Norcast S.ár.L v Bradken Ltd (No 2)
[2013] FCA 235
FEDERAL COURT OF AUSTRALIA
Norcast S.ár.L v Bradken Limited (No 2) [2013] FCA 235
Citation: Norcast S.ár.L v Bradken Limited (No 2) [2013] FCA 235 Parties: NORCAST S.ÁR.L v BRADKEN LIMITED, NICHOLAS FRANK HUGO GREINER and BRIAN HODGES File number: VID 356 of 2012 Judge: GORDON J Date of judgment: 19 March 2013 Catchwords: TRADE PRACTICES – cartel conduct – bid rigging – requirement of a request for bids – requirement of a provision with the purpose of ensuring that one party bids but another party does not – requirement of a contract, arrangement of understanding – requirement that parties to bid rigging arrangement be in competition with one another – exception where arrangement concerns the acquisition of shares in a body corporate – conduct engaged in outside of Australia – accessorial liability – Competition and Consumer Act 2010 (Cth), Pt IV, Div 4
TRADE PRACTICES – misleading or deceptive conduct – misleading or deceptive conduct by silence – whether necessary to adduce evidence of reliance upon representations – conduct engaged in outside of Australia – accessorial liability – proportionate liability – Competition and Consumer Act 2010 (Cth), Sch 2, Pt 2-1
Legislation: Acts Interpretation Act 1901 (Cth)
Competition and Consumer Act 2010 (Cth)
Corporations Act 2001 (Cth)
Evidence Act 1995 (Cth)
Fair Trading Act 1987 (NSW)
Trade Practices Act 1974 (Cth)
Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 (Cth)
Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 (Cth)Cases cited: Application of Campbell; Gebo Investments (Labuan) Ltd v Signatory Investments Pty Ltd: Re (2005) 54 ACSR 111
Adams v Cape Industries Plc [1990] Ch 433
Apco Service Stations Pty Ltd v Australian Competition and Consumer Commission (2005) 159 FCR 452
ASX Operations Pty Ltd v Pont Data Australia Pty Limited (No 2) (1991) 27 FCR 492
Auskay International Manufacturing & Trade Pty Ltd v Qantas Airways Ltd (No 5) [2009] FCA 1464
Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd (2000) 169 ALR 344
Australian Competition and Consumer Commission v Australian Medical Association Western Australia Branch Inc (2003) 199 ALR 423
Australian Competition and Consumer Commission v Black on White Pty Limited (2001) 110 FCR 1
Australian Competition and Consumer Commission v Construction, Forestry, Mining and Energy Union [2008] FCA 678
Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (2004) 141 FCR 183
Australian Competition and Consumer Commission v Pauls Ltd (2003) ATPR 41-911
Australian Competition and Consumer Commission v TF Woolam & Son Pty Ltd (2011) 196 FCR 212
Bray v F Hoffman-La RocheLtd (2002) 118 FCR 1
CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd (2005) ATPR 42-042
Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84
Compaq Computer Australia Pty Ltd v Merry (1998) 157 ALR 1
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
ECH Incorporated v Halliday (2011) 192 FCR 281
Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167
Federal Commissioner of Taxation v Lutovi Investments Pty Ltd (1978) 140 CLR 434
Frith v Gold Coast Mineral Springs Pty Ltd (1983) 65 FLR 213
General Accident Fire & Life Assurance Corporation Ltd v Commissioner of Pay-roll Tax (NSW) [1982] 2 NSWLR 52
Hanave Pty Ltd v LFOT Pty Ltd (formerly Jagar Projects Pty Ltd) (1999) 43 IPR 545
I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109
Janssen-Cilag Pty Limited v Pfizer Pty Limited (1992) 37 FCR 526
J McPhee & Son (Australia) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532
Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950
Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458
Lithgow City Council v Jackson (2011) 244 CLR 352
L Grollo & Co Pty Ltd v Nu-Statt Decorating Pty Ltd (1978) 34 FLR 81
Luxton v Vines (1952) 85 CLR 352
March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506.
Marks v GIO Australia Holdings Limited (1998) 196 CLR 494
Matheson Engineers Pty Ltd v El Raghy (1992) 37 FCR 6
Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357
News Limited v Australian Rugby Football League Limited (1996) 64 FCR 410
News Limited v South Sydney District Rugby League Football Club Limited (2003) 215 CLR 563
Newton v Federal Commissioner of Taxation (1958) 98 CLR 1
Pileggi v Australian Sports Drug Agency (2004) 138 FCR 107
Poseidon Ltd v Adelaide Petroleum NL (1991) 105 ALR 25
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355
Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1
R v Associated Northern Collieries (1911) 14 CLR 387
R v Campbell (2008) 73 NSWLR 272
Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477
Rural Press Ltd v Australian Competition and Consumer Commission (2002) 118 FCR 236
SA Brewing Holdings Ltd v Baxt (1989) 23 FCR 357
Sydney Futures Exchange Limited v Australian Stock Exchange Limited (1995) 56 FCR 236
Top Performance Motors Pty Ltd v Ira Berk (Queensland) Pty Ltd (1975) 5 ALR 465
Trade Practices Commission v Australian Iron & Steel Pty Ltd (1990) 22 FCR 305
Trade Practices Commission v Service Station Association Ltd (1993) 44 FCR 206
Trade Practices Commission v TNT Management Pty Ltd (1985) 6 FCR 1
Wardley Australia Limited v Western Australia (1992) 175 CLR 514
Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97
XYZ v The Commonwealth of Australia (2006) 227 CLR 532
Yorke v Lucas (1985) 158 CLR 661Beaton-Wells, C and Fisse, B, Australian Cartel Regulation (Cambridge University Press, 2011)
Date of hearing: 7, 8, 9 and 12 November 2012 Date of last submissions: 20 December 2012 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 348 Counsel for the Applicant: Mr C M Scerri QC and Mr M Borsky Solicitor for the Applicant: Allens Counsel for the Respondents: Mr N J Young QC and Mr S H Parmenter Solicitor for the Respondents: King & Wood Mallesons
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 356 of 2012
BETWEEN: NORCAST S.ÁR.L
ApplicantAND: BRADKEN LIMITED
First RespondentNICHOLAS FRANK HUGO GREINER
Second RespondentBRIAN HODGES
Third Respondent
JUDGE:
GORDON J
DATE OF ORDER:
19 MARCH 2013
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.The parties bring in orders to give effect to these reasons for judgment by 4:00pm on 26 March 2013. If the parties are unable to reach agreement, each should file and serve a copy of the proposed orders supported by a two page submission.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 356 of 2012
BETWEEN: NORCAST S. ÁR.L
ApplicantAND: BRADKEN LIMITED
First RespondentNICHOLAS FRANK HUGO GREINER
Second RespondentBRIAN HODGES
Third Respondent
JUDGE:
GORDON J
DATE:
19 MARCH 2013
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
INTRODUCTION
The Applicant, Norcast S.ár.L (Norcast), sold Norcast Wear Solutions, Inc (NWS), a Canadian mining consumables company to 0913034 B.C. Ltd (BC), a special purpose subsidiary of Castle Harlan, Inc (Castle Harlan), for approximately US$190 million on 6 July 2011. Previously on 6 July 2011, Bradken Operations Pty Ltd (Bradken Operations), a subsidiary of the First Respondent, Bradken Limited (Bradken), had entered into a Subscription, Governance and Purchase Agreement (SGPA) with, among others, BC. Pursuant to the SGPA, Bradken Operations subscribed for 89.7% of the share capital in BC. Bradken Operations also acquired the right to call for the remaining shares in BC. Within hours of the sale by Norcast of NWS to BC, Bradken Operations exercised its right and acquired the remaining shares in BC. The total amount paid to Castle Harlan entities by Bradken was approximately US$212.4 million. The result – Bradken acquired NWS, its global competitor in the manufacture and supply of grinding mill liners. Grinding mill liners are consumable products used in the mining industry.
Norcast complains about Bradken’s and Castle Harlan’s conduct on and before 6 July 2011. Norcast alleges that the events on 6 July 2011 were the result of a bid rigging arrangement between Bradken and Castle Harlan, whereby Castle Harlan agreed to bid for NWS and Bradken agreed not to bid for NWS (Bid Rigging Arrangement) in contravention of ss 44ZZRJ and 44ZZRK of the Competition and Consumer Act 2010 (Cth) (the CCA). Had Bradken and Castle Harlan not entered into the Bid Rigging Arrangement, Norcast contends that Bradken would have made a bid for NWS in excess of the approximately US$190 million which BC ultimately paid for NWS.
Norcast further alleges that Castle Harlan and Bradken engaged in misleading or deceptive conduct during the course of the NWS sales process (Misleading or Deceptive Conduct) in breach of s 18 of Pt 2-1 of Sch 2 of the CCA (referred to as the Australian Consumer Law, the ACL). Norcast alleges that the Second Respondent, Mr Nick Greiner, and the Third Respondent, Mr Brian Hodges, were persons involved in either or both of the Bid Rigging Arrangement and the Misleading or Deceptive Conduct.
For the reasons set out below, both the Bid Rigging Arrangement claim and the Misleading or Deceptive Conduct claim are established.
This proceeding was commenced as a Fast Track proceeding. The disputed factual and legal issues are complex. At the conclusion of the hearing, the parties were informed that the Court would be unable to deliver judgment within six weeks of the conclusion of the trial: cf Practice Note CM8. The delay in delivery of the judgment was inevitable because the Minister did not provide the necessary consent for the extended territorial application of s 82 of the CCA and s 236 of the ACL until 14 March 2013: see [231] below.
The balance of these reasons for judgment are structured as follows:
DESCRIPTION
PARA(S)
A
The Statutory Scheme
[7]-[17]
1. The Bid Rigging Arrangement provisions
[7]-[16]
2. Misleading or Deceptive Conduct provisions
[17]
B
The Issues
[19]-[20]
1. The Bid Rigging Arrangement claim
[19]
2. Misleading or Deceptive Conduct claim
[20]
C
The Facts
[21]-[207]
1. Introduction
[21]
2. The Players
[22]-[32]
3. 2002-2008
[33]-[47]
4. 2009
[48]-[55]
5. 2010
[56]-[64]
6. 2011
[65]-[207]
D
Bid Rigging Arrangement Claim
[208]-[305]
1. Introduction
[208]-[212]
2. Was there a request for bids within the meaning of s 44ZZRD(3)(c)?
[213]-[256]
3. Were Bradken and Castle Harlan in competition or likely to be in competition with each other in relation to the acquisition of NWS (ie, is the competition condition satisfied)?
[257]-[261]
4. Did Bradken and Castle Harlan make a contract or arrangement, or arrive at an understanding in relation to bidding for NWS (the Bid Rigging Arrangement)?
[262]-[269]
5. Did the Bid Rigging Arrangement contain a provision which had the purpose of directly or indirectly ensuring that in the event of a request for bids in relation to supply or acquisition of goods or services, one party would bid but the other would not (ie, was the purpose condition satisfied)?
[270]-[278]
6. Does s 44ZZRU of the CCA apply with the result that the cartel conduct prohibitions in ss 44ZZRJ and 44ZZRK are not engaged?
[279]-[284]
7. Is Norcast able to rely upon the conduct of Bradken and Castle Harlan engaged in outside of Australia and, further, can Norcast establish that Castle Harlan was carrying on business within Australia (see s 5 of the CCA)?
[285]
8. Was Bradken a person involved in Castle Harlan’s contraventions within the meaning of s 75B of the CCA? Were Greiner and/or Hodges involved in either or both of Bradken and/or Castle Harlan’s contraventions?
[286]-[297]
9. What was Norcast’s loss and damage?
[298]-[305]
E
Misleading or Deceptive Conduct claim
[306]-[347]
1. Did Bradken engage in misleading or deceptive conduct by its silence?
[309]-[318]
2. Did Castle Harlan engage in misleading or deceptive conduct?
[319]-[325]
3. Did Norcast rely upon Bradken and/or Castle Harlan’s representations?
[326]-[332]
4. Was Bradken a person involved in Castle Harlan’s contraventions within the meaning of s 2(1) of the ACL? Were Greiner and/or Hodges involved in either or both of Bradken and/or Castle Harlan’s contraventions?
