Rossington Investments Pty Ltd v Australian Consolidated Investments Ltd

[1992] FCA 336

!

JUDGMENT MO. 33kJ32.	:
F

C A T C H W O R D S

CORPORATIONS - prospectus - whether unauthorised reduction of capital - alleged contravention of Stock Exchange listing requirements - interlocutory injunction - balance of convenience - form of undertaking as to damages.

Cornorations Law

In re Webster (1975) 132 C.L.R. 270
Australasian Oil Exploration Limited v Lachberq (1958) 101
C.L.R. 119
Bisaood v Nile Vallev Companv Limited C19061 1 Ch. 747
In the Matter of Hunter Resources Limited (Lockhart J., 26

March 1992, unrep.)

C O W :	GUMMOW J.
PLACE :	SYDNEY.
DATE :	15 MAY 1992.

ROSSINGTON INVESTMENTS PTY LIMITED h ORS v

AUSTRALIAN CONSOLIDATED INVESTMENTS LIMITED h ANOR

No. NG3093 of 1992

, ,

IN THE FEDERAL COURT OF AUSTRALIA )

NEW SOUTH WALES DISTRICT REGISTRY )	NO. NG3093 of 1992
GENERAL DIVISION	1

BETWEEN:

ROSSINGTON HOLDINGS

PTY LIMITED

Second Applicant

BRIERLEY INVESTMENTS LIMITED

Third Applicant

AND :  AUSTWIAN CONSOLIDATED
INVESTMENTS LIMITED

First Respondent

WEEKS PETROLEUM LIMITED

Second Respondent

CORAM:	GUMMOW J.
PLACE :	SYDNEY.
DATE :	15 MAY 1992.

MINUTE OF ORDERS

THE COURT ORDERS THAT:

(1) Brierley Investments Limited be added as third applicant.

(2) Upon the applicants by their counsel undertaking to the Court to submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court, or as it may direct, to any person, whether or not a party, affected by the operation of this order or any continuation or extension thereof, the respondents and each of them by their servants and agents, and the servants and agents of each of them be restrained until 4.15 p.m. on 1 June 1992 or further order fr~m

offering shares in Weeks Royalties Limited in accordance with the Prospectus registered 15 May 1992, a copy of which is Exhibit A in these proceedings.

The matter be set down for final hearing before Gummow J. to commence at 10.15 a.m. on 1 June 1992, as a two day case.

Amended Points of Claim be filed and served on or before 19
May 1992.

Amended Points of Defence be filed and served on or before

22 May 1992.

Any further affidavits for the applicants be filed and
served on or before 22 May 1992.
Any further affidavits for the respondents be filed and
served on or before 27 May 1992.
Any Notices to Produce and Subpoenas be returnable before
Gummow J. at 9.30 a.m. on 28 May 1992.
The matter be stood over to 28 May 1992 at 9.30 a-m. for

directions before Gummow J.

The directions hearing for 22 May 1992 at 9.30 a.m. be

vacated.
Costs of the application be costs in the cause.
There be liberty to apply on 24 hoursr notice.
Documents produced today by the respondents on the Notice

to Produce be returned.

Note: Settlement and entry of orders are dealt with by Order 36

of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )

NEW SOUTH WALES DISTRICT REGISTRY )	No. NG3093 of 1992
GENERAL DIVISION	)

BETWEEN:  ROSSINGTON INVESTMENTS
PTY LIMITED

First Applicant

ROSSINGTON HOLDINGS

PTY LIMITED

Second Applicant

BRIERLEY INVESTMENTS LIMITED

Third Applicant

AND :

WEEKS PETROLEUM LIMITED

Second Respondent

CORAM:	GUMMOW J.
PLACE :	SYDNEY.
DATE :	15 MAY 1992.

REASONS FOR JUDGMENT (EX TEMPORE)

HIS HONOUR: This proceeding was instituted by Application filed on 4 May 1992. Pursuant to directions, Points of Claim and Points of Defence have been filed. Before the Court today is an application for interlocutory injunctive relief. It was precipitated by a letter of 13 May 1992, in which the solicitors for the respondents wrote to the solicitors for the applicants indicating that the prospectus which is now Exhibit A, would, they hoped, be registered by 14 May 1992. They went on to say

that pursuant to an undertaking previously given between their clients, notice was given that the respondents considered themselves at liberty to despatch offers of shares in Weeks Royalties Limited ( "Weeks Royalties") , as re£ erred to in the prospectus, as and from 5 p.m. today, 15 May 1992. As it transpires, the prospectus was not registered yesterday. It was registered in the course of today.

