Re Elders Australia Ltd; Super John Pty Ltd v Futuris Rural Pty Ltd
[1997] FCA 1006
•26 SEPTEMBER 1997
FEDERAL COURT OF AUSTRALIA
PRACTICE AND PROCEDURE - application to strike out pleading pursuant to O 11 r 16 Federal Court Rules - whether case so clearly untenable that it could not possibly succeed.
Corporations Law - ss 701(2), 701(5), 701(6)
Federal Court Rules - O 11 r 16
Re Allied Queensland Coalfields Ltd; Super John Pty Limited and Others v Marsford Investments Pte Limited (1997) 23 ACSR 427; distinguished
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; applied
Elkington v Vockbay Pty Limited (1993) 10 ACSR 785; considered
In re Sussex Brick Co Ltd [1961] Ch 289; considered
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 26 SEPTEMBER 1997 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. 000 375 093
FIRST APPLICANTBATOKA PTY LIMITED
A.C.N. 002 904 930
SECOND APPLICANTELIZABETH LANCEY & JULIAN LANCEY
As trustees for Elizabeth Superannuation Fund
THIRD APPLICANTALLISTAIR HAZARD
FOURTH APPLICANTIAN MORTON
FIFTH APPLICANTAND:
FUTURIS RURAL PTY LIMITED
A.C.N. 009 339 333
RESPONDENTJUDGE:
FOSTER J
DATE OF ORDER:
26 SEPTEMBER 1997
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
The notice of motion be dismissed with costs.
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. 000 375 093
FIRST APPLICANTBATOKA PTY LIMITED
A.C.N. 002 904 930
SECOND APPLICANTELIZABETH LANCEY & JULIAN LANCEY
As trustees for Elizabeth Superannuation Fund
THIRD APPLICANTALLISTAIR HAZARD
FOURTH APPLICANTIAN MORTON
FIFTH APPLICANTAND:
FUTURIS RURAL PTY LIMITED
A.C.N. 009 339 333
RESPONDENT
JUDGE:
FOSTER J
DATE:
26 SEPTEMBER 1997
PLACE:
SYDNEY
REASONS FOR JUDGMENT
This is a motion brought by the respondent seeking to have either the whole or certain parts of the amended statement of claim struck out pursuant to O 11 r 16 of the Federal Court Rules on the ground that no reasonable cause of action is disclosed.
FACTUAL BACKGROUND
The following account of the factual background to the motion is based primarily upon material in the pleadings filed in these and certain related proceedings which are referred to later in these reasons.
The Takeover of Elders Australia Limited
On 3 May 1996, Elders Australia Limited (“Elders”), a company listed on the Australian Stock Exchange, announced that it had received a merger offer from Futuris Corporation Limited (“Futuris Corporation”). Futuris Corporation proposed that it and Elders merge to form a single corporate entity to be known as “Elders Australia Limited”. The merger was to be effected by a scheme of arrangement under which Elders’ shareholders would receive ten shares in Futuris Corporation for every nine Elders shares and a cash dividend of $0.15 per Elders share held.
Prior to the announcement of the merger offer, on 23 March 1996, General Oriental Investments Limited (“General Oriental”), a company incorporated in the Cayman Islands, had purchased a 4.941 per cent shareholding in Elders. General Oriental subsequently increased its interest in Elders. By 29 May 1996 its shareholding was 7 per cent and it had been recognised by the Australian Stock Exchange as a substantial shareholder.
General Oriental and Marathon Asset Management Limited, another Elders shareholder, campaigned against the Futuris Corporation merger offer. On 5 July 1996 Elders announced that, as a result of this opposition, the merger offer had been withdrawn and instead Futuris Corporation intended to make a takeover offer for all the shares in Elders which it did not already own.
The takeover offer was made on 31 July 1996 by the respondent, Futuris Rural Pty Limited (“Futuris Rural”), a wholly owned subsidiary of Futuris Corporation. The offer was contained in a document entitled “Part A Statement” which was issued in accordance with Part 6.3 of the Corporations Law. It proposed that Elders’ shareholders receive ten shares in Futuris Corporation for every nine of their Elders shares and a cash payment of $0.23 per Elders share held.
