Sagasco Amadeus Pty Limited & Anor v Magellan Petroleum Australia Limited

[1993] HCATrans 77

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane No B54 of 1992

B e t w e e n -

SAGASCO AMADEUS PTY LIMITED

(ACN 056 420 396)

First Appellant

and

SAGASCO HOLDINGS LIMITED

(ACN 008 181 066)

Second Appellant

and

MAGELLAN PETROLEUM AUSTRALIA

LIMITED

(ACN 009 728 581)

Respondent

MASON CJ DAWSON J

TOOHEY J
GAUDRON J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT HOBART ON TUESDAY, 16 MARCH 1993, AT 10.17 AM

Copyright in the High Court of Australia

Sagasco(2) 1 16/3/93

MR D.M.J. BENNETT, QC:  May it please the Court, in that

matter I appear for the appellant, with my learned

friend, MR W. SOFRONOFF, QC. (instructed by

Finlaysons)

MR P.A. KEANE, QC:  May it please the Court, I appear with

my learned friend, MR P.A. FREEBURN, for the

respondent. (instructed by Corrs Chambers

Westgarth)

MASON CJ: Yes, Mr Bennett?

MR BENNETT:  Your Honours, I hand to the Court an outline of

submissions and a second slightly longer document

entitled Appellant's Detailed Submissions.

Your Honours, the case concerns a very short point

of construction. Your Honours will see we have set

out the relevant subsection in l.a of the detailed

submissions, and it provides that:

a person who proposes to send take-over offers

within the following 4 months (in this sub-

section called the "proposed

offerer") ..... shall not give ..... to a person

whose shares may be acquired under the take-

over scheme ..... any benefit that the proposed

offerer is not proposing to provide -

The short question is: if one buys all of a person's shares at a price higher than that of the

proposed offer but before it is made, has one given

a benefit to a person whose shares may be acquired

under the takeover scheme? We say that if you

acquire all his shares before you make the offers,

he cannot be a person whose shares may be acquired

under the scheme.

MASON CJ: You say "higher price". It is common ground, is

it, that there was a benefit in terms of this

provision?

MR BENNETT:  Your Honour, that is an issue for the trial in

the case. We maintain that it is not, but for the

purposes of this appeal, we have to accept that

there is a prima facie case to the contrary against

us. What happened was that there was an

intermediate holding company which held the shares. We paid what in merchant banking circles is called the see-through price, which is obtained by seeing what proportion of shares in the holding company

one is acquiring and what number of shares that

holds in the subsidiary. It is said that the see-

through price was a higher price because the shares

in the holding company were trading in the United

States at a discount to the see-through price.

That is an argument for the trial. We accept that

Sagasco(2) 2 16/3/93

there is a prima facie case in support of the

proposition against us that it is a higher price.

MASON CJ:  So it is in that respect rather than the early

payment of the consideration under the agreements
that constitutes the benefit within the meaning of

the provision?

MR BENNETT:  Yes, Your Honour, but if the respondents were

correct or if the Court of Appeal were correct, it

would catch the mere making of an earlier payment,

because that would be a benefit not obtained under

the scheme. Your Honours, we say that the

contention for which we submit is supported in

three ways: first, as a matter of language and

construction; secondly, as a matter of policy; and

thirdly, as a matter of history. We propose, as

our submissions demonstrate, to go through each of

those.

Can I start with the question of language. There are against us two ways the proposition is

put. The first way is the primary way it was put

by the respondent below, and that is simply to say

that when the section refers to a person whose

shares may be acquired under the takeover scheme,

it is referring to someone whose shares might be

acquired under the scheme but for the actual

transaction or, putting it a little differently, a

person whose shares may be acquired under the

scheme if it were to take place immediately.

The approach taken by the Court of Appeal

reached the same result in a slightly different

way. It said you take the words "takeover scheme"
and instead of giving them their statutory meaning,
you give them a more general meaning of the general

scheme or intention which the offeror has and you

say, "Part of that general scheme or intention is

acquiring the shares of the particular vendor and therefore he's a person whose shares may be
acquired under the scheme and in fact whose shares

were acquired under the scheme." Those are the two

ways it is put against us.

If I can deal first with the first of those

ways, we say first of all it is a simple matter of

English. When one looks at the sentence, there is

no doubt what it means. There is no ambiguity,

assuming the statutory definition. If you acquire

all of a person's shares before the scheme

commences, he is not a person whose shares may be

acquired under the scheme. Really, I could spend an hour saying that, but that is the whole of the

point. It is short, simple and, in my respectful

submission, undeniably correct.

Sagasco(2) 3 16/3/93

If one replaces the words "takeover offers"

where first appearing in the subsection by the

statutory definition of takeover offers - that

definition appears in section 603. Your Honours

need not go to it, because it is only ten words.

It is, "an offer to acquire shares made under a

takeover scheme". So the phrase "takeover offers"

incorporates by reference the words "takeover

scheme" which are separately defined.

If one inserts those words in place of the

words "takeover offers", the reference three lines

down to "the takeover scheme" makes perfect sense

and has one and only one possible meaning. It is

the takeover scheme which is proposed. One is

proposing to send takeover offers, ie, one is

proposing to make offers under a takeover scheme,

and we must not give to a person whose shares may

be acqui!ed under the scheme.

The definite article, in other words, makes it

quite clear that the scheme is the proposed scheme.

That scheme clearly is not one under which the

shares will be acquired.

MASON CJ:  What does the word "proposes" mean in the provision? Does it mean intends, does it call for

some subjective inquiry?

MR BENNETT:  Your Honour, we submit yes. One does not need

to determine for this appeal the degree of
intention one has. One could imagine a situation,
for example, where a person says, "Well, I have in

my mind a 10 per cent possibility that I may make a takeover offer. I acquire the shares now and I may

or may not make the offer." It is very hard to see

whether the word "proposes" is intended to cover

that. Probably it is, because we submit that the

paradigm example for the operation of this

course of building up his 20 per cent, goes to a	subsection is the case where the offerer, in the	large shareholder, a 15 per cent shareholder, say,
and says to him, "I am considering making a
takeover scheme. I am prepared to pay you now
10 cents for each of your shares on the basis that
when and if I make an offer, you will accept."

DAWSON J:  Why would he do that if he could do it straight

away?

MR BENNETT:	Your Honour, it is a means of avoiding the provisions of the Act.	It was a loophole which was
desired to be blocked.

DAWSON J: It has not been blocked if that is the case,

because he just offers to pay the price plus 10 per

cent now before the scheme is effected.

Sagasco(2)	4	16/3/93
MR BENNETT:	Your Honour, he could do that.	If he were to

do that, first he would have to pay immediately and

pay the whole of the consideration immediately with

whatever disadvantage in money terms flows from

that. Secondly, he may not be clear in his mind if

he is going to make the takeover offer. The

purchaser may want the money and want to be paid

for the contingency that he will accept the offer

on the basis that if no offer is made, he keeps the

money.

There are various commercial reasons why he

might wish to do it. There are other examples one

could think of. He might acquire part of a

person's shareholding at a higher price as an

inducement to some sort of agreement that the

remainder of it would be sold in the course of the

offer.

DAWSON J: That would be all right, would it not?

MR BENNETT:  No, Your Honour, because that would be an

inducement to him to accept an offer which would

place him in a different position to other

shareholders under the offer contrary to the

Eggleston principles. If one turns to the Court of

Appeal approach, the first problem with it is that

it involved giving a defined term a different

meaning. If Your Honours look at section 603,

which is at page 18012 of the CCH reprint which I

have, Your Honours will see that the section begins

with one of the usual phrases, "Unless the contrary

intention appears".

It is significant that there are a number of possible phrases which can be used, and the phrase,

"Unless the contrary intention appears", has been

held to be a phrase which should make the Court

less willing to depart from a definition than one

of the broader phrases. There was a discussion of	that by Mr Justice Forster, as he then was, in the
Supreme Court of the Northern Territory in Simpson
v Nominal Defendant, 13 ALR 218. I do need to take
Your Honours briefly to that case. I have copies
for Your Honours.

MASON CJ:	Thank you.
MR BENNETT:	Your Honours, at page 222 His Honour discussed

preambles to definition sections. The question was

whether he should depart from the definition of

"owner" in some motor vehicle insurance legislation

in the Northern Territory. At about point 4 on

page 222, His Honour said this:

It is importantly firstly that the words

of the definition section are "unless the

Sagasco(2) 16/3/93

contrary intention appears" and secondly the

word "means" is used.

Both those apply in section 603. It begins with

"Unless the contrary intention appears" and the

definitions have used the word "means".

These opening words may be contrasted with

"unless a contrary or other intention appears"

which is sometimes used and with "unless the

context or subject matter otherwise indicates

or requires''. It seems to me that "unless the

contrary intention appears" allows less

latitude for placing upon the word "owner" a

meaning wholly different to that in the

definition. The definition first uses the

word "Means" which is a restrictive word. Then at the beginning of the next paragraph:

It seems to me that for the defendants to

succeed it must be established that a

"contrary intention" is plainly indicated -

and so on.

McHUGH J:  Mr Bennett, subsection (2) of section 698 is

subject to subsection (5). If your argument is

correct, is there any work for subsection (S)(a) to

do?

