Norcast S.ár.l. v Bradken Limited

[2011] FCA 1293

FEDERAL COURT OF AUSTRALIA

Norcast S.ár.l. v Bradken Limited [2011] FCA 1293

Citation:		Norcast S.ár.l. v Bradken Limited [2011] FCA 1293
Parties:		NORCAST S.ÁR.L. v BRADKEN LIMITED
File number(s):		VID 978 of 2011
Judge:		MIDDLETON J
Date of judgment:		8 November 2011
Legislation:		Competition and Consumer Act 2010 (Cth) Federal Court Rules 2011
Date of hearing:	8 November 2011
Place:	Melbourne
Division:	Error! Reference source not found.
Category:	No catchwords
Number of paragraphs:	29
Counsel for the Applicant:	Mr C Scerri QC with Mr M Borsky
Solicitor for the Applicant:	Allens Arthur Robinson
Counsel for the Respondent:	Mr M H O'Bryan
Solicitor for the Respondent:	Mallesons Stephen Jaques

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION	VID 978 of 2011

BETWEEN:	NORCAST S.ÁR.L. Applicant
AND:	BRADKEN LIMITED Respondent

JUDGE:	MIDDLETON J
DATE:	8 NOVEMBER 2011
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

INTRODUCTION

1. The prospective applicant (‘Norcast’) applies for preliminary discovery by the prospective respondent (‘Bradken’), under r 7.23 of the Federal Court Rules 2011 (‘the Rules’).

2. Discovery is sought, it is said, to inform and assist Norcast in making its decision whether to bring a proceeding against Bradken in this Court to obtain relief for contraventions of the Competition and Consumer Act 2010 (Cth) (‘the Act’).

3. The possible contraventions of the Act include cartel conduct by bid-rigging, misleading or deceptive conduct, and the acquisition of shares having the effect, or likely to have the effect, of substantially lessening competition in a market in Australia.

   THE FACTS

4. This application concerns back-to-back sales in July 2011 of Norcast Ware Solutions Inc (‘NWS’), a manufacturer and supplier to the mining industry of grinding mill liners. 

5. Norcast conducted a competitive sale process for NWS, comprising two rounds over several months and the execution by more than 20 prospective acquirers of confidentiality agreements with NWS (the ‘competitive sale process’).  The competitive sale process culminated in a sale by Norcast of NWS to 0913034 BC Ltd (‘BC’), a subsidiary of Castle Harlan, Inc (‘Castle Harlan’), for USD190 million.  That sale was completed on 6 July 2011.

6. Some seven hours after Norcast announced the completion of the sale of NWS to Castle Harlan, Bradken announced that it had agreed to acquire NWS from Castle Harlan for AUD202 million, which is approximately USD27 million more than the price paid by Castle Harlan to Norcast.  A few days later, on 12 July 2011, Bradken announced that its acquisition of NWS from Castle Harlan had been completed. 

7. For the purposes of this hearing, I accept the facts as presented by the prospective applicant in its written outline of submissions dated 28 October 2011, including the confidential material, which I need not rehearse in these reasons.

8. There seems to be very little factual contest between the parties.  The one point of difference concerns the communications between Goldman Sachs and Mr Barton, on behalf of Norcast, and Goldman Sachs and Bradken.  It is unclear whether Bradken was or was not invited or requested to participate in the sale process.  There may also be some dispute about whether Bradken believed that Norcast would not allow it to participate in the sale process. 

9. The prospective respondent accepts that Castle Harlan approached UBS to express interest in the competitive sale process of Norcast after prompting from Bradken.  I need say little more about the facts, other than to repeat that there seems to be little dispute as to the basic facts and objective facts upon which the parties relied.  This is not to say, however, that there may not be matters of detail, including as to the conversations between, and agreements entered into by, the parties which may impact upon the final resolution of this matter.

