QIW Retailers Ltd v Davids Holdings P/L

[1992] FCA 518

Re: QIW RETAILERS LIMITED
And: DAVIDS HOLDINGS PTY. LTD; CAMPBELLS CASH N CARRY PTY. LTD; DAVIDS
HOLDINGS GROUP STAFF SUPERANNUATION FUND PTY. LTD.; AUSTRALIAN LIQUOR
MARKETERS PTY. LTD; DAVIDS-V.G.D. PTY. LTD; AUSTRALIAN LIQUOR MARKETERS PTY.
LTD; RETAIL MERCHANDISE SERVICES PTY. LTD; DAVIDS DISTRIBUTION PTY. LTD;
CLANCY'S FOOD STORES PTY. LTD. and DAVIDS EXPORT SERVICES PTY. LTD; No. G3012
of 1992
FED No. 518
Corporations Law
(1992) 10 ACLC 1162
(1992) 8 ASCR 333
(1992) 37 FCR 57
(1992) 112 ALR 683

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Cooper J.(1)

CATCHWORDS

Corporations Law - duty under Corporations Law - non-compliance - who has standing to enforce compliance - takeover offer - Part A Statement requirements - wider information - what information is necessary for an informed decision - preparation of a Part B Statement - interests of a target company in wider information about offer or and subsidiary companies.

Corporations Law Section 1324(2)(b), Section 574(1)(b), Section 750, Section 647

Corporations Regulations Schedule 5

Broken Hill Proprietary Co. Ltd. v Bell Resources Ltd. (1984) 8 ACLR 609

Allgas Energy Ltd v Brisbane Gas Co. Ltd. (1980) Qd R 587

Australian Conservation Foundation Incorporated v The Commonwealth of Australia (1980) 146 CLR 493

Onus v Alcoa Australia Ltd (1981) 149 CLR 27

Rossfield Group Operations Pty Ltd v Morton Holdings (A.C.T.) Pty. Limited (1981) Qd R 372

QIW Retailers Limited ACN 010 610 018 v Davids Holdings Pty. Limited ACN 001 031 569 and Others

HEARING

BRISBANE

#DATE 22:7:1992

Counsel for Applicants
(Davids Holdings Pty Ltd): Mr P. Morrison QC and Mr P. O'Shea

Solicitors for Applicants: Blake Dawson Waldron

Counsel for Respondents
(QIW Retailers Pty. Ltd.): Mr P.A. Keane QC and Mr T. Sheahan

Solicitors for Respondents: Clarke and Kann

ORDER

THE COURT ORDERS THAT:

The motion to strike out paragraphs 5 and 6 of the application is dismissed with costs.

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

JUDGE1

The applicant in the principal application is QIW Retailers Limited ("QIW"). The first respondent is Davids Holdings Pty. Limited ("Davids"). The other respondents are wholly owned subsidiaries of Davids. QIW is the target company of a proposed takeover offer by Davids.

1. On 29 June, 1992 QIW applied for relief in this Court against Davids in respect of an alleged contravention of section 50 of the Trade Practices Act if the proposed takeover is allowed to proceed, and in respect of alleged deficiencies in the Part A statement lodged on behalf of Davids and registered with the Australian Securities Commission on 18 June, 1992. In the application QIW sought separate relief against the other respondents. By paragraphs 5 and 6 of the application QIW seeks :-
   

"5. A declaration that the Second to Tenth Respondents, and each of them, are not and were not in the year ending June 30, 1991 exempt proprietary companies within the meaning of Section 69 of the Corporations Law;

6. An injunction requiring each of the Second to Tenth Respondents forthwith to lodge an annual return in the prescribed form, containing in each case :-

(a) a list of members;

(b) the particulars referred to in Regulation 3.8.01 of the Corporations Regulations in relation to non-exempt proprietary companies; and

(c) the documents set out in Regulation 3.8.02 thereof in relation to non-exempt proprietary companies:

such annual return, particulars and documents to relate in each case to the financial year most recently ended;"

1. By notice of motion filed on 15 July, 1992 the respondents other than Davids seek, inter alia, the following relief :-
   

"1. That paragraphs 5 and 6 of the Application dated 29 June 1992 be struck out on the grounds that :-

(a) the Applicant has no standing to seek such relief; and/or

(b) the Applicant's seeking such relief constitutes an abuse of process".

1. The alternative basis of the relief sought arises from the existence of proceedings in Supreme Court of Queensland seeking identical relief. The applicant has undertaken not to proceed further in the Supreme Court seeking such relief. Therefore, no further consideration of the alternative ground is required.