What is sought is an interlocutory injunction which would have the effect of restraining the offering of shares in Weeks Royalties pursuant to Exhibit A. The first applicant is a substantial shareholder in the first respondent ("ACIL"). The relationship between ACIL and other Weeks companies, which directly or indirectly have interests in the Bass Strait Royalty, is set out in the chart, Exhibit 1. This also sets out the structure that would follow from the implementation of the proposals which have given rise to this litigation. ACIL owns approximately 95.6% of the total share capital of Weeks Petroleum Limited ("Weeks Petroleum"), the second respondent, which owns

all of the shares in Weeks Royalties. ACIL and Weeks Petroleum	are listed companies. The two Weeks companies are incorporated
in Bermuda. Nothing turns on this for present purposes. Weeks Royalties owns all the share in Weeks Resources Pty Limited ("Weeks Resources") which holds beneficial interests in the Bass Strait Royalty.
On or about 6 April 1992 the second applicant, which is a related corporation of the other applicants, despatched offers
to the holders of all of the fully paid ordinary shares of 50 cents each in ACIL to acquire them pursuant to a takeover scheme within the meaning of Chapter 6 of the Coruorations Law. That offer closes, the evidence indicates, on 22 May 1992.
Also on that date the shareholders of Weeks Petroleum approved a reduction of capital whereby there would be a distribution to shareholders of Weeks Petroleum (the largest shareholder being ACIL) of shares held by it in Weeks Royalties or, at the election of the shareholders, cash. The prospectus, Exhibit A, which is to be issued by Weeks Petroleum, provides for a non-renounceable offer of shares in Weeks Royalties (being the balance of ACIL's entitlement) to shareholders of ACIL in proportion to the shareholding in ACIL. The shares in Weeks Royalties will be offered at a price of 50 cents per share, which is alleged to represent "in total a gross price of $A220 millionw for Weeks Royalties. The shares in Weeks Royalties which are not acquired by ACIL shareholders pursuant to the pro rata offer, and any shares in Weeks Royalties not accepted by shareholders in
Weeks Petroleum, other than ACIL, will be offered to the public. The Points of Claim may require some revision in the light of recent events, since they were filed on 13 May 1992, but from them the substance of the dispute sufficiently appears for present purposes. It is alleged in paras 7 - 12 that the proposed offer of shares pursuant to Exhibit A would constitute an unauthorised reduction of the share capital of ACIL.
The second complaint appears from paras 13 - 17. It concerns the construction of listing rule 3J (3) (b) (ii) of the Rules of the Australian Stock Exchange. Those requirements are given legal force as regards both ACIL and Weeks Petroleum by S. 777 of the Cor~orations Law. The applicants assert that the disposition of the shares in Weeks Royalties would constitute a breach of this listing rule. It states:

"3J (3) (b)	A listed company and/or any entities with which it is associated, shall not sell, give or otherwise dispose of (whether by means of an agreement, transaction, allotment of securities or otherwise) any assets and/or securities where the consideration receivable, the consideration deemed by Exchange in its absolute discretion to be receivable or the value of the total assets and/or securities is in exercise of 5 per cent of shareholders' funds of the listed company as at the date to which the last audited accounts were made up without the prior approval of its shareholders in general meeting if the purchaser, disponee or donee of such assets and/or securities is :
(i) . . .
(ii) any person or company who is or was at any time in the preceding 6 months a

substantial shareholder of the listed

company. "

The claim is that the respondents are proposing to dispose of shares in Weeks Royalties to shareholders of ACIL (including substantial shareholders of ACIL), with the result that the dispositions of shares will contravene the rule.

It is also asserted in paras 18 - 20 of the Points of Claim
that the proposed disposition of shares would constitute a

contravention of another listing rule. This is rule 3s (2). Reliance is also placed on Article 114 of the Articles of Association of ACIL. This provides that the management and control of the business and affairs of ACIL should be vested in the directors, provided that ACIL shall not sell or dispose of its main undertaking without the prior approval of the company in general meeting. Listing rule 3.5 (2) (a) relevantly provides that a sale or disposal of ACIL's main undertaking should be conditional upon ratificationby shareholders in general meeting. The applicants contend that ACIL's "principal asset is its interest in the Oil Royalty asset [i.e. the beneficial interests of Weeks Resources in the Bass Strait Royalty] which will be disposed of pursuant to the proposal" and say that this disposition is not conditional on ratification by the ACIL shareholders in general meeting.

