service”:
“For the purposes of this Division … a person provides a financial service if they:
(a)provide financial product advice (see subsection (5)); or
(b)deal in a financial product (see subsection (7)); or
…”
Section 12BAB(7) states that the following conduct constitutes “dealing” in a financial product:
“(a) applying for or acquiring a financial product;
(b) issuing a financial product;
…
(e) disposing of a financial product.”
Section 12BAA(7) of the ASIC Act defines a “financial product” and s12BAA(7)(a) provides that a “financial product” includes a “security”. A “security” is defined in s 92 of the Corporations Act2001 (Cth) (“the Corporations Act”) to include shares in a body. This definition applies to the ASIC Act, as s 5(3) of the ASIC Act provides that, unless the contrary intention appears, Pts 1.2 and 1.3 of the Corporations Act apply for the purposes of the ASIC Act.
MSB submits that the Information Document relates to a proposed voluntary transfer of business from MSB to ANCU under the Financial Sector (Transfers of Business) Act 1999 (Cth) (“the FS Act”).
The submission is that each share in MSB is a “security” and therefore a “financial product”. Accordingly, the Information Document provides financial product “advice” and therefore s 52 does not apply because this is a financial service.
Neither counsel referred me to any authority on the question as to whether the present circumstances involve the supply or possible supply of financial services or are in relation to conduct engaged in financial services.
In the light of these submissions, in relation to the s 52 claim, the dispute as to the meaning of “financial services” raises a serious question to be tried. However, in view of the conclusion I have reached that there was clearly no misleading or deceptive conduct on the part of MSB, this does not assist MWACU.
I have reached similar conclusions in relation to the claim for misleading conduct based on s 12DA of the ASIC Act and in relation to the protection claimed to be available under s 43 of the FS Act.
BALANCE OF CONVENIENCE
Counsel for MSB relies on the fact that on four occasions in 2004 its Board emphatically rejected any proposals by MWACU to enter into discussion. The evidence indicates that even at present the MWACU proposals are at a tentative non-committal stage and shrouded in vague uncertainty. There is no clear or firm proposal. It is further submitted that the November 2004 “proposal” had lapsed by 1 August 2005. I agree that this is clearly so.
If the Special General Meeting were to be postponed, as the consequence of a restraint at this late stage, it would be necessary for MSB and ANCU to embark again on the lengthy and complex process of preparing fresh information to have it further considered and approved by the statutory bodies. This would involve considerable expense, delay and uncertainty which is unwarranted having regard to the weakness of the case sought to be made out by MWACU as to the “materiality” of the information.
In this case, it is important to keep in mind the concrete and definite merger agreed to by ANCU as compared with the vague, tentative proposals for possible discussions suggested by MWACU. When these matters are taken into account, together with the consistent repeated and emphatic refusals by the Board of Directors referred to above and the lapsing of the November 2004 “suggestion” of further talks, there are powerful considerations which weigh in favour of the dismissal of this application on the balance of convenience.
In forming this view, I have taken into consideration the fact that there is a possibility, albeit remote, that an alternative and firm proposal may eventually be produced by MWACU and an agreement might possibly be reached and that this may be considered as a matter for shareholders to take into account at some future time. However, at the relevant times and as at today, I do not think the rejected proposals and the information proffered could be considered arguably relevant.
A further consideration is that the opportunity for MSB to accept the concrete and negotiated offer from ANCU could be lost if the meeting were adjourned and it were necessary to repeat the appeal process.
An additional important consideration raised by counsel for MSB is that an approach could be made by MWACU to APRA, after the Special General Meeting has been held, opposing the merger and before a Certificate has been granted: see ss 11-18 of the FS Act. APRA could then consider whether there should be an amendment to the Information Document. In other words, the refusal of the Court to grant an injunction in the present case would not preclude the pursuit of this course by MWACU, which would need to persuade APRA that the merger should not proceed unless further information is placed before the members of MSB. I note that MWACU sent a copy of its proposed Supplementary Information Statement to APRA on 19 August 2005 so that body is presumably on notice of the MWACU information.
For all of the above reasons, I am of the view that the balance of convenience lies strongly in favour of refusing the relief sought on this interlocutory application even if there was a serious question of fact or law to be tried and I so order.
The parties will be heard on the issue of costs at an appropriate time.
I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin. Associate:
Dated: 31 August 2005
Counsel for the Applicant: R J Weber SC Solicitor for the Applicant: Mallesons Stephen Jacques Counsel for the Respondent: A S Martin SC and S A Wells Solicitor for the Respondent: Daniels Bengtsson Date of Hearing: 29 August 2005 Date of Judgment: 31 August 2005
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