MR BENNETT: Subsection (S)(a) would primarily be concerned

with section 698(1), and of course it -

McHUGH J: That means, does it, that in relation to

subsection (2), subsection (S)(a) has no work to do if your argument is correct? But it has work to do

if the respondent's argument is correct?

MR BENNETT:  No, Your Honour, because the variation of an

offer is - it would be hard to imagine a situation

where a variation of an offer produces the result

that a benefit which was outside the scheme is now

within it, because a variation increases rather

than reduces the amount offered under a takeover

offer. So it is hard to see how varying an offer

could ever be said to convert into a benefit not

provided for something which was not a benefit not

provided for. Even under my friend's construction,

it is hard to see how paragraph (a) can have any

application to subsection (2). Under the

predecessor section, if Your Honour goes to

section 40 of the Acquisition of Shares Code - does

Your Honour have that?

MASON CJ:  No.

Sagasco(2)	6	16/3/93
MR BENNETT:	I thought it was on the list.	In any event,

under section 40 of the Companies Acquisition of

Shares Code, there was only an equivalent of

section 698(1). It is on our list, Your Honours.

In any event, Your Honours can take it that section 40 contains 698(1) but not 698(2) and it

contained 698(5). So those provisions were there

in relation to 698(1). There is therefore nothing surprising in the fact that paragraph (a) may have little application to section 698(2) or, indeed, no

application to it.

The other case which I should remind

Your Honours of very briefly - and I will not take
Your Honours to this in the same detail - in

relation to the principle about statutory

definitions is a decision of Mr Justice Burt, as he

then was, in Duperouzel v Cameron, 1973 WAR 181. I

hand copies to Your Honours. The only statement I

wanted to remind Your Honours of from this judgment

is at the bottom of page 182. In the last

paragraph on that page, His Honour says:

In its application to this statute the

result is that where the expression "licensed

premises" appears then "unless a contrary or

other intention appears" it is to be

understood in the defined sense and so as not

to include a boat. This is because the word

"means" is a word of true definition and as

such the words following it stand as an

exclusive statement of what the subject expression includes. As by the Act the

defined expression is to carry that meaning

"unless a contrary or other intention appears"

the possibility always exists that an

intention that it should bear a different

meaning may appear, and should it appear, the

definition must be departed from ..... But the

contrary or other intention must, or so it

seems to me, be found within the particular

context in which the defined word appears, and
when found, the definition is then departed
from for the purposes of that particular
provision only. It cannot be right to search
through the Act to find a number of provisions
not including the relevant provision in which

the intention to depart from the definition

appears and having found them, then to say

that the contrary intention appears for all
the purposes of the Act and hence for the

purposes of the relevant provision.

So one does not solve the problem by going through

the Act looking at other provisions; one would

start here. Even when the words "or other" were

Sagasco(2) 16/3/93

there, one must be fairly strongly satisfied before

one departs from a statutory definition.

The reason the Court of Appeal gave for coming

to that decision appears at page 257 of the appeal

book. What Their Honours said was - and it would

be much simpler if I paraphrase it - that if one

looks at the subsection, the words "takeover

scheme" cannot have their normal defined meaning.

The normal defined meaning is a takeover scheme

under the Act with all the paraphernalia and

formality that the Act prescribes. They say if it

has that meaning, the section can never operate

because at the time of the proposal, one never

knows if the scheme is one of that type or not;

there is no such scheme in existence. Therefore, they said, it cannot mean that and must have some other meaning.

That, we respectfully submit, ignores the word

"proposes". The takeover scheme is the proposed

takeover scheme, the scheme referred to within.the

definition of "takeover offers". There is no

reason why one cannot have a proposed takeover

scheme. That proposed scheme, of course, will

involve all the formality, all the paraphernalia

that the Act prescribes. It is hardly likely that

one is going to propose an unlawful takeover scheme

or one that does not comply with the Act.

So there is no difficulty in giving the words

their normal meaning. They mean the correct,

lawful and defined takeover scheme which the

offeror is proposing to make.	Once given that
meaning, there is simply no inconsistency.	The
difficulty the Court of Appeal had, in our
respectful submission, simply does not exist.

But if the Court of Appeal were correct in

that view, it will apply equally to section 698(1)

because section 698(1) refers to the takeover

period. The takeover period is defined as

beginning when the Part A statement is served. not gone out. There is no takeover scheme in the sense of one where the offer complies with all the

elements that are necessary to make it a takeover

scheme.

So if the Court of Appeal were right, the

special meaning they have given to "takeover

scheme" would have to apply to section 698(1), at

least pro tanto and possibly generally. In my

respectful submission, that is something which is

extremely unlikely, particularly as section 698(1)

and the definition were in substantially the same

terms in the earlier legislation.

Sagasco(2) 8 16/3/93

Thirdly, of course, as we saying.iii on page 2 of the detailed submissions, it is clear law

that the Court should be slow to give the same

words a different meaning in two parts of the same

provision. If one needed authority for that
proposition, one would refer to the decision which

I hand to Your Honours of this Court in Registrar of Titles v Franzon, 132 CLR 611. The main passage

is in the judgment of Your Honour the Chief Justice

at page 618 where, at about point 6 of the page,

Your Honour said:

It is a sound rule of construction to

give the same meaning to the same words
appearing in different parts of a statute

unless there is reason to do otherwise.

That judgment was adopted by both the Chief Justice

Sir Garfield Barwick, and Mr Justice Jacobs, and clearly.the proposition is right. Here, of course,

it is much stronger because here it is not a

question of giving the words different meanings in

different parts of the Act, but the suggestion on

one view of it is that one gives the words

different meanings in the two subsections. Either

that or one must accept what I just put and say

that the Court of Appeal was giving the same

meaning in both subsections, which means that under

698(1) and its predecessors, "takeover scheme", a

defined phrase, did not have its statutory meaning,

and there was simply no reason for not giving it

its meaning in that provision. For those reasons,

we submit that the approach taken by the Court of

Appeal was, as a matter of language, incorrect.

There are a few other matters which we have

put as i. tom. on pages 2 to 3 of the detailed

submissions. One does not, of course, get very far

in a construction case by looking at what might

have been said because each side can point to

something which might have been said which would

have suited the other construction, but we do make

this point, that in this section, if the

alternative contention were correct, why did they

not say in subsection (2), "agree to give to a
shareholder", or at least say, "agree to give to a

holder of shares of the relevant class"?

They have taken a phrase which was used in a

cognate subsection which had been used in earlier

provisions of the Act with a clear meaning, and it

is a phrase that is not open to doubt as a matter

of English:  "a person whose shares may be acquired

under the takeover scheme". In our respectful
submission, that is a cumbersome phrase which can

only be being used to make it clear that one is

describing a person who will be a potential

Sagasco(2) 9 16/3/93

shareholder. That will become much more apparent

when I come to the questions of policy and history

and show Your· Honours how that construction is

consistent with the Eggleston principles.

In paragraph j. we have referred to

section 641. Section 641 is another section which

is working towards the same general policy of

equality. What it provides is that the offer price

may not be less than the highest price one has paid

during the previous four months. If one were going

to have that provision, why would one need to have

section 698? Why would one want to prohibit giving

the benefit if the paradigm case is one where one

pays the higher price anrl then increases the offer?

The two sections do not _t comfortably together if

my learned friend's cons~ruction is correct.

On~ gets the same sort of approach from

looking at section 697. Section 697 forbids
escalator provisions. It forbids one saying to a
shareholder prior to a takeover offer, "I'll pay

you $5 but if I offer a higher price in a takeover

offer, I'll match that and make up the difference

to you." If one were seeking to achieve equality,

why would one say, "You may not do something which

is designed to achieve precise equality"?

Similarly, if one goes back to section 641 for

a moment, one is not allowed to offer the new

shareholders less than one has paid the previous

vendor, but one may offer them more.	So again, it
is hardly an attempt to achieve equality.	The

prohibition, if it is as broad as my learned friend

suggests and forbids buying shares off market at a higher price, would, in our respectful submission, run contrary to the policy of those sections.

There is a reference in paragraph 1. in the

Court of Appeal to the judgment of Sir Owen Dixon

in the Australian Consolidated Press case. That
was a case referred to by the Eggleston Committee.

It was dealing with the Tasmanian Companies Act

prior to the Uniform Companies Act which in 1957

had had added to it a number of fairly early

takeover provisions. In the course of looking at
those provisions which had no definition of
"takeover scheme" and in the days when takeover law

was very much in its infancy, His Honour said the

word "scheme" had a meaning of a broad conception

and he gave a definition to it.

That, we respectfully submit, cannot possibly

have any relevance today. Indeed, the Eggleston Committee referred to the case, thought that the

reference to "scheme" caused a problem and as a

result, there was a definition put in which

Sagasco(2) 10 16/3/93

appeared in subsequent Acts. I will not take

Your Honours to it, but I will hand it to

Your Honours so Your Honours have it the relevant

part of the Eggleston report in 1969 which simply

supports what we have said in paragraph 1.

MR BENNETT: It is a fairly minor matter in this appeal, but

we do submit that one cannot really get any

assistance in construing words like

"takeover scheme" and so precise a document as the

Corporations Law, by looking at the way the word

was construed in the early days before any

definition was inserted.