   THE LAW

10. Rule 7.23 of the Rules provides as follows:

    (1)A prospective applicant may apply to the Court for an order under subrule (2) if the prospective applicant:

    (a)reasonably believes that he or she may have the right to obtain relief in the Court from a prospective respondent whose description has been ascertained; and

    (b)after making reasonable inquiries, does not have sufficient information to decide whether to start a proceeding in the Court to obtain that relief; and

    (c)reasonably believes that:

    (i)the prospective respondent has or is likely to have or has had or is likely to have had in the prospective respondent’s control documents directly relevant to the question whether the prospective applicant has a right to obtain the relief; and

    (ii)inspection of the documents by the prospective applicant would assist in making the decision.

    (2)If the Court is satisfied about matters mentioned in subrule (1), the Court may order the prospective respondent to give discovery to the prospective applicant of the documents of the kind mentioned in subparagraph (1)(c)(i).

11. The prospective applicant submitted that the rule incorporates much of the same language and many of the same principles as the former O 15A, r 6, although I do observe that in r 7.23(1)(c)(i) there is the phrase “directly relevant to the question whether the prospective applicant has a right to the obtain relief”, and this may limit the documentation that would be available on preliminary discovery, as compared to that which was available under the former rule.

12. The principles that have been applied to preliminary discovery were set out conveniently by the prospective applicant in its written submissions, and were not disagreed with by the prospective respondent, although the prospective respondent added various glosses to those principles, which I think have no real relevance to the way in which this case is decided.

13. I summarise the principles that are relevant to construing r 7.23 as follows:

    (a)The rule is to be construed beneficially and benevolently.

    (b)The test of “reasonable relief” in r 7.23(1)(a) is an objective one.

    (c)The words “may have” in r 7.23(1)(a) cannot be ignored, in that the threshold is set at “quite a low level”, and a prima facie case does not have to be made out.

    (d)It is no answer to the application for preliminary discovery to say the application is in the nature of a “fishing expedition”.

    (e)However, applications must not be based upon mere speculation, hunches, or assertions, or otherwise upon foundations so flimsy such that reasonable cause for the requisite belief is not able to be demonstrated.

    (f)An order for preliminary discovery may be made even when there is already evidence available establishing a prima facie case for the granting of the relief in question.

14. Norcast believes that it may have the right to obtain relief on three bases, namely that:

    (a)Bradken and Castle Harlan may have made, and/or given effect to a bid-rigging cartel provision in contravention of s 44ZZRJ and/or s 44ZZRK of the Act.

    (b)Bradken may have aided or abetted or induced or been knowingly concerned in or conspired with Castle Harlan and others to engage in misleading or deceptive conduct in contravention of s 18 of sch 2 to the Act, the Australian Consumer Law (‘ACL’).

    (c)Bradken’s acquisition of the shares in BC may have had the effect or likely effect of substantially lessening competition in the market for the supply of grinding mill liners in Australia, in contravention of s 50 of the Act.

    APPLICATION

    Bid-rigging

15. I turn to the allegation of cartel conduct by bid-rigging.  Legal argument was presented by both parties as to the operation of the cartel provisions. 

16. I do not think it is necessary to determine the legal issues that have been raised by the parties in this application. 

17. It seems to me that, on this claim, the prospective applicant has sufficient information to decide whether to start a proceeding to obtain the relief sought, namely damages.  There may be more information which may assist.   However, the prospective applicant, whilst entitled to preliminary discovery even when there is evidence which establishes a prima facie case, is not entitled to obtain effectively “complete” discovery as if the proceeding had commenced.  In my view, categories 1, 2 and 3, if granted, would do just that.

18. Whether or not a prospective applicant has a strong case or not is a matter of law.  This is not for me to determine today.  However, the factual matrix is sufficiently apparent to the prospective applicant, and how it is to be applied to the law will be determined at trial. 

19. I should also indicate, and this is a matter of discretion, that I will not make the orders dealing with categories 1, 2 and 3.  Whilst no suggestion has been made that they are oppressive, having regard to the prospective applicant’s knowledge, the categories are wider than is necessary for the prospective applicant to make a decision as to whether to start proceedings.

