Re Elders Australia Ltd Super John Pty Ltd
[1998] FCA 1377
•30 OCTOBER 1998
FEDERAL COURT OF AUSTRALIA
EVIDENCE - Discovery - whether order oppressive - Tendency rule, similar fact evidence and discovery - whether schedules of information provided by applicants establish a pattern of activity with significant probative value in respect of the facts in issue.
PRACTICE AND PROCEDURE - Case management - further orders in respect of non-compliance with orders previously made by consent.
Corporations Law - Ch 6; ss 698, 701, 701(2), 701(5), 701(6), 730, 731
Evidence Act 1995 (Cth) - ss 97, 102, 135
Gambotto & Anor v WCP Ltd & Anor (1994-1995) 182 CLR 432 - considered
Peninsula Gold Pty Ltd & Ors v Australian Securities Commission (1996) 134 FLR 457 - considered
DB Management Pty Ltd v Australian Securities Commission (1998) 126 ALR 15 - referred to
Re DB ManagementPty Ltd and Australian Securities Commission & Ors (1997) 26 AAR 38 - considered
ANZ Executors v Humes Ltd [1990] VR 615 - considered
Elkington v ShellAustralia Ltd (1993) 32 NSWLR 11 - referred to
Catto v Ampol Ltd (1989) 16 NSWLR 342 - referred to
Nicron Resources Ltd v Catto & Ors (1992) 8 ACSR 219 - referred to
Zaknic Pty Ltd v Svelte Corporation Pty Ltd & Ors (1995) 61 FCR 171 - followed
FAI v McSweeney & Ors; Travel Compensation Fund v FAI (1998) 10 ANZ Insurance Cases 61-400 - followed
Thorpe v Chief Constable of Greater Manchester Police [1989] 1 WLR 665 - referred to
Mahlo & Ors v Westpac Banking Corporation & Anor (Supreme Court of NSW, Santow J, 21 November 1996, unreported) - followed
Re ELDERS AUSTRALIA LIMITED; SUPER JOHN PTY LIMITED, BATOKA PTY LIMITED, ELIZABETH LANCEY & JULIAN LANCEY, ALLISTAIR HAZARD and IAN MORTON v FUTURIS RURAL PTY LIMITED
NG 3072 OF 1997
FOSTER J 30 OCTOBER 1998 SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 3072 of 1997
In the matter of ELDERS AUSTRALIA LIMITED
A.C.N. 061 617 230
BETWEEN:
SUPER JOHN PTY LIMITED
A.C.N. 061 617 230
FIRST APPLICANT/FIRST CROSS-RESPONDENTBATOKA PTY LIMITED
A.C.N. 000 375 093
SECOND APPLICANT/SECOND CROSS-RESPONDENTELIZABETH LANCEY & JULIAN LANCEY
As Trustees for Elizabeth Superannuation Fund
THIRD APPLICANT/THIRD CROSS-RESPONDENTSALLISTAIR HAZARD
FOURTH APPLICANT/FOURTH CROSS-RESPONDENTIAN MORTON
FIFTH APPLICANT/FIFTH CROSS-RESPONDENTAND:
FUTURIS RURAL PTY LIMITED
A.C.N. 009 339 333
RESPONDENT/CROSS-CLAIMANTJUDGE:
FOSTER J
DATE OF ORDER:
30 OCTOBER 1998
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
The orders sought by the respondent on 4 September 1998 be refused.
The applicants file and serve by Friday 6 November 1998 a corrected and verified revised schedule of share acquisitions such that any omitted material is included, such schedule to be subject to confidentiality orders previously made in respect of the revised schedule.
The applicants pay the respondent’s costs relating to the correction of the above mentioned schedule including the reasonable costs of bringing omissions to the attention of the applicants’ solicitor and such portion of any Court appearances as reasonably relate to those omissions.
Any issue of costs in relation to the applicants’ delay in filing their expert report be adjourned for future determination upon the basis of evidence which may be provided.
The parties bear their own costs in respect of all occasions where costs have been reserved and in respect of the orders sought by the respondent on 4 September 1998.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 3072 of 1997
In the matter of ELDERS AUSTRALIA LIMITED
A.C.N. 061 617 230
BETWEEN:
SUPER JOHN PTY LIMITED
A.C.N. 061 617 230
FIRST APPLICANT/FIRST CROSS-RESPONDENTBATOKA PTY LIMITED
A.C.N. 000 375 093
SECOND APPLICANT/SECOND CROSS-RESPONDENTELIZABETH LANCEY & JULIAN LANCEY
As Trustees for Elizabeth Superannuation Fund
THIRD APPLICANT/THIRD CROSS-RESPONDENTSALLISTAIR HAZARD
FOURTH APPLICANT/FOURTH CROSS-RESPONDENTIAN MORTON
FIFTH APPLICANT/FIFTH CROSS-RESPONDENTAND:
FUTURIS RURAL PTY LIMITED
A.C.N. 009 339 333
RESPONDENT/CROSS-CLAIMANT
JUDGE:
FOSTER J
DATE:
30 OCTOBER 1998
PLACE:
SYDNEY
REASONS FOR JUDGMENT
These proceedings were last before me on 4 September 1998. The hearing on that day was described as a “case evaluation conference”. It had been appointed for the purpose of my discussing with the parties and, hopefully, reaching resolution in respect of a number of concerns that I had expressed in a memorandum forwarded to them on 21 August 1998. For convenience I attach that memorandum to these reasons. It provides a useful summary of the problems which I saw as having developed in relation to the case management of these proceedings. One of these problems related to the filing by the applicants of an evidentiary expert report. The failure by them to file this document, in compliance with orders made by consent on previous occasions, was the subject of considerable complaint on 4 September 1998, as previously, by the respondent. That report has now been filed. There may be an outstanding question of costs in relation to delay in its filing and failure to comply with earlier orders. Explanations in this regard have been provided on occasions from the bar table. It is not possible for me to make any cost order without considering evidence that the parties may bring relating to the delay and the alleged causes of it. This question will have to be resolved by the judge on whose docket these proceedings will be placed, if the parties are not otherwise able to resolve it.
The other concerns related to questions of discovery in respect of the issues raised by par 24 of the further amended statement of claim, par 25 of the amended defence and pars 1 to 17 of the amended cross-claim. I have adverted to these problems in the attached memorandum. The respondent sought on 4 September 1998 that I should resolve them by the making of the following orders:-
“Discovery and Other Associated Issues
1. By 4.00pm on 11 September 1998, the Applicants file and serve:
1.1a supplementary list of discovery of documents which relate to the acquisition of shares in and the payment of any consideration to the Applicants or any of them in relation to the disposal of shares in companies in which the Applicants or any of them have purchased shares which have been the subject of a takeover offer, merger, share cancellation, scheme of arrangement or capital reduction from 1 January 1993 to the conclusion of the proceedings;
1.2alternatively, a supplementary list of discovery of documents which relate to the acquisition of shares in and the payment of any consideration to the Applicants or any of them in relation to the disposal of shares in companies in which the Applicants of any of them have purchased and no longer hold shares which have been the subject of a takeover offer, merger, share cancellation, scheme of arrangement or capital reduction from 1 January 1993 to the conclusion of the proceedings.
2.In the alternative to paragraph 1 hereof, by 4.00pm on 11 September 1998, the Applicants file and serve in a document verified by affidavit a schedule of companies which complies with paragraph 5 of the orders made by Justice Foster on 16 February 1998 in which the Applicants or any of them have purchased and sold shares which have been the subject of a takeover offer, merger, share cancellation, scheme of arrangement or capital reduction from 1 January 1993 to the conclusion of these proceedings.”