General Oriental, although it initially resisted the takeover, accepted Futuris Rural’s offer on 22 January 1997. By late February the takeover was almost complete. Futuris Rural controlled more than 90 per cent of the issued ordinary share capital of Elders and was entitled under s 701(2) of the Corporations Law to issue a notice to dissenting offerees communicating its desire to purchase their shares. By virtue of s 701(5) a dissenting offeree is obliged to comply with such a notice unless relieved of this obligation by order of this Court made under s 701(6). The applicants in this case are all dissenting offerees (see s 701(1)(d)(i)). Together they own 0.105 per cent of the issued ordinary share capital of Elders. They acquired these shares during the pendency of the takeover offer, starting their purchases in October 1996 and completing them in February 1997. On 27 February 1997, Futuris Rural issued to each of the applicants or their predecessor in title a “Notice to Dissenting Offeree under Takeover Announcement” pursuant to s 701(2).
The General Oriental Proceedings
On 11 February 1997 General Oriental commenced proceedings in this Court against Futuris Corporation, Futuris Rural, and Messrs A L Newman, W R Beischer, B S Dyson, W H Johnson, F M Montgomery, I C Kuba, and J C Fox (proceedings NG 98 of 1997) (“the General Oriental proceedings”). All of these gentlemen were directors of Futuris Corporation and one of them, Mr Newman, was also a director of Futuris Rural.
It appears that although General Oriental eventually sold its shares to Futuris Rural, it did not find the takeover offer attractive. During the first few months of the takeover it had campaigned against Futuris Rural. This campaign led to negotiations with the representatives of Futuris Corporation and ultimately, it is alleged, to an agreement. This agreement and the events surrounding it provide the basis for General Oriental’s claims.
To date three sets of pleadings have been filed in the General Oriental proceedings. The original statement of claim alleged that on 2 August 1996 General Oriental and Futuris Corporation concluded an agreement relating to the listing of Elders. The agreement was said to provide that so long as General Oriental held not less than 5 per cent of the issued ordinary share capital of Elders, Futuris Corporation would in good faith take reasonable steps to ensure that Elders maintained its official listing on the Australian Stock Exchange. According to the statement of claim, Futuris Corporation both breached and repudiated this agreement. It was also alleged that Futuris Corporation made representations to General Oriental in the same terms as the agreement of 2 August 1996 and in circumstances such that it is estopped from denying the agreement and acting contrary to its terms. It was further alleged that by 13 September 1996 Futuris Corporation had decided not to honour these representations and that Futuris Corporation’s failure to inform General Oriental of this decision was misleading and deceptive conduct in which its seven directors were involved. On this basis it was alleged that Futuris Corporation contravened and its directors were knowingly concerned in the contravention of s 52 of the Trade Practices Act 1974 (Cth), s 42 of the Fair Trading Act 1987 (NSW), and s 995 of the Corporations Law. Finally, this misleading and deceptive conduct was also said to amount to a breach of s 705 of the Corporations Law.
On 23 April 1997 General Oriental filed an amended statement of claim. The substantive allegations which it made are the same as those in the original statement of claim. It differed only in the provision of considerably more particulars. Most significantly, it articulated the nature of the loss which General Oriental claimed to have suffered. This loss was said to be the loss of the opportunity to continue to mount a campaign to resist the takeover offer. Had this campaign continued, it was claimed, then either more shareholders would have rejected the takeover offer and so prevented Futuris Rural from crossing the compulsory acquisition threshold or Futuris Corporation (via Futuris Rural) would have been forced to make a higher offer. According to General Oriental, had either of these circumstances arisen it would have received a higher price for the shares it sold on 22 January 1996 than it actually did.
At some time after the filing of the amended statement of claim, the respondents filed a notice of motion which, apparently, sought to have all or parts of it struck out. Subsequently, on 1 July 1997, Lockhart J, by consent, made orders which included the following:
“1.The Applicant have leave to file an Amended Application and a Further Amended Statement of Claim by 15 July 1997:
(a)deleting the Second Respondent, Futuris Rural Pty Ltd (A.C.N. 009 339 333) as a party;
(b)deleting paragraphs 24(f)(i) and (ii), and 27 of the Amended Statement of Claim; and
(c)incorporating any further amendments which the Applicant deems fit to make in light of the matters raised in the parties’ written submissions on the Notice of Motion.
...”
Paragraphs 24(f)(i) and (ii) of the amended statement of claim alleged that the directors of Futuris Corporation ‘aided, abetted, counselled or procured’ and ‘induced’ the conduct of that company. Paragraph 27 alleged a breach of s 705 of the Corporations Law.
Pursuant to the orders of Lockhart J General Oriental filed a further amended statement of claim on 16 July 1997. This document reflects the orders made in paragraphs 1(a) and (b). The allegations which it makes are in all other respects identical to those made by its predecessors.