2. For the purpose of the application to strike out only, I have been asked to assume, irrespective of whatever the true position may be, that the applicants are obliged under the Corporations Law ("the Law") to lodge an annual return incorporating accounts in the statutory form and that they have failed to do so. The effect of the assumption is to treat the applicants as being under a statutory duty to file financial information. If this duty is complied with, there would be released into the public domain such financial information as flows from accounts prepared in accordance with those provisions of Schedule 5 of the Corporations Regulations which would apply to the applicants.

3. The applicants submit that QIW has no standing under either section 1324(2)(b) of the Law or the general law to seek the relief claimed in either paragraph 5 or paragraph 6 of the application. Section 1324(2) of the Law provides :-
   

"Where a person has refused or failed, is refusing or failing, or is proposing to refuse or fail, to do an act or thing that the person is required by this Law to do, the Court may, on the application of :

(a) the Commission; or

(b) any person whose interests have been, are or would be affected by the refusal or failure to do that act or thing; grant an injunction, on such terms as the Court thinks appropriate, requiring the first- mentioned person to do that act or thing".

1. The applicants submit that QIW is not a "person whose interest have been, are or would be affected by the refusal" to lodge the financial information on the assumption that the applicants are obliged to do so and have failed in that obligation.

2. Section 1324(2) replicates the terms of section 574(1)(b) of the former Companies Code. In Broken Hill Proprietary Co. Ltd. v Bell Resources Ltd. (1984) 8 ACLR 609, Hampel J. considered the meaning of "interests" in section 574(1)(b) of the Companies Code. At 613-614 His Honour observed :-
   

"The Companies Code, in my view, is legislation which is clearly concerned in the broadest sense with the protection of the public in respect of commercial activities of corporations. The whole legislative scheme is designed to ensure that the greatest possible protection is afforded in many instances by the provision to the public of information relevant to those commercial activities. Severe penalties are imposed by many sections of the Code for non-compliance with it and s 574, in my view, is intended to enable interested persons to obtain relief in the form of injunctive relief to prevent actual or proposed conduct in contravention of the Code. It follows that in interpreting s 574(1)(b) a broad interpretation consistent with the objectives of the Act (sc Code) should be adopted and not the more restricted interpretation of the kind adopted by Gillard J before the enactment of this much more far-reaching and comprehensive Companies Code. In my view the interests referred to in this section are interests of any person (which includes a corporation) which go beyond the mere interest of a member of the public. It is not necessary that personal rights of a proprietary nature or rights analogous thereto are or may be affected nor need it be shown that any special injury arising from a breach of the Act (sc Code) has occurred.

The applicant in this case is a company whose shareholders have been approached with a view to their exchanging their shares in that company for shares in another company which is also the applicant's shareholder. The offer refers to fully paid ordinary shares in BHP together with all rights including the rights issue announced on 3 February 1984 and other entitlements. It is made in respect of a large quantity of shares, namely some seven per cent of the issued share capital of BHP. In those circumstances I accept Mr Chernov's submission that there is a sufficient nexus between the applicant company and the transaction with which these proceedings are concerned to bring the applicant within the scope of s 574(1)(b) as a person whose interests have been or would be affected by the conduct. To hold otherwise would, in my view, be quite contrary to the scheme of this legislation and to the interest which the public has in ensuring that persons who have more than a mere general interest are able to invoke the powers of the court given by s 574. I hold therefore that the applicant has locus standi to make the present application".

1. In Allgas Energy Ltd. v Brisbane Gas Co. Ltd. (1980) Qd R 587, Connolly J. held that a target company had locus standi to seek declaratory and injunctive relief to force an offeror to comply with the law in the circumstances of the proposed offer. His Honour said at 589-590:
   

"In my opinion the statutory function which the take-over legislation imposes upon a target company gives it a sufficient interest to have this question clarified, for its functions include the giving of such advice as it thinks fit to the shareholders".

His Honour appears to have reached his decision by application of general principle rather than by reference to any particular statutory provision as to standing.

1. I agree with the general observations of Hampel J. in BHP as to the approach to be taken to the application of the section. The question is, is there a sufficient nexus between QIW and the assumed failure of the applicants to lodge the necessary financial statements to bring QIW within the scope of section 1324(2)(b) of the Law as a person whose interest have been or would be affected by that failure beyond the mere interest of a member of the public in having the law complied with.

2. The test to be applied under section 1324(2)(b) of the Law is in my view substantially the same as the test of locus standi under the general law. The general law test was stated by Gibbs J. (as he then was) in Australian Conservation Foundation Incorporated v The Commonwealth of Australia (1980) 146 CLR 493 at 526 in the following terms :-
   

"It is quite clear that an ordinary member of the public, who has no interest other than that which any member of the public has in upholding the law, has no standing to sue to prevent the violation of a public right or to enforce the performance of a public duty. There is no difference, in this respect, between the making of a declaration and the grant of an injunction. The assertion of public rights and the prevention of public wrongs by means of those remedies is the responsibility of the Attorney-General, who may proceed either ex officio or on the relation of a private individual. A private citizen who has no special interest is incapable of bringing proceedings for that purpose, unless, of course, he is permitted by statute to do so. The rules as to standing are the same whether the plaintiff seeks a declaration or an injunction".