There was considerable debate in relation to these proposed orders and associated matters, the content of which appears in the transcript of the day’s proceedings. In the end, the concerns that I had raised were not resolved. Accordingly, I found it necessary to reserve my decision as to the making of the orders sought by the respondent and also in relation to other matters of case management which had been the subject of debate. I did so, in the context that once I had made what orders I felt I was able to make in the circumstances, the matter would then go to the docket of another judge for the completion of case management procedures and for the final hearing. I regret that so much time has elapsed between the reservation of my decision and the giving of these reasons. I have found it necessary to re-read the whole of the transcripts of previous directions hearings in order to obtain an adequate background for dealing with the case management problems to which I had made reference in the memorandum. This has proved to be time consuming and somewhat frustrating in that it has not, ultimately, led to my being in a position to do much by way of the further progressing of the case.
The problems relate to discovery processes sought by the respondent in relation to issues raised by it in the paragraphs of the amended defence and cross-claim referred to above. These have been summarised by the respondent in its outline of submissions provided for the hearing on 4 September as follows:-
“1.the Applicants do not wish to retain shares in Elders to enjoy benefits flowing to shareholders as a result of the operation of the company by Futuris (as alleged in paragraph 24 of the Further Amended Statement of Claim);
2.the Applicants purchased shares in Elders for the purpose of seeking to extort a financial benefit from the Respondent by utilising the compulsory acquisition procedure set out in Section 701 of the Corporations Law;
3.by reason of the Applicants’ conduct, the Court should not exercise its discretion pursuant to section 701(6) of the Corporations Law;
4.the Applicants’ conduct constitutes an abuse of process;
5.the Applicants’ conduct constitute [sic] a breach of the insider trading provisions of the Corporations Law.”
The respondent in its defence and cross-claim alleges facts relating to the applicants’ acquisition of their shareholding in Elders Australia Limited from which it asserts that the relevant impugned intention can be inferred. No case management problem arises in relation to this aspect of the defence and cross-claim. However, the respondent also relies upon “similar fact” allegations to establish this intention. Particulars are provided in par 4 of the cross-claim as follows:-
“Particulars of Intention
(a)A company secretary of the First Applicant and a director of the Second Applicant, Robert John Catto has previously purchased in his name and in the name of companies associated with him or has caused to be purchased minority interests in companies the subject of a takeover offer or share cancellation and objected to the compulsory acquisition or cancellation of such shares including:
(i)Australia Consolidated Investments Ltd’s bid for Weeks Petroleum;
(ii)Cyprus Minerals’ bid for McIlwraith McEacharn;
(iii)Aztec Mining’s bid for Nicron Resources;
(iv)Consolidated Press Resources’ attempt to privatise and cancel shares in Muswellbrook Energy;
(v)IEL’s bid for Adelaide and Wallaroo;
(vi)Veall Securities and Finance Ltd’s planned capital reduction.
Further particulars will be provided after discovery, interrogatories and return of subpoenas.”
Reference was also made to some of the applicants having made a previous s 701(6) application in respect of “a takeover by Marford Investments Pte Limited of Allied Queensland Coalfields Limited”.
An application by the applicant to strike out this part of the defence and cross-claim was unsuccessful. However, in the judgment given in respect of that application on 24 December 1997 I indicated that questions of discovery in relation to these “similar fact” allegations would have to be the subject of close consideration. Regrettably, it is in this area that the problems have arisen to which these reasons are addressed.
On 16 February 1998 orders were made by consent after negotiation between the parties and their legal advisers. The Court has been told that it was the intention of the parties to control discovery in relation to the “similar fact” allegations by utilising the orders rather than accepting general orders for discovery. The orders were, accordingly, made but, unfortunately, have led to difficulty and dispute between the parties which have been raised at numerous directions hearings but not finally resolved. The orders in question read as follows:-
“5.The applicants and each of them provide to Futuris Rural a schedule of all companies in which the applicants of any of them purchased shares where such companies have been the subject of a takeover offer, merger, share cancellation, scheme of arrangement or capital reduction or any entities in which shares have been disposed of in order to facilitate a person having 100% control of such entity from 1 January 1993 to the conclusion of these proceedings, such schedule to indicate:
(a)the name of the company;
(b)the total number of shares purchased, the range of purchase prices, and the range of dates of purchase; and
(c)how the shares were disposed of including details of:
(i)the sale price and any other financial benefit accruing to the applicants in relation to the disposition of the shares or otherwise paid by the purchaser to the benefit of the applicants;
(ii)the purchaser; and
(iii)the date and terms of any offers made by [sic] to the applicants to dispose of the shares.
(iv)indication as to whether all remaining shareholders benefited from any benefit additional to the takeover price.”
There was disagreement as to who should have access to the schedule. Access was, at that stage, limited, by order, to the respondent’s solicitors and counsel.
I do not propose to summarise in these reasons the course of events as it appears from the transcript of directions hearings between that date and 5 June 1998. There were disputes relating to confidentiality, it being asserted that the applicant and respondent were trade rivals operating in the same area of corporate takeovers and the like. Both parties filed notices of motion seeking restricted access to specified documents on 16 March 1998. On 23 April 1998 the parties agreed upon orders which established a procedure whereby access was limited in the first instance to the parties’ legal representatives with a protocol to be followed if either party wished to obtain the agreement of the other side as to disclosure to any other person. When the respondent wished that Mr Clark, an officer of the respondent, might have access to the schedule, which had been provided by the applicants on 6 April 1998, pursuant to the orders of 16 February 1998, it was asserted on behalf of the applicant that material in the schedule was commercially sensitive and should not be shown to officers of the respondent. Complaints were made on behalf of the respondent that the claims for confidentiality were not adequately supported by affidavit. Some resolution of this problem was arrived at by discussion in a directions hearing on 14 May 1998 on the basis that Mr Catto, on behalf of the applicant, would provide a detailed affidavit as to the claims for confidentiality in respect of certain transactions selected by the parties as reasonable examples. This affidavit was filed in Court on 5 June 1998 but the issue of confidentiality was not, in the event, proceeded with on that day.
The effect of the consent order of 16 February 1998, unexpected so far as the Court was concerned, was somewhat startling. It led to the provision of a schedule covering some seventy three separate companies, the shares in which have been the subject of acquisition by the applicants. This was to be compared with the small number of transactions referred to in the respondent’s pleadings. I raised the question of whether the conduct of the case would not be adversely affected if this large number of transactions became the subject of evidence. Reference was made to the tail wagging the dog. However, at that stage, there was no question of the supplying of information by the applicants to the respondent other than in the contemplated schedulised form. The question was whether that schedule could properly be disclosed to officers of the respondent company, in particular Mr Clark, so that the respondent’s legal advisers could receive proper instructions as to the further preparation of this aspect of the case, with particular reference to the issue of notices to admit facts, interrogatories and subpoenas. Those questions were adjourned for consideration at a directions hearing on 5 June 1998.
That directions hearing proved to be lengthy, complex and difficult. The Court was not greatly assisted by indignant general allegations of “green-mailing” from the respondent and oppressive conduct undertaken with the object of destruction of Mr Catto’s business from the applicants. However, some progress was made insofar as a suggestion was made by the applicants’ solicitor that confidentiality problems could be ameliorated if the list of company transactions was reduced so that it referred only to the companies in which the applicants or any of them had acquired shares and subsequently disposed of them. This would eliminate the problem of the provision of information to a trade rival in respect of existing holdings and would, at the same time, reduce the number of companies involved. Mr Catto had provided an affidavit which was served late but which contained information in relation to some few particular transactions which indicated their complexity and illustrated the problem of confidentiality. This affidavit produced problems in the hearing.