The Current Proceedings
These proceedings were commenced on 9 April 1997. By them the applicants seek an order under s 701(6) of the Corporations Law relieving them of the obligation imposed by s 701(5) to sell their shares to Futuris Rural. The original statement of claim was amended pursuant to leave granted on 30 May 1997 in circumstances to which I shall refer later.
The original statement of claim incorporated the primary allegations made in the General Oriental proceedings. It pleaded in the same terms the agreement of 2 August 1996 and alleged the breach of contract, the representations and contraventions of s 52 of the Trade Practices Act 1974 (Cth) and ss 705 and 995 of the Corporations Law. However, unlike the statement of claim in those proceedings, it named Futuris Rural as well as Futuris Corporation as being a party to the agreement and a maker of representations. The General Oriental statement of claim had named Futuris Rural as a party but did not claim that General Oriental had relied upon any representations made by Futuris Rural or that it was a party to the agreement. Ultimately, as a result of the orders already referred to, it deleted Futuris Rural as a respondent to its action.
A further difference between the two statements of claim is the use which is made of the alleged breach of contract and contraventions of 52 of the Trade Practices Act 1974 (Cth) and ss 705 and 995 of the Corporations Law. General Oriental pleads these as grounds for claiming damages. The applicants, however, rely on them as basing a claim that compulsory acquisition of those shares by Futuris Rural would, in the circumstances, be unfair with the consequence that orders under s 701(6) of the Corporations Law should be made in their favour.
On 18 April 1997 Emmett J handed down judgment in Re Allied Queensland Coalfields Ltd; Super John Pty Limited and Others v Marsford Investments Pte Limited (1997) 23 ACSR 427 (“Marsford”). His Honour’s decision related to an application for the summary dismissal of an application brought under s 701(6) in which the applicants were substantially the same as those in the current proceedings. Following this decision there was an exchange of correspondence between the solicitors acting in this case. On 22 May 1997, Messrs Harper Watson, solicitors for Futuris Rural, wrote to the applicants as follows:
“We refer to the Statement of Claim dated 9 April 1997 filed in these proceedings.
We have recently obtained a copy of the decision of Emmett J delivered 18 April 1997 in Super John Pty Limited & Ors v Marsford Investments Pty [sic] Limited (Federal Court No. NG 3041 of 1997). We note that your firm acted for the applicants in the Marsford Investments’ case.
In our view, it is quite plain from an analysis of the Reasons for Judgment delivered by Emmett J, that the Statement of Claim filed in these proceedings fails to disclose a reasonable cause of action and is liable to be struck out. As you would be aware, Emmett J adopted the 7 propositions relating to the exercise of the jurisdiction pursuant to Section 701(6) of the Corporations Law expressed by Owen J in Elkington v. Vockbay Pty Ltd. Significantly, the decision in Elkington confirmed that the onus is on the dissenting shareholder to establish that the takeover offer is unfair to the body of shareholders as a whole.
There is no plea in the Statement of Claim that the takeover offer made by Futuris Rural Pty Ltd in respect of Elders Australia Limited (‘Elders’) was ‘unfair to the body of shareholders as a whole’, nor is there any material pleaded in the Statement of Claim which would support such an allegation. At its highest, the Statement of Claim seeks to rely on the alleged conduct of Futuris Corporation Limited and Futuris Rural in achieving the pre-requisites to the operation of Section 701(2). In this claim as in the Marsford Investments case, however ‘there is nothing in the Statement of Claim which attempts to demonstrate why, once the pre-requisites of Section 701(2) have been satisfied, it should matter how they were satisfied’ (adopting the words of Emmett J). In our opinion and in the opinion of our client the allegations in the Statement of Claim support the view that your client’s design is to frustrate the attempt by our client to acquire 100% of the issued capital in Elders.For the above reasons, in our view the claim against Futuris Rural is unsustainable. Accordingly, our client requires your client to immediately discontinue the proceedings. If we do not receive your advice by 5.00pm Friday next that your client will discontinue the proceedings we are instructed to make an application to strike out the Statement of Claim.
In addition to the matters raised above, the Statement of Claim is deficient as to the particulars in a number of respects. Further, a number of the allegations contained in the Statement of Claim are on their face without foundation. In particular:
Paragraph 17
In sub-paragraph (d) it is alleged that Futuris Corporation and Futuris Rural ‘failed to advise General Oriental of the matters in paragraph (c) above and stood silent ...’. Particulars (i) and (ii) of paragraph (c) refer to communications between representatives of Futuris Corporation and representatives of General Oriental. We do not understand the allegation that Futuris Corporation and Futuris Rural failed to advise General Oriental of correspondence between them.