1. His Honour defined the nature of the special interest under the rule sufficient to support the bringing of proceedings at 530 :-
   

"...an interest, for present purposes, does not mean a mere intellectual or emotional concern. A person is not interested within the meaning of the rule, unless he is likely to gain some advantage, other than the satisfaction of righting a wrong, upholding a principle or winning a contest, if his action succeeds or to suffer some disadvantage, other than a sense of grievance or a debt for costs, if his action fails. A belief, however strongly felt, that the law generally, or a particular law, should be observed, or that conduct of a particular kind should be prevented, does not suffice to give its possessor locus standi".

1. Other members of the Court expressed the test in similar terms (see 146 CLR at 537-538, 547-548) and the test as stated in Australian Conservation Foundation was re-affirmed by the Court in Onus v Alcoa Australia Ltd. (1981) 149 CLR 27 at 35-37, 41-42, 43, 45, 61, 68-69, 74-75.

2. The applicants submit that applying the test under section 1324(2)(b) of the Law insofar as injunctive relief is sought and the general principle as stated in the decisions of the High Court insofar as declaratory and injunctive relief is sought, QIW does not have standing because is has no interest or special interest over and above that of the general public in having the financial statements lodged and the contents made public.

3. It was submitted by the applicants that the extent of the interest of QIW to compel production of financial information in the context of the proposed takeover offer is limited to the financial information required by section 750 of the Law to be included in a Part A Statement. In consequence it was submitted QIW had no interest in financial information beyond the category of information required by section 750 to be included in the Part A Statement. Additionally, it was submitted QIW had no interest to enforce disclosure by a person other than the person obliged by the Law to prepare and deliver the Part A Statement. In the instant case that person is Davids, the offeror.

4. In these circumstances the applicants submit there is no nexus between QIW and the assumed default on the part of the applicants and there is no advantage to be gained by QIW in forcing disclosure of the financial position of the applicants because so much of the financial affairs of the applicants as is necessarily of interest to QIW will be disclosed by the operation of section 750.

5. QIW has a clear interest to seek to enforce compliance with section 750 of the Law by Davids (BHP v Bell Resources at 614; Allgas Energy Ltd. v Brisbane Gas Co. Ltd. at 590). However the existence of such an interest does not necessarily lead to the result that QIW has no interest to enforce compliance with a separate relevant obligation another person may have to disclose information under the Law. The question of interest is to be determined by reference to the interest of QIW, if any, to enforce compliance by the applicants with the assumed obligation to lodge financial statements. That question is separate and distinct from the question of the interest of QIW to enforce disclosure of financial information by Davids in its Part A Statement.

6. In approaching the determination of the question of interest, the observations of Mason J. (as he then was) in Australian Conservation Foundation v The Commonwealth at 547 - 548 :-
   

"I consider that there is nothing to be gained from discussing in the abstract the broad range of interests which may serve to support a locus standi for, as I said in Robinson v Western Australian Museum: "The cases are infinitely various and so much depends in a given case on the nature of the relief which is sought, for what is a sufficient interest in one case may be less than sufficient in another".

and Stephen J. in Onus v Alcoa of Australia Ltd. at 42 :-

"As the law now stands it seems rather to involve in each case a curial assessment of the importance of the concern which a plaintiff has with particular subject matter and of the closeness of the plaintiff's relationship to that subject matter".

are to be borne in mind.

1. QIW is obliged by section 647 of the Law to prepare and deliver a Part B Statement. The purpose of the Statement is to assist shareholders in QIW to make an informed decision whether or not to accept the offer of Davids. The Part B Statement must comply with the provisions of section 750. QIW in preparing a Part B Statement is not limited to the information provided in the Part A Statement and not required to make a commercial judgment on that material alone. QIW is entitled to have regard to such information as is publicly available, or is known to QIW or any director of QIW and which has not been disclosed to offerees, which information is material to a reasoned decision to make or withhold a recommendation for or against the offer or to an informed decision by an offeree to accept or reject the offer.

2. Where the offer admits of a circumstance whereby a shareholder may by choice or circumstance find itself in a company controlled by the offeror and where the offeror has disclosed a proposal which may have consequences to the value of the shares in the target company if implemented, any information as to the financial strength of the offeror, its management expertise and the financial implications of the proposal is relevant to an informed and reasoned decision to accept or reject the offer. That is not to say that such information is required by section 750 of the Law to be disclosed in a Part A Statement and I express no opinion on that question. Rather, it is simply to recognise that all such information forms part of a pool of relevant information used by a shareholder to make an informed judgment as to whether its commercial interests are best served by selling or retaining the shares.

