Quancorp Pty Ltd & Anor v MacDonald

[2000] HCATrans 167

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P18 of 1999

B e t w e e n -

QUANCORP PTY LTD and KAMANGA HOLDINGS PTY LTD

Applicants

and

KENNETH DUNCAN MACDONALD, GRAEME ORIEL MORRIS, EDWARD JOHN HALL, BRYAN ALFRED ELLIS, JAMES GORDON MITCHELL, FRANCIS MARK BETHWAITE and PETER JOHN HOUSDEN

First Respondents

CUDGEN RZ LTD

Second Respondent

Application for special leave to appeal

GAUDRON J
McHUGH J

TRANSCRIPT OF PROCEEDINGS

FROM PERTH BY VIDEO LINK TO CANBERRA

ON FRIDAY, 14 APRIL 2000, AT 12.15 PM

Copyright in the High Court of Australia

__________________

MR M.J. McPHEE:   I appear on behalf of the applicant.  (instructed by Michell Sillar McPhee)

MR C.J.L. PULLIN, QC:   I appear with my learned friend, MS K.F. BANKS‑SMITH, for the respondent.  (instructed by Freehill Hollingdale & Page)

GAUDRON J:   Yes, thank you, Mr McPhee.

MR McPHEE:   If it please the Court, the applicant’s case here is that if special leave were granted, the appeal would be based on a suggestion as contained in the draft notice of appeal, that the courts below were in error in interpreting the terms of the Listing Rules of the Australian Stock Exchange in so far as they related to the facts of this case and generally.

Since Chapman’s Case in 1995 when the Full Court of the Federal Court determined that the rules of the Stock Exchange operated as a contract between the company and the exchange, the provisions of those rules have been interpreted as contracts.

GAUDRON J:   The Corporations Law transports them into the legal arena, does it not?

MR McPHEE:   Yes, yes it does.  Thank you, your Honour.  In addition to that, though, I think the crucial effect of Chapman’s Case was that the interpretation of the rules is dealt with as per contract and thus the suggestion in Chapman’s Case by the Stock Exchange that they had an absolute discretion to apply the rules no longer applies.

In this case there is an additional element, we would suggest, imported into that principle and that is the finding by the Full Court here as contained, I think, on page 39 of the book – I am sorry, that page number is wrong, I will find that in a moment – that the rules constituted an agreement between the shareholder of a particular company - shareholders and the company itself.  The Full Court followed Zytan in that regard which was a previous decision of the Chief Justice in Western Australia.

Now, we would suggest the special leave points that would make the case worthy of consideration by the Court are these, that the rules of the Stock Exchange which operate as contracts, not only between the company and the Exchange and also operate as a separate contract between the company and its shareholders, apply to every investment made in Australia, at least in public companies.

GAUDRON J:   Well, you only get to that point if you can persuade us that those rules should be construed in the way for which you contended below.

MR McPHEE:   Yes.  Thank you, your Honour.  There is no factual dispute in issue and the particular rules are contained ‑ ‑ ‑

GAUDRON J:   The question is entirely one of construction, is it not?

MR McPHEE:   Yes, it is.  I do not think my learned friends and myself are at issue that in terms of the facts of this case the dispositions in question, namely the transfer out of the shares of Cudgen Pty Limited to the various shareholders pari passu, in their terms, came within the provisions of both 10.1 of the Stock Exchange and 11.2 because, in both cases, in 10.1 a substantial portion of the assets was disposed to a substantial shareholder and in the case of 11.2 ‑ ‑ ‑

GAUDRON J:   Yes, but is it fair to describe a distribution of assets by way of dividends as a disposition to a substantial shareholder?

MR McPHEE:   Your Honour, I, with respect to all concerned in the courts below, believe it is and I have held doggedly to that point simply because ‑ ‑ ‑

GAUDRON J:   Yes, well I realise you have but it has been found against you and these rules have to be construed in the light of commercial practice, long established commercial practice and in the light of commercial practicalities, do they not?

MR McPHEE:   Yes, thank you.

GAUDRON J:   And not as though they were Acts of Parliament.

MR McPHEE:   Yes.  I do not take issue with that but we say, clearly, in this case, that the exceptional proviso as found by the courts below is not stated in the rules.  It is applied as a practicality on the basis that the clear meaning of the rules does not apply in this situation.

GAUDRON J:   You can look at it as a proviso or you can say, can you not, a distribution of assets by way of dividend to shareholders is not the disposition of a major asset to a shareholder?  Can you not?

MR McPHEE:   I think that is the finding below and that is obviously the position that has been taken.

GAUDRON J:   Without there being any gloss on the terms themselves?

MR McPHEE:   I think, with respect, your Honour, that is the issue and that is what we say is the point because there is no exceptional proviso stated.  This is not a normal sort of dividend that one would expect to see in the operations of a company.  It is, in fact, a transfer out of the second respondent of its entire undertaking, namely the shares held in the third company.  It is not the sort of payment or transfer out that one would normally expect to see as a dividend and I would respectfully suggest that the shareholders of the company, particularly the minority, and, in my submission, the principle applies irrespective of the size of the minority, whether it is a very small minority or a sizeable minority, that the shareholders can expect to be consulted in general meeting on such a payment which goes beyond what one would describe as a normal dividend, which is a payment out of profit, not a payment out of profit of a share of profit, not a situation as here where the entire undertaking of the company is disposed of.