Paragraph 19
There is no allegation in paragraph 17 that Futuris Rural made a statement or advertisement. To the extent that the pleading seeks to incorporate paragraph 15 (if indeed it does) there is no allegation that the representation alleged in paragraph 15 was false or misleading.
Our client is of the view that commencement of these proceedings in New South Wales was inappropriate. In the event that the proceedings are not discontinued or struck out our client is of the view that the appropriate forum for the proceedings is Western Australia.
We await your reply.”
Messrs Stephen Blanks & Associates, solicitors for the applicants, replied on 26 May 1997 in the following terms:
“We refer to your letter dated 22 May 1997 and our telephone conversation this morning.
We confirm that we are instructed not to withdraw the proceedings while the proceedings between General Oriental Investments Limited and Futuris remain on foot. If those proceedings are disposed of in a manner which does not involve payment or other benefit to the plaintiff, then our clients will withdraw these proceedings. Our clients do not wish to frustrate your client’s attempt to obtain 100% control of Elders Australia; their purpose is to ensure that fairness to all shareholders is not subverted by the outcome in the GOI proceedings. If GOI succeeds in those proceedings, compulsory acquisition would plainly be unfair to all shareholders, since the proceedings are predicated on a promise by your client not to put itself into a position where it would be entitled to proceed to compulsory acquisition. Until the outcome of those proceedings is known, compulsory acquisition would be unfair.
With respect to your comments on the decision of Emmett J in Super John Pty. Limited and ors v Marsford Investments Pty. [sic] Limited, we note that the decision is an interlocutory decision, and should be given weight accordingly. The passage to which you refer at the foot of page 1 to your letter is plainly applicable only to the Statement of Claim in that matter, and has no application to the Statement of Claim in this matter.
We will consider your particular comments on paragraphs 17 and 19 of the Statement of Claim, and advise you further in this regard prior to the directions hearing on 30 May.
Finally, in relation to venue, it seems to us that given that the GOI proceedings were in the New South Wales Division, it is entirely appropriate that the present proceedings remain here.”
Two days after this letter was written Futuris Rural filed a notice of motion seeking to have either the whole or certain parts of the statement of claim struck out. The applicants responded by seeking leave to file an amended statement of claim. Leave was granted and on 6 June 1997 an amended statement of claim was filed.
The principal changes in the amended statement of claim relate to the allegation that compulsory acquisition by Futuris Rural would be unfair. These changes consist of the insertion of further particulars to paragraph 23 and two additional paragraphs, 23A and 23B. It is appropriate that I set those paragraphs out as follows:-
23.Compulsory acquisition of the applicants’ shares in Elders by the respondent pursuant to such notices would be unfair.
Particulars
(a)the breaches of the Agreement by Futuris Corporation and the respondent referred to in paragraphs 13 and 14 above, and the conduct of Futuris Corporation and the respondent referred to in paragraphs 15 and 17 above had the effect that there was not an efficient, competitive and informed market in relation to shares in Elders during the period of the takeover offer;
(b)the manner in which the respondent has fulfilled the technical requirements permitting it to issue compulsory acquisition notices under Section 701(2) is tainted by the matters
conductreferred to in paragraphs 10 to 19 above;
(c)the respondent has fulfilled the technical requirements permitting it to issue compulsory acquisition notices under Section 701(2) only because General Oriental was under a legal obligation to mitigate its loss arising from the breaches of the Agreement referred to in paragraphs 13 and 14 above, and the conduct referred to in paragraphs 15, 16 and 17 above, and complied with that obligation by accepting the Takeover Offer in respect of its shares in Elders;
(d
e) if General Oriental is successful in the Proceedings or settles the Proceedings on terms including payment to General Oriental of money or other consideration, it will receive amonetarybenefit which is not available to other shareholders in Elders in relation to the takeover;
(e
d) the Applicants have not been afforded an equal opportunity to participate in any benefit accruing to General Oriental in connection with the takeover; and
(f)the matters set out in paragraph [sic] 23A and 23B below.
23A.The Takeover Offer was not fair and reasonable.
Particulars
(a)The consideration offered did not incorporate an appropriate premium for control to reflect the passing of 100% control of Elders;
(b)Inadequate consideration was offered for the value of Elders Rural Finance;
(c)inadequate consideration was offered for the value of the Elders agency operation and franchise;
(d)inadequate consideration was offered for the unique investment in the Australian rural economy which an investment in Elders offered; and
(e)inadequate consideration was offered for the likely future improvement in Australian and global agricultural markets.