[333]-[337]
5. Were either or both of Bradken’s and/or Castle Harlan’s representations conduct “in trade or commerce” either within Australia or between Australia and places outside Australia?
[338]-[342]
6. Does s 32(1)(d) of the Fair Trading Act 1987 (NSW), which extends the operation of that Act to “persons otherwise connected with this jurisdiction”, assist Norcast?
[343]
7. What was Norcast’s loss and damage?
[344]
8. If Bradken, Greiner and/or Hodges are liable as persons involved in Castle Harlan’s contraventions, should there be an apportionment of liability between them and Castle Harlan and, if so, in what proportions?
[345]-[347]
F
Conclusion
[348]
A THE STATUTORY SCHEME
1. Bid Rigging Arrangement provisions
Part IV of the CCA addresses restrictive trade practices. The present case is principally concerned with Div 1 (ss 44ZZRA to 44ZZRV) entitled “Cartel conduct”.
Section 44ZZRJ of the CCA, entitled “Making a contract etc. containing a cartel provision”, provides:
A corporation contravenes this section if:
(a)the corporation makes a contract or arrangement, or arrives at an understanding; and
(b)the contract, arrangement or understanding contains a cartel provision.
(Emphasis added.)
Section 44ZZRK of the CCA, entitled “Giving effect to a cartel provision”, relevantly provides:
(1) A corporation contravenes this section if:
(a)a contract, arrangement or understanding contains a cartel provision; and
(b) the corporation gives effect to the cartel provision.
(Emphasis added.)
“Cartel provision” is defined in s 44ZZRD of the CCA. Section 44ZZRD defines “cartel provision” for civil and criminal purposes. It replaced, and expanded, s 45A of the TPA.
Section 44ZZRD(1) provides as follows:
(1)For the purposes of this Act, a provision of a contract, arrangement or understanding is a cartel provision if:
(a)either of the following conditions is satisfied in relation to the provision:
(i) the purpose/effect condition set out in subsection (2);
(ii) the purpose condition set out in subsection (3); and
(b)the competition condition set out in subsection (4) is satisfied in relation to the provision.
Section 44ZZRD sets out two conditions that must be satisfied in order for a provision of a contract, arrangement or understanding to be a cartel provision – one of the two forms of the purpose condition and the competition condition. There was no dispute that the particular relevant conditions in the present case were those in sub-ss 44ZZRD(3)(c)(i) and 44ZZRD(4)(a), (b) and (j).
Sub-sections 44ZZRD(3) and (4) relevantly provide:
Purpose condition
(3)The purpose condition is satisfied if the provision has the purpose of directly or indirectly:
…
(c)ensuring that in the event of a request for bids in relation to the supply or acquisition of goods or services:
(i)one or more parties to the contract, arrangement or understanding bid, but one or more other parties do not;
…
Competition condition
(4)The competition condition is satisfied if at least 2 of the parties to the contract, arrangement or understanding:
(a) are or are likely to be; or
(b)but for any contract, arrangement or understanding, would be or would be likely to be;
in competition with each other in relation to:
…
(j)if paragraph (3)(c) applies in relation to an acquisition of goods or services - the acquisition of those goods or services;
…
(Emphasis added.)
It is the substance, not the form, that is relevant in determining the purpose of a provision: sub-s 44ZZRD(10).
Of course, s 44ZZRD will not apply unless there is some form of contract, arrangement or understanding between two or more parties. The phrase, “likely to be”, in both the purpose condition and the competition condition, permits the court to look at what is established on the facts and also to infer, from those facts, what was likely to be the position at or about the time the arrangement was made. “Likely” includes a possibility that is not too remote: s 44ZZRB. “Bid” is defined in s 44ZZRB to include “the taking, by a potential bidder or tenderer, of a preliminary step in a bidding or tendering process”.
Sub-division D of Div 1 of Pt IV contains the exceptions and defences to, among others, ss 44ZZRJ and 44ZZRK. Section 44ZZRU of the CCA relevantly provides:
(1)Sections 44ZZRF, 44ZZRG, 44ZZRJ and 44ZZRK do not apply in relation to a contract, arrangement or understanding containing a cartel provision, in so far as the cartel provision provides directly or indirectly for the acquisition of:
(a) any shares in the capital of a body corporate; or
(b) any assets of a person.
…
(2)A person who wishes to rely on subsection (1) in relation to a contravention of section 44ZZRJ or 44ZZRK bears an evidential burden in relation to that matter.
(Emphasis added.)
Section 82 provides that a person who suffers loss or damage by reason of conduct in contravention of Pt IV may recover “the amount of the loss or damage by action against that other person or against any person involved in the contravention”.
2. Misleading or Deceptive Conduct provisions
Part 2-1 of Sch 2 of the ACL addresses misleading or deceptive conduct. Section 18 of the ACL relevantly provides that:
(1)A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or likely to mislead or deceive.
Section 18 reproduces s 52 of the old Trade Practices Act 1974 (Cth) (the TPA), save that the word “corporation” has been replaced with “person”. Section 236 of the ACL provides that a person who suffers loss or damage “because of” a contravention of s 18 may recover “the amount of the loss or damage by action against that other person, or against any person involved in the contravention”.
B THE ISSUES
The issues may be divided into two general categories – the Bid Rigging Arrangement claim and the Misleading or Deceptive Conduct claim.
1. Bid Rigging Arrangement claim
Eight issues arise in determining the Bid Rigging Arrangement claim:
1.Was there a request for bids within the meaning of s 44ZZRD(3)(c) of the CCA?
2.Were Bradken and Castle Harlan in competition, or likely to be in competition, with each other (but for the arrangement or understanding between them) in relation to the acquisition of the shares in NWS (ie, is the Competition Condition satisfied)?
3.Did Bradken and Castle Harlan make a contract or arrangement, or arrive at an understanding in relation to bidding for NWS?
4.Did the Bidding Agreement contain a provision which had the purpose of directly or indirectly ensuring that in the event of a request for bids in relation to supply or acquisition of goods or services, one party would bid but the other would not (ie is the Purpose Condition satisfied)?
5.Does s 44ZZRU of the CCA apply with the result that the cartel conduct prohibitions in ss 44ZZRJ and 44ZZRK are not engaged?
6.Is Norcast able to rely upon the conduct of Bradken and Castle Harlan engaged in outside of Australia and, further, can Norcast establish that Castle Harlan was carrying on business within Australia (see s 5 of the CCA)?
7.Was Bradken a person involved in Castle Harlan’s contraventions within the meaning of s 75B of the CCA? Were Greiner and/or Hodges involved in either or both of Bradken and/or Castle Harlan’s contraventions?
8.What was Norcast’s loss and damage?
2. Misleading or Deceptive Conduct claim
In determining the Misleading or Deceptive Conduct claim, there are also eight issues:
1.Did Bradken engage in misleading or deceptive conduct by its silence?
2.Did Castle Harlan engage in misleading or deceptive conduct?
3.Did Norcast rely upon Bradken and/or Castle Harlan’s representations?
4.Was Bradken a person involved in Castle Harlan’s contraventions within the meaning of s 2(1) of the ACL? Were Greiner and/or Hodges involved in either or both of Bradken and/or Castle Harlan’s contraventions?
5.Were either or both of Bradken’s and/or Castle Harlan’s representations conduct “in trade or commerce” either within Australia or between Australia and places outside Australia?
6.Does s 32(1)(d) of the Fair Trading Act 1987 (NSW), which extends the operation of that Act to “persons otherwise connected with this jurisdiction”, assist Norcast?
7.What was Norcast’s loss and damage?
8.If Bradken, Greiner and/or Hodges are liable as persons involved in Castle Harlan’s contraventions, should there be an apportionment of liability between them and Castle Harlan and, if so, in what proportions?
C THE FACTS
1. Introduction
The relevant events took place around the world and across numerous time zones. Where relevant, the time zone in which a particular event took place is identified in brackets as Australian Eastern Standard Time (EST), Australian Eastern Daylight Savings Time (EDT), New York Time (NYT) or New York Daylight Savings Time (NDT). The only way to understand this case is to track the events, step by step. First, the players and then the events.
2. The Players
Norcast, NWS and Pala
Norcast has no premises, employees or Board of directors. It was incorporated in Luxembourg as a holding company for NWS and other related entities. Pala Investments Limited (Pala) is its ultimate holding company. Pala, like Castle Harlan, is a private equity fund.
Mr Michael Barton, a senior Vice President of Pala, gave evidence (Barton). Mr Richard Wilson, the former Chief Operating Officer of NWS (Wilson), and Mr Alan Bulckaert, the former President of NWS, also gave evidence (Bulckaert). There was evidence about two other key decision-makers within NWS and Pala: Mr Rick LaBelle, the former Chief Executive Officer of NWS (LaBelle), and Mr Jan Castro, the Chief Executive Officer of Pala (Castro). LaBelle and Castro did not give evidence. Contrary to Bradken’s contention, there is no relevant adverse inference to be drawn against Norcast arising from its failure to call Castro.
Barton gave evidence about decision-making within NWS, Norcast and Pala. Barton’s evidence was that, within Pala, there was a “manager” who was responsible for each investment. Prior to the sale of NWS, the manager responsible for Norcast (and NWS) was Mr Martyn Buttenshaw. Buttenshaw reported to Barton. Buttenshaw did not give evidence.
The decision to sell NWS was made following a recommendation from the management of NWS to the Board of NWS that they believed that it was an appropriate time to seek a disposal. That recommendation was referred to the ultimate shareholder, Pala. Once the decision had been made to sell NWS, Barton’s evidence was that he was responsible for instructing NWS’ advisers and conducting the sale, but that Castro was also involved and, on occasions when Barton was unavailable, Castro made decisions in his absence.
Bradken
Bradken is an Australian-based mining consumables company with various aspects of its business operating all over the world. It is listed on the Australian Securities Exchange (the ASX).
At the relevant time, Brian Hodges was the Managing Director of Bradken (Hodges) and Nicholas Greiner was a Director and Chairman of its Board of directors (Greiner). Both gave evidence. Mr Bradley Ward (Ward) also gave evidence. Ward held various positions within Bradken throughout the course of the events described below. Between September 2004 and September 2008, he was the General Manager, Mineral Processing based in Newcastle. In September 2008, he was appointed President, Bradken Products and Integration based in Kansas City. In July 2009, he was appointed President, Bradken Resource Products, again based in Kansas City. Ward currently holds the position of Executive General Manager – Mineral Processing and has done so since June 2012. There was evidence concerning other Bradken employees, including Mr Bruce Arnott, then Bradken’s Chief Financial Officer, (Arnott) and Mr Stephen Bone, then General Manager, Mineral Processing (Bone). Arnott and Bone were not called to give evidence.
Castle Harlan and CHAMP
Castle Harlan is a New York-based private equity fund. Several Castle Harlan employees were involved in the acquisition of NWS, including Mr Leonard Harlan (Harlan), Mr Howard Morgan (Morgan) and Mr Anand Philip (Philip). Harlan was the Chairman of the Executive Committee of Castle Harlan. Morgan was a Co-President of Castle Harlan. Philip was a Vice-President of Castle Harlan.
Castle Harlan has an interest in a private equity fund in Australia called Castle Harlan Australia Mezzanine Partners Pty Limited (CHAMP). Castle Harlan owns Castle Harlan Australia LLC which is, in turn, a 50% shareholder in CHAMP. CHAMP and Bradken have a long history. In late 2001, entities associated with CHAMP (as part of a consortium) purchased Bradken from Smorgon Steel. Bradken was listed on the ASX in August 2004. Greiner is also a Non-Executive Director and Deputy Chairman of CHAMP. Prior to Bradken listing on the ASX, Greiner was a CHAMP nominated director of Bradken.
