Re NRMA Ltd (No 2)

[2000] NSWSC 408

Reported Decision: (2000) 156 FLR 412
(2000) 34 ACSR 261
(2000) 18 ACLC 533

New South Wales

Supreme Court

CITATION:	NRMA Limited (Application of); NRMA Insurance Limited (Application of) [2000] NSWSC 408
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 5131/99; 5132/99
HEARING DATE(S):	03/05/00, 04/05/00, 05/05/00, 09/05/00, 10/05/00
JUDGMENT DATE:	18 May 2000
PARTIES :	NRMA Limited (ACN 000 010 506) (Plaintiff) NRMA Insurance Limited (ACN 000 016 722) (Plaintiff)
JUDGMENT OF:	Santow J

COUNSEL :	N O'Bryan/J G McCombe (Sol) (NRMA Limited) P M Wood/L McCallum (NRMA Insurance Limited) T D Castle (ASIC) D Shand, QC/B J Camilleri (Sol) (for Richard Talbot) _________ David Lewis Parker (in person) Albert Date (in person) William Snodgrass (in person) Warren Lewis (in person) Harry Crosby (in person) M J Manson (in person) John Hughes (in person) Terry Gallagher (in person) John Thurston (in person) Erle Robinson (in person) Mrs F Murrell (in person) Laurence Julian Toltz (in person) Ian Scandrett (in person)
SOLICITORS:	Corrs Chambers Westgarth (NRMA Limited) Freehill Hollingdale & Page (NRMA Insurance Limited) Mallesons Stephen Jaques (the Proposal) Constantine Gionis (ASIC) Camilleri Barristers & Solicitors (for Richard Talbot)
CATCHWORDS:	CORPORATIONS — Schemes of arrangement — Approval hearing and role of court — Conditions for approval and/or undertakings or representations to ASIC or the Court — Scope of misleading or deceptive conduct in relation to information memorandum disclosure — Applicable legislation — Representations by silence on matters of opinion — Relevance of complexity of scheme — Future events, matters of opinion and onus — Any need to disclose contrary expert opinion — Differences between company’s and expert’s opinion — Integrity and reliability of voting procedures — Extent of appraisal of fairness — Application of Gambotto principles to scheme and to subsequent demutualisation steps governed by Pt 2B.7 of Corporations Law — Prior asset transfers not breach of fiduciary duty or oppressive.
LEGISLATION CITED:	Australian Securities and Investments Commission Act 1989; Division 2 of Part 2, s12BA(1), s12BB, s12DA(1A) Company Law Review Bill 1997 Corporations Law; s163, s`164(4), s166(2), s167, s411(4)(b), s411(6), s765, s995, s1317B Trade Practices Act, 1974 (Cth); s51A, s52
CASES CITED:	Bulfin v Bebarfald’s Ltd (1938) 38 SR(NSW) 423 Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 Gambotto v WCP Ltd (1995) 182 CLR 432 NRMA Ltd & Ors v Morgan (1999) 31 ACSR 435 R.M. Eastmond Pty Ltd (1972) 4 ACLR 801 Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 Re BTS Bearings Pty Ltd v Transmission Supplies Pty Ltd (1983) 1 ACLC 923 Re Glendale Land Development Ltd (No. 2) (1982) 2 NSWLR 563 In Re Hudson Conway Limited [2000] VSC 21 (Victorian Supreme Court, Beach J, 21 January 2000, unreported) Re NRMA Limited and Re NRMA Insurance Limited (2000) 33 ACSR 595 at 609 Re Pheon Pty Ltd (1987) 47 SASR 427 Sovereign Life Assurance Co v Dodd [1892] 2 QB 573
DECISION:	Scheme approved.

IN THE SUPREME COURT
OF NEW SOUTH WALES
IN EQUITY

SANTOW J

No. 5131/99
In the matter of NRMA LIMITED ACN 000 010 506 and the Corporations Law

NRMA LIMITED ACN 000 010 506
Plaintiff

No. 5132/99
In the matter of NRMA INSURANCE LIMITED ACN 000 016 722 and the Corporations Law

NRMA INSURANCE LIMITED ACN 000 016 722
Plaintiff

JUDGMENT

18 May 2000

Table of Contents

Page

INTRODUCTION
Overview
The voting result
CONSIDERATION OF OBJECTIONS TO THE SCHEME
1. Background and development of the Proposal
2. Fairness and general opposition to the Proposal
3. The Information Memorandum and other disclosure issues
4. Other communications with members
5. Voting and related matters
6. Additional matters
Objections pressed on behalf of Mr Talbot
Conclusion
Breach of directors’ duties and/or oppression particularly in relation to asset transfers.
Conclusion
Misleading and deceptive conduct — “mutuality”
Misleading and deceptive conduct — rebates.
Conclusion
Misleading and deceptive conduct — “premiums” and “claims management principles”
Conclusion
Misleading and deceptive conduct — takeover.
Conclusion
Misleading and deceptive conduct — “the financial viability of Association”
Conclusion
Misleading and deceptive conduct — asset transfers.
REMAINING MATTERS
Misdescription of Insurance members.
Integrity and reliability of voting result.
The importance of statements regarding premiums and related matters.
Contemporaneity of the demutualisation meetings with the scheme resolutions.

OVERALL CONCLUSION

INTRODUCTION

Overview

1 This Court is now at the end of the second of two exhaustive hearings. Both were concerned with whether a major re-organisation of the NRMA Group should go ahead. The first hearing was whether to convene meetings of members to consider schemes of arrangement for that purpose. This Court concluded that the scheme meeting should go ahead, giving detailed reasons. The schemes were approved subsequently though questions remain as to whether the members’ vote was in any way manipulated or its recording unreliable or was otherwise vitiated by illegality. Those questions are now to be decided at this hearing. This is in order to determine whether the schemes should be approved, in each case, as an essential part of the wider proposal for that re-organisation. The Court’s role, as I explain, is a limited one. It is concerned with legality and manifest unfairness, not with the commercial desirability or otherwise of the re-organisation, which is for members to decide. 2 Before me for approval under s411(4)(b) of the Corporations Law are the five schemes of arrangement which launch that re-organisation. If they are approved, the later steps of the re-organisation will almost inevitably follow. The first group is between NRMA Limited (“Association”) and various classes of its members and the second group is between NRMA Insurance Limited (“Insurance”) and various classes of its members. 3    Each of the schemes embraces a series of linked steps constituting a common proposal for the re-organisation. I shall refer to that proposal as “the Proposal”. That Proposal is described in detail at para 49 of my earlier judgment (Re NRMA Limited and Re NRMA Insurance Limited (2000) 33 ACSR 595 at 609). It culminates in the demutualisation of Insurance by inter-dependent steps still to occur, leaving Insurance under its new holding company, NIGL. NIGL is to issue shares according to “Share Allocation Rules” to members of Insurance. They include Association members who now become members of Insurance under the Proposal. These shares are in compensation for members giving up their membership and its associated rights. However, the road service entity, Association, is to remain a mutual. It is to receive 10% of the NIGL shares in compensation for what Association gives up in the way of practical control of Insurance and of its rights to surplus assets on winding up. Association is to operate thereafter in a close relationship with Insurance during the currency of new Business Relationship Agreements which restrict it essentially to road service. Any trademarks used by Insurance for its insurance and financial services business are to be assigned to Insurance, but Association is to retain ownership of the trademarks used for the road service business. Association will have a fund of money derived from selling down its shares of NIGL to support its future road service operations. While NIGL is intended to be listed, the Proposal does not make that an essential step, though there is reasonable assurance that will occur. 4 This Proposal follows a previous failed attempt at a double demutualisation in 1994, the subject of earlier legal challenge. That earlier proposal was different in both intended commercial outcome — Association was also to be demutualised — and the chosen legal process. Thus the 1994 proposal was to bypass any court appraisal via a scheme of arrangement had it taken place, but it was abandoned. 5 Understandably, in any organisation that commands the depth of member loyalty as NRMA does, there are strong feelings on both sides as to the desirability of what has now been voted upon. Clearly the not insignificant minority who opposed the Proposal have a deep sense of loss at what they see as a fundamental adverse change to the NRMA group. On the other hand, those who voted for the Proposal can be assumed to have a different view. This Court must simply look at the outcome of the members’ vote to determine whether it is vitiated by any illegality, or by such manifest unfairness and unreasonableness that no intelligent and honest person, or at least one properly informed, could approve it. Beyond that, it is for members to judge what is in their best interests. 6 The Proposal has been resisted in the two hearings before me, both of major length. That resistance was also manifested earlier in contested Association elections and in debate. It was important in the present proceedings that objectors were given the opportunity in a court forum to be heard, for that is what a scheme is intended to provide. That is why I allowed some reasonable latitude to objectors, though objections were not always of strict legal relevance, and why I have gone to some pains in this judgment to deal, at least broadly, with most of the objections. That said, there necessarily had to be some limits set, based on relevance and reason. 7 A number of objectors have contended that NRMA members were not placed in a position where they could understand the complex proposal and its implications, despite the care and expense that have gone into its preparation and presentation. Some argued that the Proposal was so complex no-one could understand it. Others have attacked the reliability or integrity of the voting process or raised particular legal objections. The question I have to determine is whether any of these grounds of attack should lead to the Court withholding approval. Thus, were members faced with a proposal incapable of comprehension? Was the vote unreliable or manipulated? Were these schemes vitiated by some illegality or by material misstatement or material non-disclosure of a misleading or deceptive character? Are these schemes in the context of the overall proposal so manifestly unfair or unreasonable that, though approved by members, they should not be approved by the Court? As to the last, I must, as I have said, remember that the commercial merits of the scheme are for members, not the Court, to assess. 8 Resolutions in favour of the arrangements have, prima facie, been passed by the necessary majorities, as well as certain resolutions interdependent therewith, where a special resolution is required. The proponents of these schemes must now obtain from this Court approval of each arrangement, pursuant to s411(4)(b) of the Corporations Law. Only with that approval can the later inter-dependent steps proceed to effect demutualisation though they can be expected to follow. The Court is, by s411(6), permitted to grant its approval to such an arrangement “subject to such alterations or conditions as it thinks just”. The permitted scope of any such alterations or conditions is not however without limit. Thus a condition could not be properly placed which rendered the Proposal less beneficial to one group of members as against another, as I later explain (para 59). 9    For Association, approval is sought to each of three essentially identical arrangements between it and the various classes of its members. The first is with that class of members of Association as consists of all members. This is the arrangement found in Parts II, III and IV of section 9.9 of the Information Memorandum. The second is with that class of members of Association as are not also members of NRMA Insurance Limited. This is the arrangement found in Parts II, III and V of section 9.9 of the Information Memorandum. The third is with that class of its members as are also members of Insurance. That is the arrangement found in Parts II, III and VI of section 9.9 of the Information Memorandum. 10    For Insurance, approval is therefore sought to each of two essentially identical arrangements between it and various classes of its members. The first with that class of its members as consists of all members except Association. That is the arrangement found in Parts II, III and IV of section 10.10 of the Information Memorandum. 11    The second is with that class of its members as consists of Association alone. That is the arrangement found in Parts II, III and V of section 10.10 of the Information Memorandum. 12    Such approval is sought following over three days of hearing at which I received written submissions from a number of objectors. In addition, where an objector sought this, I permitted oral submissions within reasonable limits. The most extensive submissions were received on behalf of Mr Richard Talbot, a director of the Association who also served on the boards of NRMA Life Limited and is a member of various committees. Mr Talbot was at this hearing represented by counsel, Mr Shand, QC, who addressed the Court successively on the latter part of 5 May 2000 and on the morning of 9 May 2000. Mr David Parker also put in detailed written submissions, addressing orally parts thereof. He was heard on 5 May 2000. I have retained in the Court file a list of the objectors and whether they made written submissions, appeared in person or both. 13    Some but by no means all of the objections were repetitive of objections previously raised at the meeting convening hearing. That first hearing extended over six days, an unprecedented length of time in my experience for a convening hearing. It was the subject of an extensive written judgment handed down on 24 February 2000 available immediately to members on the Supreme Court website together with a summary of its conclusions, taken from that judgment; see Re NRMA Ltd and Re NRMA Insurance Ltd (supra). (I shall refer to it for convenience as “my earlier judgment”.) Counsel for Mr Talbot on the whole did not press any of the earlier written submissions made on Mr Talbot’s behalf where these had been dealt with in my earlier judgment. Thus for example he did not press any submission based on the High Court decision in Gambotto v WCP Ltd (1995) 182 CLR 432, dealt with in paragraphs 58 and 59 of my earlier judgment. 14 Nor did his counsel press any contentions based on possible equitable constraints, save in one limited respect only. A contention was put that, as applicable to Association only, it was not legally possible for Association, or at any rate its members, to derive the benefits intended from the arrangement and the associated demutualisation, viz the issue of shares out of NIGL. That contention was based upon a particular interpretation of the relevant provisions of the constitution of Association contended for by Mr Talbot. The constitution either alone, or reinforced by equitable constraints, was said to have the legal effect of precluding Association from parting with its assets (save to a company with similar objects) and thus it could not permit its members to receive their allocation of NIGL shares. I will return later to that argument (para 105) and to his other objections. 15 Mr Talbot also contended (para 114) that certain asset transfers that occurred between Association and Insurance between June 1998 and June 1999 were, in the context of the effect of the schemes and the Business Relationship Agreements, oppressive to the members of Association and/or Insurance or involved a breach by the directors of Association or Insurance of their fiduciary duties or both. Finally, Mr Talbot pressed a number of submissions concerning alleged misleading and deceptive conduct arising out of statements in the Information Memorandum (para 120). 16 In support of Mr Talbot’s submissions, Mr Talbot filed four affidavits without objection, namely two of 3 May 2000, one of 4 May 2000 and one of 5 May 2000. Belatedly, he faxed another on the evening of 17 May 2000 with a press clipping, even later than those sent from NRMA on 15 and 16 May 2000; see para 19(l) and (m) below. They essentially provide background documents or are otherwise essentially uncontroversial, though the relevance of some of the annexures was not to be taken as conceded. 17 Mr Parker in his written submissions traversed much of the ground of his previous submissions which were dealt with in my earlier judgment; see in particular at para 124 on accounting and related issues. I will return later to that part of his submissions that raised arguably new matter. 18 Association and Insurance placed before the Court extensive material. This went to the integrity and reliability of the voting process, both in the run-up to the vote and the vote itself and disclosing certain matters potentially relevant to that outcome. This material can be described as follows:

(a) affidavits relating to the votes at the various scheme meetings including as to proxies, registration at meetings, voting exclusions and poll conduct lodgment with Australia Post of mail packs and re-mail of mail packs and spoils;

(b) affidavits concerning communications with members including the advertising programme undertaken and the programme to encourage member participation and awareness of meetings (the “Outbound Call Programme”);

(c) affidavits concerning fulfilment of conditions subsequent including as to tax treatment and tax losses, execution of the Business Relationship Agreements and changes to those agreements since 14 February 2000 and as to business protocols implementation and risk reduction (as to the latter certain confidentiality orders being made though permitting Mr Talbot’s counsel access);

(d) affidavits concerning distribution of materials to members including as to preparation of mail files and delivery to mail houses, preparation of mail files and delivery to mail house and production of mail pack documents and delivery to mail houses.

(e) affidavits concerning control procedures including as to validation of member registers, validation of mail files from mail houses, validation of mail packages, validation of mail-outs, validation of member registers for returning officer, validation of processing of proxy forms, validation of conduct of meetings, validation of call centre, and validation of Outbound Call Programme (with associated scripts as reviewed by Mallesons Stephen Jaques and the associated supervision by Taverners and overall review by PriceWaterhouseCoopers);

(f) affidavit by Mr Roger Randle who had overall supervision of the various mail-out procedures and validation, concerning the submission by Mr Warren Lewis concerning an alleged proxy voting irregularity;

(g) NRMA’s written submissions of 14 April 2000;

(h) The various permutations of NRMA votes distinguishing between the various categories of member and calculating the percentage vote for that category as compared to the percentage votes for the substantially fewer actual classes selected; see PX42 and PX43 showing a percentage vote in almost every case exceeding 80%, with the only significant exception being employees whose votes if separately calculated would have constituted around 63%;

(i) Association’s written submission of 14 April 2000 when the Court’s attention was drawn in advance of the approval hearing to:

(i) the description of Insurance members contained in the Information Memorandum which, while accurate in terms of specifying who is eligible to be included on the register of Insurance, did not set out the requirement that such persons must in fact be registered as Insurance members,
(ii) certain persons being eligible to be entered on the register of members of Insurance but are currently not included on that register, namely certain members of the Royal Automobile Club of Australia (“RACA”) and certain employees of Association who, not having been ascertained, could not receive notice of the relevant meetings nor were entitled to vote at such meetings but once identified would be added to the register of Insurance members so as to qualify for an allocation of shares in accordance with the Share Allocation Rules as described in section 8.18 of the Information Memorandum;


(j) Memorandum from Corrs Chambers Westgarth on behalf of Association and Insurance concerning various aspects of the scheme including votes at scheme meetings, communications with members for the purpose of the schemes, fulfilment of scheme conditions, pattern of voting results, validity of scheme proxy and other relevant matters affecting exercise of the Court’s discretion relating to the foregoing issue arising in respect of two categories of members of Insurance, namely members of RACA and certain employees of the Association as further identified in the affidavit of Mr Nelson dated 13 April 2000, such memorandum estimating that less than 300 persons fall into the RACA member category and only one person is known to fall into the employee member category;

(k) Memorandum handed up 4 May 2000 on behalf of Association and Insurance headed “NRMA Project Outlook Post-Scheme Approval Insurance Members” dealing with the treatment of post-scheme approval Insurance members for the purpose particularly of allocation of shares pursuant to the Proposal.

(l) Affidavit of 15 May 2000 of Mr Nelson as Project Manager concerning submissions of Mr Talbot relating to insurance premiums, claims management principles and potential takeover and elaborating as to due diligence undertaken concerning the Information Memorandum in these respects.

(m) Affidavit of 16 May 2000 of Gaye Morstyn, group secretary and general counsel of Insurance and a director of NIGL, as to the two representations formally made to ASIC on behalf of NIGL and Insurance.

19    ASIC appeared, helpfully, both at the meeting convening hearing and now at this approval hearing as amicus. It submitted a memorandum entitled “ASIC Submissions — Reliability of Voting Figures (MFI25). In that submission and orally ASIC, by its counsel, had regard to the two types of error that could potentially affect the reliability of the voting figures, namely exclusion errors and classification errors. Based on the evidence presented by Association and from the submissions of the objectors, ASIC did not consider, “That there are grounds to conclude there were any errors of the magnitude required to impugn the reliability of the vote.” Furthermore, ASIC submitted that as a matter of principle in scheme cases, the Court should not encourage speculation about how votes might have been cast in respect of members who did not vote, provided it is satisfied about the integrity of the voting process, including the information given to members about the voting process. Finally, ASIC stated that it had no objection to the schemes overall (T, 256.29) on the basis that I accepted the various submissions ASIC made, as to which I deal later.

The voting result

20 I should at this point give a broad overview of the voting result. Leaving aside any question of whether the voting result could be vitiated by any misleading or deceptive statement or manipulation, and assuming reliability of the voting figures, it can be said in broad terms that between 82% and 83% of those who voted were in favour of the scheme and that approximately 51% of the total eligible population of voters did in fact vote. This latter is a substantial number in the context of approximately 1.2 million eligible to vote members of Insurance and approximately 1.8 million eligible to vote members of Association. While that high participation may in part have been influenced by a campaign urging members to vote, it is nonetheless indubitably the case that the vote was a substantial majority in favour. The majority effectively required was 75% of those present and voting, having regard to the inter-dependent alterations to the relevant constitutions of Association and Insurance. Otherwise for approval of a scheme in relation to a company like Association or Insurance without share capital only a simple majority would be required. 21 Finally, I should record again what I said in my earlier judgment regarding the Court’s task at the approval stage. First, the Court must be satisfied that there has been no misleading or deceptive conduct in contravention of s995 of the Corporations Law which is of such materiality as to vitiate the vote. The Court’s discretion to give or withhold approval at the approval hearing remains unfettered by what has occurred at the convening hearing. That approval may be given or withheld, or given on conditions. It will take account of what has been revealed or transpired since the convening hearing, as well as any matters properly raised at the approval hearing. As regards the scheme proxy, my earlier provisional conclusion not precluding its use needs now to be reviewed following the scheme meetings and in light of the voting at those meetings on the scheme and on those associated resolutions already passed. The intention is for the demutualisation special resolution to be held reasonably soon after the scheme, this having, as my earlier judgment makes clear, direct relevance to the legitimacy of the scheme proxy. So too does the very strong support for the scheme at around 80% or more assuming reliable voting figures; see paras 72 and 73 of my earlier judgment. 22    At para 41 of my earlier judgment I conclude:

“41. Once the approval stage is reached, the court’s task is well settled, and accurately set out in I A Renard and J G Santamaria in Butterworths “Takeovers and Reconstructions in Australia”, looseleaf at 15,061:
“… the court will determine: (1) whether all the conditions required by CLs411 have been complied with; (2) whether the majority of members or creditors, though acting regularly, have acted in good faith and not in pursuit of some illegitimate purpose; and (3) whether the proposal was ‘at least so far fair and reasonable, as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interest as such member, might approve it’.10 Fundamentally, the jurisdiction is supervisory; the court is concerned to be satisfied that there has been an absence of oppression and that the compromise or arrangement is one which is capable of being accepted: see Re Dorman Long & Co Ltd [1934] Ch 635; Scottish Insurance Corp Ltd v Wilsons and Clyde Coal Co Ltd [1949] AC 462 at 486.
10 Per Fry LJ in Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 247. [Footnote abbreviated.]”

23    When it comes to appraising the fairness of a scheme, the Court does not determine that the scheme is intrinsically in the members’ interest or otherwise. As White J said in Re Pheon Pty Ltd (1987) 47 SASR 427 at 435 in dealing with a creditors’ scheme of arrangement but equally applicable to a members’ scheme: “The court must leave it to the commercial sense of the creditors to judge what is reasonable in their interests. After all, it is their money which is at stake.” 24 That limited supervisory role of the court in a share scheme was again affirmed in a recent Victorian case: In Re Hudson Conway Limited [2000] VSC 21 (Victorian Supreme Court, Beach J, 21 January 2000, unreported). 25 I turn now to consider the particular matters raised by the various objectors, insofar as those matters raise matters relevant to the Court’s consideration of whether or not to approve the arrangements and have not already been adequately dealt with in my earlier judgment. I set these matters out under subject headings, referring to each objector and any source documents for what he or she said. I then set out my conclusion on each objection, generally with brief reasons. Thereafter I deal with Mr Talbot’s objections, as they straddle a number of topics. Finally, I deal with any remaining issues, and then set out my overall conclusion.

CONSIDERATION OF OBJECTIONS TO THE SCHEME

1. Background and development of the Proposal

1.1 Mr Snodgrass argued that the directors who voted in favour of the Proposal, the “Members First” team led by Mr Whitlam, had engaged in an expensive and misleading advertising campaign for the 1999 Board election, and he suggested that certain aspects of that campaign should be investigated. Mr Gallagher also raised concerns about elections of directors, and previously stated positions as to future demutualisation.

Objector : Mr Snodgrass; Mr Gallagher
Source : Mr Snodgrass’ written submission, 2.5.00, page 5-6; Mr Gallagher’s written submission, 3.2.00, page 1; transcript (Mr Gallagher) page 91

26    It is no part of this Court’s task to investigate a prior campaign for board election or specific concerns about election of directors, when approving later schemes of arrangement. Those are matters which would need to be the subject of separate proceedings and considerable time has elapsed. A similar comment applies to the complaint of Mr Alexander, in a late faxed letter of 11 May 2000. 27    That a director may have a previously stated position as to future demutualisation is likewise not of itself relevant. What matters is the accuracy and non-misleading character of the material put by the Board before members when they voted on the schemes.

1.2 Some objectors argued that there should have been some form of plebiscite of members prior to development of the Proposal.

Objector : Mrs Murrell; Mr Snodgrass
Source : Mrs Murrell’s written submission, 4.5.00, page 3; transcript (Mr Snodgrass) page 101

28    Whether or not there should have been some form of plebiscite of members prior to development of the proposal is again not a matter relevant for the Court’s current consideration of the scheme but rather a matter for the commercial judgment of the relevant Boards.

2. Fairness and general opposition to the Proposal

2.1 A number of objectors raised issues that related to the ‘fairness’ of the Proposal, stating their views why it should be rejected.

29    I have earlier stated that the commercial merits of the scheme are for members, not the Court, to assess so that the Court should not substitute its own commercial judgment for that of members. The classic statement of the limited circumstances in which the Court may intervene on fairness grounds, notwithstanding that commercial judgment as so expressed by the members in their vote, is that of Fry LJ in Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 247. It is only if the proposal was not, “at least so far fair and reasonable, as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interest as such member, might approve it.” 30 It would be difficult to imagine a situation of such manifest unfairness and unreasonableness as would justify Court intervention, that was not also associated with a lack of proper disclosure. Otherwise one would have to assume that members voted with their eyes open, for a manifestly unfair scheme. That would be hardly likely if their classes for voting purposes were appropriately selected “so as to prevent the section being so worked as to result in confiscation and injustice …”; Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583. 31 This is necessary background to how a court must consider the examples of specific unfairness or unreasonableness put by the various objectors. To these I now turn.

2.2 Included in those reasons was the view that Association was diminished as a result of the Proposal, as it had given up valuable trade mark rights, had bound itself to restraints of trade in perpetuity and had lost control of Insurance and concerns were expressed about the ‘quid pro quo’ for this. Mr Robinson submitted that there should have been a separate vote by members of Association in relation to the Business Relationship Agreements. Concern was also expressed as to the long term survival of Association.