23B.The Takeover Offer was not fair to the body of shareholders as a whole.
Particulars
(a)the Applicants repeat the particulars in paragraph [sic] 23(a) to (d) and 23A(a) to (e) above;
(b)none of the offeree shareholders other than General Oriental have been afforded an equal opportunity to participate in any benefit accruing to General Oriental in connection with the takeover;
(c)the Applicants repeat the particulars in paragraph 23A above; and
(d)the body of shareholders was deprived of the benefit which would have resulted from a campaign to resist the Takeover Offer which would have been conducted by General Oriental but was not conducted because of the matters referred to in paragraphs 10 to 19 above. Such benefit would have comprised the rejection of the Takeover Offer by a number of other shareholders sufficient to maintain Elders’ listing on the ASX and to prevent compulsory acquisition at the price offered in the Part A Statement or have resulted in a higher offer by the Respondent.”
[The underlined portions indicate the amendments made following upon the exchange of letters between the solicitors and the granting of leave to amend.]
THIS NOTICE OF MOTION
By its notice of motion the respondent, Futuris Rural, seeks the following orders:-
“1.The Amended Statement of Claim be struck out pursuant to Order 11 Rule 16 of the Federal Court Rules.
2.In the alternative to paragraph 1, paragraphs 17, 18, 19, 23, 23A and 23B of the Amended Statement of Claim be struck out pursuant to Order 11 Rule 16 of the Federal Court Rules.
3.The Applicants pay the Respondent’s costs of the Application and this Notice of Motion.”
Paragraph 19 is no longer relied upon by the applicant. Paragraph 17 is to be the subject of amendment, presumably to take account of the criticisms made of it in the correspondence. It has not been the subject of debate. Paragraph 18 is dependent upon it. Consequently, these paragraphs do not fall for consideration. Before considering the submissions that have been made on each side in relation to the statement of claim as a whole and the remaining paragraphs, it is convenient to set out the relevant legislative provisions and the applicable principles emerging from decided cases.
Order 11 r 16 of the Federal Court Rules provides:-
“Where a pleading:
(a)discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleadings;
(b)has a tendency to cause prejudice, embarrassment or delay in the proceedings;
the Court may at any stage of the proceeding order that the whole or any part of the pleading be struck out.”
It is, of course, well established that the power to strike out a claim pursuant to this rule and similar rules (see e.g. O 20 r 2) must be exercised with considerable caution. Many authorities establish this. It is necessary only to refer to the frequently cited case of General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 where Barwick CJ (at 130) stated that the exercise of such a power was appropriate only where a case was one “so clearly untenable that it cannot possibly succeed”. It is, of course, the submission of the respondent that the applicants’ pleadings and the general course of events hitherto establish that this is such a case.
It is necessary also to set out the terms of ss 701(5) and (6) of the Corporations Law. These sections provide as follows:-
“(5)Where a notice is given under subsection (2), the offeror is entitled and bound, subject to this section, to acquire the shares to which the notice relates on the terms that were applicable in relation to the acquisition of shares under the takeover scheme or pursuant to the takeover announcement immediately before the end of the offer period.
(6)Subsection (5) does not apply in relation to a dissenting offeree where, on an application made by the dissenting offeree:
(a)before the end of one month after the day on which the notice was given under subsection (2); or
(b)before the end of 14 days after the day on which the dissenting offeree was given a statement under subsection (9);
whichever is the later, the Court orders that subsection (5) is not to apply in relation to the dissenting offeree.”
It will be observed that the legislation does not prescribe the grounds upon which a court should make the order contemplated in subs (6). These grounds have been evolved in the case law which has developed around the subsection. They have been most conveniently collected in the judgment of Owen J in Elkington v Vockbay Pty Limited (1993) 10 ACSR 785 at 793-4 (“Elkington”). I set them out as follows, without reference to the authorities which were cited by his Honour in relation to them:-
“First, the onus is on the dissenting shareholder to establish that the offer is unfair...
Secondly, the test of whether an offer is fair is whether it is fair to the body of shareholders as a whole rather than whether it is fair to the particular shareholder in the peculiar circumstances of his case...
Thirdly, ... the evidentiary burden to show that the offer is unfair will be greater where it is the fact that the offeror has already received acceptances from a large proportion of the shareholders holding a large proportion of the issued capital. [That is to say], the level of acceptances received from the body of shareholders as a whole will be a relevant factor in determining fairness...