Other players
Three investment banks were involved, in one way or another, in the sale of NWS. Hodges gave evidence of his dealings, between 2009 and 2011, with Mr Gautam Chari of Merrill Lynch (Chari). Merrill Lynch was Bradken’s investment banking adviser at the time. Chari was not called to give evidence.
Barton and Hodges also gave evidence regarding Mr Sean Walsh of Goldman Sachs (Walsh). Hodges’s evidence was that he knew Walsh because Walsh replaced Chari when Chari left Goldman Sachs. Barton met Walsh during a business trip in late February 2011. Walsh told Hodges of the NWS sale process. Both Norcast and Bradken subpoenaed Walsh, but neither party called Walsh to give evidence.
Finally, UBS was retained by NWS to conduct the sale process. There was evidence concerning several UBS’ employees, including Mr Michael Kousaie, an Executive Director (Kousaie), and David Han, an Associate (Han). Neither Kousaie nor Han were called to give evidence.
3. 2002 - 2008
2011 was not the first time Bradken had “interacted” with NWS. Hodges had been aware of NWS for many years.
In 2002, Bradken became concerned that NWS was bidding to sell grinding mill liners from its Canadian facilities into Australia at prices that were equivalent to dumping in contravention of the anti-dumping legislation. Following an application by Bradken in September 2002, the Minister for Justice and Customs accepted a recommendation of the Australian Customs Service (the ACS) and declared that anti-dumping measures be applied to the grinding mill liners exported by NWS from Canada to Australia.
Bradken was listed on the ASX on 18 August 2004. At that time, Bradken set a strategy of globalising its mining consumables business. Mill liners was one of its six main products.
In 2005, Bradken acquired Roche Castings Pty Ltd to become the sole domestic manufacturer of grinding mill liners in Australia. Following this acquisition, Bradken’s primary competitor in the Australian market was PT Growth Asia, although in 2003 the ACS noted that the Australian industry members had “dominated the Australian market until the entry of Norcast at dumped prices. This was despite Growth Asia’s presence in the market for some years”.
In December 2005, Hodges asked Ward, then General Manager - Bradken Mineral Processing, to prepare a summary of the global market for grinding mill liners for presentation to the Board. The paper was presented to the Board on 14 December 2005. The paper was to inform the Board of the current state of the global steel and iron mill liner market and “flag possible future strategies and actions to further rationalise it”. The paper described the suppliers and state of the market as follows:
Until 2003 the global Steel and Iron Mill Liner market had been dominated by six (6) suppliers, at which time Elecmetal acquired Minneapolis Electric creating the ME-Elecmetal business. Bradken’s acquisition of Roche Castings in 2005 further reduced the supply base to four (4) dominant players being:
· ME – Elecmetal. Four foundry’s in the USA and Chile with estimated Mill Liner sales of A$120M (46,000 tonnes), dominant in the USA and South America
· Bradken. Mill Liner sales A$65M (23,000 tonnes), dominant in Australasia
· Norcast. One foundry in Canada with estimated Mill Liner sales of A$63M, dominant in Canada and second position in the USA and South American markets
· PT Growth Asia. One foundry in Indonesia with estimated Mill Liner sales of A$20M (10,000 tonnes) and a secondary, price focused supplier predominantly in Australasia and Africa.
The paper identified NWS (or Norcast as it was referred to) as a potential acquisition target for Bradken.
Hodges pursued the idea and, on 19 April 2006, he presented to the Board a paper explaining the rationale for acquiring NWS. The paper explained that Bradken was keenly exploring the potential acquisition of NWS. The paper recorded NWS’ earnings before interest, taxes, depreciation and amortisation (EBITDA) in 2004 and 2005 and then the acquisition rationale as follows:
In 2005 Norcast achieved an EBITDA of C$13.4m (or 17.4%) on sales of C$77.1m, down from EBITDA of $13.9m (or 22.1%) on sales of C$63.1m in 2004. …
Acquisition Rationale
Bradken’s interest in acquiring Norcast is based on both short and long term rationale:
·Norcast plant and business is similar to the Roche Mining business and should be able to be readily integrated into Mineral Processing. One key difference is that it is currently selling through agents which we would seek to return to in-house salesmen.
·further consolidation of the global Mill Liner supply base. The combined Bradken – Norcast and ME-Elecmetal would equally share 82% of the global market.
·increased exposure to the South American mining market, the world’s largest market which also has the largest growth forecasts.
·the delivery of synergy benefits as follows:
oOverhead restructuring – C$0.8m in year 1 and C$1.2m in year 2.
oSales commissions to agents of $2.8m would be converted to in-house salesmen over time, saving up to C$0.9m.
oElimination of the “metal surcharge” policy – conservatively estimated to deliver C$3.3m within a 3 year period. The basis of this is that higher alloy and raw material costs have largely stabilised at a new level, and given that we’d anticipate some medium term contracts (1-2 years) would include the metal surcharge as the basis of price setting a phased exit would be required. Our estimate is that a 30% Gross Margin on 2005’s surcharge component of C$11 m would be available over time.
oRationalisation of the global market leading to a reduction in price suppression by the major global mining companies – C$2.3 m within a 3 year period. It is estimated that a 3% average improvement in price within a 3 year period could materialise against Norcast’s existing sales. We have not factored any price improvements for Bradken’s existing business due to competition levels in Australasia with low cost importers.
oThe growth occurring in the world market can be taken with marginal foundry volume increases.
The current Norcast plant is operating at full capacity of 26,000t.
Norcast quote that foundry capacity could be increased by 12,000t for between C$10m - C$20m. This could well suit Bradken for crawler shoes and liners for supply into this region and South America, where Canada has bilateral free trade agreements with Chile and is part of NAFTA.
Norcast under previous ownership, but the same management, sold into Australia at low prices, significantly affecting our profitability until we successfully initiated anti dumping action which resulted in dumping duties in the order of 94% being imposed. While the upgrade of Adelaide will give us some defence in the future, acquiring Norcast should mean that the significant cost reductions from the Adelaide upgrade will more likely fall into profit. The current dumping decision will be reviewed in 2008.
It is unlikely the Norcast management would view our approach favourably but we have had little personal contact.
The acquisition of Norcast is another step in expanding Bradken and Mineral Processing. The foundry will provide a basis for addressing the North American Resources Market with other products including Crawler Shoes and Plate & Block products. A strong position globally in Mill Liners will allow cross selling of other products including crusher liners.
(Emphasis in original.)
The paper then assessed the current enterprise value of NWS and the corresponding price to earnings (PE) ratio and EBITDA multiple compared to Bradken. The paper included a table showing share prices based on different EBITDA levels and multiples. Hodges concluded that it would be possible to pay a 20% to 30% premium over the current NWS share price of $8.30 for Bradken to make an attractive bid. The acquisition options were outlined. A takeover bid was one option. The Board authorised Hodges to develop an acquisition strategy in relation to NWS.
In mid 2006, several potential acquisitions were being considered by Bradken – including AmeriCast Technologies, Inc (AmeriCast), a group of American foundry businesses, and NWS.
In relation to AmeriCast, in mid-2006 Hodges received a copy of the initial sales materials (or “teaser”). At that time, Hodges considered AmeriCast had one good, large jobbing foundry (a foundry that manufactures numerous types of castings according to a customer’s specifications, rather than being designed for a specific product range, which permit longer runs at lower cost), but that AmeriCast as a group was not an appropriate acquisition target for Bradken. Hodges did not pursue the teaser further. Some weeks or months later, Hodges received a telephone call from Morgan. Morgan told Hodges that Castle Harlan had been short-listed in the AmeriCast sale process and was looking to make a final bid and go exclusive. Morgan asked Hodges to support Castle Harlan in conducting its due diligence. Hodges agreed and, along with Mr Andrew Allen, Bradken’s General Manager Industrial, assisted Castle Harlan to validate the performance and capital equipment at AmeriCast’s facilities and its technical expertise.
Once Castle Harlan had exclusivity in the negotiations with the vendor, Morgan asked Hodges whether Bradken would take a 20% equity share in AmeriCast should Castle Harlan succeed in acquiring it.
At the next Bradken board meeting on 21 September 2006, under the heading “Acquisition Opportunities”, the minutes record that Greiner suggested that Bradken should be prepared to take on opportunities which fitted within Bradken’s business model and needed to take a long term strategic view. The first two opportunities listed were AmeriCast and NWS. The minutes set out the strategy:
(i) Americast
The Board authorised … Hodges to commence negotiations to participate in the acquisition of Americast, including an appropriate option/last right of refusal to purchase the business at the end of private equity ownership. A final proposal will then be forwarded to the Board for consideration.
Action: … Hodges
(ii) [NWS]
Bradken is awaiting the results of the next [NWS] quarterly report due to be released in 6 weeks, at which time a strategy will be reviewed based on the outcome.
(Emphasis in original.)
In November 2006, Bradken acquired approximately 17% of AmeriCast, the balance being held by entities associated with Castle Harlan and AmeriCast management.
At about the same time, during mid-2006, Hodges had a number of discussions with NWS’ chairman, Mr Terrence Reid, about the possibility of Bradken acquiring NWS. In May 2006, Bradken offered to acquire NWS at a price of $8.50 per share. On 5 August 2006, Reid telephoned Hodges and stated that Bradken’s offer was not sufficient to proceed to due diligence. Hodges reported to the Bradken board on 24 August 2006 that “[t]he discussions with Norcast have temporarily ceased, with their view that our offer was insufficient for us to continue to due diligence.” The Board adopted a wait and see approach at its meeting on 21 September 2006: see [42] above.
On 19 January 2007, Hodges received a telephone call from the head of Investment Banking at TD Securities, a Canadian investment bank. The banker told Hodges that TD Securities was advising the NWS Board and wanted to know whether Bradken remained interested in NWS. Hodges told the TD Securities representative that Bradken was not interested in entering an auction process for the sale of NWS but could revise its offer of $8.50 per share “and stretch above if compelling synergies”. TD Securities did not call back. Hodges reported to the Bradken Board on 22 March 2007 that NWS had received a bid of C$9.30 from a private equity group. The minutes record that the Board did not consider that bid price to be “earnings accretive to Bradken”. Hodges subsequently learnt that NSW had been acquired by Pala at a price of C$9.30 per share. As NWS had been acquired by a private equity group, Hodges expected that it would come back on the market at some point in the future.
In January 2008, Bradken applied to the ACS for a continuation of the anti-dumping measures against grinding mill liners imported from Canada. On 31 July 2008, the anti-dumping measures were continued by the ACS. The ACS’ report stated that “Bradken claims it is now the only large scale manufacturer of grinding mill liners in Australia following Bradken’s acquisition of the other Australian producers”
On 28 July 2008, NYT (29 July 2008 in Australia), Castle Harlan announced the sale of the remaining interest in AmeriCast to Bradken. The deal closed in early August 2008.
4. 2009
By early 2009, NWS was performing well. Barton formed the view that there were limited further steps that Pala could take to grow NWS organically and that Pala should sell the business or seek to expand it through acquisitions. The economic conditions were poor. Barton was not confident that it would be possible to sell NWS for an attractive price. He was also concerned about the downside value risks in having a failed sale process widely publicised. As a result, Barton decided to test the market “via a targeted and limited sale process, and at the same time explore options for NWS to grow through acquisitions”. National Bank Financial (which had advised Pala in 2007 on its acquisition of NWS) was retained to conduct the sale process and prepare sale materials, including a confidential information memorandum (IM). The IM was dated April 2009. Potential purchasers that appeared to be performing well enough in the difficult economic conditions to be able to afford to acquire NWS for an attractive price were identified by National Bank Financial as [company A, B, C , D and E]. Those parties were contacted. Bradken was not approached. NWS did not receive suitable interest and the sale process ended on 25 May 2009. NWS decided to focus on acquisitions.