Objector : Mr Snodgrass; Mr Manson; Mr Robinson; Mrs Murrell
Source : Mr Snodgrass’ written submission, 2.5.00, pages 2, 4; handwritten notes for oral submissions, pages 6-8; transcript (Mr Snodgrass) pages 97, 99; Mr Manson’s handwritten notes, 3.5.00, page 2; Mr Robinson’s handwritten notes for oral submission, 4.5.00, page 6; transcript (Mr Robinson) page 80; Mr Robinson’s ‘rejoinder’ 8.5.00, page 3; Mrs Murrell’s written submission, 4.5.00, introduction, pages 1, 2

32    Each of these contended unfairnesses of the Proposal go to the commercial merits of the Proposal and are matters upon which members understandably may have divergent views. However, provided the members, as I am satisfied they did, were properly informed by the Information Memorandum concerning the factual position regarding these matters and were in a position to accept or reject the views expressed by the chosen experts, as they were, it is not for the Court to take sides between those divergent views. The Proposal properly included these elements with the others, so it could be voted upon as a whole. Separate vote on these individual elements would not have been appropriate for what is an inter-linked proposal of a comprehensive character.

2.3 Some objectors argued that a shareholder company would act to maximise profits, which could be to the detriment of policy holders or members and would otherwise not act in the benevolent fashion expected of a mutual.

Objector : Mr Snodgrass; Mr Robinson; Mr Gallagher Mrs Murrell
Source : Mr Snodgrass’ written submission, 2.5.00, page 3; Mr Robinson’s handwritten notes for oral submission, 4.5.00, pages 3, 6; transcript (Mr Robinson) page 79, 80; transcript (Mr Gallagher) page 90; Mr Robinson’s written ‘rejoinder’ of 8.5.00, page 1, 4; Mrs Murrell’s written submission, 4.5.00, introduction, page 1

33    The general point which objectors put here, namely that a shareholder company must act to maximise profits whereas a mutual may act in more benevolent fashion, is connected to the matter raised by Mr Parker in sub-para 3.4 below (para 55) in relation to the charging of premiums on insurance. He and other objectors assert that premiums will have to rise, being driven by the requirement of NIGL to achieve listing and to remain a financially viable listed entity under pressure to provide greater shareholder returns. It is also said in the latter context by Mr Talbot that disclosure was insufficient but I will return to that latter aspect later (para 120). 34    It is important to put the contrast between the position of Insurance as a mutual and the position Insurance will have as the subsidiary of NIGL when demutualised, in proper perspective. As the analysis in my earlier judgment made clear, it is wrong to conclude that Insurance is currently under an obligation, fulfilled or not, to price as a mutual or that its board may be called to account for failure to do so; see the earlier judgment at paras 155 to 174. 35    First of all, it is clear that a mutual in the position of Insurance is not obliged to provide “mutuality benefits”, but merely permitted to do so though not without constraint. In practice while Insurance has the legal ability to pay rebates subject to prudential requirements, it has apparently only done so for two periods in its history. Policy rebates were provided in some years prior to the 1970’s and from 1 August 1992 until 31 July 1995 (see Information Memorandum at 26). Current policy is to charge premium rates on a commercial basis, “having regard to a number of factors, including the appropriate rating of different risks and the desired return on capital as determined by the Insurance Board.”; see Information Memorandum at 23. Thus, to the extent that Insurance is empowered as a mutual to charge premium rates on a lower than commercial basis, it is currently not doing so. There is no suggestion that there is any prospect of that commercial approach changing if demutualisation goes ahead. 36    There is a further complication, namely that an increasing number of policy holders are not members of Insurance. This is by reason of a Board approved strategy of growth and diversification outside of New South Wales and the Australian Capital Territory; see Information Memorandum at 17 and 30. Mutuality pricing to the extent it has any meaning in the present context must mean pricing in such a way as to subordinate profit maximisation to benefits to policy-holders by charging a lower premium or offering premium rebates and generally offering greater benefits in terms of claims, coverage and/or treatment. But this presupposes that there is total identity between members and policy-holders; mutuality permits benefits to policy-holders on the basis that all policy-holders are members. It is true that for practical purposes it can be said that all members are policy-holders. But the converse does not apply, because a substantial and increasing number of policy-holders are not eligible to be members of Insurance. Thus if benefits were to be maximised for policy-holders who were not members, it may be questioned whether that is truly for the benefit of members even if they too benefit as policy-holders. Some members may prefer to maximise their benefits as members, not policy-holders. 37    There is a further potential divergence between the interests of policy-holders and other members, the latter having no direct interest in Insurance’s assets and hence profitability. It emerges from a feature of Insurance’s constitution. Under it (para C) in the event of winding up or dissolution of Insurance (otherwise than for the purposes of reconstruction), if there shall remain any surplus assets after payment of all liabilities and expenses of winding-up those assets are to be given to Association, not the members. Undoubtedly Association as the road service entity will have some members who also happen to have insurance policies with Insurance. But there is no necessary identity between membership of Association and the holding of an insurance policy through Insurance. 38    Thus in circumstances where there is no actual policy of mutuality pricing nor has there been for some years and where even its legal possibility would not be without constraint, it is over-simplistic to contend that NIGL would, in maximising profits for shareholders, operate in a distinctly different fashion as compared to the way Insurance does operate to-day where it appears driven by purely commercial considerations in its pricing. But even if some contrast between NIGL as a shareholder company maximising profits could be made, that is a matter where, provided there has been adequate disclosure, members are the best judge of their own interests and it is not for the Court to substitute its view of what is fair. 39    I deal under para 57 with how members will receive the additional assurance that any prospectus for the listing of NIGL will repeat the statements made in the Information Memorandum as to “what will happen to insurance premium rates, policy features and benefits” and “whether insurance claims management principles will change”. These matters are dealt with at pages 4, 15, 23, 30 and 31 of the Information Memorandum. It essentially states as the Board’s view that insurance premium rates will not increase as a consequence of the Proposal and that claims management principles and the rights of Insurance members as policy-holders including policy features and benefits will likewise not change emphasis as a consequence of the Proposal. It is true Ernst & Young Corporate Finance Pty Limited in their expert’s report state,

“while the approach to the setting of premium rates is not intended to change under the Proposal, premium rates and service levels could change in the future either as a result of the Proposal or for reasons unrelated to the Proposal. The Board of NIGL will need to balance the interests of Shareholders and policy-holders to manage the potential conflict of interest between the parties which could adversely impact the premium rates, quality of service and capital strength. This is balanced by the fact that in practice, listed companies must focus on customer satisfaction to attract new customers and achieve required growth in profits.”;
see Information Memorandum at 82.

40    However, arising from the due diligence underlying the Information Memorandum was a finding that Insurance currently conducts, and for some years has conducted, its affairs on a commercial basis. Premium pricing is driven by a number of matters including statistical and actuarial risk forecasting, assessments of a required return on capital, re-insurance costs and availability, and rejected investment income on reserves. There is nothing in the material before me which indicates that those factors would not continue to be the driving ones when it comes to assessing premiums, rather than that a different result of higher premiums would be mandated by a requirement for shareholder returns. 41    It is of course open to the Board and their chosen expert to have differing views about likely affect of the Proposal on the insurance business now conducted. It does not follow that because of that divergence of view the Board are being in any way misleading or deceptive. In each case what is being expressed is an opinion which tries to predict future events. If that opinion be honestly held and is on reasonable grounds, in this case following extensive due diligence, prima facie there is nothing misleading or deceptive in what the directors have said, though they diverge from the expert. And the expert only says what could happen, not what necessarily will happen. Experts in any event are expected to be independent in the views they express and such predictions are, in the nature of things, open to a divergence of view. I will elaborate on this aspect later, in dealing with Mr Talbot’s objections (para 122 and following).

2.4 Mr Toltz argued that members may be better off in the long term with premium rebates or other benefits, and this alternative was not put to them as an option.

Objector : Mr Toltz
Source : Mr Toltz’ letter 7.5.00, page 2; transcript (Mr Toltz) page 170

42    This is sufficiently dealt with under sub-para 2.3 above. In particular there was no requirement to put such an alternative which, if it exists at all now, would continue if the Proposal were rejected.

2.5 Some members were concerned about the fairness of the share allocation rules.

43    The share allocation rules are clearly set out at page 9 of the Information Memorandum. That makes clear these were based, “on a recommendation of PricewaterhouseCoopers as the consulting actuary.” The Information Memorandum (at 9) goes on to say: “PricewaterhouseCoopers formed the view that the Share Allocation Rules provide a fair and reasonable basis for allocating Shares to Members …”. 44    Clearly, though the fairness of the share allocation rules may be a matter where members may have different views, that again is a matter for them to consider and vote upon, as part of the overall Proposal, as they have done. There is no basis for the Court to substitute its view of fairness in the circumstances.

2.6 Mr Thurston argued that the rules applying to joint members and fleet owners leads to unfair results. Mr Crosby was also concerned about the joint member issue and Mr Date was concerned about the position of long-term insurance policy holders. Mrs Murrell felt some members may have been confused about their entitlement, based on various press reports. Mr Evans raised concerns about the allocation of shares to Mr Whitlam.

Objector : Mr Thurston; Mr Crosby; Mr Date; Mrs Murrell; Mr Evans
Source : Mr Thurston’s letter, 30.4.00; Mr Crosby’s declaration, 2.5.00, page 1; transcript (Mr Crosby) pages 102, 106; Mr Date’s written submission, 3.5.00; Mrs Murrell’s written submission, 4.5.00, page 4; Mr Evans’ letter, 6.5.00

45    The rules applying to joint members are clearly set out in the Information Memorandum and are part and parcel of the Proposal upon which members are in a position to reach their own conclusion and vote upon, as they have done. Nor is there anything intrinsic to the position of long-term insurance policy-holders that should invoke the Court’s discretion to withhold approval. The notion that press reports may have confused members about their entitlement is not something for which Association or Insurance should be held responsible; the Information Memorandum is the primary document. Mr Crosby’s own situation is the subject of an affidavit dated 4 May 2000 by Graham Howard, manager of the Members’ Referral Unit and does not reveal anything untoward. Finally, there is nothing concerning the allocation of shares to Mr Whitlam that could, even remotely, justify the suggestion that he has somehow done the equivalent of “insider trading” such as to justify some further enquiry or clarification.

2.7 Some members also sought to raise queries about their individual position.

Objector : Mr O’Neill; Mr Doughty; Mr Thatcher; Mr Crosby
Source : Mr O’Neill’s letter, 20.4.00; Mr Doughty’s letter, 4.5.00; Mr Thatcher’s letter 17.4.00; transcript (Mr Crosby) page 107

46    Insofar as members have queries about their individual position, that can be of no relevance to the Court’s consideration of the scheme or the overall Proposal, more particularly as the Information Memorandum clearly sets out the mechanism for dealing with member enquiries and complaints.

3. The Information Memorandum and other disclosure issues

3.1 A number of objectors argued that the IM was too complex for members to understand.

Objector : Mr Snodgrass; Mr Robinson; Mr Hughes; Mrs Murrell; Mr Gallagher; Mr Crosby; Mr Date
Source : Mr Snodgrass’ letter, 23.3.00, handwritten notes for oral submissions, pages 5, 9-10; transcript (Mr Snodgrass) pages 97, 100; Mr Robinson’s handwritten notes for oral submission, 4.5.00, page 2; transcript (Mr Robinson) pages 76-78; Mr Hughes’ written submission; Mrs Murrell’s written submission, 4.5.00, page 3; transcript (Mr Gallagher) page 93; transcript (Mr Crosby) page 105; transcript (Mr Date) page 112

47    This particular objection starts with the undoubted complexity of the Proposal. Then the argument bifurcates into two alternative ways in which it seems to have been put. The first way is to say that intrinsically a proposal of this complexity could never be adequately explained so as to the comprehensible to the ordinary man or woman in the street and thus it could not ever be properly put to members. That proposition would carry the consequence that no organisation could ever put a highly complex proposal to its members. The alternative way in which the argument is put is that the Information Memorandum did not do proper justice to the need for an adequate presentation of the full complexity of the proposal and thus left members unable to judge for themselves whether to vote for or against it, so that the vote for should be disregarded. 48    The first way of putting the argument finds no support in any authority. Indeed the full Federal Court in Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 468 clearly contemplated that complex cases can be put to members when it gave this guidance as to how:

“The need to make full and fair disclosure must be tempered by the need to present a document that is intelligible to reasonable members of the class to whom it is directed, and is likely to assist rather than confuse …. In complex cases it may be necessary to be selective in the information provided, confining it to that which is realistically useful. ….
It is important that the adequacy of the information provided by the prospectus and supporting documents be assessed in a practical, realistic way having regard to the complexity of the proposal. In the circumstances the court should not be quick to conclude that a contravention of s52 has occurred because other information could have been provided that was not. The need for the Applicants to establish the materiality of errors and omissions is an important step in the proof of their claims. ….”
Earlier, the full Court said (at 466) that members should be provided with:

“such material information as will fully and fairly inform member of what is to be considered at the meeting and for which their proxy may be sought. The information is to be such as will enable members to judge for themselves whether to attend the meeting and vote for or against the proposal or whether to leave the matter to be determined by the majority attending and voting at the meeting.”