In relation to the question Your Honour

Justice McHugh asked me, I have referred to

paragraph 598(5)(b), because that was referred to

in argument below and we submit that on either

construction one needs that exclusion. If it were
not for-that exclusion one could have this

situatio'n on our approach: if, on the stock

exchange in a totally normal transaction, an

intending offeror purchases shares, he does not

know when the shares are purchased whether the

vendor has or has not more shares. It would be a

ridiculous situation if he were rendering himself

liable to a breach if the vendor happened to own

other shares and not if the vendor did not, when

the offerer has no way of knowing whether the

vendor does or does not.

So on the stock exchange where it is

anonymous, one has the exclusion and that applies

equally on my friend's construction where one takes

the broader approach. So subsection (S)(b) does

not affect it either way, we submit.

MCHUGH J:  No. Your argument depends upon giving the words

"whose shares may be acquired under the takeover

scheme" a temporal connotation, does it not?

MR BENNETT: Yes, Your Honour.

McHUGH J: But why is not the better reading of those words

that they are simply descriptive of the person so

it is a person whose shares may be acquired under

the proposed takeover scheme?

MR BENNETT: Well, Your Honour, I accept that, but he is

not. If you acquire all the person's shares, the

person ceases to be a person whose shares - at the

relevant time it is not a person whose shares may

be acquired under the scheme, because the person

does not have them any more when the scheme comes

into existence.

Sagasco(2) 11 16/3/93

McHUGH J: It is a question then as to when the benefit must

attach though, is it not?

MR BENNETT:  Yes, and Your Honour, if one looks at it from

the point of view of common sense, it may well be

that there would be no scheme if the shares were

not acquired. One knows that an intending offerer

normally acquires a springboard of up to

20 per cent which the Act permits and has always

permitted. Now, assuming that one needs to do that

or wishes to do that before launching one's offer, if there is a 15 per cent shareholder, and part of

the strategy is acquiring those shares first, then

that shareholder is never a person whose shares may

be acquired under the scheme, because but for the

prior acquisition there would not be a scheme.	And
one can hardly expect the result to depend upon
whether the intention of the offeror was that if

the offeror did not acquire those shares, he would
acquire -them under the scheme or, that if he did

not acquire the shares, he would not make the

offers at all. It can hardly depend on that.

So, we submit it is very simple. If you are

buying all of a person's shares, he is not a person

whose shares may be acquired under the scheme. He

certainly is not a person whose shares you propose to acquire under the scheme or whose shares may be acquired under the proposed scheme. Again, the

word "shareholder", if the opposite meaning had

been intended, would have been so simple.

May I turn to policy, and may I start by

reminding Your Honours of what was said by this

Court in Chugg v Pacific Dunlop about sections

which require one to look at the policy underlying

the Act. It is a very short and fairly obvious

proposition. The case is reported in 170 CLR 249

and the relevant passage is at page 262 in the

judgment of Your Honours Justices Dawson, Toohey
and Gaudron.	And, Your Honours, at the top of

page 262 said this, and we submit this is a very

well known proposition:

The choice directed by section 35(a) of the Interpretation of Legislation Act is not

as to the construction which "will best
achieve" the object of the Act. Rather, it is

a limited choice between "a construction that

would promote the purpose or object of the

Act" and one "that would not promote that

purpose or object". The command in section 35(a) might well preclude a

construction of section 21 of the Act placing

the onus of proof -

et cetera -

Sagasco(2) 12 16/3/93

However, that consequence does not follow

merely because, in some cases, the question of

practicability may turn on a consideration of

the cost or suitability -

In other words, when one looks	at purpose, one is
not saying, "Well, do we think	that it would be
better one way or the other?"	One is rather
looking at the limited choice.	And section 109H of
the Corporations Law says:

a construction that would promote the purpose
or object underlying the Law ..... is to be

preferred to a construction that would not

promote that purpose or object.

So, it is the same wording as that which

Your Honours were considering in that case and it

is a somewhat narrow inquiry.

DAWSON J:	What do you say the purpose of the subsection is?
MR BENNETT:	The purpose was to close a gap, Your Honour. We

have set it out in 2.e on page 4 of the detailed

submissions. It was that a person might give a

benefit to certain shareholders prior to making a

takeover offer, in consideration of their accepting

it.

It might either be done by making the benefit

immediate or making the benefit conditional, but it

was the doing of that which would affect the

equality of shareholders to whom the offer was

made, which was intended to be struck at.

Now, Your Honours, in looking at policy one must take a step back and look at the basic purpose

of the legislation. What I am really doing now is

demonstrating that the broader purpose, which might

be suggested, simply was not an intended purpose.

One starts with section 615, the old section 11,

which in a general way says that one may not

acquire more than 20 per cent of a company without

going through certain procedures involving a

takeover offer. Then one has the Eggleston

principles, which are the four principles, they are

now set out in section 731 of the Law, as the

circumstances in which declarations of unacceptable

conduct can be made. The first three are concerned

with knowledge. The shareholders and directors

must know the identity of a potential offerer. proposal. They must be supplied with sufficient

information to enable them to assess its merits.

Those three are concerned with what Your Honour

might call the adjectival requirements.

Sagasco(2) 13 16/3/93

The fourth one is the substantive one, and it

says -

that, so far as practicable, all shareholders

of a company have equal opportunities to

participate in any benefits accruing to
shareholders under any proposal under which a
person would acquire a substantial interest in

the company.

Now, that is the general Eggleston principle in

relation to equality. It is given force by

section 698(1) and its predecessors, the section which prohibits the discriminatory benefit under the offer itself or after the issue of the Part A

statement. This Eggleston principle was construed

in a decision, which I will need to spend a little

time on, of Mr Justice Marks in Intercapital

Holdings Ltd v NCSC, (1987) 12 ACLR 684. That was

a case where almost exactly what happened in this case occurred under the old Acquisition of Shares

Code. I will show Your Honours the facts in a

moment, but it is very, very similar, and for

relevant purposes, the same as what happened here.

Your Honours can see that on page 685. There was

an acquisition for 6.03 million of some shares from

a large shareholder at a price which worked out at

92 cents per share, and on the same day a letter

was sent announcing intention to make a takeover

offer for the others at 50 cents. And when I say

the facts are similar the figures certainly are not, but the facts in that respect are similar.

The NCSC made a declaration pursuant to

paragraph (d) of the Eggleston principles, that

this was unacceptable conduct. The Supreme Court

of Victoria, Mr Justice Marks, set that aside on

the basis that, as a matter of construction, that

Eggleston principle did not apply to an acquisition

of this type prior to the takeover offer.	The
reasoning appears at pages 687 to 688. His Honour

says, at the middle of the page:

Section 60(3)(d)

which corresponds to the section 732(d) -

in my opinion, necessarily concerns conduct

which has had an effect of some kind on an

opportunity of a shareholder. In the instant
case, the only relevant shareholder is a

present one, that is, a shareholder other than

the large vendor.

Sagasco(2) 14 16/3/93

It must be shown that such a relevant

shareholder has been deprived of an

opportunity to receive a benefit. In concrete

terms, at least so far as the defendant is

concerned, it must be shown that the

opportunity to receive 92 cents per share has

been lost. But it has not been. The

shareholder still holds the shares but not

received any offer at all.	He may yet receive
an offer of 92 cents.

Generally speaking, it is difficult to

understand section 60(3)(d) having sensible

operation other than by reference to

acquisitions or proposed acquisitions of a

"substantial interest'' outside a takeover

scheme. Its application might well be

appropriate to acquisition of a substantial

interest by a series of private transactions

not prohibited by section 11. I do not,

however, go so far as to say that it can have

no application in the context of an actual

takeover proposal. Its purpose, however, can

be more readily understood in the context of a

corporate raider building his launch pad to

20 per cent by a series of private

acquisitions at different prices.

Sections 40 and 47 of the Code take care of benefits provided after a Part A statement

is served.

Mr Archibald QC of the defendant

submitted that the intended offer of 50 cents

relates to an acquisition proposed

before ..... His submission was that there was

merely the one proposal to acquire the one

substantial interest -

I do not think there is a proper

foundation in the evidence for this

proposition. In my view, the proper

conclusion is that the plaintiff acquired

13.5 per cent as part of the percentage to

which it was entitled under section 11 without

a takeover scheme under the Code. Thus, the

20 August acquisition is well capable of being

regarded as a discrete acquisition of "a

substantial interest."

Section 60 requires that it must appear

that a shareholder has lost something, namely,

an opportunity of the defined kind. The only shareholders here relevant to the acquisition proposed are those who are to be, but not yet

have been, offerees under a takeover scheme

Sagasco(2) 15 16/3/93

which has not, for the reasons above given,
gone forward.

The submission for the defendant depends on it being correct to compare what is to be

offered under the takeover scheme with what

was paid to MEH. It was submitted, in my

opinion correctly, by Mr Hayne QC on behalf of
the plaintiff that this is not the comparison

of the kind to which section 60(3)(d) relates

or can relate on the present facts. He

submitted that the only relevant acquisition

to be considered here is that proposed under

the takeover scheme. The target shareholders

under it will each have an identical

opportunity, if not, it has not been shown

that any shareholder under that scheme has

lost or will lose a benefit received by
another.