Fourthly, it is not sufficient to demonstrate that the offer is open to criticism or could be improved upon...
Fifthly, in the absence of very strong grounds, the court should be guided by what commercial people, who are concerned with the transaction, think about the offer and should be slow to substitute its own view of the fairness of the scheme in opposition to the stance apparently taken by the majority of those who are more directly involved...
Sixthly, the degree of compliance with statutory formalities is a factor which could impinge on notions of fairness...
Finally, in determining whether the offer is fair, the court is not restricted to examining the amount of the consideration offered, but may investigate the conduct of the offeror in the period preceding the making of the offer...”
It is clear, of course, that this list is not definitive as the Court has a wide discretion when considering the question of relief under s 701(6), a matter also adverted to by Owen J in Elkington. As in Elkington, however, the basic question in the present case would be whether the offer to the shareholders was fair and reasonable, in which circumstance these propositions focus attention on appropriate matters for the Court’s consideration. It is relevant, in the present case, also to have regard to the elaboration of the fourth proposition provided by Vaisey J in In re Sussex Brick Co Ltd [1961] Ch 289 at 291-3, where his Honour said:-
“The mere finding of items, or details, in the scheme which are open to valid criticism, is not unfairness consistent with the spirit of that judgment. ‘A scheme must be obviously unfair, patently unfair, unfair to the meanest intelligence. It cannot be said that no scheme can be effective to bind a dissenting shareholder unless it complies to the extent of 100% with the highest possible standards of fairness, equity and reason ... It must be affirmatively established that, notwithstanding the view of the majority, the scheme is unfair, and that is a different thing from saying that it must be established that the scheme is not a very fair one or not a fair one: a scheme has to be shown affirmatively, patently, obviously and convincingly to be unfair.”
I come, then, to consider the arguments adduced in the hearing of the notice of motion. The main thrust of the respondent’s submissions was that the case was clearly governed by the decision of Emmett J in Marsford with the result that the case sought to be made by the applicants was “clearly untenable”. Before considering this submission, however, it is convenient to deal with some subsidiary contentions.
It was put, as I understand it, that the applicants’ selection of Futuris Rural as the respondent in their proceedings, when it appeared that General Oriental had in its action made no claim against that corporation and had, in fact, removed it as a party, constituted a fatal flaw in the applicants’ proceedings. I do not agree. Futuris Rural was clearly the takeover vehicle used by Futuris Corporation. It was a wholly owned subsidiary of Futuris Corporation and, on the pleadings, had at least one common director. Whereas, no doubt, the alleged relationship between the two companies resulting in Futuris Rural being bound by any relevant breaches established against Futuris Corporation could be more clearly spelt out in the statement of claim, I do not consider that this defect, if a defect it be, is sufficient to warrant the striking out of the proceedings. The allegation is clearly made in the statement of claim that both Futuris Corporation and Futuris Rural were involved in the impugned representations and in the agreement allegedly breached. The fact that there may be evidentiary problems involved in establishing the participation of Futuris Rural is not, in my view, a matter which can properly lead to the striking out of the proceedings under O 11 r 16.
Another attack made by the respondent upon the proceedings was to the effect that, on the face of the pleadings, the applicants had progressively acquired shares in Elders during the pendency of the takeover offer and after the agreement between General Oriental and Futuris Corporation which resulted in the cessation by General Oriental of its campaign of opposition had been reached. Accordingly, it was submitted, that campaign and its cessation could have had no relevant influence upon the applicants’ acquisition of their shares. However, as submitted by the applicants, the significant question in the litigation is not whether there was unfairness to them in particular, but rather whether there was unfairness to the shareholders as a whole. In these circumstances, aspects of unfairness which have emerged in relation to the deception of General Oriental into the abandonment of its opposition to the takeover could affect the fairness of the offer to the whole of the body of shareholders. In my view, an arguable question is raised in this regard which can only properly be determined as an issue in the litigation. The respondent’s submission on this point does not, in my opinion, require that the proceedings be struck out.
It was also submitted that the addition of paragraphs 23A and 23B to the statement of claim was not bona fide, being no more than an attempt to save the proceedings in light of their general vulnerability to the decision in Marsford. It is clear that these paragraphs were added after that suggested problem arose. However, in themselves, they do no more than repeat allegations already made by General Oriental in its proceedings. They do not, therefore, introduce novel and, perhaps, colourable issues into the general area of the current litigation relating to this takeover. Indeed, even if they could be characterised as an endeavour to prop up an otherwise unsustainable case, this criticism could not result in their being struck out if they themselves demonstrated the existence of a case which was not itself clearly untenable. As it is the submission of the respondent that the case sought to be made in these paragraphs is indeed one that is clearly untenable, it is convenient to consider that matter now.