The information in relation to the company transactions as detailed in the affidavit was, according to a submission made by counsel for the respondent, inconsistent with information in relation to those same company transactions provided in the schedule. Accordingly, it was submitted that the schedule could not be regarded as trustworthy. This was a complaint which the applicants’ solicitors said was novel and would need to be investigated; if necessary, the schedule would be revised if inaccuracies were demonstrated. This could be done in conjunction with the preparation of a revised schedule containing the lesser number of companies. Counsel for the respondent submitted that any such revised schedule should be verified by Mr Catto. Additionally he sought orders in accordance with short minutes that he had prepared for the purpose of the directions hearing. Orders were sought in respect of the schedule and also for discovery of documents in relation to the schedulised transactions. Discovery had not previously been sought, on the basis, as I apprehend it, that the schedule would reasonably take its place and operate as a means of the “tight control” which I had previously indicated should be applied in relation to the “similar fact” aspect of the case. Discovery was sought on the basis that the respondent alleged that it had no faith in the accuracy of the schedule. There was, at least, agreement between the parties that the schedule, altered to eliminate the companies in respect of which the applicants retained shares, could be shown to Mr Clark upon his giving confidentiality undertakings as agreed upon in April.
An additional problem that arose should be mentioned. In his affidavit Mr Catto raised in addition to confidentiality based upon trade rivalry, a serious question of confidentiality based upon contract. A significant number of transactions in which an additional financial benefit had been obtained from the disposition of shares previously acquired had become the subject of deeds of settlement which, the Court was advised, contained confidentiality clauses. In one case some forty parties were involved in such a deed, the parties being strangers to this litigation. Arguments of a very general kind were made in relation to this problem. I expressed the view that the matter could not be dealt with by some blanket order but that the question would have to be resolved in relation to the particular documents if that were the way in which the proceedings evolved. In the result no final order could be made. Submissions were made by Mr Blanks, solicitor, on behalf of the applicants, that a discovery order in relation to the company transactions to be the subject of the revised schedule would be most oppressive in that it would not be a case of detailing only a few documents but that all documents relating to the underlying reasons for entering into the relevant transactions would have to be provided, the result being that the Court would be involved in not only determining the allegations of abuse of process in relation to the subject matter of the case, but also in relation to a large number of related matters of considerable complexity.
In the result, in order to bring matters to a head, use was made of the short minutes prepared by counsel for the respondent. These were altered, after argument, so that they read as follows:-
“1.1a schedule of companies which complies with para 5 of Order of 16/2/98 in which the Applicants or any of them have purchased and no longer hold shares which have been the subject of a takeover offer, merger, share cancellation, scheme of arrangement or capital reduction from 1 January 1993 to the conclusion of these proceedings;
1.2a supplementary list of discovery of documents which relate to the agreement to pay or evidence the payment of any consideration to the Applicants or any of them in relation to the disposal of shares in the companies referred to in the schedule as contemplated in paragraph 1.1.”
Order 1.1 was made with the rider that the proposed schedule could be shown to Mr Clark after provision of the required undertaking. Order 1.2 was not made. It was stood over for further consideration on the basis that the parties could make additional written submissions. The revised schedule was to be provided by 12 June 1998.
The revised schedule was provided as an annexure to an affidavit filed on 16 June 1998. It detailed share transactions in forty two separate companies and immediately became the subject of complaint on behalf of the respondent as to omissions from it of companies which, having regard to their inclusion in the first schedule, should have been included in the second and also in respect of other omissions. Mr Blanks, on 23 June 1998, filed a document being the submissions contemplated on 5 June 1998. The document contained submissions as to the inappropriateness of the making of discovery orders. It also, apparently in answer to the respondent’s complaints, provided additional material which, it asserted, had been omitted from the revised schedule by oversight. These matters were ventilated at a short directions hearing on 26 June 1998. Also, complaints were made in relation to the failure of the applicants to file and serve the expert report, a matter which, as I have already said, has now been belatedly attended to. Various other matters were raised including the renewal of a suggestion on the part of Mr Blanks that these proceedings should be stayed until the GOIL proceedings in Perth have been disposed of. I had previously refused a stay on this basis but, as I note from the transcript of the occasion, specifically indicating that the refusal was only in respect of the proceedings at that stage. The application is capable of renewal but I say no more as to that.
I indicated that I found the situation frustrating in relation to the schedule and discovery problems. The hearing concluded on the basis that a further hearing would take place on 5 August 1998 and that, adopting a suggestion of the parties, I should be provided with an agreed bundle of documents, including written submissions, relating to and intended to help in the resolution of the continuing problems as to the state of the schedule and the alleged need for supplementary discovery. As it turned out, there was a short hearing on 7 August 1998 which related for the most part to problems in relation to the applicants’ provision of the expert’s report. It had not been possible for me to give consideration to the matters raised in the bundle of documents which had by then been supplied. Prior to the next hearing which took place on 4 September 1998 I gave consideration to those documents and, in consequence, forwarded to the parties the memorandum of 21 August 1998 to which I have already made reference and which is attached to these reasons. As is apparent I had given further consideration to the concerns which I had expressed on more than one occasion previously as to the effect upon the litigation of the “similar facts” case and as to the general propriety of its continuing in the way it was. There had been no argument in relation to the consent orders of 16 February before they were made and I sought assistance in the memorandum as to what might be the reasonable scope of such a case and the basis upon which it might be brought. In particular I was concerned with these matters as a necessary aspect of case management. I indicated that I had “come to realise that I have never had the benefit of submissions from the parties focussing upon the proper scope of discovery in relation to the prior transactions in which Mr Catto and his companies have been involved”. In this regard, it is convenient to quote the following paragraph from my memorandum:-
“The allegations made in the pleadings relate, of course, to ‘similar facts’. The allegation is that the impugned intention to engage in abuse of process through an improper use of s 701(6) of the Law can be inferred from a pattern of previous conduct. The extent to which such material can be used is limited. It is not at large. A pattern of what is described colloquially as ‘green-mailing’ may not necessarily afford evidence of the necessary intention. If it does not, then discovery which can do no more than produce material on this topic should, arguably, not be permitted. This may be the more so, if such material is sought, through the discovery process, only for the purpose of cross-examination.”
I also referred to relevant sections of the Evidence Act 1995 (Cth) and certain decided cases in respect of which I sought submissions. The hearing on 4 September 1998 was the “case conference” envisaged in the memorandum. It was undertaken, of course, in the context of my being unable, because of impending retirement, to follow this litigation through the case management stages yet to occur and to undertake the final hearing, with the result that it was desirable for these outstanding matters to be resolved so that the case could be transferred to another judge’s docket.
I received some written submissions prior to the hearing and received submissions from both sides throughout what was a lengthy but unfortunately unproductive discussion on that day. The parties maintained their respective positions. Clearly enough, there were proper complaints made by the respondent in relation to the revised schedule. It had not been corrected to take into account the omissions which Mr Blanks had referred to. It had not been properly verified. It is necessary, of course, that these matters be attended to and I will make an order in that regard. However, the question is whether, at least at this stage of the litigation, it is appropriate that any further orders be made in relation to the “abuse of process” issue with its attendant “similar facts” question. It is clear that there is a significant problem relating to those aspects of the schedule which assert contractual confidentiality in relation to the ultimate settlement arrived at in relation to the disposition of shares in the previous takeover or similar situations. It is Mr Blanks’ contention that if particulars of these matters are to be supplied in a sworn schedule and, a fortiori, if they are to be the subject of document discovery then the other parties, who are numerous, should be given the right to be heard. I see considerable force in this submission. In the circumstances, however, I do not find it necessary to resolve it. It may be that it must be resolved in the future but I say nothing more about that. Also the question of whether this case should await the outcome of the GOIL proceedings or be case-managed along with them is a matter which, although raised, I find it inappropriate to consider. Again, it may have to be dealt with in the future and I say no more about it. I can do no more at the present stage of this case than direct my attention to the concerns which I raised in the memorandum. Those concerns were not allayed or resolved by discussion on 4 September. I reserved them for further consideration in the context of whether I should make the orders that were sought on that day by the respondent. They are set out above and relate in some respects to the order sought but left in abeyance in July. It is necessary that I make some reference to authority in relation to the concept of green-mailing and also to “similar fact” evidence in civil proceedings. I do so now.