The only answer to this submission provided on behalf of the defendant is that

the acquisition of the "substantial interest"

under the takeover scheme cannot be regarded

separately from the acquisition of the

13.5 per cent from MEH. I think this answer

is not acceptable. It is true that a person

might acquire more than one substantial

interest and that the sum of them is also a

"substantial interest'', If, however,

section 60(3)(d) is to apply to the latter

then a shareholder who sold at a higher or

lower price than another anywhere along the

way could be capable of activating the

section, no matter what the time lapse between

acquisitions. This would make the Code

unworkable, particularly in a market as

volatile as the one we have experienced in

recent years. The regulatory policy, on the

other hand, in respect of differential

treatment by raiders, can easily be seen as

reflected in section 16(2)(g).

And section 16(2)(g) is the present section 641,

which says you have got to pitch your offer at a

price higher than the highest price you have paid.

In my opinion the acquisition of the 13.5

per cent is properly to be regarded as an

acquisition of a "substantial

interest" ..... The takeover scheme which is not
yet on foot may well be another.

Section 60(3)(d), while referable to different

transactions in the acquisition of a
substantial interest, is not referable to

different acquisitions of substantial

interests.

Sagasco(2) 16 16/3/93

And it does not apply.

Now, Your Honours, if it were intended to

reverse that case, if it had been intended by the

legislature to create a different result, why, one

wonders, is there not something in an explanatory

memorandum? Why is there not something in a second

reading speech? Why is there not something in the

reports of the various committees which preceded

the Corporations Law? But in relation to this subsection there is a deafening silence and if

something as dramatic as that were intended to

prohibit all acquisitions which could be regarded

as conferring a benefit, even a time benefit,
during four months prior to the takeover offer,

surely one would have thought something would have

been said, but nothing is said, and indeed the same

phrase is used that was used in the old sections,

and in my respectful submission, that clearly

indicates an intention not to effect so dramatic a

change.

For completeness I should also remind

Your Honours of what was said by Mr Justice Kaye in

Cuming Smith & Co v Westralian Farmers, (1979)

VR 129. I will not take Your Honours to that in

detail. All Your Honours need to note about that

case is that under section 180M, which is the

predecessor of section 40 of the Code, which is in

turn the predecessor of section 698(1) - under the

predecessor of section 698(1), Mr Justice Kaye held

that it did not extend to something prior to the

making of the takeover offer, a benefit of this

type. Again, no suggestion that it is intended to

reverse that long-standing decision. And it is

interesting that in the course of his decision at

page 139, Mr Justice Kaye said:

The equality sought to be achieved by the

be acquired under a takeover scheme while its	section is between persons whose shares might
offers are still open; such persons are those
to whom takeover offers constituting the
scheme have been despatched.

And they were not despatched to people who sold

before. Now that is again the same words which

have been carried through that subsection and
repeated in subsection (2).

Now, paragraph don page 4 I have already put

to Your Honours. If it had been intended to

procure that all shareholders at some earlier

moment are to be reated equally, in other words

that the Eggleston principle is to be back dated by

four months one wonders, first, why does section

Sagasco(2) 17 16/3/93

697 prohibit escalation clauses which would have

exactly that effect.

If one is trying to achieve equality, surely

one should bless escalation clauses. If one says

to a shareholder, I will buy your shares at $5, but

if I make a higher offer I will pay you the

difference, that is achieving equality, one would

have thought. Yet that is prohibited. And why,

one wonders, does section 641 permit acquisition at

a price higher than a price paid to an earlier

shareholder but forbid acquisition at a price lower

than that paid to an earlier shareholder.

So it is clear the Act is not seeking to apply

this equality going back. And that makes sense,

because one has to select the moment at which one

is going to treat people equally. One cannot say,

well let us go back in time for a year or two years

and say~ everyone has got to be treated equally,

because someone is now making a takeover offer.

One can have specific prohibitions of specific

conduct during specific periods, but the basic

Eggleston principle is concerned, we would submit,

with equality for persons to whom offers are made.

And an extension as broad as this is one which would effect, we would submit, a very dramatic change in the law.

Now finally, in this section, in paragraph f

on pages 4 to 5 of the detailed submissions, we

refer to a number of adverse consequences which
would flow from the respondent's contention. The

major one is this, that if one acquires shares at

the same price as that of the intended offer, off

market during the four months before making a

takeover offer, one is going to fall foul of this

provision, because clearly there is a benefit in

receiving ones consideration, normally many

millions of dollars, weeks or months before	everyone else receives it. So, effectively, one is
rendered unable to acquire substantial parcels in the four months before the offer, or any parcels
indeed, even small parcels. And, the tradition of
the Code, the way it has always worked, is that one
is free to build up one's springboard of up to 20 per cent. Indeed, if one does not propose to
make a takeover offer, one can build up that
springboard at anytime. There is nothing to stop an acquirer of shares acquiring 20 per cent at all the different prices that the offerer desires; high or low, paying more to larger than to the smaller,
more to the favoured than to the unfavoured; no
law prohibits that.
Now why, one asks, should one then say, although you are entitled to get your springboard

Sagasco(2) 18 16/3/93

for a takeover offer, although you are entitled to
acquire 20 per cent whether or not you intend a

takeover offer, in the four months before you can

only acquire shares on market, because if you

acquire one share off market, you are giving that
shareholder a benefit different to that which he

will get under the scheme. And particularly, why

should one say that, in a context where one has a
regime dealing with escalation clauses and one has

a regime dealing with prior purchases in the four

months which allows for the higher price to be

paid.

If my friends are right, section 641 would have virtually no field of operation, except

perhaps in relation to on market acquisitions, and
that, in our respectful submission, is such a

dramatic change one would have thought it would

have been the subject of discussion, explanatory

memoranda, all the rest of it, but not a whisper.

That is ·only consistent, we would submit, with an

intention to close a small loophole, not with an intention to alter dramatically the structure of

what is prohibited by the Act.

Now I will just run through the five examples

we have given on page 5.	It would prohibit
acquisitions of shares in unlisted companies.	One

would not even be able to acquire one's springboard

without a four month gap, and that hardly seems

likely to have been the intention. It would also

be impossible to acquire a strategic parcel in a

listed company because a strategic parcel normally

has to be purchased as a parcel.

There are authorities, I will not take

Your Honours to them, I will simply give
Your Honours the names: Albert v Vortraint No 320
Pty Ltd, (1989) 7 ACLC 485 at 490; and Attorney

General for Victoria v Walsh's Holdings Ltd, (1973)

VR 137. Those cases establish that a special

crossing is not in the ordinary course of business

on the stock exchange within the meaning of a

provision such as subsection (5). So one cannot even acquire ones strategic parcel by means of a special crossing during the four months before, if

my learned friends are right.

Then there are other examples. We have said a

cash purchase followed by a scrip bid or a non-cash
purchase followed by a cash bid would be

prohibited. Acquiring an option over shares would

be prohibited because the option fee would be a

prohibited benefit and the acquisition of all of
the shareholder's shares off market, if a
proportional bid were tendered, would also be

prohibited.

Sagasco(2) 19 16/3/93

So all these things would be prohibited and yet these are all things which have been part of the normal processes of acquisition in the past

and, of course, one may change the law, of course

one may prohibit what was not previously

prohibited, and one may do so dramatically.	But if
one is searching for the intention of the
legislature, is it likely it would have done

something so dramatic without a word, even in its

own explanatory memorandum and second reading

speech? And we would submit, that is extremely

unlikely.

May I now turn to history. I have taken

Your Honours to the previous provisions and to

Intercapital and to the decision in Westralian

Farmers.	I should also remind Your Honours of a
couple of other references.	We have set out the

relevant part of the ASC policy statement 35. I

hand that to Your Honours, although Your Honours

will not need to refer to it beyond what appears in

the submissions, but that policy statement which

was issued as late as September 1992, says this:

Section 698 is one of the lynch-pins of

Chapter 6. It is designed to prevent avoidance of the policy stated in

section 73l(d) -

the fourth Eggleston principle -

that offerees must be given equal access to

benefits passing under a bid. ~he primary

expression of that policy is in section 636(1)

and 674(1), which require the same price to be

offered for each share under a bid.

Section 698 reinforces those provisions by

prohibiting the offer to one shareholder of a

collateral benefit which is not available to

other shareholders.

So again, we submit that the use of the word

"offerees" and "bid'' correctly shows what has been

done.

MASON CJ: Why are we looking at this statement? iI it

material that we can legitimately look at?

MR BENNETT: Well, Your Honour, in my respectful submission,

it is as much material that Your Honours can look

at as an article in a law revue or in a text book;

in that sense it is of some relevance. It does not

demonstrate what the legislature intended. It

shows what some people's view is of the provision.

I do not submit, Your Honour, that it is of great

value to Your Honours.

Sagasco(2)	16/3/93
MASON CJ:	No.

MR BENNETT: It is a small matter to be added.

McHUGH J:  On your argument, Mr Bennett, whether or not

there is a breach of 698(2) depends simply upon

whether the shares are acquired before the takeover

scheme, do they not?

MR BENNETT:	Yes, Your Honour, because the
McHUGH J:	So you can give a benefit which would appear to

be in breach of the section and yet would not be a

breach if at some later stage before the takeover

offer those shared were acquired.

MR BENNETT:  I am sorry. I do not follow Your Honour's

question.