I say that it is fair to regard the matter in the way I suggest for these reasons, because it will have unintended consequences.  There are several issues about this case which I would respectfully suggest take things for granted which ought not to be taken for granted, firstly that it is fair that the payment is made to the minority in the same proportions as to the majority.

In a case like this you might have a situation where recalcitrant or difficult minorities, in the running of a company like this which controls a third company, are moved aside and you have, in fact, in effect, a reconstruction of the first company by moving the controlling blocks outside the original.  As such, what might be termed the premium control is lost to the minorities, or at least their share of it.

McHUGH J:   Yes, but if the Stock Exchange thinks there is any trouble with the court’s interpretation of the rule then it can amend the rule.

MR McPHEE:   It can, your Honour.  Thank you.  The difficulty I have, though, is that it involves the disposition of these matters entirely on the Stock Exchange.  The Stock Exchange itself, these days, and I think I can take judicial notice of this, is a private company involved in business and their whole argument in Chapman’s Case was whether or not the Stock Exchange had an absolute discretion on these matters, whether it could decide in its wisdom that this should occur or this should not, irrespective of what might be decided in a particular case by the shareholders as to what they think ought to happen and what ought not to happen.

It is for that reason that we say in this case that it is not necessary for the Stock Exchange to be joined because, by virtue of the provisions of the Code, section 777, if the principle as found by the Full Court is correct, namely that there is an agreement between the company and the shareholder that the rules of the Stock Exchange will be complied with, then it is open for the shareholder to come to court to ask the company to comply with the Stock Exchange.  The court, pursuant to that section, can make directions as to the application of the rules.  No doubt the Stock Exchange can as well but, in our submission, there should be no reason why, as found by the Full Court, that the only way a direction can be given in relation to this matter is if a fault is proved in the Stock Exchange consideration of the question.  I think, your Honour, that the same position applies in relation to rule 11.2.

Briefly, the question of standing was raised in this case against us at all points.  I do not think the facts are in dispute that at the time the company made its initial announcement of its intention to declare this dividend and later, once the shares in the company had been distributed, to liquidate the company, my client did not have shares.  Subsequent to that it made an announcement under 746 of its intention to make a takeover offer.  It acquired some shares soon after.  At the time of the declaration of the dividend my client’s shares were not registered but they were registered two days later when the writ was issued.

There seem to be two schools of thought in relation to standing on these issues, one being that a shareholder only has standing if he is registered as a shareholder, and that seems to be the traditional view, but the contrary view, which seems to be gaining currency, is the broader one, namely that a person has standing if the interest of that person exceeds a normal member of the public and I think Spargo’s Case and Atalay, which I mentioned in my list, are to that effect.

Indeed, in Spargo’s Case Mr Justice Murray in the Western Australian Full Court expressly declined to follow the view of Mr Justice Jacobs in the South Australian Supreme Court in the case of Panfida v Hartogen.  So that is a matter of discussion around Australia in various States as to where the standing issue lies in relation to these matters which are developing in the law as we go along.

Further, in relation to 746 itself it is submitted the applicant, having made the announcement of its intention to lodge the takeover bid, made itself subject to the heavy and onerous provisions of that section about following through on the announcement, namely if the announcement was made, the company commits an offence if it does not follow through, as, no doubt, would it be suggested the directors of that company do.

We say that having made that announcement and having brought itself within the provisions of section 746 the applicant has standing to complain if steps are taken by the company which are contrary to its contract, we say, with the company’s contract with the shareholders.

Now it is true in this case that after the company’s action in distributing assets out of Cudgen, the second respondent, to the shareholders and after the application for an injunction was refused by the court below, that the applicant obtained what is called in the parlance a no action letter from the ASIC because of the changed circumstances pursuant to the provisions of section 746(10) which says that there is no criminal liability if circumstances change to make the offer impossible to perform.  The courts below held that the fact of those changed circumstances meant that the applicant had no standing to complain.

I am not able to put forward any dichotomy or difference between the courts in the law on this matter because this appears as the first case where the issue has been looked at but it has been our submission throughout, and remains so, that the fact that a no action letter came later does not alter the standing of the applicant to complain when the step was taken by the company.

In the general practice of these things it is a frightening position to be in for an applicant who makes an announcement and is effectively trumped by the company and then he has to deal with the Australian Securities Commission to justify their position and, effectively, prove their innocence.  I think the provisions of section 746(10) are of the sort which would, in any prosecution, require the party charged to bring themselves within that exception.

So, in those circumstances, we think it is a matter worthy of the consideration of the Court, bearing in mind the wide import of these provisions, to consider not only the interpretation of the contract in the particular case, namely the Stock Exchange rules, but this question of standing and not only generally in relation to complaints by the company on matters of oppression but arising out of the peculiar provisions of section 746.  If it please, your Honour, I think that is all I have to say on the matter.

GAUDRON J:   Thank you, Mr McPhee.  We need not trouble you, Mr Pullin.

The proposed appeal in this matter does not enjoy sufficient prospects of success to justify the grant of special leave.  Accordingly, special leave is refused.  Submissions having been made with respect to costs, it is refused with costs.

Call the next application.

AT 12.34 PM THE MATTER WAS CONCLUDED