GREENMAILING
This term has been not infrequently used in argument by the respondent to describe the alleged activities of the applicants. It appears to be a pejorative expression lacking precise legal definition. As appears from the attached memorandum I was concerned that it was being used to describe a situation equivalent to the abuse of the Court’s process relied upon in the paragraphs of the pleadings referred to above. My endeavours in the memorandum and in the subsequent discussion on 4 September to achieve some precision in relation to this aspect of the case were not particularly successful. In relation to a question from myself as to whether “greenmailing” was necessarily unlawful, I received a response from counsel for the respondent referring to s 698 of the Corporations Law. This section had not been referred to in previous discussions and I was given no indication as to how it would apply to the case brought against the applicants. I have considered the section and cannot, as presently advised, see that it has any relevance.
For present purposes the term “greenmail” can be accepted as describing the activity of a person holding shares, options or convertible notes in a company who uses that position as leverage in the context of a takeover bid in order to seek a significant financial advantage. The leverage may take different forms and be exerted in different circumstances in relation to the operation of the Corporations Law. Whether, in any particular case, the use by a shareholder of his or her position under the Corporations Law will amount to a relevant abuse founding a cause of action or providing a discretionary bar to the use by a shareholder of a protective section such as s 701(6) will be a complex and difficult question. It will clearly be dependent upon the particular circumstances in which and by which leverage is applied.
There is no legislation outlawing the practice of “holding out” against the acquisition of a person’s shares by the offeror in a takeover bid. The Corporations Law provides procedures by which minority shareholders can protect themselves against majority shareholders who do not treat them fairly. This means it is open to persons to utilise the procedures under the Corporations Law in order to delay a takeover offer being completed.
The Corporations Law provides a range of circumstances in which there is scope for a person to take a position under the Law as a minority holder of shares, options or convertible notes and use the desire of the offeror for a quick acquisition of all remaining shares as a lever for obtaining a premium above the value of the holding. These include:-
a takeover bid (s 701);
a scheme of arrangement whereby shares are cancelled on approval by a majority of shareholders (ss 411-12);
compulsory acquisition where there is dissent from a scheme or contract approved by the majority of shareholders (s 414);
a reduction of capital by special resolution (s 195);
The common law also provides minority shareholders with a right to protect their position when there is an expropriation of shares by special resolution of the company. Gambotto & Anor v WCPLtd & Anor (1994-1995) 182 CLR 432 provides the most recent example.
It is to be noted that compulsory acquisition of options and convertible notes is not available under the Corporations Law. The holders of such convertibles can occupy an odd position at the end of a successful takeover offer in that if they convert their options or notes to shares the result will be that the corporation no longer has a 100 per cent holding but cannot acquire the new shares since the takeover offer has expired. The ASC (as it was then known) has used its power under s 730 of the Corporations Law to modify relevant provisions in order to avoid this anomaly occurring (see Peninsula Gold Pty Ltd & Ors v Australian Securities Commission (1996) 134 FLR 457; DB Management Pty Ltd v Australian Securities Commission (1998) 126 ALR 15). There is authority that s 730 does not give power to provide for the direct compulsory acquisition of options (Re DB ManagementPty Ltd and Australian Securities Commission & Ors (1997) 26 AAR 38 and DB Management Pty Ltd v Australian Securities Commission (1998) 126 ALR 15) and convertible notes (ANZ Executors v Humes Ltd [1990] VR 615) but can be used to modify s 701(2) so as to provide for compulsory acquisition of the shares once converted.
There are conflicting views on holding out by minority shareholders, with some people vehemently opposed to the practice and others, in effect, unable to see what the fuss is about. It is viewed on the one hand as the oppression of the majority by the minority (for example, M J Whincop, “Gambotto v WCP Ltd: An Economic Analysis of Alterations to Articles and Expropriation Articles” (1995) 23 Australian Business Law Review 276 at 278) and on the other hand as no more than astute bargaining behaviour similar to that used by owners of land essential to a real estate development project (for example, M Yew Seong Chin, “Being in the Minority: The Compulsory Acquisition of Shares” (1997) 6 Auckland University Law Review 413 at 428; see also Brooking J in ANZ Executors v Humes Ltd [1990] VR 615 below). Opposing characterisations of the proprietary nature of a share are central to the different analyses. Approaching the issue in the context of the takeover provisions of the Corporations Law suggests that the legislative purpose behind s 701 could influence any analysis in relation to the legitimacy of holding out.
There is very little case law which discusses the activity of ‘greenmail’ as such. As far as I can ascertain it has not been subject to investigation in terms of abuse of process or as a factor mitigating against the Court’s use of the discretion under s 701(6). It has been discussed in terms of the equitable requirement that a party come to Equity with clean hands and also in terms of a discretionary factor to be taken into account by the ASC ( now the ASIC) when considering an application to modify the takeover provisions under s 730 of the Law. So far as I can determine this is the first occasion in which the tort of abuse of process has been alleged in this area.
In ANZ Executors v Humes Ltd [1990] VR 615, convertible notes were purchased by a number of parties after a takeover offer for shares and convertible notes in Humes Ltd was issued. The offeror acquired 100 per cent of the shares but had not been able to acquire all the convertible notes and was prevented from paying them out until after a period of some years had elapsed. The main action concerned a challenge to the validity of a special resolution permitting an immediate payout of all convertible notes in order to prevent a situation arising where the conversion of notes into shares would reduce the 100 per cent shareholding which had been acquired under the takeover offer. The resolution was held to be invalid. A response to an argument in favour of an order for the conversion of the notes into shares (rather than for an award of damages) was an allegation that the noteholders had not come to Equity with clean hands since they had had the intention of engaging in “greenmail” when they purchased the notes.
In considering the “clean hands” submission Brooking J said (at 633-5):-
“Then it was put that the plaintiff had not come to equity with clean hands. The plaintiff, Mr. Myers said, had been guilty of commercial sharp practice, or ‘greenmail’, as he put it. The plaintiff, so it was said, had acquired the notes with the intention of extracting an enormous price for them from a third party by threatening to cause Humes enormous harm; the plaintiff was threatening to inflict this harm on Humes in order to have itself bought out. The plaintiff had, said Mr. Myers, been trying to obtain a price of at least $18 and probably $20 for its notes.
The plaintiff bought its notes in about September and October 1988 because it believed the Smorgon interests wanted to get in all outstanding notes and because it hoped it would be able to sell its notes to those interests at a profit because of the Smorgons’ desire to avoid having minority interests in the company. It bought some of its notes (but not, it seems, the 1000 later converted) after it had learnt that Smorgon interests were seeking to acquire the outstanding notes compulsorily by inducing the National Companies and Securities Commission to modify the Take-overs Code. It had its solicitors contact other noteholders to ascertain their attitude and in the hope of acquiring further notes (nothing more than that is proved in this regard). By the end of October 1988 the plaintiff was aware that conversion of any of its notes would prevent the use as regards Humes of the grouping provisions for tax purposes. It decided it would not give notice of the conversion of any of its notes immediately but would do so shortly before 30 June 1989 unless it had in the meantime agreed to sell its notes; it gave notice on 6 March, earlier than it had intended, because it learnt that Elontat had itself given notice of conversion.
Of course it is not suggested that there was anything unlawful in what the plaintiff did. Nor is it put that there has been fraudulent or other deceptive behaviour or any non-disclosure. Dishonesty is not attributed to the plaintiff. But it is said there has been sharp practice, which my Concise Oxford Dictionary tells me means ‘barely honest dealings’. I do not think anything done by the plaintiff here fairly answers that description.