McHUGH J: If a person proposing to send a takeover offer,

for example, gave some benefit to an associate of a
shareholder in a company, it would be a breach of
the section if the shareholder did not sell the

shares before the takeover offer -

MR BENNETT:	Oh, I see, yes.
McHUGH J:	- - - but, if, on the other hand, some time before the takeover offer was launched, those shares were acquired, there would be no breach in
those circumstances.

MR BENNETT:  I am sorry. Your Honour, there are two

possible constructions which would both accommodate

the submission we are putting. On one view, one

simply says, when one gives the benefit and
completes the transaction, is the person then a

person whose shares may be acquired under the

offers, and if you have acquired all his shares in

that very transaction, clearly he is not and never

would have been. The alternative view is, if one

has the situation where one gives the benefit and
then, in some independent transaction the person

disposes of some shares, one then has to say,

"Well, if the relevant time is the time of the

giving of the benefit, for seeing whether his

shares may be acquired, he was a person whose

shares may be acquired although he ceased to be

subsequently". So one would have committed a

breach of the section.

If, on the other hand one takes the objective

test of when it is ultimately made, is he such a

person; then one would not. Probably the former is

the better view. So although one asks the question

at the time, one must ask the question taking into

account the very transaction one is entering into,

Sagasco(2) 21 16/3/93

and that is the problem here. If you have a

offeror who says, "This is my scheme: I will buy

the AMP's 15 per cent at a higher price; I will

then make an offer at a lower price. That is what

I intend to do" .

Now, there was never a possibility of the AMP

being a person whose shares might be acquired under

the takeover scheme.

McHUGH J:  The problem is, if you give the benefit to an AMP

associate - - -

MR BENNETT:  I am sorry. I did misunderstand the point of

Your Honour's question. If one gives the benefit

to the associate and the shares remain shares which

might be acquired under the scheme, one has
committed a breach. If the benefit one gives to

the ass9ciate is the acquisition of, for example, a holding company, which results in one acquiring the shares, so they become shares to which the offeror

is entitled under the law, then of course they are

not shares which are subject to the scheme, because

when the offeror makes his offer he does not make

it for shares to which he is entitled as defined in

the scheme. So that would not affect the result.

DAWSON J: It all turns on that, does it not? If you

acquire 100 per cent then you are outside the
section, but if you acquire 99 per cent there is

still one share that may be acquired under the

scheme, then you are within the section.

MR BENNETT: Yes, subject to two things, Your Honour.

First, there is still another possible construction

which would come within our submissions which would

say that one concentrates on the shares rather than

the person; so that one is looking at the affected

shares, but the better view is that what

Your Honour puts is correct. But, of course, that
applies in any of these cases.	The Act lays down
bright lines.	It may seem surprising that if one

has 20 per cent of BHP less one share, one has not

breached the Act; if one has 20 per cent plus one
share one has breached the Act. That may seem to
be a surprising consequence, but there are bright

lines and this bright line is that if one acquires

all the shares one has not given a benefit to a

person whose shares may be acquired under the

scheme. If one acquires some one may have given a

benefit. And of course, there is a logic behind

that, because if one leaves that shareholder with

some shares, then that shareholder has not been

treated equally and may have different

considerations affecting his or her mind.	So there
is a logic behind it.

Sagasco(2) 22 16/3/93

I hesitate, in view of what Your Honour the

Chief Justice said to me a moment ago, to hand up

one more document of the same category, but it is
done on the same basis. This is a discussion paper

by the legal committee of the Companies and

Securities Advisory Committee, in relation to the

decision - it is the only comment we found in any

legal publication in relation to the decision of

the Full Court and what the Committee says on page

26 is this:

Subsections 698(2) and (4), which had no

equivalent in CASA, prohibit the giving of

discriminatory benefits where a takeover bid

is proposed. In Magellan Petroleum Australia

Limited v Sagasco Amadeus Pty Ltd, the

Queensland Court of Appeal gave s 698(2) a wide interpretation -

which they then describe:

The Court acknowledged that its interpretation

'would prohibit the buying of shares

off-market for cash during the four month

period because the vendor would receive the

benefit of immediate cash payment'. This

seems an unintended consequence which serves

only to fetter unduly an offeror's freedom to

acquire on-market or otherwise up to a 20%

entitlement .....

Subsections 698(2) and (4) also expose an

associate of the proposing offeror to

liability for breach even in circumstances

where the associate is unaware of the

proposing offeror's intentions.

They then discuss it and they make the proposal, at

about point 8, that the subsection "should be
repealed".	Now, again, it only indicates a view
held by some people in relation to it.	It has the

same weight, I suppose, as an article in the Law

Review, but it is - - -

McHUGH J: Well, not quite, is it?

MR BENNETT:  Maybe less, maybe more. But I trust

Your Honours will not see the suggestion of the

possibility of repeal as something which would

affect the grant of special leave. It is, of

course, only a proposal, which may or may not go

any further.

Your Honours, the primary submission is, as a

matter of English it is clear what this section

means.	One can torture the words to give it
another meaning.	One can apply a definition other

Sagasco(2) 23 16/3/93

than the definition in the Act to give it another

meaning. There is no reason to do so except that

reading the section in the way we read it means

that it was designed to shut a very narrow loophole

rather than create a broad and dramatic change.

In asking which was the intention, one must

look to the absence of commentary, explanatory

memorandum or anything on this provision, when

there is so much discussion on so many other

provisions, and that makes the probability that it

was not intended to reverse the decisions in

Cuming Smith and in Intercapital, but rather to

close what was perceived as a small loophole rather

than otherwise.

There is one final matter that supports that.

In the bill which was before the House, there was a

deeming-provision, and the deeming provision said,

in effec·t, that where certain objective matters

were proved, if the person - and one made an offer
within the four months, one would be deemed to have

proposed and that deeming provision was removed

before the bill was enacted. The removal of that

provision, we would submit, accords with our

submission because, in the primary cases with which
the subsection is concerned on our interpretation,
there will never be any difficulty in proving

purpose.

If the offeror says to the substantial

shareholder, who holds the 15 per cent, "I will pay

you 10 per cent - 10 cents extra - and I will give

it to you now, if you accept my offer when it is

made", one is not going to have a lot of difficulty

in proving that the person was proposing to make a

takeover offer. The very nature of the transaction

will expose it, and that explains why it was not

necessary to put the deeming provision in the Act,

and that, we would submit, also supports the

interpretation for which we contend.

The contrary contention is inconsistent with the failure to amend the Eggleston principle, which

could easily have been amended if it had been

desired to say, "The policy of this Act is that

everyone going back four months will be entitled to

be treated equally". It is inconsistent with the

authorities to which I have referred, and it

necessarily results, either in torturing the

language, or in taking a definition and ignoring it

and, in our respectful submission, none of those

approaches are warranted.

Your Honour Justice McHugh asked me earlier

about paragraph S(a). Mr Sofronoff has suggested

an example of a case under our submission where

Sagasco(2) 24 16/3/93

paragraph (a) would be applicable, and that is

this: a benefit is offered before the bid is made;

that benefit is proposed to be in the bid and is

included in the bid and later the bid is varied

under the rules to include the benefit. In that

situation, paragraph (a) might apply.	May it
please the Court.

MASON CJ: Thank you, Mr Bennett. Yes, Mr Keane.

MR KEANE:  May it please the Court, may we hand up copies of

our outline of submissions.

MASON CJ:	Thank you.
MR KEANE:	Your Honours, I think, have been supplied with a

little booklet containing various pieces of the Law

to which we will be referring.

MASON CJ:	We have.
MR KEANE:	Your Honours, while we are dealing with those matters of housekeeping and, in particular, bearing
in mind our learned friend's urgings of various
expressions of opinion by the Australian Securities
Commission on Your Honours, can we mention a matter
that Your Honours Justices Dawson and McHugh may
recall, that the application for special leave, the
Australian Securities Commission appeared and made
written submissions to the Court in relation to the substantive question which Your Honours are
addressing here.  We mention it so that that matter
is not lost sight of and we mention it in our own
interest because the ASC's submissions supported
ours.

Your Honours, on the morning of

3 September 1992, Sagasco held no shares in

Magellan. By the afternoon of 3 September 1992

Sagasco had purchased all of Bankers Trust 13.8

per cent shareholding in Magellan and had announced

a takeover bid for Magellan. There was no

suggestion that there had been any meeting of the

board to make a further decision to launch the

proceedings, it is conceded that Sagasco paid a

takeover bid after the acquisition of the Bankers

benefit to Bankers Trust which it did not propose

to provide in the takeover offers which it proposed

to send within the next four months.

That, Your Honours, is, in our submission, a

case to which section 698(2) applies. If it does

not apply to that case, Your Honours, in our

submission, it is difficult to see that it has any

substantial application at all. Your Honours,

whatever the difficulties with the section may be,

Sagasco(2) 25 16/3/93

one can say that section 698(2) operates as a

restriction upon conduct at a time before there is

a takeover scheme as defined. Now, Your Honours,

can we mention shortly that in section 603

"takeover scheme" is defined to mean:

offers that relate to shares in a company and,

because of section 634, are taken to be made

under a takeover scheme.

And can we mention the relevant provisions which

section 634 picks up. Section 634 provides:

For the purposes of this Chapter, offers to

acquire shares are made under a takeover

scheme if, and only if, the offers relate only

to a class of shares in a company ..... and the

requirements of this Division have been

complied with.