About the same time, Bradken was still on the acquisitions path. On about 17 July 2009, Hodges instructed Ward to contact a number of consumables businesses to identify whether they could be acquisitions for Bradken. One of the companies Ward contacted was NWS to ascertain whether Pala was interested in selling. On 29 July 2009, Ward telephoned Bulckaert. Bulckaert was unavailable and Ward left a message asking him to call. Bulckaert returned his call later that day. Bulckaert and Ward discussed Bulckaert’s role with NWS, the previous management of NWS and the way the NWS business was tracking. Bulckaert told Ward that the appropriate person to speak to in terms of the possible sale of NWS was Barton and that he would tell Barton to expect a call from Ward or Hodges. Ward reported the call to Hodges. Bulckaert telephoned Barton and told him he had been contacted by Ward, that Bradken was interested in acquiring NWS and he had given Ward Barton’s contact details.
The same day, Barton sent an email to Castro, informing him of Bradken’s interest in NWS. Later that day, Barton spoke with Castro and Bulckaert separately by phone. The form of Pala’s response to Bradken’s enquiry was discussed. Barton, Castro and Bulckaert agreed that Barton would convey what was described as Pala’s “standard” message in response to unsolicited approaches – although NWS was “not in active sale mode” at that time, “Pala is a financial investor, so its assets are always for sale – for the right price”.
After receiving Ward’s email, Hodges telephoned Chari. Hodges’ evidence was that Chari offered to call Barton. Barton gave evidence that he received a telephone call from an employee at Merrill Lynch on 30 July 2009. Barton could not recall the name of the employee. The Merrill Lynch employee told Barton he was acting for Bradken and that Bradken was interested in acquiring NWS. Barton’s response was that although NWS was “not in active sale mode” at that time, “Pala is a financial investor, so its assets are always for sale – for the right price”.
Chari subsequently called Hodges and told him that from his enquiries he understood that Pala’s investment in NWS was going well and that during the global financial crisis NWS was one of the only things that was creating cash-flow for Pala, that NWS had lots of possible “bolt on” acquisitions, and that Pala was therefore not then looking to sell. On 1 August 2009, Hodges sent an email to Ward telling him that Pala was not looking to sell at that time. However, Hodges also told Ward that Pala would have to consider selling if Bradken made a “high offer”. Hodges did not stop there – he told Ward to consider winning one of NWS’ customers “without dumping of course” or acquiring “a foundry with the write [sic] foot print in the right location”. Ward replied saying that he would “work towards a plan C”.
Barton reported on his discussion with Merrill Lynch in an email to Castro of 30 July 2009. Barton stated that “[o]ne thing he kept coming back to was our entry multiple. He said he thought this would be difficult to match at present.” Barton’s evidence was that this was a reference to how many multiples of NWS’ EBITDA Norcast had paid when it acquired NWS, and the indication Barton received from the Merrill Lynch representative that Bradken could not afford the same multiple of NWS’ current EBITDA. Barton noted in his email that the Merrill Lynch representative did not know of the “entry multiple” that Norcast paid when it acquired NWS. That fact was important from Barton’s perspective because that information was publicly available. Barton told Castro that he assumed the Merrill Lynch representative had not done his homework and was “just posturing”.
Five days later, on 6 August 2009, Castro nevertheless asked Barton for “an acquisition analysis at various premia for Bradken taking Norcast”. Barton understood this to be a request for analysis of how much Bradken might be willing to pay for NWS. Castro stated that he suspected that Bradken may have been waiting for NWS’ results to come out before coming back to them. Some preliminary analysis was performed by Michael Psihogios, the Business Development Manager for NWS (Psihogios). Ultimately, however, no further approach was made by either Merrill Lynch or Bradken.
As the evidence discloses, each was waiting for the other.
5. 2010
In February 2010, NWS acquired the assets of Swanmet Engineering Pte Ltd (Swanmet), a grinding mill liner manufacturer in Malaysia and Singapore. That acquisition enabled NWS to re-enter the Australian market. Despite that acquisition, LaBelle wanted to sell NWS. On 21 March 2010, LaBelle drafted a paper entitled “Australian Road Trip” regarding his plans to solicit offers for NWS, including from Bradken. LaBelle did not give evidence. Barton was cross examined about the paper. His evidence was that LaBelle’s conduct was unauthorised and, although he was aware of meetings with potential buyers, the conduct was actively discouraged by the Board of NWS.
Nothing substantive then happened for a number of months. Then, in late 2010, Pala again began exploring options for the sale of NWS. Since it had been acquired by Pala, NWS’ output had increased by 30% and it was the second largest supplier of grinding mill liners in the world, with an approximate global market share of 16%. With the acquisition of the Swanmet assets, NWS also had the opportunity to start supplying into Australia – the largest market for grinding mill liners in the world – without customers having to pay anti-dumping duties.
This is a critical point in the history of this matter. Barton’s evidence was that rather than conduct a limited sale process as in 2009, Pala this time wished to “cast the net widely”, with the sale process being open to all potential purchasers, including competitors and potential competitors (called “strategics”) and private equity funds (called “financial sponsors”). On 1 October 2010, a paper was presented to the NWS Board concerning the potential sale of NWS. An “illustrative dual track process” for the sale was described as follows:
…
·Norcast Management believes a Dual Track exit process as summarized below should be considered:
– 1) Targeted Sale: Two phase, limited buyers contacted
– 2) IPO: Slightly delayed vs. Targeted Sale; public kick-off only after LOI stage with Targeted Sale
Barton was cross examined about this paper. He stated that the process that was outlined was a recommendation only and neither approach was adopted.
Under the heading “Sale Process Considerations”, the following table appeared:
Deal Items Business Items • Market: • Industry: – Tight • Tight controls on customer/competitor knowledge (limit to priority only?) • Buyer Universe: • Norcast Knowledge: – 3-4 priority candidates
– 8-9 secondary• Knowledge to be limited to small group
• When site visits occur, select managers to be informed
• Valuation (% discount TBD): • Systems: • Comps:
• Bradken range of 7-9x
• Plug-in ready in reporting, sales, accounting • Precedents: • Organization: [CONFIDENTIAL MATERIAL EXCISED] • No significant gaps (except AUD sales team, which is underway? (Emphasis added.)
At the same time, Bradken was considering NWS as a potential acquisition target. In a perfect world, the two would have collided. They did not. On 1 October 2010, Hodges spoke by telephone with Chari of Merrill Lynch on a range of topics including NWS. Chari told Hodges that there was a new person at Merrill Lynch who was ex-NWS who wanted to talk to Hodges about NWS. Chari also told Hodges that NWS was doing fine, with an EBITDA of $20 million following the acquisition of the Swanmet assets, and that he expected a sale in the middle of 2011. Chari also told him that NWS had run an unsuccessful sale process in 2009. Finally, Chari told Hodges that Castro did not like Bradken on two fronts – over the anti-dumping investigation and the fact NWS thought that Bradken would only pay a price equivalent to 7 times NWS’ EBITDA: see [59] above. Consistent with Chari’s advice, on 12 October 2010, Joe Belan of Merrill Lynch telephoned Hodges. Belan had recently left NWS. Belan told Hodges that Pala would be selling NWS in the first half of 2011.
In late October 2010, UBS and another potential adviser, Scotiabank, each made presentations to Pala and NWS. The UBS presentation noted the risk of confidentiality in the sale process and listed Bradken as “Potential Buyer: Sensitive”. Then, on 2 November 2010, [company F] wrote to LaBelle and offered to buy NWS for $170 million. Barton was cross-examined regarding the [company F’s] letter. Barton’s evidence was that the letter was received as a result of LaBelle’s unauthorised discussions with potential buyers. Encouraged by LaBelle, [company F] had contacted Barton in late 2010. Barton gave evidence that he told [company F] that NWS would be offered for sale in early 2011 but, if [company F] submitted a “significant” offer, [company F] might be able to curtail that process. The [company F] letter was, in Barton’s view, [company F’s] attempt to submit a “significant” offer.
In November 2010, Chari telephoned Hodges and told him that Pala had been approached with a “knock out offer” for NWS in the mid $170 millions and Pala was thinking of “exiting by a selective process”. Hodges’ evidence was that he understood the reference to a “selective process” to mean that NWS would be sold by a similar method to the selective process in 2009.
Six days later, on 8 November 2010, Barton rejected [company F’s] offer:
Unfortunately, the maximum value you indicate in your letter is, at best, the minimum value we would consider in any sale process. As such, it would not make sense for us to deviate from our existing plan at this point in time, as we are confident of generating more value either within a sale process or by continuing with the next stage of our strategy.
On 14 December 2010, Psihogios of NWS emailed UBS. Psihogios told UBS that NWS had been continuing to prepare for an “exit process in early 2011”. Psihogios requested a follow up to the October meeting. Psihogios outlined the essential elements at that stage as follows:
Process: We have decided to go with a comprehensive, yet tightly controlled strategic sale only. We are no longer interested in a dual track process.
Timing: Targeting first contact to buyers (teaser) in late January 2011, and a full CIM to follow in mid February.
Financial Advisor: To be upfront, we are approaching a select group of advisors to present to us. We are looking for the right team, experience, and commitment at a competitive fee.
(Emphasis added.)
Bradken submitted that this document evidenced a tightly controlled but selective sales process. I reject that description. The document speaks for itself. The decision was to adopt “a comprehensive, yet tightly controlled strategic sale”. The question was: what did that mean?
6. 2011
On 11 January 2011, NWS, Pala and UBS met. Later that day, UBS and NWS entered into an agreement for the sale process of NWS. UBS’ Canadian office, UBS Securities Canada, Inc, was appointed to act as exclusive financial adviser and capital markets adviser to NWS in connection with the sale. On 12 January 2011, the NWS Board resolved to appoint UBS Canada as financial adviser for what was described as the “Strategic Alternatives Process”.
Barton gave evidence as to what he understood the “Strategic Alternatives Process” to entail. The process involved two rounds. Once potential purchasers had signed a non-disclosure agreement (NDA), they entered the first round. At that stage, they would receive an Information Memorandum (IM), containing a detailed overview of NWS’ business, including its facilities, the market in which it operated, its performance, growth prospects and strategies. Buyers were then required to submit a “preliminary non-binding indication of interest” (Indicative Offer) for the acquisition of NWS, which was to include, among other things, a proposed purchase price.
Based on the Indicative Offers, Norcast would admit a limited number of potential purchasers to the second round of the process. The second round involved, among other things, a presentation from NWS’ management and visits to NWS’ manufacturing facilities in Mont-Joli, Quebec and Malaysia and the Swanmet distribution facility in Singapore. The remaining participants would then be asked to submit a “Bid Letter” that stated final offers (among other things) and any proposed amendments to a draft Share Purchase Agreement.
On 17 January 2011, UBS supplied NWS with an initial buyers list. The buyers were divided into five categories – Sensitive 1, Sensitive 2, Tier 1, Tier 2 and Financial Sponsors – and ranked. Bradken was classified as “Sensitive 1”. It was the only buyer in that category. Barton gave evidence that “sensitive” was a classification used to describe strategic buyers who may wish to use information obtained in the sales process to NWS’ detriment. The next day, 18 January 2011, Psihogios emailed UBS and requested “an overview of considerations (info disclosed, contact, etc) and recommendation of how we tailor the process for sensitive vs. general buyers”.
On 19 January 2011, Kousaie of UBS replied. The email included this statement about Bradken:
This is an important point that we’d like to reflect on a little further over the coming weeks as we learn more about the particular sensitivities re: some of the information and some of the bidders. Below are some preliminary views to give you an idea of how we’re leaning:
1) ROUND 1 - BRADKEN: from what you’ve told us so far, it seems clear that we definitely need to handle Bradken differently, given their knowledge of your business and their status as one of your key competitors. “Handling them differently” could mean excluding them completely from the first phase of the sale process (that is, we don’t offer them a [NDA]), or it could mean offering them a heavily redacted [NDA]. Based on what you’ve told us so far, I’m leaning towards the former option, but we should definitely think some more about this. Obviously, if Bradken is serious, I want to make sure they get a fair shot to bid. But we all need to be comfortable that their interest is credible and that they’re not just fishing for info that would ultimately hurt the value of Norcast.