While no doubt the plaintiff hoped that the Smorgons would find themselves under pressure, it seems to me that what is complained of is in essence the buying of property in the hope of being able to sell it at a large, and possibly very large, profit because of its special value to a particular group of persons. Now that group was not in necessitous circumstances or engaged in good works. It was not a charity or other deserving cause but the owner of a multi-million dollar commercial enterprise which was used to looking after itself and no doubt used to having available to it the best of legal and other expert advice…
…
Of course each case depends on its own circumstances, and it may be dangerous to try to find analogous cases. In the course of argument I put the example of land with a special value to the man next door. The desire or need which gave the land that special value could vary greatly in both nature and degree. At one end of the scale the adjoining owner might be so situated that he was not very anxious to acquire the land, so that the special value was only slightly above the price that others would pay. At the other extreme one can imagine cases where the survival of an enterprise depended on the acquisition. In the examples I give I put to one side charitable institutions or other purchasers that may be though to be worthy of special consideration. If I own a block of land and my neighbour wants it badly, or needs it badly, for a tennis court, or to extend his factory, and he offers me double what would otherwise be its value, does equity frown on me if I accept his offer? Will equity give me black looks if my neighbour chooses to offer 10 times what would otherwise be an appropriate price but allow the transaction to go unnoticed if the premium is only 10 per cent? Does it make any difference if I, instead of being the existing owner, buy the land because I know of its special value to the adjoining occupier, in the hope of selling to him at a profit? I am inclined to think that if it is ‘wrong’ to buy land in these circumstances with a view to profit then it is also ‘wrong’ for the sitting landowner himself to take that profit.
I do not think that what was done by the present plaintiff has soiled its hands. I take this view; a different judge might, I suppose, take another, and so it may be said, as Selden said, that equity is a roguish thing. This kind of uncertainty is the necessary result of a notion as imprecise as that of ‘clean hands’.
I have looked at the books, in search for guidance. I have found no case that resembles this one in the slightest. While no doubt there are those who would say without hesitation that what the plaintiff is hoping to achieve is an unfair result, I do not think that the conduct is of such a character as calls for the application of the maxim. This conclusion may in the view of others be right, it may be wrong, but it is one about the correctness of which I have no doubt.”
I consider this a most significant passage.
Challenges by minority shareholders to the ASC using its power under s 730 of the Corporations Law to modify s 701(2) in order to facilitate a takeover bid is the other context in which discussion of “greenmailing” is found in the case law. In Peninsula Gold Pty Ltd & Ors v Australian Securities Commission (1996) 134 FLR 457, a shareholder split its parcel of shares between itself and eighteen other persons with the effect of preventing the offeror from reaching the threshold requirements under the Law for proceeding to compulsory acquisition. The offeror and the target company had applied to the ASC for a modification of s 701(2) such that the group of new shareholders would be treated as one shareholder when counting the number of shareholders left on the register. The ASC had announced publicly its intention to view such applications favourably. McLelland CJ in Eq found that modification of the Law in order to prevent “artificial transactions” from obstructing an offeror proceeding to 100 per cent ownership was a valid exercise of the power.
In Re DB ManagementPty Ltd and Australian Securities Commission & Ors (1997) 26 AAR 38 the ASC modified s 701(2) on request by an offeror so that it could acquire compulsorily shares issued by the target company upon the exercise of options after the takeover offer had closed. Three parties sought review of the ASC decision on the basis it was an invalid exercise of the power. Deputy President McMahon, discussed “greenmailing” (at 46) as a reason for the modification being sought. Whilst declaring that he found no evidence of engagement “in any device or artifice unfairly to exploit any provision of the Corporations Law” by the applicants in the matter, he also noted what he saw in Elkington v ShellAustralia Ltd (1993) 32 NSWLR 11 per Kirby A-CJ at 16 as “judicial approval for validating, as a discretionary consideration, a desire to remove the opportunity or possibility of greenmailing taking place”.
It has often been said by the courts that the purpose of s 701 of the Law is to facilitate the acquisition of the remaining shares in a company which is the target of a takeover bid once an overwhelming majority of shares have been successfully acquired by the offeror (see, for example, Elkington v Shell Australia Ltd (1993) 32 NSWLR 11 per Kirby A-CJ at 16, per Sheller JA at 19; Peninsula Gold at 461; D B Management (1998) 156 ALR 15 at 28). Section 701(6) is to be construed in that context (Elkington v Shell per Kirby A-CJ at 16, per Sheller JA at 19).
The protection of minority shareholders by ensuring an equality of treatment is a feature of the Law ( in relation to court confirmation of capital reductions see Catto v Ampol Ltd (1989) 16 NSWLR 342 per Rogers A-JA at 358 discussing s 123 of the Companies (New South Wales) Code; Nicron Resources Ltd v Catto & Ors (1992) 8 ACSR 219 at 230) and in relation to the takeover provisions in Ch 6 of the Law, s 731 requires that the ASIC, when exercising its powers of modification or exemption under ss 728 and 730, shall have regard to the need to ensure “that as far as practicable, all shareholders of a company have reasonable and equal opportunities to participate in any benefits accruing to shareholders under any proposal under which a person would acquire a substantial interest in the company”.
Although Gambotto was concerned with the validity of an alteration to a company’s articles of association with a view to permitting the expropriation of shares, comments made by the High Court may, arguably, have some bearing upon the issues in the present case. In the majority judgment it was said (at 446):-
“Notwithstanding that a shareholder’s membership of a company is subject to alterations of the articles which may affect the rights attaching to the shareholder’s shares and the value of those shares, we do not consider that, in the case of an alteration to the articles authorizing the expropriation of shares, it is a sufficient justification of an expropriation that the expropriation, being fair, will advance the interests of the company as a legal and commercial entity or those of the majority, albeit the great majority, of corporators. This approach does not attach sufficient weight to the proprietary nature of a share and, to the extent that English authority might appear to support such an approach, we do not agree with it. It is only right that exceptional circumstances should be required to justify an amendment to the articles authorizing the compulsory expropriation by the majority of the minority’s interests in a company. To allow expropriation where it would advance the interests of the company as a legal and commercial entity or those of the general body of corporators would, in our view, be tantamount to permitting expropriation by the majority for the purpose of some personal gain and thus be made for an improper purpose (Brown v. British Abrasive Wheel Co., [1919] 1 Ch., at pp. 295-296). It would open the way to circumventing the protection which the Corporations Law gives to minorities who resist compromises, amalgamations and reconstructions, schemes of arrangement and takeover offers.”
I do not intend, of course, in this discussion to arrive at any considered final view of the relation of “greenmailing” activities to the rights of a shareholder under s 701(6) or to his or her liability to an action in tort for abuse of process. I have already held, in relation to a strikeout application brought by the applicants that the respondent’s claims in this regard should not fail in limine. It is quite clear, however, that the general area is beset by doubt and difficulty. The ultimate result in the case will depend very much upon the circumstances established in evidence in relation to the applicants’ activities in the context of the Elders takeover. Obviously there must be a fine line between the type of behaviour referred to by Brooking J as not involving a breach of the “clean hands” doctrine and that which could amount to a discretionary bar to the operation of s 701(6). A fortiori, where the tort of abuse of process is alleged. These difficult matters can only be determined at the final hearing. However, the very existence of the difficulties which the above discussion is intended merely to illustrate, must be taken into account in determining how far interlocutory procedures may be permitted to go, at this stage, in the "similar fact” area. In this regard, it is necessary, also, to consider the parameters prescribed by legislation and curial decision in relation to that type of evidence. I turn to that now.
SIMILAR FACT EVIDENCE
Two broad considerations arise under this heading. The first is whether discovery of documents should be ordered. In this regard the respondent seeks the specific orders already referred to. The second question is whether, in the event of discovery orders not being made, an order should be made in relation to the provision of a verified schedule, as sought in the respondent’s second proposed order which has also been referred to. It is convenient to consider the question of discovery first.