49    There is nothing novel in any of this. As far back as 1938, principles now long settled were articulated in Bulfin v Bebarfald’s Ltd (1938) 38 SR(NSW) 423 at 432 and 440 where Long Innes CJ referred to the obligation of directors to “…. make full disclosure of all facts within their knowledge which are material to enable the members …. to determine upon their action.” 50 Without, at this point, dealing with the particular contended examples of misleading and deceptive disclosure, including by silence, but dealing with the matter on an overall basis, it could not be said that the present Information Memorandum was incapable of dealing with a proposal of this level of complexity or must necessarily fail in its task. In particular, the Information Memorandum, as emerged, was the product of an extensive due diligence process in which each proposition or statement of fact was, on the material before me, carefully tested; see affidavit of Mr Stuart Nelson as Project Manager of the Proposal, paras 11 to 34. Furthermore, the Information Memorandum did on the whole do what the Full Federal Court states should be done, namely to be selective in the information provided, confining it to that which is realistically useful, though there is some repetition. Indeed the format of the Information Memorandum was designed to give members both “the wood for the trees” in the opening outline of the Proposal and then the material detail in the later elaboration. Members are assisted by clear headings, a glossary and an index at the end of the Information Memorandum so that particular topics, such as rebates are identified by reference to the relevant pages. 51 Thus, while as the Full Federal Court observed in Fraser v NRMA Holdings Ltd (supra) at 467B, it is difficult to envisage a wider cross-section of the community than is constituted by the membership of the Association, it should not be assumed that that membership was incapable of having a sufficient understanding of the proposal if fairly presented, as overall I am satisfied it was. Members were thus in a position where they could decide whether or not to attend the meeting or to vote by proxy or to leave it to the majority attending and voting to determine the matter. 52 I should add just this. As has often been remarked about political elections or about juries, one should not underestimate the capacity of a broad cross-section of the Australian community to understand the issues before it when they have been fairly presented, whether complex or not. The same applies to the present Proposal. It would be condescending and a discount of the basic good sense of such an audience to suppose otherwise.

3.2 Mr Snodgrass submitted that the summary section of the Information Memorandum (pages 1-20) did not present a complete or accurate picture of the arguments ‘for’ and ‘against’ the Proposal. Mr Robinson raised similar complaints, both in relation to the President’s letter and the early sections of the Information Memorandum .

Objector : Mr Snodgrass; Mr Robinson
Source : Mr Snodgrass’ written submission, 2.5.00, page 2, handwritten notes for oral submissions, page 11; transcript (Mr Snodgrass) page 98; Mr Robinson’s handwritten notes for oral submission, 4.5.00, pages 2-3

53    In matters of this sort, there can be an honest difference of opinion about what are the proper arguments “for” and “against” the Proposal. It should not be overlooked firstly that this section of the Information Memorandum was considered in great detail at the first hearing. The presentation of the reasons why members may vote for or against the Proposal was the subject of detailed consideration and due diligence. Furthermore, the Information Memorandum specifically states at page 14 that the matters on page 15 are features that members might consider to be advantages or disadvantages [emphasis added]. Some of the considerations appear in both columns. Finally, directors, including dissentients, are given the opportunity in the Information Memorandum to put their view of the case against and several did so; see Information Memorandum at 51-53. Thus other arguments “against” the Proposal were there able to be ventilated. 54    In all the circumstances, I do not consider that this objection has any validity.

3.3 Mr Parker argued that the Information Memorandum failed to disclose that the payment of dividends by NIGL would reach a level that required payment from capital reserves.

Objector : Mr Parker
Source : Mr Parker’s written submission, 2.5.00. page 13

55    Mr Parker failed to establish that the payment of dividends by NIGL would have to reach a level that required payment from capital reserves. This is as distinct from payment out of unrealised and realised capital gains, and any trading profits, as mandated by the relevant accounting standard. The general issue of accounting and related issues as affecting the presentation of profits and their inclusion of unrealised profits was extensively dealt with in my earlier judgment; see paras 124-135. Nor did Mr O’Bryan, Counsel for Insurance, at any time suggest that NIGL intended to pay dividends out of capital; see T, 20.36-21.30. As to the likely level of maintainable profits and scope for dividends, see para 75 below.

3.4 Mr Parker asserted that premium prices will have to rise to enable NIGL to achieve listing and to remain a financially viable listed entity, and failure to disclose that in the Information Memorandum was misleading and deceptive. Mr Robinson also referred to press reports that premiums would rise after demutualisation. Mr Toltz argued that the prospect of increased insurance premiums to provide greater shareholder returns should have received greater prominence in the Information Memorandum.

Objector : Mr Parker; Mr Robinson; Mr Toltz
Source : Mr Parker’s written submission, 2.5.00, page 16; transcript (Mr Parker) page 213; Mr Robinson’s handwritten notes for oral submission, 4.5.00, page 5; Mr Toltz’ letter 7.5.00, page 1, 2; transcript (Mr Toltz) page 170

56    The assumption behind this assertion, namely that premium prices will have to rise to enable NIGL to achieve listing and remain a financially viable listed entity has not been established. It follows that no statement to that effect should have been made, such that the failure to include it was misleading and deceptive. I have dealt earlier with the question of premiums under sub-paras 2.3 and 2.4 of this section of my judgment. 57    However, I should add this. As I there foreshadowed, a parallel representation is to be made by NIGL to ASIC in the following terms, being a representation which I would note in any orders I make approving these schemes.

Representation
To: The Australian Securities & Investment Commission
NRMA Insurance Group Limited ACN 090 739 923 (“Company”) hereby represents that the statements on page 8 of the information memorandum issued by NRMA Limited and NRMA Insurance Limited on 14 February 2000 on:
(a) what will happen to insurance premium rates, policy features and benefits; and
(b) whether insurance claims management principles will change,
together with those statements on pages 4, 15, 23, 30 and 31 of the information memorandum which are material to the matters raised by those statements, will be adopted by the Company and fully disclosed in the disclosure documents to be prepared in connection with the Company’s proposed listing on Australian Stock Exchange Limited (as contemplated in that information memorandum).
…………………………………….
Signed for and on behalf of
NRMA Insurance Group Limited”

58    Some debate occurred as to whether such a representation should in fact be in the form of an undertaking either to ASIC or to the Court, possibly accompanied by a court imposed condition to the approval of the arrangements. 59    In all the circumstances I am satisfied that the appropriate course is to leave the matter to be dealt with as a representation to ASIC and noted by the Court as I have foreshadowed. Thus I do not consider that the imposition of a condition which required a legally enforceable undertaking from Insurance and NIGL in some kind of implementation deed would be appropriate or necessary. This is because it potentially alters what was put to members and which they voted upon, in a way which might disadvantage Insurance. It is admittedly a very remote prospect of disadvantage. One would have to envisage a future increase in premiums as a result of the Proposal, which directors felt impelled to make in the interest of Insurance and NIGL shareholders notwithstanding their representations to the contrary at this point in time. There seems clear enough evidence that it would be commercial or perhaps prudential considerations independent of the Proposal that would lead to that result. That could equally occur if there never were this Proposal. It might conceivably be the case that in practice, the fact of listing may bring home to directors more sharply the need for profit, but that is speculative. 60    The representation earlier referred to does not have the same effect as such a condition. It is not in enforceable form, though one would expect that NIGL and for that matter Insurance, would take very seriously doing all it could to ensure the fulfilment of that representation. The representation says that the statements contained in the Information Memorandum will be repeated in the prospectus for NIGL’s listing, thus placing NIGL directors at risk to the same degree as Insurance’s directors from any unjustified departure; see paras 18 and 19 of my earlier judgment. 61    I also considered whether the representation should be converted to an undertaking and if so, to whom. ASIC were unwilling to receive it as an undertaking because it considered that it was unclear what powers it would have to enforce such an undertaking. ASIC also submitted that the Court should not require such an undertaking to be given to it, as this would involve the Court in continuing supervision of a kind said to be inappropriate in relation to a scheme; see R.M. Eastmond Pty Ltd (1972) 4 ACLR 801 at 803 and in particular the authorities to the effect that a scheme once approved can only be amended by a subsequent scheme; Re Forklift Sales (SA) Pty Ltd (1972) 3 SASR 21 at 24-5; Re BTS Bearings Pty Ltd v Transmission Supplies Pty Ltd (1983) 1 ACLC 923 and more generally Renard & Santamaria in “Takeovers and Reconstructions in Australia (Butterworths Sydney, 1990) (looseleaf) at [1622]. 62 I have not at this point reached the view that a court should never accept such an undertaking, reinforced or not by a condition of approval, on the basis that an undertaking must necessarily involve ongoing supervision inappropriate for a Court. Much may turn on the circumstances and how the undertaking is framed, in which ASIC may have the main supervisory role. I reserve that question for when it is necessary to decide. In the present case, I am satisfied that a formal representation of the kind here contemplated would suffice for the purpose and that a formal undertaking in addition would not be necessary. 63 It follows from the above that I do not consider that the prospect of increased insurance premiums is of sufficient likelihood as to have required any greater prominence in the Information Memorandum than it received. Members are aware of the view expressed by Ernst & Young Corporate Finance Pty Limited in the Information Memorandum at 82, para 6.4.4 and were in a position to form their own views.

3.5 Mr Parker also argued that the Information Memorandum failed to disclose that the NIGL constitution enabled the appointment of multiple managing directors, whose remuneration was not limited by the total sum referred to on page 139 of the Information Memorandum.

Objector : Mr Parker
Source : Mr Parker’s written submission, 2.5.00, page 14

64    The notion that the NIGL constitution could be invoked to appoint multiple managing directors in order to enhance the amount paid as remuneration rather than for proper commercial reason is sufficiently remote as to be disregarded.

3.6 Mr Parker also argued that the reports of Marsden Jacobs Associates Pty Limited and Copernican Securities Pty Limited should have been made available to members. In a similar vein, Mr Robinson argued that the Independent Expert reports in the Information Memorandum were unconvincing, and should have been balanced by the disclosure of the critics of those reports. Mr Robinson also submitted that the views of former members of the Board of NRMA who were against the Proposal should have been included in the Information Memorandum.

Objector : Mr Parker; Mr Robinson; Mr Gallagher
Source : Mr Parker’s written submission, 2.5.00, page 14; Mr Robinson’s handwritten notes for oral submission, 4.5.00, pages 4; 5; transcript (Mr Robinson) page 79; Mr Robinson’s ‘rejoinder’ 8.5.00, page 2

65    The complaint that the Marsden Jacobs Associates Pty Limited and Copernican’s Securities Pty Limited’ report of 30 May 1999 (“the Two Mutuals Committee report”) was not made available to members, presupposes both that it could have been and should have been. At page 135 of the Information Memorandum, there is a clear statement of the origin of that report, namely that the Association board established the Two Mutuals Committee being a sub-committee of that board and that sub-committee in turn obtained the preliminary report which I have referred to as the Two Mutuals Committee report. An abridged version of that preliminary report was subsequently delivered to the Association board according to the disclosure in the Information Memorandum. 66    The Information Memorandum then goes on to say:

“the authors of the Two Mutuals Committee report have not consented to the inclusion of any of the findings from that report in this document. The report, however, challenged the recommendations and methodology of the Credit Suisse First Boston report. Management was requested to prepare a report commenting on the findings of the Two Mutuals Committee report.”

67    Subsequently the Association board resolved to disband the Two Mutuals Committee and then appears the following in the Information Memorandum:

“Although no further work was undertaken on the enhanced two mutuals structure problem, the boards and management have considered the various issued raised in the Two Mutuals Committee report and the management report as part of the development of the Proposal and this Information Memorandum includes a discussion of relevant issues arising from that consideration.

68    In those circumstances, I asked at the initial hearing what the current status of that report was; see transcript 14 February 2000, 8.51-13.26. 69    It was clear that Marsden Jacobs Associates Pty Limited would not release their report or permit it to be quoted, quite possibly because the Association would not give an indemnity against any liability that might flow to them from that course. The question which that poses is whether Association should have been required to give such an indemnity in order for that disclosure to be possible. In my judgment such a requirement would have been quite unreasonable. It remains the responsibility of the Board to form a view materials of that sort, but it is not incumbent on the Board merely because it has a report reaching a different conclusion that it disclose it, especially when the Board has disclosed the fact that such report did challenge the recommendations and methodology of the Credit Suisse First Boston report. ASIC have seen the Marsden Jacobs report and made no demur about its non-inclusion. 70    Where matters of opinion are concerned, the question of disclosure has in any event a different aspect. What is critical is that facts be disclosed and, to the extent they involve any stated interpretation, that interpretation should be reasonably open. It certainly does not require that, having reached an opinion as the Board has done and having obtained independent experts’ reports supporting that opinion, that the Board should still have to set out the detailed reasoning of a report which differs from the other reports, more especially when the Board has disclosed the fact of having received the differing report and the broad fact of its difference. What is important is that the arguments against the Proposal are fairly presented. 71    As to the criticism that the views of former members of the board of Association who are against the Proposal should have been included in the Information Memorandum, that has no substance. There is no requirement that previously departed members of the board should have their opinions included.