…
Barton read UBS’ email. He decided to treat Bradken differently to other potential purchasers. For purchasers other than Bradken, Barton instructed UBS to contact each of them by telephone, inform them of the sale process, send them a “teaser” document that had been prepared and inform them that if they wanted to enter the sale process, they must first execute a NDA. Barton decided that Bradken would not be included in the buyers list or contacted in the same way. At that time, Barton’s intention was that UBS was to make Bradken aware of the sale process informally. Barton’s aim was that Bradken would thus be aware of the process but would only enter it if it was genuinely interested in acquiring NWS. An updated buyers list was circulated within NWS and Pala on 1 February 2011. Bradken remained listed first and classified as “Sensitive 1”.
Bradken was still interested. In a report to the Board dated February 2011, Hodges listed NWS as an acquisition opportunity.
By early February 2011, UBS had structured the sale process. On 10 February 2011, the project materials were circulated. The materials included an updated buyers list. Bradken remained listed first and classified as “Sensitive 1”. The material also included a timeline. There were to be three stages in the timeline process: (1) initial preparations, (2) a marketing and sale process and (3) negotiations and announcements. The second stage is important for present purposes. It included several steps:
Contact potential buyers
Distribute teaser
Negotiate and execute [NDA]s
Distribute [IM] and bid letter to selected buyers
Prepare management presentation
Prepare draft sale and purchase agreement (“SPA”)
Receive non-binding bids
Evaluate received non-binding bids
Contact buyers and invite into 2nd round
Prepare diligence schedule and [agreement] with buyers
Provide and manage electronic data room access
Distribute SPA to potential buyers
Management presentations and site visits
Respond to buyers information request
Receive final offer and marked-up SPA
Select preferred bidder(s)(Emphasis in original.)
On 17 February 2011, Barton emailed UBS and the relevant personnel at Pala and NWS in relation to the draft materials. In relation to the buyers list, Barton’s instructions were:
As discussed, please drop Bradken. UBS’s relationship manager for Bradken should ensure they know the process is happening, but they need to ask if they want in. We also need to consider what goes to [company D, C] etc., but can do this at a later date.
By 23 February 2011, the draft materials – the teaser, the NDA, the calling script, the buyers list – were complete. Han provided copies of the documents to Pala and NWS. Han’s email stated:
…
3) Bradken has been removed [from the Bidders List] as previously discussed. Based on our conversation with Rick Labelle this afternoon, our plan for now is to not even notify them of the process. However, we understand that Rick will be discussing further with the Pala team to make sure that everyone is fully comfortable with the tactics (and messaging). Specific items that we should consider are:
* Does Pala/Norcast want Bradken in the process at all?
* If yes, under what conditions (ie: is signing an [sic] NDA sufficient, or does Pala/Norcast also need to see an indicative bid (even without access to info) from Bradken as a sign that they are serious?
* If they are admitted into the process, what information (if any) should they not see at this stage
Barton’s evidence was that Han’s email misstated his earlier instructions in relation to Bradken: see [70] above.
Also of interest was the calling script attached to Han’s email. It described the sale process in the following terms:
Key messages
…
s UBS is running a traditional 2-stage sale process for the business with preliminary expressions of interest to be due in late March
s If you are interested in looking at this opportunity, we can send you a [NDA] for executionQ&A with potential buyers:
…
s Q: How competitive is the process?
A: While Norcast is approaching a select group of potential acquirers, it has received several indications of interest already from both strategic and financial buyers in that group
s Q: Asset or share deal?
A: Norcast is requesting indication of bid value on an Enterprise Value basis, with any adjustments for net debt to be made later in the process with the remaining potential acquirer(s). Norcast will only consider a share deal.Castro responded to Han’s email on the same day. He stated:
…
On Bradken, we do not want them in the process at all at this point. I believe we can expect them to be quite aggressive in response to our sales process as it is, and have doubts about whether they would put a serious offer on the table. At this point, only if they came knocking with a specific proposal that looked quite interesting (they know the business well enough to know what they would pay for it) would I believe that it would be worthwhile revisiting this approach.
Barton was extensively cross-examined regarding his instruction to “drop Bradken” and Castro’s subsequent email. His evidence was that he did not want UBS to contact Bradken directly and volunteer the teaser to Bradken because the teaser contained non-public information. Barton later accepted that the teaser did not contain confidential information and, further, that recipients were not bound to keep it confidential. In relation to Castro’s email, Barton’s evidence was that he understood it to be a direction that, consistent with his earlier email, Bradken should be made aware of the process informally but should not be offered the teaser without Bradken having first expressed interest. Norcast and Bradken each offered different explanations for this behaviour. Norcast contended that, because of Bradken’s status as the most obvious buyer and the risk of its misuse of non-public information, Barton’s strategy was to force Bradken to make the first move, thus improving Pala’s bargaining position. Bradken submitted that Pala and NWS deliberately excluded Bradken as retaliation for Bradken’s earlier anti-dumping action, which had caused NWS to be excluded from the Australian market. As will become apparent, it is unnecessary to choose between these contentions in resolving the disputed legal and factual issues.
The next day, 24 February 2011, UBS began contacting buyers on the buyers list and distributing the teaser. The same day, Barton met with Walsh of Goldman Sachs. Barton told Walsh of the NWS sale process being run by UBS. Walsh told Barton that Bradken was a client of Goldman Sachs and that he would like to pass on information about the sale process to Bradken. Barton sent Walsh a copy of the teaser but asked him not to send it to Bradken. Barton’s evidence was that he hoped that Walsh would disobey his instruction and provide the teaser to Bradken.
The meeting with Walsh achieved its objective because at 7:43pm on 24 February 2011 (EDT), Hodges received the following email from Walsh:
…
I understand that [P]ala have just launched the sale process for Norcast. UBS are running it. Apparently EBITDA of USD$20m.
Happy to chat live if you would like.
Hodges went into action immediately and forwarded the email to his senior management team. He forwarded the email at 9:22pm (EDT) to Ward, Bone and Enda Sheridan of Bradken. At 11:15pm (EDT) Ward emailed Bone and stated that he would call him late Friday morning (EDT) to discuss.
At 10:41pm on 24 February 2011, in response to an enquiry from Castro about whether the teaser had gone out that day, Barton stated that he had spoken the previous day to Goldman Sachs. Barton did not specifically refer to Bradken.
Unsurprisingly, despite UBS approaching a “select group of potential buyers”, in late February 2011 Hodges received a telephone call from Chari at Merrill Lynch. Chari asked Hodges if he had seen the teaser for NWS. Hodges had not.
On 25 February 2011, Hodges telephoned Walsh. Hodges could not recall the precise words of the conversation but gave evidence that Walsh said words to the following effect:
At a recent meeting about another matter with some overseas people I was told about the Norcast sale process. UBS is acting for the seller and are running a process for selected acquirers for Norcast and have sent teasers out. Bradken is not being included in that process. Pala doesn’t like Bradken.
Hodges asked Walsh why Pala did not like Bradken. Walsh said he did not know. Hodges made a contemporaneous note of his conversation with Walsh. The note records:
Sean - UBS – where
- Pala – who knows them well
- where is the issue (what level)Hodges’ evidence was that the reference to “where” was a question as to which UBS office was managing the sale. The note “who knows them well” was a reminder to him to consider who may be close enough to Pala to learn more and the note, “where is the issue (what level),” was a question as to what level in the Pala organisation had the problem with Bradken – was it a personal or commercial issue? Walsh’s call was significant. Hodges then knew of the existence of the sales process. Bradken’s contention that Walsh was in substance telling it “you’re not invited, don’t even bother trying to bid” is rejected. The contention is irrelevant. It provides no answer to the statutory provisions: see [224] below.
The steps then taken by Hodges on 25 February 2011 were critical. First, Hodges decided Bradken should tell Castle Harlan that NWS was up for sale. Hodges’ evidence was that he did so because he considered it was in Bradken’s interests for NWS to be available to it as a possible acquisition. Hodges’ evidence was that he took that step because:
…
[72] … I formed the view that Bradken was being specifically excluded from the Norcast sale process by Pala, rather than it being an oversight by UBS.
[73]As Bradken was considering [Company X and Y] as alternate acquisition targets at the time, and [Company Y], I did not want to spend time and money on engaging in the sale process and on due diligence if Pala had issues with Bradken, and intended to keep it out of the process. I therefore did not see any benefit to Bradken in approaching Pala or UBS directly as Pala appeared to have no intention of letting Bradken acquire the business.
[74]… Based on my experience with private equity firms, including the time during which Bradken was owned by a consortium involving CHAMP and Bradken’s acquisition of AmeriCast, I believed that if a private equity firm did succeed in acquiring Norcast it would at some point be interested in selling the business again. In contrast, if Norcast was acquired by a strategic bidder (a company in the same or similar business), it may not come to market again. As I had a good relationship with Castle Harlan, and they had previously invested in a similar business (AmeriCast), Castle Harlan was the obvious private equity firm for me to contact in respect of the Norcast sale process.
(Emphasis in original.)
Second, Hodges called Chari at Merrill Lynch and asked him to try and find out why Bradken was not being included in the NWS sale process, to identify what issues Pala had with Bradken and to find out more about the sale process.
Third, Hodges called Greiner to tell him that NWS was for sale and that Bradken was being excluded. Hodges and Greiner discussed the possible reasons for the exclusion and concluded it must be Pala, not UBS. They decided that there was little point approaching Pala directly. Hodges proposed that they tell Castle Harlan so that Castle Harlan would be interested in NWS and then “we might get another chance in a few years’ time”. Greiner agreed with that approach.
Fourth, Hodges visited Bone. The visit was recorded in an email Bone sent to Ward at 9:38am on 25 February 2011 (EDT) which attached a synergies analysis that had been completed in January 2005. Bone recorded the visit in the following terms:
Just had a visit from [Hodges]. Big picture is very interesting and will fill you in when you call. We will need to update the attached which you did back in 2005 plus add other upsides if we buy them and downsides if we don’t.
Later the same day, Bone sent Ward an updated synergies analysis of NWS, using the $20 million EBITDA figure mentioned by Walsh. The email stated:
I had a quick (and I mean quick!) go at the Norcast synergy savings / costs per attached.
Tab 2 is just trying to calculate commission savings. Funny enough worked out at $2.8 mill as previous.
I sort of added 5% YOY increase to the salary / bonus / expenses in most areas.
I also put in a draft sales forecast for Lost sales in Australasia if Swanmet gets going especially after 2013 when antidumping duties may come off. So if we get Norcast the GM on these sales should go into the case.
Also put in some minor OEM increased sales if we had Swanmet.
Anyway, first cut and see what you think. I would guess Norcast NAM / SAM sales growth will also add some big $ to the case.
The next day, 26 February 2011, Ward exchanged emails with Bone and others within Bradken in relation to Bone’s analysis. His comment was that the synergy numbers were “pretty big”.
Fifth, at 12:13pm on 25 February 2011 (EDT), Hodges received from Chari a draft script for use in a discussion with Pala. The script took the form of a call to Pala either by Merrill Lynch or by Hodges. The email read “[a]s discussed this morning, [please] find attached a proposed script re: call into Pala. Will call later this afternoon to discuss.” Hodges’ evidence was that he did not ask Chari to prepare the script and he disregarded it when he received it because of the view he had already formed and discussed with Greiner – Bradken would not bid for NWS but would instead tell Castle Harlan of the sales process.
Sixth, Hodges received an email from Greiner at 4:57pm that read “PS Howard [Morgan of Castle Harlan] arrives in Sydney on Sunday and I have left him a message to contact me re the IM for Norcast”. Greiner’s evidence was that he did in fact leave a message for Morgan to call him regarding the IM.
For a company not interested in buying NWS, that was a lot of activity in one day directed to that end – the acquisition of NWS.