    Misleading or deceptive conduct

20. I now turn to the claim in relation to misleading or deceptive conduct.  I do not consider, although invited to do so, that I should decide whether the misleading or deceptive conduct claim is hopeless or bound to fail. 

21. The issue is one of non-disclosure which, in my view, depends upon all the circumstances. The prospective applicant has set out the basis of the claim in its written submissions. I consider, again, that there is sufficient information for the prospective applicant to decide whether to start a proceeding to obtain the relief that it seeks, subject to one matter. It has been suggested by the prospective respondent that the claim exceeds the territorial reach of the Act.

22. On the basis of the objective criteria, there is a strong basis to suggest that this may be the case. The asset being sold, NWS, was incorporated in Canada. The seller, Norcast, was incorporated in Luxembourg. Castle Harlan was incorporated in the United States and had offices in New York. Mr Barton, the person responsible for supervising the NWS competitive sale process, had his business address in Switzerland. The corporate advisor appointed by Norcast to manage the sale process, UBS, was a Canadian company. The purchaser of NWS, BC, was also a Canadian company. No other evidence discloses any conduct involving Norcast or Castle Harlan that occurred in Australia. As a consequence, it is said by the prospective respondent that the alleged misleading conduct, whatever it was, was not conduct in trade or commerce within the meaning of s 18 of the ACL.

23. I think that this is a matter in which the prospective applicant is entitled to some preliminary discovery.  This follows from the policy of the rule which is to avoid wasting time and unnecessary claims or unnecessary litigation.  It is a matter which would impact upon the claim for relief for misleading or deceptive conduct.  I do not, however, consider that any category presently is confined to that issue, although category 2 comes close, except for paragraph (d) and perhaps the period of time.  I propose to adjourn the application for a short time, for the parties to agree upon an appropriate order dealing with this aspect, or to agree upon the exchange of documents in this regard.

24. I accept there may be real difficulties, even if the claim does not exceed the territorial reach of the Act, with the accessorial liability claim. However, the relevant facts will be investigated at trial which may overcome these difficulties. I do not, for the purposes of this application, see these difficulties as an indication that the prospective applicant does not “reasonably believe”, on an objective basis, that it has a right to obtain relief based upon its claim, so as to come within one of the requirements of r 7.23.

    Section 50 of the Act

25. I now turn to s 50 of the Act. As a preliminary matter, I should indicate that I do not accept the prospective respondent’s argument that the bringing of this claim, as well as the other claims, shows any bad faith. Specifically, I do not find that any bad faith has been demonstrated by the prospective applicant in bringing this application.

26. It may be that the claims of the prospective applicant are commercially contradictory, to use the phrase of the prospective respondent’s Counsel. However, I do not think that they cannot be brought in the alternative, and I do not think the nature of the s 50 claim, even if it be only for a divestiture order under s 81(1) of the Act, indicates any bad faith. Nevertheless, I do not consider that it has been shown that the prospective applicant has a “reasonable belief”, as to relevant matters relating to the cause of action based on s 50 of the Act. There must be some evidence that inclines the mind towards the matter in fact in question, and I do not think that exists in this particular case. I accept the prospective respondent’s submissions in that regard. I also do not consider that any further information that is sought would assist in the making of a decision to start a proceeding under s 50 of the Act.

27. In that regard, when one analyses the elements of s 50, either the prospective applicant will have sufficient information which has already been provided by the prospective respondent, or information will be available in the marketplace or from other sources. I do not think that the information sought on that point would assist them. To that extent, I also accept the respondent’s submissions in this aspect of the application.

    General observations

28. I make some general observations.  As to category 4, I consider those documents of limited relevance.  Irrespective of anything else that I have decided, I would not order preliminary discovery of the documents identified there.  In relation to category 5, I would not order those documents to be provided, as I do not think, having regard to the objective material already made available to the prospective applicant, those documents would be of assistance. 

29. Therefore, overall I consider that, subject to the territorial issue, the prospective applicant has sufficient information to decide whether to start a proceeding in the Court to obtain the relief that it would seek. 

I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton.

Associate:

Dated:       11 November 2011