The respondent contends that the case sought to be made in these paragraphs is doomed to failure because it could not meet the standard laid down by Vaisey J in the passage cited above, namely that of establishing that the scheme was capable of being “shown affirmatively, patently, obviously and convincingly to be unfair”. In furtherance of this submission the point is made that over 90 per cent of the shareholders had accepted the takeover offer and that, accordingly, the Court would be guided, in accordance with the fifth proposition from Elkington, by what this fact clearly demonstrated as to the view held of the offer by “commercial people”. It was also put that the establishment of the allegations contained in these paragraphs would be an “evidentiary nightmare”. These are, of course, cogent arguments. However, I must consider the situation as it currently stands. The allegations made in these paragraphs, if established, could conceivably meet the standards referred to. I am quite unable, at this stage of the litigation, to hold that the case proposed by them must necessarily fail. Accordingly, I decline to strike these paragraphs out on this basis.
I come, then, to what is clearly the main contention of the respondent, namely that the decision of Emmett J in Marsford clearly indicates that the case sought to be made in the statement of claim is untenable. It is, accordingly, necessary to examine the reasoning of Emmett J in that case.
In Marsford the applicants held shares in Allied Queensland Coalfields Limited (“the Company”). The respondent (Marsford) also held shares in the Company, most of which had been acquired as a result of a takeover announcement. It held sufficient shares to entitle it to give notice under s 701(2) of the Corporations Law. It gave such a notice to the applicants who subsequently sought an order under s 701(6). Marsford, by notice of motion, sought orders that this application be dismissed on the ground that it disclosed no reasonable cause of action. In response the applicants contended that there had been unfairness in the manner in which Marsford had come to satisfy the requirements of s 701(2). The relevant unfairness was said to have resulted from the circumstances in which certain other proceedings had been dismissed contrary to the expectations of the applicants. These proceedings had been brought by the Australian Securities Commission (“the ASC”) against, inter alia, Marsford and another company, Glendale, and the Company. The basic allegation in those proceedings was that Glendale, a corporation located in the British Virgin Islands, had become entitled to a parcel of shares in the Company representing 8.9 per cent of its issued capital and that Marsford had become entitled to that parcel because of Glendale’s entitlement. Marsford’s entitlement to these shares would have prevented it from proceeding with the proposed takeover. In the ASC proceedings orders were made ex parte restraining Glendale from disposing of this parcel and also restraining Marsford from acquiring shares in the Company pursuant to its takeover announcement. It appears that the applicants acquired shares in the Company with knowledge of these injunctions and in the expectation that Marsford would not achieve a situation where it could compulsorily acquire their shares pursuant to s 701(2).
In the event, however, the proceedings were settled, the injunctions dissolved, and the ASC proceedings against Marsford, Glendale and the Company were dismissed by consent.
It appears also that another company, Centennial Coal Co Limited (“Centennial”), held approximately 10 per cent of the issued capital of the Company and that these shares were available for sale. The applicants had acquired some of these shares and could have acquired more.
The nature of the claim made by the applicants and the manner in which it was disposed of by Emmett J appears from the following passage in his Honour’s judgment (at 432-433):-
It is asserted that members of the public had a legitimate expectation as to the continued status of the 8.9% parcel. A member of the public looking at the Company, mindful that the offers made by Marsford under its takeover announcement closed on 8 November 1996, could confidently acquire less than 3% of the issued capital of the Company from Centennial and thereby prevent Marsford from becoming entitled to acquire shares pursuant to s 701 of the Law. That expectation was frustrated, it was said, when the 8.9% parcel became free and Marsford was able to satisfy the requirement of s 701(2)(b) by acquiring those shares, as well as the balance of the shares held by Centennial which had not been acquired by the applicants.
The contention appears to be that, had the applicants known that the 8.9% parcel would become free by reason of the dissolution of the injunction, they would have acquired more of the shares held by Centennial, being sufficient to ensure that Marsford did not become entitled to 90% of the issued capital of the Company and thereby satisfy the requirement of s 701(2)(b). It is said that those circumstances constitute unfairness such as would justify an order under s 701(6) to the effect that Marsford should not be entitled to acquire the outstanding shares held by dissenting offerees, being the applicants.