Obviously it was not contemplated by the parties that orders for discovery in relation to “similar fact” questions should be made. As I have already indicated, the provision of information on a schedule, as ordered by consent on 16 February 1998 was, apparently, regarded as a substitute for discovery and as being in conformity with an indication previously given by myself that questions of discovery should be closely controlled in relation to this area of the case. It is, apparently, because of alleged deficiencies in the schedule provided that the respondent now seeks these discovery orders. Mr Blanks has described them as “default orders” which, in the circumstances, is a reasonably apt description. He says that the making of such orders would be oppressive, unproductive, and detrimental to the proper management of the case. On the subject of “default”, some complaint in relation to the timeliness and adequacy of the schedule is no doubt justified. However, I am not persuaded that these matters of default would warrant the radical change in the consent regime established by the parties, now sought by the respondent. However, I think it appropriate that I make some remarks in relation to the limits of discovery, as I see them, in this area.
Since the passing of the Evidence Act 1995 (Cth), “similar fact” evidence falls for consideration under ss 97, 98, 102 and 135. Section 98 (the coincidence rule) would not appear to have any application in the present case. Section 102 renders inadmissible “evidence that is relevant only to a witness’s credibility”; the exceptions to this rule are not relevant at this stage. The other two sections, so far as relevant, should be set out in full as follows:-
“97.(1) Evidence of the character, reputation or conduct of a person, or a tendency that a person has or had, is not admissible to prove that a person has or had a tendency (whether because of the person’s character or otherwise) to act in a particular way, or to have a particular state of mind, if:
…(b)the court thinks that the evidence would not, either by itself or having regard to other evidence adduced or to be adduced by the party seeking to adduce the evidence, have significant probative value.
…
135. The court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might:
(a) be unfairly prejudicial to a party; or
(b) be misleading or confusing; or
(c) cause or result in undue waste of time.”
These sections relate, of course, to the admissibility of evidence at trial. However, they necessarily have a most important bearing upon the permissible scope of discovery in relation to evidence of this kind. It may be noted, of course, that the words “significantly probative” are used to describe the quality of the evidence in question. I am in respectful agreement with what Lehane J said in Zaknic Pty Ltd v Svelte Corporation Pty Ltd & Ors (1995) 61 FCR 171 at 175-6 in relation to this expression. His Honour said:-
“… what is clearly required, if evidence is to be admissible, is that it could rationally affect the assessment of the probability of the relevant fact in issue to a significant extent: ie, more is required than mere statutory relevance.
Because that is so, I think it is permissible to turn for guidance to cases decided before the Act came into force. I do not propose to review the authorities in detail. They do not by any means speak with one voice and in some of them the concept of "relevance" is used in what may, perhaps, be described as a somewhat special sense which may not survive the Evidence Act, s 55: D F Lyons Pty Ltd v Commonwealth Bank of Australia (1991)28 FCR 597; F Bates, “Similar Facts in Civil Cases” (1992) 108 LQR 200. It is probably true that, in civil cases the standard required in criminal cases for the admission of evidence of this kind did not fully apply: Mood Music Publishing Co v De Wolfe Ltd [1976] 1 Ch 119 at 127; Sheldon v Sun Alliance Australia Ltd (1990) 53 SASR 97 at 102, 144-149; D F Lyons v Commonwealth Bank of Australia. What is clear is that courts have exercised a considerable degree of caution in admitting similar fact or tendency evidence. They have described the degree of cogency required of such evidence in a number of ways, some at least of which give some guidance, I think, as to the meaning of the concept of "significant probative value" which appears in s 97. For example, there are the phrases “striking similarities” and “underlying unity” seen in some of the criminal cases (see the discussion by Gummow J in D F Lyons at 605); “sufficient probative weight to be relevant to this issue” (Mood Music Publishing Co at 127); “a strong degree of probative force, ... a real nexus, judged according to experience and common sense, between the evidence and the fact in issue” (Boyce v Cafred Pty Ltd (1984) 4 FCR 367 at 370). It is clear also that where in reported cases evidence of this kind has been admitted, it has been, as a matter of commonsense, clearly and strongly probative of the relevant fact in issue: see, e.g. Mood Music Publishing Co; Sheldon; Mister Figgins Pty Ltd v Centrepoint Freeholds Pty Ltd (1981) 36 ALR 23; Gates v City Mutual Life Assurance Society Ltd (1982) 68 FLR 74 at 88; Berger v Raymond Sun Ltd [1984] 1 WLR 625.”
(See also per Lindgren J FAI v McSweeney & Ors; Travel Compensation Fund v FAI (1998) 10 ANZ Insurance Cases 61-400 at 74,406 where his Honour also referred to the requirements of “striking similarity or underlying unity” between the two sets of “facts” and the necessity of caution even where this is so, his Honour rejecting evidence on the basis that “similarity is simply at too general and abstract a level to merit the epithet, ‘striking’”.)
Furthermore, ss 102 and 135 would appear to require the continuance of “the long-standing practice not to order discovery which is directed solely to credit” on the basis that “[d]iscovery in an action would become gravely oppressive and time-consuming if there were an obligation on a party to disclose any document which might provide material for cross-examination as to his credit-worthiness as a witness”. (Thorpe v Chief Constable of Greater ManchesterPolice [1989] 1 WLR 665, per Neill LJ at 673.)
In Mahlo & Ors v Westpac Banking Corporation & Anor (Supreme Court of NSW, Santow J, 21 November 1996, unreported) Santow J considered Thorpe as one of three authorities dealing with limits on discovery in relation to similar fact or tendency evidence. He suggested (at 11) the following proposition concerning the admissibility of tendency evidence in light of the authorities and the provisions of the Evidence Act 1995. It:-
“generally is only admissible where these requirements are satisfied:
(i) the evidence goes to some system or established pattern,
(ii)that system or pattern bears sufficiently upon the likelihood or probability of the instant case coming within that system or pattern so as to satisfy,
(iii)(a) the test of relevance in s 55 of the Evidence Act 1995 (NSW) and, where applicable,
(b)the test of having significant probative value in s 97 of that Act.”
Santow J also noted the following matters which may exist “in some tension”. There is difficulty at the stage of discovery in having confidence that enough of the context which will ultimately determine whether evidence is relevant or of significant probative value is before the Court, and caution in relation to discovery at an early stage is required. Where discovery could be onerous and it can be seen with confidence that there is evidence which is “intrinsically incapable of having any probative value” in terms of “being able rationally to affect the assessment of the probability of the existence of a relevant fact in issue, or otherwise lacks significant probative value” then discovery should be limited.
I respectfully adopt his Honour’s views. I am quite satisfied that the discovery contemplated in the order sought in the present case would be onerous, having regard to the number of transactions involved. It therefore becomes a question whether there is sufficient indication, at this stage, that the material sought to be obtained would be likely to have the significant probative value required.
As already indicated the revised schedule contains information in respect of forty two separate share dealings by the applicants. Mr Catto filed an affidavit on 16 June 1998 in which he deposed that he conducts a business of dealing in shares requiring that he devote considerable time and energy to a study of the share market to ascertain situations where some leverage might be had as a result of the shareholding. The respondent argues that this material is discoverable because it is obviously “logically probative”. This claim must be assessed in light of the difficulties to which I have already adverted in relation to the establishment of relevant “abuse of process” or a discretionary bar to s 701(6). The respondent has not filed any evidence in relation to the six dealings of the applicants, specified as particulars in par 25.3(a) of the defence and par 4.3(a) of the cross-claim, which might assist in delineating the pattern of activity it seeks to establish with either of the schedules. Nor has it filed evidence in respect of the particularised s 701(6) application concerning a takeover by Marford Investments Pte Ltd of Allied Queensland Coalfields Ltd (par 25.3(b)(i) of the defence and par 4.3(b)(i) of the cross-claim). It may also be noted that, as I have been informed, full discovery has taken place between the parties in relation to the primary allegations in respect of the applicant’s alleged conduct in relation to the Elders takeover. There is, currently, no indication of how it is alleged by the respondent that that conduct transgressed the boundary between sharp business practice and abuse of process. There does not appear to be, at this stage, a clear statement of impugned conduct in the Elders takeover to form the basis for the application of the tendency rule.