The next day, 26 February 2011, UBS provided Pala and NWS with an update on its progress in contacting potential buyers. Bradken was not on the list. At that time, 26 potential buyers had been contacted. Contact had not yet been made with 10 potential buyers. Of the potential buyers contacted, 23 were yet to respond, two were negotiating a NDA, none had received the IM and one had said that it was not interested.
Over the weekend, Chari was busy obtaining information on Hodges’ behalf. On Saturday, 26 February 2011, Hodges received an email from Chari:
Spoke with joe re: norcast. He is trying to get some [additional intelligence]. Will hopefully have some more colour later today/tonight.
The next day, Chari sent Hodges a further email noting that “[t]here are sensitivities that will need to be managed”. Hodges replied within an hour of Chari’s second email. His response: “[o]k, that’s fine”.
On Monday, 28 February 2011, Hodges was again busy. First, he spoke with Chari. Chari told Hodges that his impression was that Bradken was not included in the sale process because it was a competitor of NWS and because it was not liked by Pala. Second, Hodges told Ward of Chari’s advice. Third, Hodges also spoke with Greiner and told him that Chari’s advice was that Bradken had been excluded from the process.
Fourth, Hodges called Morgan. Hodges could not recall the precise terms of the conversation but gave evidence that the conversation was to the following effect:
Hodges: Have you heard that Pala is running a sale process for [NWS]?
Morgan: No.
Hodges: UBS has the mandate, but I don’t know which office. Bradken is excluded from the process and has not been contacted, which is a disappointment as we have always had it as an acquisition target. The EBITDA is $20M.
Morgan: I’ll get the teaser.
This version of events was inconsistent with Bradken’s Fast Track Response. It summarised what occurred as follows:
[I]n late February or early March 2011, in the belief that Bradken was excluded from the NWS sales process, Bradken approached Castle Harlan and advised Castle Harlan of the NWS sales process, that UBS was running the process that Bradken was excluded from participating in the NWS sale process and that Bradken was interested in acquiring NWS;
Particulars
Mr Hodges spoke with Howard Morgan of Castle Harlan by telephone in late February or early March 2011. The material substance of the conversation was to the effect alleged.
(Emphasis added.)
A careful reader will notice that the critical passage (in italics) did not appear in Hodges’ evidence. Morgan was not called to give evidence.
At 12:31am on 28 February 2011 (NYT, 2:31pm EST), Morgan emailed Philip. The subject was entitled “New Deal”. Morgan’s instructions were that NWS had hired UBS to run a sales process and Castle Harlan wanted to get into the process. Morgan instructed Philip to “action asap”. The last line read “I can explain more via phone”. Philip responded at 10:11am (NYT) “Will do”. Morgan replied stating “keep me posted – I may see Brian Hodges tonight”.
The steps taken by Morgan were at odds with Hodges’ version of events. Hodges’ evidence was that, as Castle Harlan had not received the teaser, he did not expect that Morgan would be able to obtain it because he considered that Castle Harlan would be excluded either by reason of their dealings with Bradken in respect of AmeriCast or due to it being a selective process. On the other hand, Hodges’ evidence was that he hoped that, if Castle Harlan was able to get into the sales process and was ultimately successful in acquiring NWS, a deal could be done between Bradken and Castle Harlan at some point, potentially along the lines of AmeriCast. Finally, Hodges’ evidence was that, at this time, he did not expect that a deal would necessarily be reached between Bradken and Castle Harlan and considered Castle Harlan to be free to offer the NWS business to others.
Yet, at the same time, Bone continued to work on the synergies analysis and sent further analyses to Ward and Mr Roy Roux, Bradken’s Vice President Sales, Resources in the United States. On 2 March 2011, Ward responded to Bone’s analyses and provided answers to Bone’s questions. Their work culminated in an email from Ward to Bone which read:
… my understanding is we won’t be allowed into the race regardless (Pala must really hate us to not even want another horse in the race regardless of price !) but we’ve done the work so might as well run it past [Hodges] to make sure.
(Emphasis original.)
Bone responded “[y]ep, the synergies and payback are looking very good so I am sure [Hodges] will want to put a juicy offer on the table somehow!” Ward responded saying that he agreed.
The same day, 2 March 2011, Castle Harlan telephoned the New York offices of UBS Canada and expressed interest in participating in the competitive sale process of NWS. UBS informed Pala and NWS (Barton, LaBelle and others) of the inbound inquiry from Castle Harlan. The response from LaBelle was that he did not object other than to note that the number of private equity firms may slow the process as they tended to consume lots of time. Barton’s response was more directed. He stated:
… My view on Castle Harlan is that we do send it [the teaser], but ensure the NDA is sufficiently tight that there’s no way Bradken could get the [IM] from them. May be worth flagging this specifically. Unfortunately, they are one of the few realistic buyers, so we shouldn’t exclude.
We’re only talking about a teaser at this stage, which I know Bradken will already have from Goldman (I gave it to them last week in Sydney). Let’s review Castle Harlan again if they want to sign and [sic] NDA and get the [IM].
At 2:39pm on 2 March 2011 (NYT), UBS provided Castle Harlan with a copy of the teaser. Morgan provided the teaser and the draft NDA to Hodges and Greiner at 5:11pm on 3 March 2011 (NYT). At 5:19pm (NYT), Greiner responded to Morgan stating that he looked forward to discussing further when Morgan received the IM. At 5:32pm (NYT), Hodges forwarded the teaser to Ward, Sheridan, Bone and Mr Tom Armstrong, Bradken’s Chief Operating Officer, Engineered Products, with an instruction “[p]lease do not share we have this”.
On 3 March 2011, Bone and Ward continued to work on the synergies spreadsheet. A “final spreadsheet” was sent by Bone to Ward and Roux. The accompanying email recorded that he had taken Hodges through the spreadsheet “with no changes”. Ward replied to Bone asking “[w]hat’s [Hodges’s] ultimate view, is he going to get Goldman’s to make an approach on our behalf or ?” Bone’s response to Ward is instructive:
[Hodges] says we will need to pay nearly $200 mill to get it and at a multiple of over 7 years (Brett [Davis, Bradken’s Commercial Manager] still to confirm that) [Hodges] is not too sure buying at that price is worth it. [CONFIDENTIAL REFERENCE TO POTENTIAL BETTER DEAL EXCISED.] I have to have another discussion with [Hodges] tomorrow on PTG so [Hodges] contemplating the bigger picture.
I still think [Hodges] will throw a reasonable number at it to get the buy price up as high as possible! So if others buy it, it will be well above normal rate.
(Emphasis added.)
Other employees of Bradken were also working on the possibility of buying NWS. At 5:36pm on 3 March 2011 (EDT), Mr Brett Davis, Bradken’s commercial manager, provided Hodges with what were described as “[s]oft [c]opy of Norcast [s]heets” – the synergies analysis. At 5:52pm (EDT), Hodges provided the analysis to Chari. Chari worked on the analysis and, on 4 March 2011, returned it to Hodges with a discounted cash flow (DCF) analysis built in and linked to the synergies sheet so that Hodges could change the assumptions. Hodges then immediately sent Chari’s DCF analysis to his senior management team. The senior management team were not mere processors of information. Hodges was extensively cross-examined regarding this activity. He eventually conceded that the purpose was to ascertain what NWS might be worth.
At 1:07am on 4 March 2011 (EDT, the morning of the previous day in Kansas City), Ward emailed Hodges (and others) and posed a solution: “[o]k, given Pala’s attitude towards [Bradken] maybe a joint move very much led by [Castle Harlan] would be the best path?” The response, if any, was not in evidence. Ward then emailed Hodges at 7:35am on 5 March 2011 (EDT, the afternoon of the previous day in Kansas City) saying “financially compelling if we can get in the game.” Again, Hodges response to Ward, if any, was not in evidence. Hodges did however, 47 minutes later at 8:22am (EDT), email Morgan stating “just to confirm we see strong synergy and need to talk further on [NWS] when your schedule allows”.
During the late afternoon of 5 March 2011 (EDT), the email traffic between Hodges and Morgan is instructive. Morgan’s response (at 3:58pm, EDT) to Hodges’ email sent at 8:22am (EDT) was to ask Hodges and Greiner a question: “[w]ait for book to arrive – or not?” The “book” was, of course, a reference to the IM. Hodges’ response two minutes later (at 4:00pm, EDT) to Morgan and Greiner was – “[y]es definitely hoping [Castle Harlan] can bid for the business”. Thirty-five minutes later (at 4:35pm, EDT), Greiner replied to Morgan asking him to call him over the weekend as it “might cut thru a bit”. This point in the chronology is important. If Hodges had even remotely been considering the possibility that Bradken would still bid for NWS, he would not have encouraged Castle Harlan to also bid. The form and content of the various communications are consistent only with an arrangement whereby Castle Harlan would bid, and Bradken would not bid, for NWS (the Bidding Provision).
Two days later, at 1:42pm on 7 March 2011 (EDT), Hodges forwarded a draft financial analysis, incorporating Chari’s comments of 4 March 2011 (see [102] above), to Greiner. Hodges’ explanation of the analysis is instructive:
See NPV in the attached model at $277m verses [sic] $175m supposed One[S]teel offer that started the process. Base EBITDA is supposed to be $20m. Can we discuss how we might work with [Castle Harlan] on this as I think this is best, likely only chance.
(Emphasis added.)
The idea that Bradken had to “work with” Castle Harlan was the subject of discussion between Hodges and Greiner at about this time. In particular, they discussed the minimum cost that Bradken might have to pay to Castle Harlan should Castle Harlan succeed in acquiring NWS and Bradken then acquired NWS from Castle Harlan.
The events of Tuesday, 8 March 2011, were critical. First, Greiner met with Harlan in Sydney. Greiner’s evidence was that he told Harlan of the NWS sale process and that, while Bradken was interested in the company, it had been excluded from the process. Greiner could not recall the precise terms of the conversation but did recall that Harlan said that he would speak with Morgan and said words to the effect that he would “be keeping an eye on [NWS], and hope[d] … some mutually satisfactory deal [could] be done”. Bradken submitted that there was no arrangement or understanding between Bradken and Castle Harlan at this point in time. Indeed, Bradken went so far as to contend that there was “no more than a hope that Castle Harlan may decide to get involved and make a bid, and, if it did, there was a possibility that Bradken and [Castle Harlan] could come to some arrangement in the future”. That evidence is rejected. Greiner’s evidence was that he did not discuss the terms of any possible arrangement with Castle Harlan with Harlan. The fact that terms were not yet finalised does not detract from the fact that the content of the various communications were consistent only with the Bidding Provision, namely an arrangement whereby Castle Harlan would bid, and Bradken would not bid, for NWS. The events later that day and following are consistent with that finding.
Next, Greiner met with Bill Ferris, the Chairman of CHAMP. Greiner asked him about his view on the level of return that a private equity fund would expect. Bradken’s contention that Greiner asked that question only because a private equity fund is always a potential seller is rejected. Greiner wanted to know because of the Bidding Provision – he wanted to know how much the arrangement was going to cost Bradken. Finally, Greiner immediately reported to Hodges on his discussion with Harlan. The whole of the report is important:
…
I outlined the situation as best we know it.
His over-arching conclusion was that [Castle Harlan] would be happy to do a transaction of any sort with Bradken and had complete faith in you and me.
He had a couple of thoughts:
• He was obviously concerned to ensure that [Castle Harlan] did not run any significant reputational risk through an arrangement such as we have discussed.
• Conceded that if we bought it within a year they could re-use the capital which would be a significant plus.
• Is good friends with one of the Russian oligarchs in New York and wondered if he was familiar with the relevant Russian oligarch in Zurich, whose name of course I did not know. We would obviously need to be careful about any such inquiry.
• He will be back in New York at the end of next week and undertook to catch up with [Morgan] at that time. I said that of course the primary discussion should be between [Hodges] and [Morgan].
• I also asked Bill on a no names basis what sort of return was appropriate for someone in [Castle Harlan]’s putative position. He said that the top of the range was of course private equity’s desire to earn a twenty five percent IRR but that given the essentially risk free nature of what I painted this could be less.