The requirements of the Division include, in 635(a)

that:

each offer relates to all the shares in the

relevant class that the offeree holds.

And 636(1) provides that:

The offers must be the same -

636(2) provides that:

The offerer must send an offer in an approved manner to each holder of shares in the

relevant class.

And we mention as well that before that can be done

it is necessary that a Part A statement be served

upon the target company and it must be endorsed

showing that the Part A statement has been

registered with the Australian Securities

Commission, and the provision for that registration

is itself contained in section 644 of the Law.

Your Honours, we mention those matters because

our learned friends seek to suggest that there is an easy symmetry, an easy congruity about the use of the phrase "takeover scheme" as defined in their

submissions, or it follows from their submissions.

And that is not the case with respect, because

"takeover scheme" as defined involves that it

answer the various requirements called into play by

section 634.

Your Honours, there cannot be such a scheme in

existence at the time that this section postulates

a contravention. In our submission it is clear

Sagasco(2) 26 16/3/93

that the section could be contravened even if no

takeover scheme as defined ever came into

existence.

TOOHEY J:  Mr Keane, when you instance the events of

3 September, namely the acquisition of shares
earlier in the day and the announcement of the

takeover later in the day and say that those

against fall naturally within 698(2), is that

submission dependent upon the view the Court of

Appeal took of the operation of that subsection?

MR KEANE:  No, Your Honour, it is apparent from the

evidence, and in particular the evidence that

Your Honours can find in the record at page 213 -
really one should start at page 212, at

paragraph 9. We draw Your Honour's attention to

paragraph 11 and then we draw Your Honour's

attenti0n to 215, paragraphs 18, 19 and all of

page 216, where the factual bases for those

observations appear. We can perhaps explain to

Your Honours, to put it in context, that the

reference to Santos that appears in paragraph 18 on

page 215 is a reference to the announcement by

Santos, the oil and gas producer, of its intention

to takeover Sagasco on 3 September.

Your Honours, if we can go back to where we

were, in making our submission that section 698(2)

operates as a restriction upon conduct at a time

before there is and before there can be a takeover

scheme, a takeover scheme as defined, and as our

learned friends submit, as Your Honours should read

it into the section.

The second thing we would wish to say is that

the expression "whose shares may be acquired under the takeover scheme" qualify the words "a person".

That phrase is an adjectival phrase which falls to

be applied at a time before there is a scheme as

defined and it is descriptive of a person who, if that person's shares are not acquired beforehand,

must receive an offer; must receive a takeover

offer under a takeover scheme as defined.

Now, we submitted that our learned friend's

attempt to show an easy symmetry about the use of

the phrase "takeover scheme" as defined in

section 698(2) breaks down, and it really breaks

down at this point; that if "takeover scheme" is to

be used as "takeover scheme" as defined, then, and

as our learned friends say, "a takeover scheme

complying in all respects with the Law", well then

it must be a takeover scheme, one element of which

is compliance with section 636(2), and that

involves an offer to all shareholders.

Sagasco(2) 27 16/3/93

We submit that the attempt by our learned friends to make the attractive submission that the

use of the phrase as defined affords some clear

congruity, breaks down. It is our submission that

section 698(2) attacks the giving of the benefit

prior to the due despatch of any takeover offers

which conform to the requirements of the Law. It

attacks benefits given or agreed to be given where

offers are proposed to be sent. Your Honours, at

that time the prohibition which the section

postulates is in effect, and there is no scheme as

defined.

McHUGH J:  What are the penalties for breach of 698(2)?

MR KEANE:  Your Honour, it is dealt with only in the general offence section. Your Honour, I cannot find the

relevant general offence provision, but we will

turn that up. And, Your Honours, it is, as we have

said, and we will not labour the point any more, it

is at t~is time that the adjectival clause "whose

shares may be acquired under the scheme", is to be

applied. In our submission, Your Honour - - -

TOOHEY J: Mr Keane, I understand, I think, what you mean by

saying the words "whose shares may be acquired under a takeover scheme" is descriptive of the

person. What meaning do you attach to the "may be

acquired" within that overall submission?

MR KEANE:  Your Honour, we submit, bearing in mind that a

takeover scheme as defined, by definition, requires

that the offer be made to all shareholders, we

submit that at that time, that is before there is

such a scheme in existence, a person who must

receive an offer under any conforming takeover

scheme answers the description of a person whose

shares may be acquired under the takeover scheme.

TOOHEY J: Yes, I assumed that would be your answer. It

the language that it did and not perhaps language	just makes you wonder why the legislature changed
of the sort that you have just offered.

MR KEANE:  Your Honour, it does make one wonder. Perhaps

the legislature, or the draftsman, was comfortable

with the language of that kind that he had used in
698(1), thinking that he had achieved his, in our

submission, evident purpose, by referring to

proposed takeover offers and making it clear that

whatever else one might say, making it clear that

the section was intended to operate at a time

before there could be in existence a complying

scheme.

TOOHEY J: Having interrupted you, can I just ask you this

as well? I take it, on your approach to

Sagasco(2) 28 16/3/93

subsection (2), what brings the subsection into

operation is the existence of a person who proposes

to send a takeover offer and that that really is,

what, a matter of evidence and a finding by the

primary judge as to whether that person proposed or

otherwise.

MR KEANE: Quite, Your Honour, and in this respect, the

Court of Appeal concluded that one could say that

there was a proposal to acquire all the shares
within which the Bankers Trust shares fell. And

that conclusion Your Honours will find at 259 of

the record, lines 10 to 14. Your Honours, to take
the observations of Your Honour Justice Toohey one

step further in relation to our learned friend's

references to the explanatory memorandum: the

explanatory memorandum is the last document set out

in our little booklet. Your Honours will find, at

page numbered 53 at the bottom, in paragraph 2146,

the reference there to the deeming provisions that

our learned friend referred to, and it is true that

those deeming provisions were not ultimately

enacted, but we would submit that a basis for the

difference is simply that the Parliament concluded

that, notwithstanding the occasional difficulty of

proof, it was preferable to leave the question as
to whether there was a proposal as a matter of

proof, rather than to deem these matters inexorably

to be the case, notwithstanding the genuine

intentions of the particular party~

TOOHEY J: It does cast some sort of cloud of uncertainty in

an area where certainly might be very important.

MR KEANE:  Your Honour, it is certainly an area where

certainty is important, particularly as

Justice McHugh has adverted to the possibility of a

penal consequence, but it is an area where, as this

Court said in Waugh v Kippen, one must first

address the question of the object of the

legislation, the purpose of the legislation, which is remedial and which has an intention to protect.

In Waugh v Kippen it was a worker who was intended

to be the subject of protection; in this case it is
shareholders, and in that regard one must come to
consider the Eggleston principles, or more

particularly section 73l(d) to which our learned

friends referred, and when one looks at that one

sees that it speaks, not simply in the language of

acquisitions, but in the language of proposals to

acquire.

One can see, in our respectful submission, in

that section, an expression of the philosophy of

protection of shareholders, specifically by

according them equal treatment in relation to, not

Sagasco(2) 29 16/3/93

simply transactions but to, with respect,

proposed transactions.

DAWSON J:	What would .you say if the offeror made an offer to a particular vendor, or offeree, involving a
benefit, but not intending to proceed with the proposed takeover unless he acquired, or it acquired, the whole of the shares of that offeree
as the benefit?

MR KEANE: Well, Your Honour, if his plan was that if I can

take this step I will take a second step, then

there is a proposed takeover.

DAWSON J: But the shares he is wanting to acquire at a benefit are not shares in that situation which

would be the subject of the takeover offer, because

the takeover offer would not occur unless he

acquired the whole of the shares.

MR KEANE: Well, Your Honour, that, I suppose, is a question

of fact, but what we would say about it is, if

there is a proposal to send out takeover offers

under a scheme as defined, that means all the

shares. If one tries to break it up so that one

segregates, as a matter of fact, the various

intentions, that we have no intention to proceed

further unless we achieve this result, one can put

it the other way. One can say, "If we achieve step

one, we will go on to step two", and if there is

that intention - if there is the intention that by

implementing step one, one is taking the step which

one intends to take before step two, one is giving

effect to the plan.

DAWSON J: Yes, but the plan will not go ahead. The plan

involves not going ahead unless one acquires all of

the shares that one is making the offer for.

MR KEANE:	difficulty of fact which His Honour Your Honour, then one runs up against the
Mr Justice Marks identified in the Intercapital
case and actually decided the case on. In relation
to the Intercapital case, it is clear from the
passage which our learned friend read to
Your Honours, that His Honour decided that as a
matter of fact he could not find an intention to
proceed further after the particular acquisition of that day as being part and parcel of a larger plan.

In this case the Court of Appeal concluded

that one could see that larger plan and properly

did so, in our respectful submission, bearing in

mind the interlocutory nature of the proceedings.

The other thing we would wish to say about the

Intercapital case, and it is perhaps convenient to

say it now, is that the observations that

Sagasco(2) 30 16/3/93

Justice Marks made about the difficulty of treating

as unacceptable conduct, the conduct that occurred

in that case, was that there was no time limit

posing or imposing a finite limit on conduct before

the takeover so as to render the code unworkable,

as he said.