The information in the revised schedule, for example, appears to establish a varied pattern of purchasing minority shareholdings in targeted companies both well before, just prior to and after the announcement of takeover offers. There is a variety of ways in which the shares were ultimately disposed of. There are six instances of additional benefits which were not shared by all shareholders and which involve undisclosed terms subject to confidentiality agreements. This is to be compared with thirty six other instances where there is no evidence of additional benefits. The fact of an additional benefit is not essential to an intention to use the Corporations Law in the manner relied on. There is no way to know how the rest of the sharedealings as a system of activity might have some significant probative value. There is no category which gives information on whether compulsory acquisition was objected to or whether litigation under the Corporations Law was commenced or threatened. There is no category as to whether negotiations were entered into with the offeror by the applicants.
The essential fact in issue is the specific intention of the applicants to use s 701(6) for the purpose of seeking to acquire an altogether exorbitant benefit. The activities referred to in the schedules are at a level of generality which does not allow the Court to be confident that the documentary information sought to be discovered could have the necessary significant probative value in relation to the pleaded intention. The system or pattern of activity revealed by the schedules as a whole appears to be no more than the applicants’ activities in purchasing shares for the purpose of obtaining leverage between the price of the shares and the price ultimately paid on their disposal. This activity is a regular part of Mr Catto’s business activities as sworn in the affidavit filed by him on 16 June 1998.
In light of the problems which I have discussed above relating to the concept of “greenmail” and its relation, if any, to the abuse of process relied on and also to the application of the “tendency rule” to the material in the schedule, I have come to the conclusion that it would be inappropriate and, indeed, oppressive to order the discovery sought. I accordingly decline to do so.
I turn then to consider whether I should make the order sought in relation to the schedule, or a similar order.
The complaints which underpin the request for the second order sought by the respondent on 4 September 1998 are two in number. In the first place there were a number of omissions from the revised schedule. As I have indicated these were referred to in Mr Blanks’ submissions of 23 June 1998 . The schedule, however, has not been corrected or verified. Undoubtedly it is a matter for criticism that the omissions occurred. I am not, however, prepared to assume that they point, in some fashion, to general unreliability in relation to the preparation of the schedule. The schedule must be corrected so that the omitted material is included. The applicants must pay the respondent’s costs relating to this correction including the reasonable costs of bringing the omissions to the attention of the applicants’ solicitor and such portion of any Court appearances as reasonably relate to them.
The second question is one of greater difficulty. As I have already indicated, the respondent complains that, apart from the above referred to omissions, the reference in the revised schedule to the six transactions in which settlement occurred on a confidential basis does not constitute a compliance with the consent order of 16 February 1998. That order required in par 5(c)(i) of Schedule “A” information as to “any other financial benefit accruing to the applicants in relation to the disposition of the shares or otherwise paid by the purchaser to the benefit of the applicants”. “Details” of such a benefit were required to be provided. It is clear that although the schedule indicates the existence of a benefit it fails to provide details of it. It is asserted in the schedule, and maintained in argument by Mr Blanks, that the commercial confidentiality not only of the applicants but in some cases of a very large number of other people would be involved should these details be provided. It is further asserted that disclosure would involve breaches of contract.
It is most regrettable that the existence of these problems was not the subject of consideration at the time when the consent order was made in February. The Court was not apprised of the possibility of these problems occurring any more than it was informed of the large number of transactions that would be involved in the “similar fact” aspect of the case. Mr Blanks has made no application to vary this aspect of the order but has submitted that if compliance is required then an opportunity should be given to all those whose confidentiality and privacy would be intruded upon to make appropriate submissions to the Court as to whether disclosure should take place.
I would not ordinarily be impressed by MrBlanks’ submissions. However, I must have regard to the proper management of the case especially in the circumstances that it is to be transferred to the docket of another judge. It is clear, from what I have already said, that, if the question were one only of the making of appropriate discovery orders, I would not, at this stage, for the reasons I have already given, contemplate making an order which would require the production of documents dealing with these transactions. I need to consider, in my view, my approach to this other order in light of the view that I have taken in relation to discovery.
With some hesitation I have come to the view that, if I were to accede to the respondent’s submission that I should make an order in relation to the schedule in the form sought, then as a matter of simple justice, I should have to entertain an application of the kind foreshadowed, which application might well involve submissions being made, apparently, by in excess of forty persons who are not parties to this litigation. This being so, I am not prepared to make the order sought by the respondent. If I had taken a different view as to its entitlement to discovery at this stage the result might have been otherwise. I am persuaded, however, that I cannot, consistently with that view, make the order sought in relation to the schedule.
Accordingly, the only order I shall make is one requiring the correction and verification of the schedule in the manner previously indicated.
So far as outstanding questions of costs are concerned I have already indicated that those relating to the provision of the expert report will need to be determined at a later stage on the basis of evidence not yet provided. It is undesirable that questions of costs that have been reserved should be determined by the judge having the further conduct of this matter. Although the applicants have been broadly successful in their opposition to the discovery orders sought on 4 September 1998, they have, undoubtedly, contributed to the problems associated with those orders by virtue of their consent to the orders of 16 February 1998. Moreover, their frequent delays in compliance with directions have contributed to case-management problems. I have come to the conclusion that the appropriate order in respect of all interlocutory matters other than those which I have specifically resolved, should be that each party should bear their own costs.
I should add that a number of issues have been raised in discussion, such as the desirability of the case management of these proceedings being conducted in conjunction with the GOIL proceedings in Perth or, indeed, the transfer of these proceedings to Perth so that their case management may be undertaken by the judge in charge of those proceedings. There has also been a suggestion that there may be a renewal of the application which I have dealt with previously but necessarily on a non-final-basis, that the decision of these proceedings be deferred until the resolution of the GOIL proceedings in Perth. None of these matters are currently the subject of specific motions in the proceedings and, accordingly, do not call for resolution before these matters are transferred to a docket of another judge. I mention them only to note their existence as matters that may call for resolution in the future.
Accordingly, I make the following orders that:-
The orders sought by the respondent on 4 September 1998 be refused.
The applicants file and serve by Friday 6 November 1998 a corrected and verified revised schedule of share acquisitions such that any omitted material is included, such schedule to be subject to confidentiality orders previously made in respect of the revised schedule.
The applicants pay the respondent’s costs relating to the correction of the above mentioned schedule including the reasonable costs of bringing omissions to the attention of the applicants’ solicitor and such portion of any Court appearances as reasonably relate to those omissions.
Any issue of costs in relation to the applicants’ delay in filing their expert report be adjourned for future determination upon the basis of evidence which may be provided.
The parties bear their own costs in respect of all occasions where costs have been reserved and in respect of the orders sought by the respondent on 4 September 1998.
I certify that this and the preceding twenty-four (24) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.