• Also obviously if Castle Harlan get two uses of the same money that is relevant as well.
• I think your and my guess that the “cost” is probably in the ten to twenty million dollar range is close to the mark.
(Emphasis added.)
Again, Bradken’s contention that this was no more than a “hope” that Castle Harlan might get involved is rejected. Greiner’s evidence that he only told Harlan of the sale process because it was a “normal, sensible, polite, Chairman like thing to do” is also rejected. As these contemporaneous documents record, Castle Harlan was happy to do a transaction of any sort with Bradken. The “arrangement”, which had previously been discussed between Hodges and Greiner, was put by Greiner to Harlan. The purpose of putting “the arrangement” to Harlan was to gauge his response. Greiner accepted during cross-examination that he and Hodges were hoping that Castle Harlan would bid for NWS. Harlan had only two concerns – reputational risk to Castle Harlan from “an arrangement as we have discussed” and Castle Harlan’s internal rate of return. Harlan was not called to give evidence.
The question is whether, by its silence, Bradken failed to disclose the three matters referred to at [306] above so as to “deceive” Norcast. The answer is yes.
Bradken knew of the NWS sale process but did not seek to enter it: see [79] above. With that knowledge, Bradken took steps to ensure that Norcast did not learn of the “connection” between Castle Harlan and Bradken in relation to Castle Harlan’s acquisition of NWS: see [118]-[122], [126] and [127] above. The steps were deliberate and designed to deceive Norcast. Bradken and Castle Harlan reached an arrangement or understanding, the Bid Rigging Arrangement, which included the Bidding Provision. Bradken and Castle Harlan cooperated and partnered for the purposes of acquiring NWS. The acquisition of NWS was Hodges’ “plan” or “ultimate goal” and why he arranged or at least “encouraged” Castle Harlan to bid. The cooperation and partnering included (but was not limited to):
1.entering into the Bid Rigging Arrangement: see [265]-[269] above;
2.reviewing and analysing confidential due diligence materials at Castle Harlan’s offices in circumstances where Bradken knew that its use of those materials was ostensibly restricted to assisting Castle Harlan to acquire NWS: see [118]-[122], [126], [127] and [129] above;
3.selecting the identity of the foundry consultant to accompany Castle Harlan on the site visits and then ensuring that the consultant was not made aware of the connection between Castle Harlan and Bradken: see [126] and [127] above;
4.taking steps to reduce the “paper trail” which documented the extent of the cooperation and partnering: see [119] and [149] above; and
5.seeking to avoid entering into an agreement with, or making a payment to, Castle Harlan which would require disclosure to the market, until after Castle Harlan had acquired NWS: see [177], [186], [202] and [203] above.
Those deliberate and deceptive steps were taken by Bradken to prevent disclosure of its direct involvement in Castle Harlan’s acquisition of NWS. In doing so, by its silence, Bradken represented that it was not involved in Castle Harlan’s acquisition of NWS. That conduct was misleading and deceptive. Contrary to Bradken’s contention, the claim for misleading or deceptive conduct was not predicated on Norcast establishing the existence of the Bid Rigging Arrangement. Even in the absence of the Bid Rigging Arrangement, in all the circumstances, Bradken and Castle Harlan’s silence constituted misleading or deceptive conduct in contravention of the ACL.
Bradken further submitted that Bradken’s silence was not misleading or deceptive in circumstances where Norcast knew that it was not uncommon for a private equity business to resell a company it had acquired. Norcast’s general awareness of the likelihood that Castle Harlan might, at some time in the future, sell NWS cannot and does not cure Bradken’s misleading or deceptive conduct by silence.
2. Did Castle Harlan engage in misleading or deceptive conduct?
Two forms of misleading or deceptive conduct were alleged against Castle Harlan – silence and positive representations.
First, Castle Harlan, by its silence, failed to disclose facts and matters so as to “deceive” Norcast. Castle Harlan itself took steps to ensure that Norcast did not learn of the “connection” between Castle Harlan and Bradken: see [112], [118], [119], [154], [157] and [159] above. Again, those steps were deliberate and designed to deceive Norcast. Those deliberate and deceptive steps were taken by Castle Harlan to prevent disclosure of the Bidding Provision and of Bradken’s direct involvement in Castle Harlan’s acquisition of NWS. In doing so, Castle Harlan represented that there was no arrangement or understanding between it and Bradken and that Bradken was not involved in its acquisition of NWS. That conduct was misleading and deceptive.
Second, the positive representations (the Representations) can be divided into two categories: those made by Morgan during the site visits to Singapore and Malaysia on 12 or 13 May 2011 and those made in the Final Bid Letter. In each case, Bradken submitted that the Representations were not made and, if they were, they were misleading or deceptive.
The evidence established that Castle Harlan made the Representations: see [157]-[159] above (in relation to the site visits in Singapore and Malaysia) and [171] (in relation to the contents of the Final Bid Letter). I reject Bradken’s submission that Morgan’s responses on 12 or 13 May 2011 did not convey that Castle Harlan did not have plans to sell NWS to Bradken and that it would not do so. The representations were conveyed over the course of a discussion. In answer to a question from Wilson as to whether Castle Harlan had plans or intentions to sell NWS, Morgan responded that Castle Harlan did not. That answer was false. In the context of Morgan’s false answer to that question, Wilson further asked whether Castle Harlan was planning to sell NWS to Bradken. Bradken’s submission was that Morgan did not answer the question, but instead went on to explain the AmeriCast transaction. Bradken submitted that “[n]o such representation was made in so many words”. I reject that submission, for two reasons. First, in the context of Morgan’s false answer to the first question, his response to the second was quite disingenuous and, one can only conclude, deliberately designed to deflect attention away from Castle Harlan’s true intentions and plans, by providing an innocent explanation for what Morgan perceived to be the source of NWS’ concerns, the AmeriCast transaction. Second, as mentioned above, Wilson’s contemporaneous report of the discussion noted that “[Morgan] was pretty straightforward in saying no”: see [157] above. Wilson’s witness statement did not include such a remark. It was not put to Wilson that there was an inconsistency or that his report was false. I accept that Morgan’s response was in fact more emphatic than Wilson’s witness statement would otherwise suggest.
Turning to the Representations in the Final Bid Letter, I reject Bradken’s submissions. I accept Norcast’s submissions that the Final Bid Letter contained representations that:
1.the final bid was made on behalf of Castle Harlan and its associated entities: see the words “[Castle Harlan], on behalf of Castle Harlan Partners V, LP. (“CHPV”), is pleased to present this proposal in response to your letter, dated April 26, 2011, relating to the acquisition of [NWS] and its subsidiaries” at [171] above;
2.Castle Harlan intended that the entity to acquire the shares in NWS would be a corporation controlled in the sole investment discretion of Castle Harlan’s associated entities: see the words “[t]he acquiring entity would be a corporation controlled in the sole investment discretion of CHPV” at [171] above;
3.the entity to acquire the shares in NWS would be a corporation controlled in the sole investment discretion of Castle Harlan’s associated entities: as for (2) above;
4.Castle Harlan and its associated entities did not expect to require, or intend to obtain, any funding for the acquisition of the shares in NWS from non-associated entities of Castle Harlan: see the words “[w]e would not require any financing conditions to consummate this transaction” (see [171] above) which was a response to UBS’ requirement that Castle Harlan provide:
… clear statements with respect to the following:
… a description of all the sources of funding for the purchase of the Company and an indication of the timing and status of funding commitments. If applicable, your Final Offer should include fully committed financing letters, capable of being executed, and a list of contacts, with telephone numbers, for your source(s) of financing, with whom any financing arrangements can be discussed in detail.
(see [148] above); and
5.Castle Harlan and its associated entities would not require, and would not obtain, any funding for the acquisition of the shares in NWS from non-associated entities of Castle Harlan: as for (4) above.
Further, each of the Representations was misleading or deceptive:
1.in relation to Morgan’s responses during the site visits on 12 or 13 May 2011, those representations were misleading or deceptive having regard to the extent of Bradken’s and Castle Harlan’s cooperation and partnering prior to that date: see [95]-[98], [100], [103], [104], [106]-[108], [110], [112], [113], [115], [118]-[122], [126]-[130], [133], [135], [136], [138], [139], [143], [144], [146], [148], [149], [150], [155] and [156] above. To the extent they were representations as to future matters, they will be taken to be misleading or deceptive unless Castle Harlan had reasonable grounds for their making: s 4 of the ACL. Bradken submitted that Castle Harlan had reasonable grounds to make the representations. I reject that submission. In the context of the matters referred to above, there could be no reasonable basis for Castle Harlan to represent that Castle Harlan would not sell NWS to Bradken;
2.in relation to [323(1)] above, that representation was misleading or deceptive. The final bid was made on Castle Harlan’s and Bradken’s behalf, and to describe it as being made solely on Castle Harlan’s behalf was disingenuous in light of the dealings between it and Bradken prior to that date: see [95]-[98], [100], [103], [104], [106]-[108], [110], [112], [113], [115], [118]-[122], [126]-[130], [133], [135], [136], [138], [139], [143], [144], [146], [148], [149], [150], [155], [156], [160], [161], [162], [163], [167], [168] and [170] above;
3.in relation to [323(2)] above, that representation was misleading or deceptive. Bradken was in the process of raising approximately A$150 million to be used to fund the acquisition of NWS (see [165] above). Castle Harlan knew that and knew that Bradken would provide sufficient funds to “effectively de-risk the deal” and would “co-operate on the question of where the money flows”: see [168] and [170] above;
4.in relation to [323(3)] above, the representation was a representation as to future matters and, in light of the matters referred to at (3) above, it was made without a reasonable basis;
5.in relation to [323(4)] above, that representation was misleading or deceptive. Castle Harlan knew that it would require, and intended to obtain, funding for the acquisition of the shares in NWS from Bradken: see [168] and [170] above; and
6.in relation to [323(5)] above, the representation was a representation as to future matters and, in light of the matters referred to at (5) above, it was made without a reasonable basis.
In all of the circumstances, the Representations were misleading or deceptive. Further, on 17 June 2011, Castle Harlan provided a letter which restated that it was to be “CHP V … (together with certain or its affiliates)” which would make an equity contribution of US$190 million on the closing date: see [200] above. Norcast submitted that the 17 June 2011 letter repeated and affirmed the Representations as continuing at that later date. Given the earlier finding that the Representations were misleading or deceptive when made, and remained so on 17 June 2011, it is unnecessary to consider the additional effect, if any, of the 17 June 2011 letter, save that it may be relevant to the consideration of reliance: see [327] below.
3. Did Norcast rely upon Bradken and/or Castle Harlan’s representations?
In order to recover damages, Norcast must establish that it suffered loss or damage “because of” Bradken’s or Castle Harlan’s conduct in breach of s 18 of the ACL: s 236 of the ACL. The use of the words “because of”, as with the use of the word “by” in s 82 of the TPA, should be understood to import the traditional notion of causation as a question of fact to be determined by reference to common sense and experience into which policy considerations and value judgments necessarily enter: Wardley Australia Limited v Western Australia (1992) 175 CLR 514; E & MH March v Stramare Pty Limited (1991) 171 CLR 506. It is not always necessary to establish reliance in order to prove causation: Janssen-Cilag Pty Limited v Pfizer Pty Limited (1992) 37 FCR 526 at 529-30 cited in Marks v GIO at 528 and SPAR Licensing Pty Ltd v MIS Qld Pty Ltd (No 2) [2012] FCA 1116 at [211].
Here, Norcast’s Amended Fast Track Statement pleaded that:
26.Relying on the faith and truth of the representations referred to in paragraphs 24A [the 12 or 13 May 2011 representations] and 25 [the Representations] … and induced thereby, Norcast accepted the 27 May bid and agreed to enter the exclusive negotiation period with Castle Harlan and its associated entities.
…
28.Relying on the faith and truth of the representations, repeated and affirmed as continuing, and induced thereby, Norcast executed the SPA and proceeded on 6 July 2011 to complete the sale of the shares in NWS to BC pursuant to the SPA for a price of US $190 million.