In our submission, though it has not been

accompanied with the fanfare that our learned

friends insist must necessarily accompany any

legislative tightening of the particular

legislative scheme, what the legislature did was

meet that objection, in 698(2), by imposing a four
month cut-off period, that being the same period as

applies in relation to 641, and being the period

which is perhaps arbitrary, perhaps not; being a

period which the legislature decided was

appropriate to meet the particular objection of

Justice Marks in the Intercapital case.

DAWSON J: Yes, t follow that. You really do say that at

the time the offer is made to acquire all of a

particular vendor's shareholding at a benefit, at

the time the offer is made, those shares would be

shares which may be acquired under the takeover.

MR KEANE:	Yes, Your Honour, we do.
DAWSON J:	Of course, once they are acquired they cannot be,

but at that time they are and that is enough for

the section.

MR KEANE:	Yes, Your Honour.
DAWSON J:	And that, you say, is a complete answer to what

Mr Bennett says.

MR KEANE:  We make that submission, Your Honour. But the

other thing we would wish to say in relation to our

learned friend's submission, which attempt to give

an operation to 698(2) on their view of it - we

really wish to say two things: firstly, though we

do not propose to bombard Your Honours with a

series of rhetorical questions about why there was

not more explicit indication of legislative

intention, may we say that there was certainly no

suggestion, in any of the extrinsic materials, that

the rather minor mischief that our learned friends

identify was, in fact, the target of the amendment.

The second thing we wish to say, with respect, in relation to paragraph 2.e in our learned

friend's lengthier outline, which is the paragraph

in which they propose the operation which the
subsection is said to have in relation to a

particular mischief - Your Honours, can we say this

shortly and then take Your Honours to the relevant

Sagasco(2) 31 16/3/93

mischief if our learned friend's submissions are correct, because if there is the kind of

sections that make the submission good.

transaction discussed there, that is to say, the

giving of a benefit in consideration of a promise

to accept an offer when made, that transaction,

Your Honours, is an acquisition of those shares for

the purposes of the Law.

So that on our learned friend's construction of 698(2), it still has no work to do. Now, can we

explain why we say that such a transaction, a

transaction involving a giving or an offer of a

benefit in consideration of a promise to accept an

offer when made, amounts to an immediate

acquisition. One needs to go to the provisions of

the law dealing with acquisition of relevant

interests, and then to the provisions which deem

relevant interests to have been acquired at a
particular time.

Firstly, Your Honours, can we take you to section 51 of the Law, and Your Honours will see

that this provision relates to acquisition:

For the purposes of the definition of "deal"

in section 9 and of Chapters 6 and 7 -

and we are concerned with chapter 6 -

a person acquires shares in a body corporate

if, and only if:

the person acquires a relevant interest in
those shares as a result of a transaction

entered into -

Your Honours, it is Sl(l)(a).

MASON CJ: Yes.
MR KEANE:	Now, Your Honours, what is or is deemed to be a

relevant interest is dealt with in Division 5 of

Part 1.2 of the Act, commencing at section 30, and

then if Your Honours would go to section 34,

particularly subsection (b), and if we may read the

relevant parts:

Where a person:

(b) has a right enforceable against another

person in relation to an issued share in which

the other person has a relevant interest -

and an owner, has a relevant interest, Your Honours

Sagasco(2) 32 16/3/93

whether the right is enforceable presently or
in the future and whether or not on the

fulfilment of a condition ..... and, on

performance of the relevant agreement,

enforcement of the right, or exercise of the
option, as the case may be, the

first-mentioned person would have a relevant

interest in the share, the first-mentioned

person shall be deemed for the purposes of

this Division to have that relevant interest

in the share.

So that, Your Honours, as a purchaser under an

avowedly conditional contract, there is an

acquisition of a relevant interest which involves

an acquisition of the share. So that these shares

have been taken out by acquisition in the sort of

examples our learned friends put to Your Honours.

And, if-the contract does not amount - if the

giving of the benefit is not in consideration of a

promise to accept an offer for the shares, if it is

not that, if it is something rather uncommercial,

one might think, but if it is something in the

nature of simply a gift of a large amount of money

to a person who holds a share with some degree of winking and nodding falling short of a promise to

accept an offer when made, it reaches, we would

submit, the absurd situation where section 698(2)

strikes at that conduct, strikes at almost

perfectly harmless gifts, but does not strike at

conduct, the object of which is to effect an

acquisition.

In our submission, Your Honours, to allow that

consequence is not to promote the objects of the

Act which we submit are reflected in

section 731(d), that section being referred to in

the Full Court of the Federal Court as being a

philosophical section which represents the essence

and spirit of the law as applied to takeovers. In our little booklet, Your Honours, we have

included the case which is BTR v Westinghouse Brake

& Signal Co. It is at pages 19 to 45 of our

booklet, and the relevant passages are firstly at
page 27 of our booklet, which is page 304 of the

case, number 27 at the bottom, where the discussion

of section 731 commences in the left-hand column in

the first full paragraph, Your Honours, and the relevant discussion concludes in the right-hand

column at the end of the incomplete paragraph, and

Your Honours will see there the reference to section 731 as:

"a philosophical section'', in that in our

opinion the essence and spirit of it applies

Sagasco(2) 33 16/3/93

to take-overs, including those of an upstream

kind -

that is to say, one which is not dealt with by the

specific verba ipsissima of the law -

in the sense that shareholders in the

downstream company should have the benefits of

the kind to which s 731 is directed.

Their Honours affirm that view again at page 310 of the report, or 33 of the booklet, in the second

full paragraph of text on that page.

MASON CJ:  Mr Keane, coming back to the deeming provision

which was excluded, the deeming provision would not

have caught this transaction, would it?

MR KEANE:  Which-deeming transaction, Your Honour;

section -34?

MASON CJ: Yes. Paragraph (d) would have had the effect of

excluding this transaction, would it not? If you

look at paragraph 2146 on 53 of your book.

MR KEANE:	I am sorry, is Your Honour referring to section 34(d)?
MASON CJ:	No, 2146, the deeming provision that was excluded

from the legislation.

MR KEANE:	I am sorry, I beg Your Honour's pardon.
MASON CJ:	On page 53 of your book.
MR KEANE:	Yes, Your Honour.
MASON CJ:	I was interested in paragraph (d) of that

provision.

MR KEANE: Well, Your Honour, with respect, I do not know

that that really would solve the problem, because

it is not entirely clear. It speaks of:

the person to whom the benefit was given held

shares, at the time of the benefit, which were

the subject of the offer or announcement.

And that, really comes back to the question of

MASON CJ:	The tense is difficult, of course.
MR KEANE:	Yes, but it brings us back to the argument as to

what is the subject of the offer. If it is a

takeover offer as defined, it is necessarily a

takeover offer for all the shares.

Sagasco(2) 34 16/3/93

MASON CJ: Yes, but the difficulty is when you look at the

context, (b) for example, it seems to be talking of

the takeove~ offer or announcement that is

subsequently made.

MR KEANE:  Yes.

MASON CJ: But I was going to ask you, does the legislative

history, that is in the legislature, throw any

light on the reason why the deeming provision was

excluded from the legislation?

MR KEANE:	Your Honour, unfortunately we do not have the Attorney-General's speech in relation to it with
us. We can obtain it.  It does say that it was
thought that the deeming provision might have
broader consequences, and that therefore it was
more appropriate that it be left to be proved as a
matter of fact, rather than to deem a situation to
exist which might not, in truth, be the situation.
We can obtain copies of that speech for
Your Honours and make them available. I do not
know if we can do it today, though.
MASON CJ:	Thank you.
MR KEANE:	Your Honours, as we have said, it is important to

note that section 73l(d) talks of all shareholders

having equal opportunities to participate in
benefits under takeover proposals under proposals.

The use of the word "proposals", in our submission,

gives the principle an operation from the time of
the proposal and not from the time when formal

takeover offers are lodged and served.

Your Honours, we have made the submission that

the Intercapital decision should be understood as
indeed the precursor to the enactment of this

provision, and that this provision should be seen

as a tightening up of the scheme. Can we mention that this sort of approach is	not unusual, and can we mention that in relation to
our learned friend's submissions in relation to the
Cuming Smith decision. It is referred to in my
learned friend's more detailed submissions in
paragraph 3.b, and we do not wish to take
Your Honours to take decision now, but can we say
that in the report of the decision, it appears clearly at pages 140 to 141 that the reason that Mr Justice Kaye concluded that the shareholders in
that case whose shares were not shares which might
be acquired under the scheme was because they were
shareholders to whom an offer was not as a matter
of fact, and was not intended to be, sent. As
Mr Justice Kaye pointed out in the passage to which
we have referred Your Honours, at that stage

Sagasco(2) 35 16/3/93

section 180M and its cognate provisions in the old

Uniform Companies Act did not require offers to be

sent to all shareholders. As His Honour said:

There is no mandatory requirement that offers

be sent to all shareholders.

So that he really decided the case on the basis

that, as a matter of fact, it was not intended to

send offers to this particular group of

shareholders called by reference to the particular
portfolio of investors in question. It was not
intended to send them offers and, as a matter of
fact, they were not, and there being no mandatory

requirement for them to receive offers, he then

concluded that they could not be said to be persons

whose shares might be acquired under the scheme,

for the very good reason that they were not to

receive offers.