3. In the instant case there is the possibility of a shareholder continuing in QIW if the offer becomes unconditional by Davids becoming entitled to 50.1% of the shares in QIW by the end of the offer period. Additionally, there is the proposal by Davids that QIW acquire the Queensland business of Davids' operating subsidiaries.

4. To my mind it is irrelevant what the financial information which it is assumed ought to have been lodged would disclose. In fact if an order enforcing compliance is obtained by QIW, it is not to be assumed that only financial information disclosing some financial burden on Davids is relevant. Nor is it to be assumed that only information adverse to the proposal to acquire the Queensland business of Davids subsidiaries is relevant. The absence of any financial burden on Davids arising out of its relationship with its subsidiaries and the disclosure of sound and profitable business undertakings being carried on by the subsidiaries may in themselves be circumstances which would persuade a shareholder not to sell and to continue its investment in QIW albeit under the control of Davids in the event of the takeover succeeding.

1. The observations by Connolly J. in Rossfield Group Operations Pty. Ltd. v Morton Holdings (A.C.T.) Pty. Limited (1981) Qd R 372 at 377 bear repeating :-
   

"The situation in which a shareholder is called upon to decide whether to accept or reject a take-over offer is a commercial situation. The decision to accept or reject will not infrequently be made in a situation in which competing possibilities including offers from other sources are open to him".

1. The advantage QIW gains if its application against the applicants succeeds and the interest it has over and above that of general members of the public in obtaining compliance by the applicants with their assumed obligation, is that QIW can make such use of the information, as in its commercial judgment, is necessary or relevant to the discharge of its duty under section 647 of the Law to have prepared and delivered a Part B Statement.

2. It is no answer to say, as the applicants do, that the financial statements if lodged are not presently shown to be of advantage to, and may not in fact assist QIW in the preparation of the Part B Statement, or that such information, if relevant and required to be disclosed, will be provided in the Part A Statement. The advantage to QIW is to have access to the information to make an independent assessment of the worth of the information in circumstances where the present Part A Statement makes direct reference to the relationship between Davids and the applicants. For example, the following statements appear in the Part A Statement :-
   

"Davids' principal activity is a holding company for the operating subsidiaries in the Davids Group" "The principal activities of the Davids Group are wholesaling and distribution of groceries and liquor".

"....subject to requisite shareholder approval, Davids proposes to procure the merger of QIW and Davids Group's existing Queensland grocery and liquor distribution and cash and carry operations ("Davids Queensland"). The merger would be effected by QIW purchasing the business operations of Davids Queensland".

1. The affidavit evidence of Mr Krohn swears to the accuracy of Exhibit "RCK7" sufficiently to enable the Court to draw on an interlocutory application the inference that all or some of the applicants carry on the business described in the Part A Statement as "Davids Queensland". That business is valued by Davids in the Part A Statement on a capitalisation of maintainable earnings basis at approximately $50,000,000.00 - $55,000,000.00. The financial statements of those subsidiaries of Davids which operate the business of "Davids Queensland" may enable some informed independent judgment to be made at this time as to the value of the business and the impact of its acquisition on QIW and the value of QIW shares should the proposal proceed. This is relevant to a decision now as to whether or not to accept the offer. The fact that the Part A Statement discloses an intention to provide further information and a right to vote on the possible acquisition being restricted to shareholders other than Davids, does not pre-empt the relevance of a consideration of the impact of the proposal as part of the decision-making process as to acceptance at this time.

2. The relationship between Davids and the applicants, as its subsidiaries as disclosed in the Part A Statement, the relevance of the financial information to an informed decision to accept or reject the offer in the sense discussed above, and, the statutory obligation of QIW to prepare and deliver a Part B Statement, in the words of Stephen J. in Onus demonstrate a real and important "concern which (QIW) has with the particular subject matter and of the closeness of (QIW's) relationship to that subject matter". QIW will gain a relevant advantage in the discharge of its statutory obligation to prepare and deliver a Part B Statement if it succeeds in the application and obtains the relief it seeks in paragraph 6 of the application. By virtue of its status as a target company and its obligation under section 647 of the Law, it has an interest separate and distinct from the interest of the general public to see the law complied with. That interest of QIW "has been, (is), or would be affected by the refusal or failure" of the applicants to fulfill their assumed obligation to lodge the necessary financial information with their annual returns.

3. Although the declaration in paragraph 5 is perhaps unnecessary as the relief sought in paragraph 6 requires a positive finding in terms of the declaration sought to be made, I am satisfied that QIW has a sufficient special interest upon the application of general principles as to standing to seek the declaration. I am satisfied that QIW has standing under section 1324(2)(b) and the general law to seek the injunctive relief sought in paragraph 6 of the application.

4. The motion to strike out paragraphs 5 and 6 of the application is dismissed with costs.