Associate:
Dated: 30 October 1998
Mr S Blanks, solicitor, instructed by Stephen Blanks & Associates, appeared on behalf of the applicants.: Counsel for the Respondent: Mr M.L. Bennett
with Mr S.J. Lemonis, solicitorSolicitor for the Respondent: Bennett & Co with its agent Harper Watson Date of Hearing: 4 September 1998 Date of Judgment: 30 October 1998
IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 3072 OF 1997
IN THE MATTER OF ELDERS AUSTRALIA LIMITED
A.C.N. 061 617 230
BETWEEN:
SUPER JOHN PTY LIMITED
A.C.N. 000 375 093
FIRST APPLICANT/FIRST CROSS-RESPONDENTBATOKA PTY LIMITED
A.C.N. 002 904 930
SECOND APPLICANT/SECOND CROSS-RESPONDENTELIZABETH LANCEY & JULIAN LANCEY
AS TRUSTEES FOR ELIZABETH SUPERANNUATION FUND
THIRD APPLICANTS/THIRD CROSS-RESPONDENTSALLISTAIR HAZARD
FOURTH APPLICANT/FOURTH CROSS-RESPONDENTIAN MORTON
FIFTH APPLICANT/FIFTH CROSS-RESPONDENTAND:
FUTURIS RURAL PTY LIMITED
A.C.N. 009 339 333
RESPONDENT/CROSS-CLAIMANTJUDGE:
FOSTER J
DATE:
21 AUGUST 1998
PLACE:
SYDNEY
MEMORANDUM
On 5 June 1998 a fairly lengthy directions hearing was held in this matter in which questions relating to discovery were debated. In respect of several of the orders sought by the respondent I reserved decision and gave directions as to the furnishing of any further written submissions to be relied upon by the parties. These submissions were provided during the month of July. Unfortunately other commitments have prevented me giving consideration to the matter until this week.
The abovementioned decision was reserved in the context that I had expressed concerns during the hearing as to the course that discovery was taking. The aspect of discovery which worried me related to allegations made by the respondent in paragraph 25 of its defence and to similar allegations made in paragraphs 4, 5, 6, 10 and 11 of the cross-claim. The thrust of these allegations was that the applicants had engaged in an abuse of process by using the procedure afforded by s 701(6) of the Corporations Law for a purpose otherwise than that for which it was intended, namely to extort an excessive financial benefit from the respondent in relation to the acquisition of their shares in Elders Australia Limited in the context of a takeover by the respondent. In relation to the allegation that the applicants acted with this intention, certain particulars were given. These were to the effect that Robert John Catto, the company secretary of the first applicant and a director of the second applicant, had “previously purchased in his name and in the name of companies associated with him or has caused to be purchased minority interests in companies the subject of a takeover offer or share cancellation and objected to the compulsory acquisition or cancellation of such shares including [and six particular company transactions were mentioned] with the indication that “further particulars will be provided after discovery, interrogatories and return of subpoenas”. In an early directions hearing I indicated that some control would be necessary in relation to discovery as to this aspect of the case.
On 16 February 1998 elaborate orders were made in relation to discovery. These were made by consent after the parties had engaged in negotiation. Reference to the transcript indicates that the only debate that occurred was in relation to the making of confidentiality orders in respect of the material to be supplied. This material was to be supplied by the delivery of schedules relating to earlier activities of Mr Catto and companies associated with him in the type of situation referred to in the pleading. There was no argument as to the width or scope of the material sought.
Thereafter, a number of direction hearings have taken place in which complaints have been made as to delays in compliance with the discovery regime and in which applications have been made in relation to confidentiality orders. I do not now refer to the detail of these. They have largely been concerned, apart from the question of delays, with the issue of confidentiality, concerns being expressed on behalf of the applicants that the divulging of the material sought on discovery could be highly prejudicial to Mr Catto, the applicants and associated companies, particularly insofar as the applicants and respondent operated in the same areas and were, in effect, trade rivals. In this regard some quite complicated orders had been made by consent after negotiation between the parties.
On 5 June, I expressed concerns as to the way in which the scheduled information contemplated by the consent order of 16 February had evolved. Whereas only six transactions had been mentioned in the pleadings, the schedule produced by the applicants and in respect of which claims for confidentiality were being asserted had extended to include in excess of seventy such transactions. Not only was this so, but documents were being sought relating to those transactions. I was made aware that the transactions and related documents involved persons who were not party to these proceedings and whose private interests could be subject to unwarranted disclosure. I was concerned that, as a matter of case management, this aspect of discovery was becoming out of proportion to the significance of the issue to which it was addressed. The debate on that day was to some extent acrimonious, allegations of “green-mail” were being made on one hand and of small businesses being “crushed” on the other.
I have now read the submissions that have been provided and reviewed the course that the proceedings have taken. I continue to have concerns, at the case management level, as to this aspect of the discovery process between the parties. Those concerns prevent me from giving the interlocutory judgment which I had hoped to give on this aspect of the matter.
A lot of the submissions deal with delay and alleged failure on the part of the applicants fully to comply with orders made, for the most part, by consent. Other matters relate to confidentiality, particularly the confidentiality of parties not included in this litigation. It is submitted on behalf of the applicants that were material to be provided by way of discovery which would impinge upon the confidentiality of such persons then they should be given an opportunity to be heard. In one case it is suggested that some forty parties might be involved.
In this brief memorandum I do not seek to make any findings as to delay, the justification for it, or on the numerous issues of confidentiality that have now been raised in the written submissions. What I am concerned about is the direction in which this aspect of discovery is heading and the propriety of allowing it to go further, as a matter of case management. In considering the material, I have come to realise that I have never had the benefit of submissions from the parties focussing upon the proper scope of discovery in relation to the prior transactions in which Mr Catto and his companies have been involved.
The allegations made in the pleadings relate, of course, to “similar facts”. The allegation is that the impugned intention to engage in abuse of process through an improper use of s 701(6) of the Law can be inferred from a pattern of previous conduct. The extent to which such material can be used is limited. It is not at large. A pattern of what is described colloquially as “green-mailing” may not necessarily afford evidence of the necessary intention. If it does not, then discovery which can do no more than produce material on this topic should, arguably, not be permitted. This may be the more so, if such material is sought, through the discovery process, only for the purpose of cross-examination.
In this regard, I have come to the view that I would be assisted by reasoned argument in this area. Sections 97 and 98 of the Evidence Act 1995 (Cth) may be in point and also, cases relating to the area of “similar fact” evidence in civil proceedings and the scope of discovery in relation to the obtaining of such evidence. Cases such as Zaknic Pty Limited v Svelt Corporation Pty Limited (1995) 61 FCR 171, Thorpe v Chief Constable of Greater Manchester Police [1989] 1 WLR 665, and Mahlo & Ors v Westpac Banking Corporation (Supreme Court of New South Wales, Santow J, 21 November 1996, unreported) should be considered. Counsel would, no doubt, wish to refer to other authorities as well.
I am well aware that these matters have not been raised earlier and that it would have been appropriate if that had occurred. However, I am satisfied, that as a matter of case management, they must be raised and dealt with before this aspect of the discovery process proceeds any further.
Other matters have been raised in the written submissions, including the relationship of this case to the GOIL proceedings in Perth. I have previously refused to stay these proceedings until the completion of the GOIL proceedings. This does not mean, however, that as a matter of commonsense some appropriate steps should not be taken to avoid duplications of hearings in relation to the same evidence to be given in each case. I have raised the question as to whether these proceedings should not be transferred to the Perth Registry so that some form of management of both proceedings could be undertaken with a view to avoiding such duplication. There is also the matter, frequently raised and not finally resolved, of the applicants’ expert evidence which, apparently, depends upon the obtaining of material subpoenaed in the GOIL proceedings. All these matters have been raised and, so far, dealt with very much “on the run”. On reviewing these proceedings I have come to the conclusion that this is generally unsatisfactory.
What is needed, in my view, at this stage, is a full case conference when, in an objective and commonsense way, these and other related problems can be discussed and some solution found, so that this quite complex litigation can be progressed more efficiently and expeditiously than is currently happening.
I have taken the course of producing this memorandum, so that the parties may have the benefit of my thoughts and concerns at this stage, with a view to the setting aside of a full day in the near future for the consideration of these matters. It may well be, of course, that, regrettably, orders previously made by consent may have to be revisited in the interests of further case management.
The parties should approach my Associate to arrange a suitable date in the near future for the conference I propose.
JUSTICE M.L. FOSTER
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