That claim appears to me to be quite misconceived. No circumstance is alleged in the statement of claim which is capable of constituting any unfairness to the applicants. The argument demonstrates, if anything, that the applicants' design was to frustrate any attempt by Marsford to acquire 100% of the issued capital of the Company. The applicants, so it appears from the submission, took a stance in the market place on the basis of an expectation, which was not communicated to anybody else, that the ASC Proceedings, to which they were strangers, would not be resolved in a particular way.
Further, the second proposition stated by Owen J indicates that it not sufficient that an offer is not fair to a particular shareholder in the particular circumstances of his case. The fact that some shareholders may have been induced by their assessment of the likely conduct of third parties can hardly bear on whether the offer made by Marsford is fair to the body of shareholders as a whole. Nor can it have a bearing on whether it is appropriate to prevent Marsford exercising its prima facie entitlement to acquire the shares of the applicants pursuant to s 701(2).
I do not consider that the circumstances relied upon are capable, in the absence of anything further, of constituting unfairness such as to be grounds for an order under s 701(6) to the effect that Marsford is not be entitled to acquire the applicants' shares pursuant to s 701(5). ...”
It is submitted by the respondent that his Honour’s reasoning in this passage establishes a proposition that “it cannot be a sufficient reason to avoid compulsory acquisition that there may have been conduct, misleading or otherwise, directed not to the applicant but to some third party”. It was also put that “it simply cannot be unfair to these applicants ... that there is a breach of an agreement or misleading conduct that has a financial reflex on General Oriental and not upon them as a reason for avoiding compulsory acquisition”. As I apprehend it, the contention is that no relevant unfairness can occur to a dissenting offeree where the offeror has engaged in misleading or deceptive conduct directed towards a shareholder other than the dissenting offeree. In terms of the present case, it is put that any relevant misleading conduct that can be established against Futuris Rural in its dealings with General Oriental, resulting in it being liable in damages to that company in the manner claimed, could not, in any circumstances, constitute unfairness to the applicants as dissenting offerees.
In my opinion, the reasoning of Emmett J in Marsford provides no basis for the assertion of the existence of any such general proposition. His Honour was dealing with the facts of Marsford which in significant respects are different from those of the present case. In Marsford the applicant acquired shares on the basis of its appreciation of the market situation. It had an expectation that the then current litigation brought by the ASC would have the effect of preventing Marsford acquiring the percentage of necessary shares to enable a takeover. That litigation was resolved, as indicated, and thereafter had no bearing upon the market situation or upon considerations of the fairness of the takeover offer. In the present case, however, a substantial shareholder who was actively campaigning against the acceptance of the takeover offer was, on its case, as adopted by the present applicant, misled into ceasing that campaign by representations to the effect that Elders’ stock exchange listing would be maintained whilst it held a 5 per cent shareholding. These representations, it is alleged, either resulted in an agreement that was subsequently breached or operated as representations that were misleading in accordance with s 52 of the Trade Practices Act 1974 (Cth). Unlike the litigation in Marsford, the General Oriental proceedings were not resolved during the currency of the takeover period and have not yet been resolved. If it is successful, General Oriental may receive an award of damages which will result in its receiving, in effect, a higher price for its shares than was paid to the other shareholders of Elders.
In my view, the nature of the case sought to be brought here is sufficiently distinct from the case brought in Marsford to prevent that case governing the outcome of the present proceedings.
I should add that the present proceedings, clearly enough, invoke the seventh proposition in Elkington insofar as the Court is being asked, in determining whether the offer was fair, to “investigate the conduct of the offeror in a period preceding the making of the offer”. If, by wrongful conduct directed to General Oriental, Futuris Rural prevented that company from maintaining a campaign of opposition to the takeover, it could arguably thereby have affected the play of market forces in a way that resulted in its obtaining the relevant percentage of shares in Elders at a lower price that it would otherwise have been forced to pay.
In these circumstances, I am satisfied that the statement of claim puts forward a case which cannot be characterised as being “so clearly untenable that it cannot possibly succeed”. Consequently, I refuse the relief sought in the notice of motion. I dismiss it with costs.
I certify that this and the preceding seventeen (17) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.
Associate:
Dated: 26 September 1997
Mr S.M. Blanks, solicitor, instructed by Stephen Blanks & Associates appeared on behalf of the applicants. Counsel for the Respondent: P. M. Wood Solicitor for the Respondent: Harper Watson Date of Hearing: 6 August 1997 Date of Judgment: 26 September 1997
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