3.7 Mr Robinson argued that the Information Memorandum failed to provide a sufficient description of the key factors of, and differences between, mutuals and shareholder companies.

Objector : Mr Robinson
Source : Mr Robinson’s handwritten notes for oral submission 4.5.00, page 3

72    In fact, the Information Memorandum at page 17 describes mutual organisations to-day whilst section 7 of the Information Memorandum provides a comparison between the rights of Insurance members and the rights of NIGL shareholders which former Insurance members are to adopt instead. Given the way in which Insurance has in fact conducted its business on a commercial basis rather than as a traditional mutual, and given the differences between mutuals making it pertinent to know the precise membership rights specifically conferred under the relevant constitution, I am satisfied that the level of disclosure was sufficient. Members in addition had the opportunity, if they wished, to read my earlier judgment which sets out in more detail the legal characteristics and consequences of being a mutual; see para 145 and following.

3.8 Mr Parker argued that NIGL would not be listed on any reputable Stock Exchange because whilst the financial statements of Insurance comply with AASB 1023, the inclusion of unrealised gains on investments mask significant trading losses. He argued, for example, that NIGL would not be listed on the New Zealand Stock Exchange because its profit and loss account would not conform to the New Zealand equivalent of AASB 1004.

He also argued that more than two years financial results should have been included in section 11 of the Information Memorandum, and that section should also have included unaudited figures for the half year ended 31 December 1999.
Objector : Mr Parker
Source : Mr Parker’s written submission, 2.5.00, pages 8-9; 15

73    On the material before me, NIGL has every prospect of being listed on the ASX. There is an updated letter from the Australian Stock Exchange, and subject to the matters there noted, the ASX conclude:

“Based on the material provided to ASX (including the Information Memorandum, constitution and correspondence in relation to various applications for in-principle advice), at this point in time, no impediments to the listing of the Company have been identified.”
See MFI 32 at 15. There is further relevant correspondence including a letter from a leading stockbroker, Dicksons Limited, dated 4 May 2000 where the writer says:

“Based upon my level of experience and knowledge from publicly available information, I have no reason to believe there is any impediment to NRMA Insurance Group Limited listing on the Australian Stock Exchange.”
See MFI 32 at 48.

74    The procedural steps required are set out in a memorandum from Mallesons Stephen Jaques of 5 May 2000; see MFI 32 at 16. 75    Taking into account the application of AASB 1023 as analysed in my earlier judgment at para 124 and following, and the letter from PricewaterhouseCoopers to the directors of Association and Insurance dated 17 November 1999 contained in the Judge’s Issues folder (MFI 6) at tab 10, the basis for Mr Parker’s argument that NIGL would not be listed on any reputable stock exchange is not made out. Thus PricewaterhouseCoopers in their letter of 17 November 1999 at pages 4-5 state:

“After adjusting the budget for profitability for the maintainable impact on Insurance of the adjusted Business Relationship Agreement as discussed above, we have concluded that it would be reasonable to expect the maintainable profits after tax of Insurance to be in the order of $200 million per annum.
Using the assumption in the Capital Adequacy Assessment as the Proposal proceeded, dividends would be 50% of profits after tax, this indicates a projected dividend of the order of $100 million per annum (carrying possible imputation tax credits) may be expected in each of the next two years. This level of dividend could be expected to be increased in line with any future increases in profitability.”

76    Finally, as to Mr Parker’s argument that more than two year’s financial results should have been included in section 11 of the Information Memorandum, and that section should also have included unaudited figures for the half year ended 31 December 1999, the short answer is this. The disclosure of financial information in the Information Memorandum was considered by the Court at the first hearing. Financial information for two financial years in the Information Memorandum was considered appropriate by Insurance and Association because:

(a) members have received financial information previously (see s411(1)(a)(ii)), hence it is not necessary to provide that information for prior periods; and

(b) the group called the “Finance Working Group” established for this project concluded that earlier financial information would not provide additional material information to members; and

(c) the level of disclosure is consistent with other demutualisation precedents, for example AMP or State Colonial.

77    Indeed it is incorrect to say that the half-yearly figures for the period ended 31 December 1999 were available when the Information Memorandum was printed. The Company points out that there remains one outstanding issue in the formulation of the half-yearly accounts. As part of the due diligence process, Association management outlined to the Due Diligence Committee that there was nothing in the draft half-yearly figures which illustrated a material change in the financial position of either Association or Insurance or which would have a bearing on the substantive matters dealt with in the Information Memorandum; see MFI 31 at 3.

4. Other communications with members

4.1 A number of members submitted variously that the advertising campaign and the ‘outcall’ process was designed to secure a ‘yes’ vote or indicated a lack of confidence in the Information Memorandum.

Objector : Mr Snodgrass; Mr Manson; Mr Toltz; Mr Date; Mr Scandrett
Source : Mr Snodgrass’ handwritten note for oral submissions, page 12; Mr Manson’s handwritten notes, 3.5.00, page 3; transcript (Mr Manson) page 83; transcript (Mr Date) page 112; Mr Toltz’ letter 7.5.00, page 2; transcript (Mr Toltz) page 171; Mr Scandrett’s letter 8.5.00; transcript (Mr Scandrett) page 173-174, 212

78    In my earlier judgment (at para 4) I emphasised the importance in a complex proposal such as this with the enormous and widespread membership, to let the documents speak for themselves. I emphasised that phone queries from members should be handled with strict neutrality. Finally I commented on the importance of these strictures applying equally to any paid or inspired publicity though I made it clear that nothing I had said precluded individual directors, whilst avoiding undue partisanship, from participating in public debate. 79    On the material before me there is nothing to indicate that the advertising campaign and the “outcall” process was unfairly designed to secure a “yes” vote or indicated a lack of confidence in the Information Memorandum. The clear thrust of the advertising campaign was to encourage members to vote; there can be nothing wrong in that. The encouragement did not go further and actually urge members to vote in a particular way. To urge members simply to vote is not a process designed to secure a “yes” vote, even if it be the case that those who urged that vote were aware of a favourable trend of proxies. Nor did this indicate a lack of confidence in the Information Memorandum which was still able to speak for itself. 80    Finally, I should note that Mr Nelson in an affidavit of 9 May 2000 elaborated on his earlier affidavit of 28 April 2000 and in particular paras 161-169 on the Outbound Call Campaign. It is clear from the matching process which he describes leading to some 500,000 calls encouraging people to vote that, as paras 7 and 8 attest, neither at the time the decision was made to engage in the Outbound Call Campaign nor at any time subsequently during the Outbound Call Campaign, was Mr Nelson or any other officer of NRMA aware of the voting trend or breakdown in the proxies received by the company Computershare Registry Services Pty Ltd. This was the company that had been engaged by Association and Insurance to act as Returning Officer for and to assist each of them to conduct the relevant meetings; see para 5 of Mr Randle’s affidavit of 28 April 2000. 81    Significantly, clause 2(f) of the contract between Computershare Registry Services Pty Limited and Association and Insurance provides for a constraint, though not absolute, on communicating the progressive results “for” and “against”. In any event, even if the trend of voting were known, contrary to the evidence before me, it does not follow that to phone up and encourage people to vote is of itself manipulating the vote. 82    The affidavit material shows that the scripts for the Outbound Core Programme were carefully prepared and reviewed by Mallesons Stephen Jaques and there was associated supervision by an organisation called Taverners and overall review by PricewaterhouseCoopers. It is not necessary for me to review this material further; much of it is contained in SJN 1 in the Exhibit Vol. 2 under tabs 44-66. Both Mr Nelson as Project Manager of the team working upon this proposal in his affidavit of 28 April 2000 and Mr Randle in his various affidavits of 28 April 2000 and 2 May 2000 (Mr Randle being Executive Chairman of Computershare Registry Services Pty Limited engaged to act as returning officer in relation to the relevant votes) substantiate that the advertising campaign and the outcall process were not designed to secure a “yes” vote or to manipulate it in any way.

4.2 Some members complained that the Members Information Line either did not provide timely answers to members’ questions or failed to respond to requests for further material.

Objector : Mr Williams; Mr Crosby
Source : Mr William’s written submission, 17.4.00, page 2; Mr Crosby’s declaration, 2.5.00, page 1-2; transcript (Mr Crosby) page 106

83    On the evidence before me, and in particular Mr Nelson’s affidavit evidence, I am satisfied that the Members’ Information Line coped adequately enough with the enormous logistical task before it. While there may have been individual slip-ups as would be inevitable in a task of this magnitude, there is no basis for concluding that those slip-ups were such as to vitiate the members’ vote or justify a conclusion that the Members’ Information Line did not do the job assigned to it. 84    The preparation of scripts for use by Call Centre operators was an important aspect of ensuring that members were not provided with incorrect or misleading advice. These scripts which were exhibited to Mr Nelson’s affidavit (SJN 1, tabs 42-45) are extensive and were as I have said reviewed by legal advisers. The operation of the Members’ Information Line was subject to audits by PricewaterhouseCoopers. There is no evidence in Mr Williams’ submission that any member (including himself) was unfairly disadvantaged by a failure to respond to a question asked on the Members’ Information Line.

4.3 Mr Snodgrass in one of his written submissions argued that a statement by Mr Whitlam in the Open Road of March/April 2000 that the Information Memorandum had the approval of the Court was a contempt and was contrary to statements made by the Court.

Objector : Mr Snodgrass
Source : Mr Snodgrass letter, 27.3.00; Mr Snodgrass’ written submission, 2.5.00, page 6

85 There was no contempt in Mr Whitlam’s statement which simply reflected order 4 of the orders I made on 14 February 2000 for the convening of the relevant meetings. Those orders required the Court to approve the relevant Explanatory Statement. It simply reflects s411(1) of the Corporations Law. The statement that I made in Court on 11 February 2000 was directed to Mr Camilleri’s submissions. I said, “As of this moment I am simply here to determine that this is a scheme which may be put to members. It would be a complete distortion of both the Corporations Law and well-settled practice to describe this as in any way an approval by this Court of the schemes.” [emphasis added]. 86    The distinction between approving an explanatory statement and approving a scheme is self-evident. The scheme is only approved at this present stage whereas the document that is approved for dispatch to members is approved at the meeting convening stage. Mr Whitlam’s public statement clearly reflected that distinction.

5. Voting and related matters

5.1 It was argued that some members did not receive the Information Memorandum in sufficient time to consider it, and others did not receive it at all.

Objector : Mr Williams, Mr Crosby, Mr O’Neill
Source : Mr William’s written submission, 17.4.00, page 1-2; Mr Crosby’s declaration, 2.5.00, page 1; transcript (Mr Crosby) page 108; Mr O’Neill’s written submission of 20.4.00

87    Naturally, in a mail-out of this enormous size, not every mail pack will be received, some will be lost and some may be received late. In a bundle of documents handed up by Mr Wood as Counsel for Association on 3 May 2000 (which I have subsequently identified as MFI 34) there is a list of a relatively few cases where the mail-out failed to reach members in time for the minimum twenty-one days before the meeting, that is to say by 29 March 2000 or earlier by 8 March 2000, being the last date at which the register could be completed and down-loaded so that dispatch would thereafter occur in strict conformity with my earlier orders and receipt could be counted on not later than twenty-days before the meeting (unless there were some mail-out mistake by the postal authorities). The circumstances of the various non-compliances are set out and again they are completely innocuous. The various affidavits of Messrs Nelson, Abboud, Riley, Macky and in relation to Mr Whitlam are included in these papers. ASIC saw nothing untoward in any of this. 88    Accordingly I conclude that there is no substance in this objection so far as my approval is concerned.

5.2 A number of objectors were concerned about the inclusion in the Mail Pack of the share allocation form, which was argued to amount to ‘push polling’ or an unwarranted encouragement of a ‘yes’ vote, without full consideration of the issues.

Objector : Mr Snodgrass; Mr Robinson
Source : Mr Snodgrass’ written submission, 2.5.00, page 7; Mr Robinson’s handwritten notes for oral submission, 4.5.00, page 2

89    There is nothing in the Share Allocation Form which could amount to “push polling” or an unwarranted encouragement of a “yes” vote, without full consideration of the issues. All the form did was to indicate to members the shares they would get if the Proposal went ahead. It is an insult to the intelligence of members receiving that form together with the Information Memorandum to suppose that many would disregard the Information Memorandum and, blinded by cupidity, simply fill out the relevant proxy form in favour of the Proposal. Even if some did so, it would hardly have been practical or sensible to insist on the share allocation only being disclosed in a later mailing after they had first received the Information Memorandum.

5.3 Mr Lewis raised concerns about the security of the proxy collection process, based on his observation of the collection of proxy forms from the NRMA head office at 388 George Street. He was troubled by his observation that the forms had been transported in a unlocked sack and that in his view proper custody transfer procedures did not appear to have been adhered to.