…
47. But for the making of the representations and the non-disclosures:
(a)Norcast would not have accepted a price of US $190 million for the shares in NWS;
(b)the material terms of the SPA would have been agreed differently; and
(c)Norcast would have sold the shares in NWS directly to Bradken or its associated entities for a higher price.
A careful reader will notice that Norcast did not plead reliance upon the representations said to have arisen by Bradken’s and Castle Harlan’s silence, although paragraph 47 suggests that, had it known of the matters not disclosed, it would have done things differently.
Norcast submitted that it did, in fact, rely upon Bradken’s silence, Castle Harlan’s silence and the Representations. It submitted that its reliance was established on evidence from Barton, Wilson and Bulckaert that:
1.Bradken was perceived as the most obvious and likely highest bidder for NWS;
2.on 5 May 2011, Bulckaert asked Morgan whether Castle Harlan was representing Bradken and Bulckaert believed what Morgan said;
3.on 12 or 13 May 2011, Wilson specifically asked Morgan whether Castle Harlan was planning to sell NWS to Bradken, Barton read and relied upon Wilson’s report of his discussion with Morgan, both Barton and Wilson believed what Morgan said;
4.Barton and Wilson first heard of Bradken’s involvement in Castle Harlan’s acquisition of NWS when they read Bradken’s ASX release on 6 July 2011; and
5.had Barton been aware of Bradken’s involvement, he would have sought to negotiate a substantially higher price for NWS with Bradken.
Bradken submitted that Norcast had failed to explain what it would have done differently had the truth of Bradken’s involvement become known. Bradken posed a series of hypothetical questions designed to undermine the conclusion that Norcast would have done anything differently. Presumably, Bradken’s submission was that, if Norcast had known of Bradken’s involvement, it still would have accepted Castle Harlan’s 27 May 2011 bid, entered into an exclusive negotiation period with Castle Harlan, executed the SPA and proceeding to complete the transaction on 6 July 2011. Bradken further submitted that Norcast could not establish reliance in circumstances where neither Castro nor either of the Lims (the 25% owners of NWS) gave evidence.
I reject Bradken’s submissions. The evidence at [328] above is sufficient to establish that Norcast relied upon Bradken’s silence, Castle Harlan’s silence and the Representations. Had Norcast known of the true position, it would have sought to negotiate a sale of NWS with Bradken. The addition of Bradken into the NWS sale process would have resulted in an increased sale price. It is not necessary, for the purpose of s 236 of the ACL, to consider all of the permutations of the hypothetical scenario in which Bradken’s involvement was known to Norcast. As Lockhart J said in Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950 at 50,378 (in relation to s 52 of the TPA):
For present purposes it is sufficient to say that a person claiming damages must show either that he has been induced to do something or to refrain from doing something which gives rise to damage or has been influenced to do or refrain from doing something giving rise to damage by the conduct contravening s 52.
Barton’s, Wilson’s and Bulckaert’s evidence is sufficient to conclude that Norcast was induced to take the steps referred to above “because of” the Representations.
Further, as Kiefel J concluded in Hanave Pty Ltd v LFOT Pty Ltd (formerly Jagar Projects Pty Ltd) (1999) 43 IPR 545 at 555-6 (with whom Wilcox J agreed):
The question of causation can sometimes be resolved not by direct evidence as to what part a misrepresentation played in the process of entry into contract, but by a court determining what effect must be taken to have resulted. Indeed this course may sometimes be preferable to one which rested solely on evidence later given on the point.
Were it necessary to do so, I would conclude that the effect of Bradken’s silence, Castle Harlan’s silence and the Representations was that Norcast took the steps referred to above. That is the effect which must be taken to have resulted.
Even if reliance was not established, however, I would find that Norcast had suffered loss or damage “because of” Bradken’s silence, Castle Harlan’s silence and the Representations. Here, where the silence was engaged in deliberately and, in Castle Harlan’s case, in conjunction with express misrepresentations, there is a sufficient nexus between the representations and Norcast’s loss and damage.
4. Was Bradken a person involved in Castle Harlan’s contraventions within the meaning of s 2(1) of the ACL? Were Greiner and/or Hodges involved in either or both of Bradken and/or Castle Harlan’s contraventions?
Section 2(1) of the ACL defines “involved” as:
a person is involved, in a contravention of a provision of this Schedule or in conduct that constitutes such a contravention, if the person:
(a)has aided, abetted, counselled or procured the contravention; or
(b)has induced, whether by threats or promises or otherwise, the contravention; or
(c)has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d)has conspired with others to effect the contravention.
Section 2(1) of the ACL reproduces s 75B(1) of the CCA: see [288] above. The principles applicable to s 2(1) of the ACL (definition of ‘involved’) are the same as those applicable to s 75B of the CCA, considered at [288]-[289] above. There can be no finding of accessorial liability where the primary contravention is not established. Here, the primary contravention has been established. It is then necessary to consider Norcast’s contentions about Bradken’s, Greiner’s and Hodges’ involvements in the contraventions of the ACL.
Bradken prompted Castle Harlan to enter the NWS sale process. Bradken and Castle Harlan entered into the Bid Rigging Arrangement. The conduct referred to at [316] above evidences Bradken’s intention, shared with Castle Harlan, that Bradken’s involvement in the NWS sale process should be kept secret from NWS. In that sense, I accept that Bradken aided, abetted, counselled or procured the contravention constituted by Castle Harlan’s silence. Further, Bradken had more to do with the subject matter of the Representations than merely having some knowledge of the matter. Bradken knew that Castle Harlan planned to attend the management presentation and site visits: see [126]-[127] above. Bradken took steps to ensure that its involvement remained secret during the management presentation and site visits: see [126]-[127] above. It is open to infer that Bradken and Castle Harlan shared a desire that Bradken’s involvement should not be disclosed at the management presentation and site visits and that the secrecy should extend, in Ward’s words, “everywhere”: see [127] above. In that sense, I accept that Bradken was knowingly concerned in the contraventions constituted by the Representations.
Both Greiner and Hodges were involved in Bradken’s misleading or deceptive conduct. The conduct summarised at [316] above was engaged in by Greiner and Hodges. As to Hodges’ conduct: see [295] above. As to Greiner’s conduct: see [294] above. I accept that Hodges and Greiner aided, abetted, counselled or procured the contravention constituted by Bradken’s silence, or at least were knowingly concerned in it.
Finally, both Greiner and Hodges were also involved in Castle Harlan’s silence and the Representations. Each of the acts of Bradken referred to in [335] above was an act of Hodges or Greiner, or both. As to Hodges’ conduct: see [295] above. As to Greiner’s conduct: see [294] above. Hodges gave evidence that it was not communicated to him that Morgan would deny Bradken’s involvement and that it was not in Hodges’ contemplation that Morgan would do so. I reject Hodges’ evidence. It is self-serving and contrary to the contemporaneous facts. Secrecy was an essential part of the Bid Rigging Arrangement; it was a requirement which Hodges expressly communicated to Ward. It is open to infer that Ward communicated Hodges’ desire to Castle Harlan and that Castle Harlan, acting on Hodges’ instructions through Ward, took steps to conceal Bradken’s involvement, including in response to direct questions from Wilson and Bulckaert. Further, it is not necessary for Hodges or Greiner to have been aware of the terms of the Final Bid Letter. The terms of the letter were crafted to conceal Bradken’s involvement to give Castle Harlan’s final bid the appearance of a bid made only on Castle Harlan’s behalf. That was consistent with the instructions which Hodges gave to Ward, which I accept that he gave to Castle Harlan. It was also consistent with Greiner’s conduct. I accept that Hodges and Greiner aided, abetted, counselled or procured the contraventions constituted by Castle Harlan’s silence and the Representations, or at least were knowingly concerned in them.
5. Were either or both of Bradken’s and/or Castle Harlan’s representations conduct “in trade or commerce” either within Australia or between Australia and places outside Australia?
The CCA applies to conduct engaged in outside Australia by certain persons. One category is bodies corporate carrying on business in Australia: s 5(1) of the CCA. Bradken is incorporated and carries on business in Australia. Castle Harlan carries on business in Australia: see [242]-[256] above. For the purpose of Norcast’s claim for damages under s 236 of the ACL, the Minister provided the relevant consent to enable Norcast to rely upon conduct which was engaged in outside of Australia: see [231] above.
Bradken further submitted that the misleading or deceptive conduct claims fail because of the territorial limitation imposed by the phrase “trade or commerce” in s 18 of the ACL.
The phrase “trade or commerce” is defined in s 2(1) of the ACL as:
(a) trade or commerce within Australia; or
(b) trade or commerce between Australia and places outside Australia;
and includes any business or professional activity (whether or not carried on for profit).
Bradken’s submissions are rejected. It is not to the point that the representations themselves were not “within Australia” or “between Australia and places outside Australia”. Section 18 of the ACL prohibits misleading or deceptive conduct “in trade or commerce” (emphasis added). It is not the representations themselves which must constitute the “trade or commerce”, but they must occur in the context of some “trade or commerce”. Here, the relevant “trade or commerce” was the sale of NWS by Norcast to Castle Harlan and the potential on-sale of NWS by Castle Harlan, outside Australia, to Bradken, within Australia.
Bradken’s silence and Castle Harlan’s silence and making of the Representations were conduct by them in trade or commerce “between Australia and places outside Australia”.
6. Does s 32(1)(d) of the Fair Trading Act 1987 (NSW), which extends the operation of that Act to “persons otherwise connected with this jurisdiction”, assist Norcast?
Given the views formed (see [338]-[342] above), this issue does not arise.
7. What was Norcast’s loss and damage?
Norcast suffered loss or damage and the Court assesses that loss or damage at US$22.4 million (being the difference between the US$212.4 million including costs and expenses which Bradken did in fact pay to acquire NWS and the US$190 million Norcast received from Castle Harlan): see [298]-[305] above. Of course, Norcast is not entitled to recover the same loss or damage twice.
8. If Bradken, Greiner and/or Hodges are liable as persons involved in Castle Harlan’s contraventions, should there be an apportionment of liability between them and Castle Harlan and, if so, in what proportions?
The Respondents submitted that the proportionate liability provisions of the CCA (Pt VIA) apply to the accessorial liability claims in relation to the misleading or deceptive conduct of Castle Harlan. In particular, the Respondents submitted that:
1.each of the accessorial liability claims against the Respondents is an “apportionable claim” within the meaning of s 87CB(1) of the CCA;
2.Castle Harlan is a “concurrent wrongdoer” within the meaning of s 87CB(3) of the CCA in relation to each of those claims; and
3.as a consequence, the liability of each of the Respondents in relation to each of those claims is limited to an amount reflecting only that proportion of the damage or loss claimed that the Court considers just having regard to the extent of that respondent’s responsibility for the damage or loss pursuant to s 87CD of the CCA.
In support of the allegation that, in those circumstances, Castle Harlan is a concurrent wrongdoer, the Respondents relied upon the same matters as those relied upon by Norcast in its claim and submitted that any liability should lie principally upon Castle Harlan as the ‘active wrongdoer’, with the consequence that any liability of the Respondents should be significantly reduced.
Those contentions are rejected. First, Bradken started the process: see [79] and [82]-[91] above. The principals of Bradken (Hodges and Greiner) were the authors of it: see [84], [86], [89] and [90] above. It was the Respondents whose actions caused the damage or loss that is the subject of the apportionable claim: s 87CB. Having regard to the extent of the Respondents’ responsibility for the damage or loss, it is just that there be no reduction in their liability: cf s 87CD(1)(a).
F. CONCLUSION
Given the complexity of the issues, the parties bring in orders to give effect to these reasons for judgment by 4:00pm on 26 March 2013. If the parties are unable to reach agreement, each should file and serve a copy of the proposed orders supported by a two page written submission.
I certify that the preceding three hundred and forty-eight (348) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon. Associate:
Dated: 19 March 2013
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