In response to those assertions, the respondents put on points of defence which are supplemented by the written outline of argument presented this afternoon by their senior counsel.

The first issue, that concerning unauthorised reduction of

capital, arises from the claim that the proposal whereby shares in Weeks Royalties are to be offered to shareholders of ACIL pursuant to Exhibit A constitutes the disposal of ACIL's assets to shareholders of ACIL at a substantial undervalue. There is an issue of fact as to the existence and amount of that alleged undervalue. Further, if this part of the case is to be made out, it will require some consideration of the applicability in a situation such as the present, of the well known principle that a shareholder in a company has no aliquot interest in its assets, including, of course, any shares of that company in a subsidiary or other related company: see In re Webster (1975) 132 C.L.R. 270 at 287. Counsel for the respondents submits that it is wholly inaccurate to describe the proposed offer to shareholders in ACIL of shares in Weeks Royalties as a disposal of anything by ACIL. On the other hand, counsel for the applicants says that there is a serious question as to the application of that principle here. He says that what is in question is the characterisation or substance of a transaction comprising a number of steps and involving a number of participants, being a transaction of the kind considered by the High Court in Australasian Oil Ex~loration

Limited v Lachberq (1958) 101 C.L.R. 119 at 132-3. Reference was

made there to Bisuood v Nile Vallev Com~anv Limited [l9061 1 Ch. 747. See also In the Matter of Hunter Resources Limited (Lockhart J., 26 March 1992, unrep.).

The other principal grounds concern, as I have indicated, contraventions of the listing requirements and in the second case	also of Article 114. The respondents contend that the offer of
Weeks Petroleum's shares in Weeks Royalties to shareholders in ACIL is merely part of a lawful reduction of the capital of Weeks Petroleum. Further, they submit that the shares in Weeks Royalties are incapable of being the main undertaking of ACIL, and repeat their reliance upon cases such as In re Webster.
It will also be necessary to consider the effect of certain correspondence with the Australian Stock Exchange comprised in ~xhibit CJT 10 to the affidavit of Mr Christopher John Tappere, sworn 14 May 1992, and read today for the respondents. It is submitted for the respondents as an alternative branch of their argument that what comes out of the correspondence is a waiver by the Exchange. The respondents make the further point that the attitude of the Exchange is also important as a discretionary factor at the interlocutory level. On the other hand, the applicants' rejoinder is that the waiver does not go far enough to excuse what they say are the relevant breaches.
It is important to appreciate that at this level the first question is to ascertain whether there is on one or more of these issues a "serious question" to be tried, within the sense of the authorities. In saying what I am about to say I bear in mind what I indicated this morning. This was that I would be available to take the matter as an early final hearing in several weeks. It would be invidious to express in too detailed terms
the position in any final way on the issues I have outlined, but there does appear to be enough in each of them to say that there
is a serious question.
It is important for the parties to understand, and more important perhaps than that, for those to whom information as to what transpires this afternoon is conveyed, to understand and to have made plain to them that that expresses no view one way or the other as to what will emerge at the final hearing or as to what the final decision of the Court will be. It would be quite wrong to suggest that there is some deep shadow that has been thrown over the position of the respondents by the interlocutory finding that I have just indicated.
I come, then, to the question of the balance of convenience. I should bear in mind as indicated that the Court is able to give a prompt final hearing in the matter, in particular, to embark upon the final hearing on 1 June 1992. The duration of any interlocutory restraint is a matter to be taken into account on the balance of convenience. The date of 22 May 1992 is, as I indicated, an important one. It is then that the offer by the second applicant to the shareholders of ACIL will close. In that regard the evidence includes the Part B statement in which the directors of ACIL recommend rejection of the offer. They say in prominent terms, among other things, that by accepting that offer shareholders would miss out on "participating in the float of Weeks Royalties Limited".
There was some discussion as to the question of delay as a factor in ruling on the interlocutory injunction application. Having had the opportunity of considering the evidence tendered on that point, in particular the correspondence passing between the parties and their representatives, and included in Exhibit J, in my opinion no factor of delay should be held against the applicants on this application.
Counsel for the applicants submitted that the failure to grant interlocutory relief, with the result that the issue of the prospectus, Exhibit A, went ahead forthwith, could give rise to complications concerning the position of third parties. It was said that those complications could not readily be sorted out, even given the short period to elapse between today and a final hearing.
There is, I think, substance in that submission. On the other hand, counsel for the applicants contended that the grant of such relief would leave the shareholders of ACIL, whose holdings are subject to the current takeover of £er, in an awkward position, bearing in mind that the offer closes on 22 May and that the shareholders should have as much access as possible to the information contained in the prospectus, Exhibit A, before they make up their mind on or before 22 May whether or not to accept the current offer by the second applicant.
I bear that in mind, but I bear in mind also the terms of conscious of the need for protection of third parties in the the Part B statement which has already been issued. I am
framing of any interlocutory relief that may be given. That is something to which I will shortly return.
There was debate also as to the adequacy of any undertaking that might be given as to damages. M r Downes Q.C. said that he had instructions to appear for the ultimate holding company of the group of which the first and second applicants are members, namely Brierley Investments Limited. He indicated that this client would wish to be added as third applicant, if necessary, for the giving of any undertaking as to damages. Such a course would be necessary given the lack of substance, as appears readily conceded, of the first and second applicants. It was then said for the respondents that this would not be enough because as the respondent submitted, there was a real question as to the ability of Brierley Investments Limited sufficiently to stand behind any undertaking that might be given. In that regard, there was some evidence before the Court, in particular Exhibits H and K, together with transcript of earlier proceedings in this Court on 24 April 1992. Passages were tendered from the cross-examination on that day of Mr D.B. Conway. Mr Conway also has sworn an affidavit in the present proceeding. He was succinctly cross-examined upon certain matters this afternoon, including questions going to the sufficiency of the engagement of Brierley Investments Limited. In the end, I am given by the evidence sufficient confidence to accept an undertaking for the period up to 1 June by Brierley Investments Limited.
I have reached the conclusion, in all the circumstances, that there should be interlocutory injunctive relief upon an appropriate form of undertaking. [Counsel addressed]
HIS HONOUR:  The orders are as follows:

(1) Order that Brierley Investments Limited be added as

third applicant.

(2) Upon the applicants by their counsel undertaking to the Court to submit to such order (if any) as the Court may consider to be just for the payment cf compensation, to be assessed by the Court, or as it may direct, to any person, whether or not a party, affected by the operation of this order or any continuation or extension thereof, ORDER that the respondents and each of them by their servants and agents, and the servants and agents of each of them be restrained until 4.15 p.m. on 1 June 1992 or further order from offering shares in Weeks Royalties Limited in accordance with the Prospectus registered 15 May 1992, a copy of which is Exhibit A in these proceedings.

(3) Set the matter down for final hearing before me to commence at 10.15 a.m. on 1 June 1992, as a two day case.

(4) Amended Points of Claim be filed and served on or

before 19 May 1992.

(5) Amended Points of Defence be filed and served on or

before 22 May 1992.

( 6 ) Any further affidavits for the applicants be filed and

served on or before 22 May 1992.

(7) Any further affidavits for the respondents be filed

and served on or before 27 May 1992.

(8) Any Notices to Produce and Subpoenas be returnable

before me at 9.30 a.m. on 28 May 1992.

(9) Stand over to 28 May 1992 at 9.30 a.m. for directions

before me.

(10) Vacate the directions hearing for 22 May 1992 at 9.30

a.m.

(11) Costs of the application be costs in the cause.
(12) Liberty to apply on 24 hours' notice.

(13) Documents produced today by the respondents on the

Notice to Produce be returned.

I certify that this and the preceding eleven

(11) pages are a true copy of the Reasons

for Judgment of the Honourable M r Justice

Gummow.

Associate: 5#

Date :  15 May 1992.

Counsel and solicitors	Mr G.K. Downes Q.C. and
for the applicants:	Mr Michael Pembroke instructed by Rosenblum & Partners.
Counsel and solicitors	Mr T.E.F. Hughes Q.C. and
for the respondents:	Mr Peter Jacobson instructed by Freehill Hollingdale & Page.
Date of hearing:	15 May 1992.
Date of judgment:	15 May 1992.