Objector : Mr Lewis
Source : Mr Lewis’ letter to ASIC, 18.4.00, Mr Lewis’ letter to Mr Talbot, 2.5.00, transcript (Mr Lewis) page 84-87

90    The concern about the method for transportation of proxy forms are adequately dealt with in Mr Randle’s affidavit of 4 May 2000. In an ideal world, unloading proxy forms and putting them in a canvass sack might be replaced by a more seamless procedure. But it is difficult to envisage how this could be done in a project of this size or without the occasional minor mishap.

5.4 Mr Williams asserted that the proxy form could lead to the disenfranchising of members who wished to appoint a proxy, as the form did not require sufficient identification of the proxy holder to ensure that proxies held by persons with the same name were accurately recorded. Mr Gallagher raised a related point about the use of initials on the proxy form.

Objector : Mr Williams; Mr Gallagher
Source : Mr Williams’ written submission, 17.4.00, page 1; transcript (Mr Gallagher) page 88

91    On the material before me including paras 6-8 of Mr Randle’s affidavit of 2 May 2000, I am satisfied that the proxy form was not such as to lead to the disenfranchising of members who wished to appoint a proxy or that the form did not require sufficient identification of the proxy-holder to ensure that proxies held by persons of the same name were accurately recorded. Nor is there any real difficulty about the use of initials on the proxy form. I note that control procedures were in place to ensure that proxies were correctly recorded and there is no evidence of any difficulties arising in relation to attribution of proxies to proxy-holders in connection with the conduct of the meetings.

5.5 Mr Thurston was concerned that the form of the proxy form and the wording of the resolutions was designed to encourage a ‘yes’ vote. Mr Toltz submitted that the proxy form was confusing and unfair.

Objector : Mr Thurston; Mr Toltz
Source : Mr Thurston’s letter 30.4.00, Mr Thurston’s letter to ASIC, 28.3.00; Mr Toltz’ letter 7.5.00, page 2

92    There is nothing in the form of proxy or the wording of the resolutions which was designed to encourage a “yes vote”; there is thus nothing in that objection to lead to the view that the proxy form was confusing and unfair or otherwise vitiated the vote.

5.6 Mr Date raised issues connected with the drafting of the resolutions and the conduct of the members’ meeting on 19.4.00, and Mr Virtanen complained about the failure to alert the meeting to a letter he had written Mr Manson was also concerned about the conduct of the meeting

Objector : Mr Date; Mr Virtanen; Mr Manson
Source : Mr Date’s written submission, 3.5.00, Mr Virtanen’s letter to Mr Talbot, 27.4.00; Mr Manson’s handwritten notes, 3.5.00, page 1; transcript (Mr Manson) page 80

93    I am satisfied that there is no substance in these objections on the material before me.

5.7 It was asserted that the failure to allow scrutineers to observe the counting of the ballot was a departure from normal practice or was otherwise unfair.

Objector : Mr Williams; Mr Manson; Mr Toltz
Source : Mr Williams’ written submission, 17.4.00, page 1; Mr Manson’s handwritten notes, 3.5.00, transcript (Mr Manson), page 81; Mr Toltz’s letter 7.5.00, page 2

94    On the meetings generally, I do not consider there was any difficulty in failing to appoint scrutineers, being a matter to be decided in the discretion of the board of directors. There is nothing in the constitutions of Association and Insurance to require scrutineers. Control procedures were in place for the processing of proxy forms including quality assurance by Artcan and review by KPMG. The overall process was under the control of an independent company providing specialised services in the area, Computershare. 95    I am thus satisfied that there was no departure from normal practice or such as would vitiate the vote.

5.8 Mr Snodgrass was concerned that members had not had sufficient opportunity to debate the issues, as the only members’ meeting on the subject was held on 19.4.00, two days after the proxies closed, and the vast majority of members had voted prior to the meeting.

Objector : Mr Snodgrass
Source : Mr Snodgrass’ handwritten note for oral submissions, page 3-4; transcript (Mr Snodgrass) page 97

96    One can understand that members who were opposed to demutualisation and indeed some who may have been for it, would have wished the opportunity to have had informal meetings at which the issues could have been debated. It is perhaps a symptom of the sharpness of past conflicts over the whole issue of demutualisation that this did not occur. However, while these may be matters which members may have preferred to have happened otherwise, they are not concerns which can weigh on the Court in deciding whether or not to approve the scheme.

5.9 Mr Manson complained about the length of time taken to process the proxies held by him prior to the commencement of the meeting on 19.4.00.

Objector : Mr Manson
Source : Mr Manson’s handwritten notes, 3.5.00, page 3; transcript (Mr Manson) pages 80, 83

97    This is not a matter which could vitiate the vote or otherwise weigh in the consideration of whether or not to approve the scheme.

6. Additional matters

6.1 Mr Parker argued that the adoption by the court in its judgment of 24 February 2000 of submissions made by NRMA may lead to a perception of bias.

Objector : Mr Parker
Source : Mr Parker’s written submission, 2.5.00, page 11

98    Mr Parker did not press this matter in any oral submissions but taking it as still a submission he may wish to make, it reflects a misunderstanding of what courts customarily and properly do. Courts not infrequently will adopt and incorporate in judgments submissions of the parties where the court is in agreement with those submissions. The Court must first bring its own independent judgment to bear. There could be no reasonable apprehension of bias from that fact that I so adopted some of the NRMA’s submissions in my earlier judgment, having foreshadowed in open court that I wished to have the submissions in a form capable of being so incorporated. Self-evidently that could only be done by the Court after independent consideration.

6.2 Additional issues raised by objectors included the proxy validation rules employed by the Returning Officer and the validity of the membership cut off for Insurance

Objector : Mr Gallagher
Source : transcript (Mr Gallagher) page 89, 167-169

99    There is nothing requiring the Court’s intervention in this objection including the proxy validation rules or in the validity of the membership cut-off date for Insurance; the latter was specifically dealt with in my earlier judgment; see paras 112-119.

Objections pressed on behalf of Mr Talbot

100    Mr Talbot through his counsel, on the whole did not press matters which had been the subject of my earlier judgment but concentrated on a shorter list of submissions identified by reference to his earlier written memorandum of 1 May 2000 in a note handed up dated 4 May 2000. 101    The first set of submissions made by Mr Talbot bear a loose relationship only to paras 10 through 28 of his written submissions of 1 May 2000. The divergence between the two is best clarified by reference to the so-called Gambotto principles. Those principles preclude unfair expropriation of a member’s rights in the circumstances covered by the High Court’s decision, where directors have acted for an improper purpose. It was conceded by Mr Shand, QC that my earlier judgment had dealt with the application of the Gambotto principles, insofar as they may have been invoked to attack cancellation of members’ membership rights, in return for the allotment of shares in NIGL in accordance with the Share Allocation Rules under the schemes; see paras 50-60 of my earlier judgment. These schemes cater for that share allocation. The Implementation Deed requires the share allocation to occur in accordance with the relevant Share Allocation Rules upon extinction of the members’ membership in Insurance. That extinction though part of the Proposal occurs not by force of the scheme but by application of the relevant provisions of Pt 2B.7 of the Corporations Law following this sequence:

(i) an application is made for change of type by Insurance pursuant to s163 of the Corporations Law ;

(ii) Unless a court or the Administrative Appeals Tribunal otherwise orders within one month of gazettal of ASIC’s intention to alter the Company’s registration details, ASIC, upon being satisfied as to the matters there set out, must alter the details of the company’s registration to reflect the company’s new type, such change of type being thus effected pursuant to s164 of the Corporations Law ; and

(iii) by force of s166(2) assisted by s167 of the Corporations Law , on the change of type the members cease to be members of the company and any new shares issued are taken to be issued to the former member with that former member’s consent; the new shares can be issued either by the company changing status or its holding company (s167(1)(b)) provided in the latter case the business, assets and liabilities of the issuing company (together with its subsidiaries) is substantially the same as that of the company changing type (with its subsidiaries).

102 Significantly, s164(4) of the Corporations Law, here to be read in conjunction with s1317B of the Corporations Law, permits review of ASIC’s decision during the one month window for that review allowed by s164. This starts after ASIC notifies its intention to alter the details of the company’s registration. That of itself may constitute an independent basis for excluding the Gambotto principles, as is assumed at page 2 of the Explanatory Memorandum to the Company Law Review Bill 1997 introducing the new Pt 2B.7. (Its predecessors were not as comprehensive.) 103 Thus Mr Talbot did not submit that Gambotto principles stood in the way of the demutualisation that is to occur pursuant to the associated and inter-independent steps in the Proposal. This would recognise, as I accept, that there are two possible bases for excluding the Gambotto principles. One is that the scheme provisions themselves embrace approval of a scheme which, though it does not itself effect the expropriation (that is done by Pt 2B.7) nonetheless could not be appraised for fairness without taking into account that latter inter-dependent step as an essential part of the Proposal. That leaves no work for a separate fairness test at general law, based on proper purpose and thus no room for Gambotto principles. 104 The second basis is that Pt 2B.7, though not directly employing any fairness appraisal, provides an express statutory regime for expropriation, more accurately described as an exchange of membership for shares in a new holding company that has essentially the same assets and liabilities when subsidiaries are taken into account (s167(1)(e)). Furthermore, the right to challenge is at least an indirect means of introducing concepts of fairness analogous to Gambotto. Such a statutory regime again leaves no room for Gambotto principles to operate independently. 105    But in any event, Mr Talbot put an alternative argument which he attempts to base upon the reasoning of the Federal Court in Fraser v NRMA Holdings Limited at 480-2. The essential thrust of the argument is that clause 5 of the Association’s constitution (now clause C) must be repealed before a proposal of the present kind can be effected legally (T, 134, 135, 153-7). That clause provides as follows:

“If upon the winding-up or dissolution of the Association there remains after satisfaction of all its debts and liabilities any property whatsoever, the same shall not be paid to or distributed among the members of the Association that should be given or transferred to some other institution or institutions having objects similar to the objects of this Association such institution or institutions to be determined by the members of the Association at or before the time of dissolution …. “

106    The argument then proceeds that the application of the Share Allocation Rules (Information Memorandum, page 43) para 8.18 involves the issuance of 1,465 million shares to be allocated to Insurance Members, including persons who become Insurance members through the Proposal, being the former members of Association. Association is also to receive 146.5 million or 10% of the total of the NIGL shares. The split between Association former members and Association is thus 40% for the former members and 10% for Association itself with the other 50% being for Insurance members. 107    The argument then proceeds that by necessary implication from clause 5 (or C) of the Memorandum earlier quoted, this allocation amounts to a distribution of the wealth of Association contrary to that provision. Particular reliance is placed on the following passage at 482 in Fraser:

“It is perhaps theoretically possible that the members of Association in general meeting could alter cl 5 of the Memorandum of the Association so as to permit them to obtain some direct financial benefit from the wealth of the Association. Clause 5 presently provides that upon winding up a dissolution of the Association any surplus shall not be paid to or distributed among the members but shall be given or transferred to some other institution having similar objects to the Association. However the prospect of such an alteration happening otherwise than as part of a major reorganisation of the structure of the whole organisation, such as that proposed in the prospectus, does not appear on the evidence before the Court as a realistic or open one.”

108    Earlier, at 481, the Federal Court referred to there being “two keys” needed to unlock the wealth, one key being held by the members of each of Association and Insurance. 109    However, the fallacy in this reasoning can be readily exposed. This is not a proposal equivalent to that which occurred in 1994 being the subject matter of Fraser. Rather it proceeds by what can fairly be described as “a major re-organisation of the structure of the whole organisation” being the very circumstance which the Full Federal Court distinguished from that before it; see para 94 of my earlier judgment. That is to say, there is a major re-organisation here effected by a scheme of arrangement and by an inter-dependent and associated set of demutualisation steps reliant upon the provisions earlier identified of Pt 2B.7 of the Corporations Law. 110    Nor is this a case of the Association effecting an informal winding up and distribution of shares in NIGL that would otherwise have gone wholly to Association but are now to go (as to 40%) to members of Association. If one analyses the steps taken, Association members who become members of Insurance receive the shares in NIGL not as some kind of distribution from Association but as compensation from a third party NIGL for the extinction of their membership in Insurance; see paras 185 to 194 of my earlier judgment. Thus it is not as if Association was entitled to 50% of the shares to be issued by NIGL and ceded its entitlement to 40% in favour of its own members. In fact, as the report from PricewaterhouseCoopers makes clear, Association receives only 10% essentially for relinquishing the equivalent value inherent in its special Membership rights in Insurance; see Information Memorandum, at 127-8. The special rights that Association gives up as an Insurance member are described in section 7.4 of the Information Memorandum and section 5.6 of PricewaterhouseCoopers’ report. Thus Association may no longer appoint and remove directors of Insurance and will lose the right to any surplus assets in the event of winding-up of Insurance together with other associated powers and rights. That is explained in more detail in Ernst & Young Corporate Finance Pty Limited’ expert’s report and the Information Memorandum at 73 and following. 111    There can be no doubt that what is occurring is therefore not a winding-up or dissolution of Association or for that matter Insurance. Neither clause 5 of Association or clause C of Insurance’s memorandum address or have application to what is occurring. 112    It is in any event well settled that a scheme of arrangement can override a contrary provision in the constitution of Association or Insurance were those provisions otherwise applicable; see in relation to articles of association Re Glendale Land Development Ltd (No. 2) (1982) 2 NSWLR 563.

Conclusion

113    The ground of attack based on clause 5 of Association’s constitution fails.

Breach of directors’ duties and/or oppression particularly in relation to asset transfers.

114    This ground of objection appears in Mr Talbot’s written memorandum of 1 May 2000 at para E, page 35 and following. The substance of this objection is that certain assets (shares in jointly owned companies carrying on insurance) were transferred from Association to Insurance and that this was not a transaction properly entered into for the benefit of either transferor or transferee. Rather it was for the purpose of facilitating the Proposal then well in prospect, though not yet publicly formulated in its detail. Those transfers are fully described at page 19 of the Information Memorandum. They were either immaterial in dollar amount or supported by a KPMG report as to the fairness of the consideration. That report was sighted by ASIC, its counsel indicating that it had no reason to doubt the KPMG conclusion. Indeed counsel for Mr Talbot fairly conceded that there was nothing to suggest that the asset transfer transactions were other than at fair value; T, 149. 115    The argument turned ultimately upon whether, because the transfers occurred between June 1998 and June 1999 when the board had in mind a proposal along the lines of that finally put to members, and because the later Business Relationship Agreements included a restraint on competition which was framed in terms of the existing activities of Association which no longer included insurance activities of the companies jointly owned, that two things must follow. First, that the transfer of the entities must have been influenced by the prospect of these schemes being put to the Court and contrary to what was put to the Court. Second, that the transfer was for that reason a breach of fiduciary duty or oppressive or both. 116    When this matter was previously before me, a memorandum was prepared by Association and Insurance, called MFI 22, which stated that the transfer was not in any way influenced by the prospect of these schemes being put to the Court but rather were actuated by commercial reasons there set out. Furthermore, the companies asserted that the transactions were justified on an arm’s length basis and that the $30-40 million attributed to the Insurance trademark valuation was not influenced negatively by these transfers. 117    Mr Talbot as a director of the company and thus not an outsider, was not able to advance any evidence in support of there being a breach of fiduciary duty, improper purposes, inadequate consideration, oppression or any consequential misleading conduct in relation to the asset transfers, save what he sought to derive from the temporal coincidence of the transfers and the planning of the Proposal. So to argue is to commit the fallacy of arguing from correlation to causation. I am satisfied that the asset transfers, justified as they were on an arm’s length basis, were not actuated by the planned reorganisation. There were commercial reasons independently of the Proposal for doing what was done. There is no reason to suggest that if the Proposal were not approved the transfers would need to be reversed. 118    Finally, there could be no suggestion that the relevant transactions were vitiated by “interested director” voting exclusions, as each of the directors was not himself or herself “interested” in the “contract or arrangement”. Each are remunerated on a fixed fee basis rather than on a basis affected by the profitability or otherwise of the transferor or transferee companies. In any event the transactions should not significantly impact on profitability if at arm’s length and the books reflect that arm’s length value.

Conclusion

119    There is no substance in this objection and in particular the contention that the asset transfers were a breach of fiduciary duty, oppressive or capable of supporting an allegation of misleading or deceptive conduct. Nor has it been shown that they were influenced by the prospect of these schemes being put to the Court. As to the latter, it could hardly be expected that the directors would have framed these asset transfers on the supposition that they were facilitating a scheme which depended entirely upon members affirmative vote and which vote was in no way encouraged by the fact that these transfers had taken place.

Misleading and deceptive conduct — “mutuality”

120 This ground of objection appears in Mr Talbot’s written memorandum of 1 May 2000 at para G, page 35 and following. Here two representations are relied upon in conjunction. First is that: “At all material times, Association and Insurance are and were, and held themselves out to the public and to members of Association and Insurance to be, mutual companies. In particular, Insurance held itself out to be a mutual insurance company which provided mutual insurance through mutual benefits from time to time.” 121 The second representation relied upon is that: “At all material times, Insurance represented to members of the public and to members of Association and Insurance that it had operated and conducted its business and undertaking as a mutual insurance company which provided mutual insurance through mutual benefits from time to time.” 122 Then it was said that the first and second representations above were misleading and deceptive, or were likely to mislead and deceive, in contravention of s52 of the Trade Practices Act, 1974 and s995 of the Corporations Law on the following grounds:

(a) at all material times, Insurance did not operate and conduct its business and undertaking as a mutual insurance company which provided mutual insurance through mutual benefits from time to time;

(b) then are repeated earlier paragraphs in Mr Talbot’s written submissions of 1 May 2000 which amount to a repetition of the basis for saying that Association and Insurance were and are mutual companies offering mutual benefits or under an obligation and owing fiduciary duties to members so to do, including through mutual pricing and/or rebates, taking into account factors which would need to be considered in any decision to provide rebates such as whether the provision of rebates is appropriate, ensuring sufficient funds were retained to meet capital needs of Insurance’s business and other factors, “whereas Insurance and/or the majority of Insurance directors failed to provide such mutual benefits in breach of their obligations and duties.”

123 This contention as evinced by the last particularisation is really an attempt by another means to revisit the abandoned earlier objection found at para (f) under the heading “Mutuality principles and their breach” from Mr Talbot’s written submissions of 1 May 2000. By abandoning those objections, having regard to the fact that they were directly contradicted by the reasoning and conclusions in my earlier judgment at paras 148-164, this necessarily means that their underlying basis is removed for the purpose of misleading and deceptive conduct. There is simply no basis for the assertion that the directors of Insurance owe any duty to their members requiring them to price policies on a concessional basis or give premium rebates; see para 160 in my earlier judgment. 124 In any event, the Information Memorandum went to some pains to explain the nature of the mutuals, their structure and the pricing and rebate policy hitherto followed and anticipated to be followed in the future, see for example, pages 17, 18, 19, 23 and 29, and in relation rebates, the references noted in the index. 125 Disclosure obligations generally were dealt with at para 19 of my earlier judgment. I concluded that here there is a “dealing in securities” effected by the combination of the scheme of arrangement and the associated steps of the Proposal. What needs to be added to that analysis is that the first provision capable of applying appears to be s995 of the Corporations Law. It, whilst mirroring s52 of the Trade Practices Act 1974 (Cth), at first sight appears to contain no equivalent to s51A of that Act dealing with representations as to any future matter where the onus is placed on the corporation to adduce evidence of having reasonable grounds for making the representation. The significance of this distinction is that s51AF now states that s52 of the Trade Practices Act 1974 (Cth) does not apply to conduct engaged in “in relation to financial services”. However that apparent difference is not in fact the case. Section 765 of the Corporations Law is in equivalent terms to s51A, save that, since 13 March 2000 (when amendments to the Corporations Law came into force) the reversal of the onus of proof is removed that was formerly contained in s765(2) though the question is still whether the corporation had reasonable grounds for making the (future) statement. The present Information Memorandum predates 13 March 2000 however so the reverse onus of proof still applies; see s109E(c) of the Corporations Law preserving any past liability under the repealed Corporations Law. 126 “Financial service” is defined in s4 of the Trade Practices Act 1974 (Cth) as having the same meaning as in Division 2 of Part 2 of the Australian Securities and Investments Commission Act 1989 (“ASICAct”). Under s12BA(1) of that Act,

“financial service” means

“a service that:

(a) consists of providing a financial product, or

(b) is otherwise supplied in relation to a financial product.”

“Financial product” in turn means, relevantly,


“…..

(b) a security

…..”

127 Section 12DA(1) of the ASICAct mirrors s52 in relation to “conduct in relation to financial services” whilst s12BB mirrors s51A of the Trade Practices Act. 128 However, s12DA(1A) excludes the operation of s12DA but only from any “dealing in securities”, in contrast to s12DA(1) which uses the wider expression “in relation to”. 129 The end result is if the relevant conduct surrounding the Information Memorandum and its circulation and the steps contemplated thereby is conduct “in relation to” a “dealing in securities”, then s995 of the Corporations Law applies. But so too does ss12DA and 12BB of the ASIC Act. However (not that it matters) s52 of the Trade Practices Act 1974 (Cth) will not apply with the associated s51A dealing with future events. 130 In addition I should note that s995A of the Corporations Law now provides that the provisions of the “State Fair Trading Act” legislation do not apply to “dealings in securities”. 131 I prefer the view that the Information Memorandum should not be treated as separate from any dealing in securities, though it be by NIGL with scheme members. I consider that there is such a close connection that any relevant conduct of disclosure by the Information Memorandum is “in relation to” a dealing in securities. Accordingly disclosure under the information memorandum is conduct which is not governed by s52 of the Trade Practices Act 1974 (Cth) or its Fair Trading Act equivalent. To require a separation of the Information Memorandum from the later inter-dependent issue of shares in NIGL would be highly artificial, where clearly all of the inter-dependent and associated steps of the Proposal embraced by the schemes culminate in a dealing in securities and involve the provision of financial services. Accordingly, I would conclude that the better view is that s995 of the Corporations Law coupled with s12DD of the ASIC Act (but not s52) govern conduct concerned with the Information Memorandum and the Proposal contemplated by it. This has the result that the criterion of misleading and deceptive conduct applies, as well as those provisions relating to future conduct contained in s765 of the Corporations Law and s12DA(1) of the ASIC Act. However, that conclusion is necessarily a tentative one since the matter has not been fully argued. As regards future events, some caution is in any event needed in pressing the reverse onus of proof any further than the ordinary onus of proof borne by the proponent of a scheme seeking the Court’s approval. That ordinary onus requires the Court to be generally satisfied that statements as to future events, like other statements, have been made on reasonable grounds pursuant to a proper due diligence process, as I am satisfied has been the case. That in turn, goes to the Court’s discretion concerning approval of the scheme. I treat s995 as setting a standard of disclosure in this context, analogous to s52 as setting a standard of conduct.

Misleading and deceptive conduct — rebates.

132    This ground of objection appears in Mr Talbot’s written memorandum of 1 May 2000 at para I, page 38 and following. 133    The representations which are said to be misleading and deceptive are in each case supposed to have been made by silence and in at least the second of these must clearly relate to a matter of opinion. The “sound of silence” is here said by Mr Talbot to be unmistakable. The representations by silence are submitted to be these:

(a) the purpose and function of premium rebates is to provide Association, Association Members and Insurance Members access to the entire accumulated wealth of Insurance, as opposed to any surplus capital and retained profits from time to time (“the First Representation”);

(b) premium rebates are less effective and financially inferior means of accessing Members’ reserves and retained profits on an ongoing basis than the mechanism available under the Proposal, namely the payment of dividends (“the Second Representation).

134    The second of these proposed representations is indubitably a matter of opinion and, on analysis so is the first, assuming that both such representations could indeed be made out from silence. 135    As to how silence may constitute misleading conduct in a context such as this, more particularly where there is involved a judgment or an opinion, the observations of Giles J in NRMA Ltd & Ors v Morgan (1999) 31 ACSR 435 at 788:

“[ 1429 ] Silence may constitute misleading conduct as part of all relevant circumstances constituted by acts, omissions, statements or silence, for example if the circumstances are such as to give rise to the reasonable expectation that if a particular state of affairs exists it will be disclosed. Put another way, if the silence gives rise to an inference that the state of affairs does not exist, a failure to disclose that it exists may be misleading conduct. It is sufficient to refer, among the many cases on the subject, to Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84; Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; 110 ALR 608; and Warner v Elders Rural Finance Ltd (1993) 41 FCR 399; 113 ALR 517.
[ 1430 ] Where the circumstances include that the existence of the state of affairs involves a judgment or an opinion, that it does so must be taken into account in determining whether the silence constitutes misleading conduct. That is so because in the circumstances as a whole the silence may itself be an expression of judgment or opinion by the silent party, to be tested for its misleading nature according to whether the judgment or opinion represented an honest opinion with a rational basis (cf Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 at 88; 55 ALR 25; Bateman v Slatyer (1987) 71 ALR 553 at 559; 8 IPR 33), and because the other party’s expectation or inference may be affected by his recognition that the silent party is exercising judgment or expressing an opinion. That, however, will only be part of the overall circumstances.”

136    As to the First Representation being misleading or deceptive, the basis for that is said to be that it is “not the purpose or function of rebates to provide Association, Association Members and Insurance Members access to the entire accumulated wealth of Insurance. Rebates are a means of distributing and returning only surplus capital and retain profits”. 137    As to the Second Representation, again by silence, it is said that, “the comparison between rebates in the Proposal is a false, misleading and deceptive one, insofar as it compares the ability of each to access surplus capital and retain profits on an ongoing basis. In this regard the correct and appropriate comparison between rebates and the Proposal is, and ought to have been, between rebates and dividends.” 138    Applying this to the present objection, essentially what is contended is that each representation could be read or inferred from the Information Memorandum. Second, that the Information Memorandum failed to correct what was in truth an incorrect statement of opinion and thus by silence left readers of the Information Memorandum misled or deceived. This was when they were entitled to have the correct position disclosed to them by reason of the obligation of Association and Insurance in that behalf. I observe that if silence did amount to a representation in the terms alleged, it could not rise higher than “an expression of judgment or opinion by the silent party, to be tested for its misleading nature according to whether the judgment or opinion represented an honest opinion with a rational basis”. 139    In explaining what was meant by the representations, counsel for Mr Talbot, in argument, said that though the two representations might appear to be inconsistent, they were in fact to be understood as in the alternative; see T, 184.45-.50. 140    Certainly it is difficult to see how both representations could be derived by silence when they are inconsistent. Thus the First Representation by silence would suggest that if premium rebates give access to the entire accumulated wealth of Insurance then they would be the more valuable as compared to the benefits under the scheme by way of shares. Whereas the Second Representation by silence seems to say precisely the opposite, namely that premium rebates are a less effective and financially inferior means of accessing reserves and the profits compared to the payment of dividends. 141    But in any event, a fair reading of the Information Memorandum, particularly pages 13 and 27 and elsewhere where these matters are mentioned, gives no basis for inferring from the silence in the Information Memorandum that First Representation. In fact on page 13 and elsewhere it is made clear (see penultimate dot point) that premiums are to be paid out of surplus capital including no doubt retained profits; that is hardly consistent with the notion that a reader would infer that there is a representation that rebates would actually give access to the entire accumulated wealth of Insurance. 142    I am satisfied there is simply no basis for finding a representation by silence in terms of the First Representation. Indeed the logical difficulty which faces the objector on this score is that in refuting the First Representation as misleading or deceptive, reference is made to the Information Memorandum to show how it implies to the contrary. If that be right then there is no basis for eking these representations by silence from the Information Memorandum. In truth they are in contradiction. 143    Turning to the Second Representation said to be made by silence, the Information Memorandum is at pains again to show that the payment of dividends, like the payment of rebates, would erode the net worth of the company in much the same way; see Information Memorandum, page 13, third dot point. 144    Indeed when attention is directed to what is actually said in the Information Memorandum, what the consulting actuary, PricewaterhouseCoopers does is estimate “the maximum net present pre-tax value of insurance premium rebates” being first those which could be paid to current Insurance Members and second, those which could be paid to current Insurance policyholders ($900 million and $1.4 billion respectively); see Information Memorandum, page 27. That calculation in turn leads to the statement in the same paragraph that, “Accordingly, all directors of Insurance and a majority of Association’ directors believe that the Proposal is expected to release more value to Insurance Members as a whole in either of these estimated amounts.” [emphasis added] Clearly here there is a statement of belief, that is to say of judgment or opinion to be tested for its misleading nature according to whether the judgment or opinion represents an honest opinion with a rational basis. 145    When one tests that basis, the starting point is a PricewaterhouseCoopers report of 17 November 1999 to the directors of Association and Insurance forming part of the due diligence (see tab 10 Judge’s Issues Folder). That explains first how the maximum net present pre-tax value of the insurance premium rebates is calculated. Then the comparison is made between that figure and the prospective value of NIGL shares in order with other factors to support the opinion that for existing members the best financial outcome is the Proposal; see page 19 of that letter. Quite clearly, PricewaterhouseCoopers are not comparing dividends to rebates. The methodology that would do so is not that which the Board have chosen to use. There can be nothing misleading in that. 146    The matter is further elaborated in a letter from PricewaterhouseCoopers (also tab 10 Judge’s Issues Folder) dated 2 February 2000 addressed to Mallesons Stephen Jaques, in clarifying the difference between the figure for maximum rebates payable to policy-holders and maximum rebates payable to Members. 147    Thus the second supposed representation by silence misstates what the Information Memorandum in fact sets out to say. This is by purporting to find in it a comparison between premium rebates and dividends when that is not the comparison that PricewaterhouseCoopers or the companies have chosen to make. The comparison they have chosen to make has been clearly demonstrated as having a rational basis and there is nothing to indicate that the opinion is not genuinely held. Whether the opinion is ultimately correct or incorrect may itself be a matter for argument. But there is nothing intrinsically misleading or deceptive in that which appears in the Information Memorandum on the subject of rebates.

Conclusion

148    Neither of the representations by silence are established and what is in fact said in the Information Memorandum has not been shown to be misleading or deceptive. Insofar as it represents opinion or judgment, there has not been shown to be other than an honest opinion with a rational basis.

Misleading and deceptive conduct — “premiums” and “claims management principles”

149    This appears at para (j) on page 42 of Mr Talbot’s written submissions of 1 May 2000, presumably supplemented by the press clipping attached to his recent fax of 17 May 2000. The representations said to have been made and to be misleading or deceptive are:

“That insurance premiums will not increase as a consequence of the Proposal” (“the First Representation”);
“that claims management principles will not change as a consequence of the Proposal” (“the Second Representation”).

150    I have earlier addressed this issue in relation to the earlier objectors; see above (paras 31 and following and paras 52 and following). Both of these representations are to be tested for their misleading nature according “to whether the judgment or opinion represented an honest opinion with a rational basis”. That the expert may have had a different opinion on these matters simply illustrates that in matters of judgment or opinion, the expert has been independent and the matter is susceptible of more than one opinion. I am satisfied for the reasons I have earlier set out in taking into account the material concerning the extensive due diligence that the two companies have carried out, there is no basis for contending these representations constitute misleading or deceptive conduct. Nor is there anything in the press clipping from the Sun Herald of 19 March 2000 to lead to any different conclusion.

Conclusion

151    There is no misleading or deceptive conduct associated with the representations concerning insurance premiums and claim management principles not increasing or changing as a consequence of the Proposal.

Misleading and deceptive conduct — takeover.

152    I refer here to para (k) at page 44 of the written submissions of Mr Talbot dated 1 May 2000. 153    Here the contended representations are again by silence and are as follows: “That the Proposal would not result in less protection against a hostile takeover of Insurance than that provided by the current dual mutual structure” (“the First Representation”) and “the potential for an unsolicited restructure which was prejudicial to Insurance Members’ interests under the current dual mutual structure outweighed the increased potential for a hostile takeover of Insurance which will arise as a consequence of the Proposal” (“the Second Representation”). 154    Each First Representation is said to be misleading and deceptive because (it is contended) the Proposal will in reality provide less protection against a hostile takeover of Insurance than is afforded to members of Insurance (including Association) by the current corporate and membership structure of the NRMA Group, citing Ernst & Young’s report section 6.8, sixth bullet point, and the Information Memorandum section 4.3, the tenth bullet point. 155    As to the Second Representation it is said (para 62 of Mr Talbot’s written submissions) to be misleading or deceptive because it is unknown whether the potential for an unsolicited restructure proposal which was prejudicial to Insurance members under the current dual mutual structure outweighs the increased potential for a hostile takeover of Insurance which will arise as a consequence of the Proposal. The objector however then cites two reasons why, according to the Information Memorandum, the current dual mutual structures are a significant barrier or provides greater protection; see para 61(a) of Mr Talbot’s written submissions. 156    The latter citation and that in para 154 above refutes such representations could be derived by silence from the Information Memorandum. The Information Memorandum in fact carefully sets out the potential for an unsolicited restructure proposal (see section 2, page 17). There is a clear statement of the countervailing risk of takeover of NIGL in the reasons to vote for and against the Proposal; see sections 1 (page 15) and 4 (pages 24 and 25) where the potential for an unsolicited restructure proposal appears as a reason to vote for the Proposal and the increased exposure of NIGL to takeover appears as a reason to vote against the Proposal. 157    Again, we are dealing with judgment or opinion and there is nothing to indicate that the Information Memorandum is misleading by silence or to the extent it contains opinion or judgment that these are other than honest and held on a rational basis.

Conclusion

158    Neither representation by silence is made out and there is nothing misleading or deceptive in relation to this subject matter.

Misleading and deceptive conduct — “the financial viability of Association”

159    I refer here to para (l) at page 47 of Mr Talbot’s written submissions of 1 May 2000. 160    Here reliance is placed on four representations whose broad substantive effect is that by virtue of the 10% share allocation in NIGL, Association’s financial position is rendered “strong” or “financially viable” or “its viability is higher and the probability of ruin lower” or “otherwise sufficient” to enable Association to carry out its stated objectives for the foreseeable future. 161    These were said to be misleading or deceptive by reason of the current operating losses of Association. It is then said that the effect of the Business Relationship Agreements will be to increase the net operating costs of Association in perpetuity and lead to other costs being incurred by Association in perpetuity, citing the capital adequacy modelling of PricewaterhouseCoopers as having assessed the probability that the capital of Association could be exhausted at any time but only over a period of ten years. And finally, it said in the alternative that it is in fact uncertain whether the 10% allocation of shares will be sufficient to achieve these represented results. 162    The short answer to all of these contentions is that these representations — even if they could be said to have been in so unqualified a way — are based upon the expressions of opinion of independent experts. Being matters of opinion they are in fact representations only that these opinions are held honestly and with a rational basis; see earlier. There can be no basis in evidence for suggesting that the statements of opinion are not honestly held or have no rational basis; indeed the Information Memorandum sets out that basis; see, for example, Ernst & Young Corporate Finance Pty Limited at para 7.3 of their report on page 87 of the Information Memorandum.

Conclusion

163    There is no basis for concluding that these representations were made as other than statements of opinion honestly held and with a rational basis and, so judged, are not misleading or deceptive.

Misleading and deceptive conduct — asset transfers.

164    There is no basis for attacking the statements concerning asset transfers, having regard to my earlier conclusions on that subject; see para 119.

REMAINING MATTERS

Misdescription of Insurance members.

165    On 14 April 2000 written submissions were received from Association drawing the Court’s attention to a misdescription of Insurance members which pointed out that the Information Memorandum failed to fully set out the requirement that such persons, to be members, must in fact be registered Insurance members, though it accurately set it out who is eligible to be so registered. I am satisfied that there is nothing of such materiality in that misdescription as should warrant withholding approval to the schemes. I am likewise satisfied that the process for entering on the register of members those currently not included, namely certain members of the RACA and certain employees of Association is satisfactory. Finally I am satisfied that the scheme caters for those late entered members adequately via the Share Allocation Rules and the Implementation Deed which provides for shares to be allotted subsequent to approval of the scheme in appropriate circumstances.

Integrity and reliability of voting result.

166    I am satisfied on the extensive material before me that the voting process and the voting result have been properly arrived at and there is no evidence of any manipulation of that process. I note that ASIC do not differ from that conclusion and in fact have confirmed that the level of error in the enormous logistically complex process of getting documents to members and the admission of their votes was not such as should deter approval of the scheme.

The importance of statements regarding premiums and related matters.

167    I have earlier referred to the representation which is to be made to ASIC. I should emphasise the importance the Court attaches to fulfilment of those representations for the future as they are of considerable importance to existing policy-holders who are also members of Insurance and they may well have been influenced in their voting by what was said concerning these matters. I have stopped short of imposing any additional condition or requiring a formal undertaking because I am satisfied that the statement I have just made and the representation to ASIC will have the desired salutary effect were that needed. I should add, for completeness, that the possibility that directors may put in place some kind of share, option or benefits plan does not warrant any further requirement. This possibility is dealt with in the Information Memorandum (pages 12 and 43). It will require, under ASX Listing Rules assuming NIGL is listed, an affirmative resolution of 75% or more of NIGL shareholders, excluding those directly interested. That is not very different from the present voting requirements for the Proposal.

Contemporaneity of the demutualisation meetings with the scheme resolutions.

168    That is adequately catered for by the representation made below noted in my orders, insofar as the scheme proxy is concerned and in the context of an affirmative vote of between 82% and 83%; see my earlier judgment paras 65-73.

“REPRESENTATION
To: The Australian Securities & Investments Commission
Reference is made to the Insurance Demutualisation Meeting, as defined in the Insurance schemes of arrangement document on page 97 of the information memorandum issued by NRMA Limited and NRMA Insurance Limited ACN 000 016 722 (“Company”) on 14 February 2000.
The Company hereby represents to the Commission that, if those schemes of arrangement and the Association schemes of arrangement (see pages 64 to 67 of the information memorandum) are approved by the Supreme Court of New South Wales, it will take all steps within its control that are necessary to convene the Insurance Demutualisation Meeting by notice specifying that it is to be held on a date that is not later than 8 weeks after receipt of approval orders from the Court without relevant qualification.
Dated 16 May 2000
[signed by G Morstyn]
Signed for and on behalf of
NRMA Insurance Limited”
OVERALL CONCLUSION

169    Having carefully reviewed the objections to approval of the scheme and to other matters which have arisen, I am satisfied that the schemes should be approved and will make orders accordingly. In so concluding I have scrutinised the result of the relevant meetings having regard to any potentially divergent interests within the classes chosen; see my earlier judgment paras 74 to 90. I also want to pay tribute to the efforts made by all connected with these schemes, including both proponents and objectors and not forgetting legal advisers and experts, to assist the Court in its consideration of this complex Proposal under a necessarily stringent timetable.

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Last Modified: 09/25/2000