Now, that absence of a mandatory provision

that all shareholders should receive offers was met

by the enactment of the precursor to

section 636(2). So that that case really has been

consigned to history, in our respectful submission,

and is certainly of no positive assistance to

Your Honours in this case.

Your Honours, our submission is that the construction which the Court of Appeal have given

the section is called for by the section because

the section simply cannot operate as our learned

friends suggest. We submit that it is appropriate

to give it that effect, that construction, because

it allows substantive operation to 698(5)(b).

698(5)(b) is concerned specifically with

acquisition of shares. The reference in 698(2) to

698(5) shows that 698(2) is concerned with the

possibility of acquisition of shares, and 698(5)

allows shares to be acquired in public, on market,

and under any circumstances. Our learned friends

have referred to a number of what they submit are

untoward consequences of the construction adopted

by the Court of Appeal. In our submission, those
consequences are, with respect, of minimal weight,

because so long as the transactions are effected on

market, 698(2) has no application. If they are

effected off market, it has no application so long

as tiere is no discrimination against other

shareholders.

Our learned friends submit that there will

always be a discrimination because there will be a

payment earlier than the payment to shareholders

under a scheme. There will always be, at the time

when the gift is given, a benefit in that they will

Sagasco(2) 36 16/3/93

receive that benefit earlier than the great body of

the shareholders.

But that, in our respectful submission, is to

work the concept of benefit too hard. In cases

like Albert v Vortraint, what the courts are

concerned to do is to identify the difference

between the benefit a shareholder receives by way

of immediate payment on transfer of his shares, and

a postponed payment on transfer of his shares.

Where both parties are to receive immediate payment

on transfer of his shares, there is no difference

in benefits. While a party retains his shares and

has had no offer made to him and has no contract,

there is not a possibility of saying that he is

somehow different in terms of benefit from another

party who has been paid for and given immediate

transfer of his shares.

.

If the takeover offer provides for immediate

payment on acceptance, then there is no

differential benefit. So that the basis for our

learned friend's suggestion that there is some

untoward consequence of the acceptance of the

Court of Appeal's decision, in our submission,

disappears.

In relation to that, finally, Your Honours,

can we mention that in the discussion paper of the

legal committee of the Companies and Securities

Advisory Committee that our learned friends handed

to Your Honours, they referred you to page 26 and

at the suggestion of the Court of Appeal:

Acknowledged that its interpretation would

prohibit the buying of shares off-market for

cash during the four month period because the vendor would receive the benefit of immediate cash payment.

Your Honours, we have looked closely and we

did not find anywhere where the Court of Appeal

acknowledged that.

MASON CJ: Is that a quote from the judgment or not?

MR KEANE: Well, Your Honour, it effects to be, and -

MASON CJ:	You cannot find the quote there?
MR KEANE:	We cannot find it, and we think Your Honours

will, we say with some diffidence, look in vain as

we did, to find that attributed to the

Court of Appeal. And, for the reasons we have

attempted to give, we submit it is wrong in any

event.

Sagasco(2) 37 16/3/93

Your Honours, the general penalty provisions are contained in section 1311 of the Act, and under

section 1311(5):

The penalty applicable to the offence is a

fine of $500.

Under 1312:

Where a body corporate is convicted of an

offence against this Law, the penalty that the
court may impose is a fine not exceeding 5
times the maximum amount that, but for this
section, the court could impose as a pecuniary
penalty for that offence.

And, in the Schedule there is a provision for penalties in respect of Chapter 6 offences of $2500 or imprisonment for six months or both.

Your Honours, as we said, before one resorts to that rule of last resort, it is necessary to

bear in mind this is a remedial provision and that
the Court is required to give effect to the purpose

of the Act, which is the protection of shareholders

and the endeavour to ensure that they receive equal

opportunities in respect of proposals.	We mention
Waugh v Kippen.	Can we hand to Your Honours simply

the headnote and the photocopied page 164, going

over to 165, in the joint judgment and in the

passage on which we rely.

Your Honours, finally, we say again, can we

hand Your Honours copies of an extract from

Johnston, The City Take-Over Code. It is concerned with the takeover code in operation in the city of

London, and we refer Your Honours in the extract to

page 205, General Principle 9, which shows that at

least as of 1981, when this document was prepared,

that, at least in the city of London, it was not

thought to be an extraordinary thing that all

shareholders should receive the same treatment

where an offer is made or where it is reasonably in

contemplation. I hand it to Your Honours.

TOOHEY J:  Mr Keane, can I just take you back for a moment

to the way in which the Court of Appeal approached

the matter and in particular at page 259 of the

appeal book. It is about line 10, and the court

said:

It is enough that, to use the description ins

698(2), the "proposed offerer'' should have

formed a plan or purpose which includes

sending takeover offers within the next

following four months.

Sagasco(2) 38 16/3/93

Is it part of your submission to accept that

approach in that very broad way?

MR KEANE:  Yes, it is, Your Honour.

TOOHEY J: It may not be necessary, I suppose, for present

purposes, but you would go so far as to subscribe

to that very broad formulation by the Court of

Appeal.

MR KEANE:  We would, Your Honour, on the basis that if one

approaches the question of the meaning of "takeover

scheme" in the broad way, unconstricted by the

definition, then that is appropriate. If one looks

at the definition, one still has to come to grips

with the fact that there is not such a scheme in

existence, and that if it is somehow a notional

scheme, it is a scheme that calls for offers to all

shareholders.

TOOHEY J:  On that view, it would be quite unnecessary for

the offerer to have made any public statement or

done more than considered the matter within the

four walls of the board of directors.

MR KEANE:  Which in truth is what it did until it had sewn

up its strategic parcel on the strength of a

payment of a price that was greater than was to be

offered to the general body of shareholders.

TOOHEY J:	So in the end, proof of non-compliance with subsection (2) might depend upon the internal records of the offeror.
MR KEANE:	It might, Your Honour, but that is a question of

difficulty of proof.

TOOHEY J: Yes, I appreciate that.

MR KEANE:  Your Honours, I am not going to say finally

again, because I have said it about four times, I

am aware of that. Can I simply say in relation to

section 641, it does not effect to do the work of

698. Section 641 is concerned solely with cash

consideration. 698 has a broader scope. It deals

with matters other than - which may include cash

considerations, but it casts a wider net. 641 is

concerned, as Your Honours will see, solely with

matters of cash consideration.	Your Honours, those
are our submissions.

MASON CJ:  Thank you, Mr Keane. Yes, Mr Bennett.

MR BENNETT: If Your Honours please, there are 11 short

matters. First, my learned friend referred to the

submissions made by the Australian Securities

Commission. While I do not place great weight on

Sagasco(2) 39 16/3/93

the pronouncements which I handed up, a greater

weight, I would submit, would be given to their

views than ta their submissions. It is well known

in the law that one's submissions do not

necessarily represent one's views.

The second matter is, my learned friend

submitted that the section 698(2) - I will come

back to that. My learned friend submitted that the

definition of "scheme" requires that it be made to

all the shareholders and he beguilingly submitted

that because one is looking at the moment when the

particular offeree's shares are acquired when the

benefit is given a notional scheme must be given to

that offeree.

But, with respect, that is not correct. O:'.::e

one is looking at the proposed scheme one must =a

looking_at the proposed scheme at the time one

propose5 to make it.	One looks now, but one looks
forward to that time.	And at the time the scheme

is proposed to be made that person will not be a

shareholder.

DAWSON J:  Why do you say that?

MR BENNETT: Because, Your Honour, it really comes down to

the question, Your Honour - - -

DAWSON J:  You make an offer to me for my shareholding and

at the time you make the offer you have not
acquired the shares and if the proposed scheme is

to acquire all the shares those share are shares

which you would propose to acquire under the

scheme.	Of course, once you have acquired them,
you cannot.	But you are looking at a point before

the acquisition.

MR BENNETT:  The proposed scheme is one which will be made

in the future at a time when that person no longer

owns those shares.

DAWSON J: That is presupposing that you acquire them, but

if you do not acquire them - but what if the offer

is refused?

MR BENNETT:  If you do not acquire them you may not make the

scheme.

DAWSON J:  You may not and you may. If you do, and if you

aim to acquire the whole of the shareholding, they

are shares in respect of which you would make an

offer under the proposed scheme.

MR BENNETT:  Can I answer that in two parts: the question

Your Honour put to my learned friend was, if one

intends to acquire the shares then make the offer

Sagasco(2) 40 16/3/93

to shareholders, and one does not intend to go

ahead with that unless one acquires the springboard

first.

DAWSON J: Yes.

MR BENNETT:	Now on that hypothesis clearly the shares are not shares of the relevant type, because one simply
sets up a dilemma.

DAWSON J: Yes, that is so, but that is not what I was

putting to you. That is a particular situation

which is a question of fact.

MR BENNETT: Well, Your Honour, one has to look at the word

"may". The word "may" must be looking at what is a

real possibility. If one is giving the benefit and

acquiring the shares, then the shares will not be

there to be acquired under the scheme. If it is

not accepted one has not given the benefit and the

section does not apply anyhow.	The only
circumstance - - -

DAWSON J: But that does not matter. Looking at the

situation at the moment the offer is made, unless

there is an intention not to proceed if the offer

is refused, those are shares which will form part

of the takeover offer.

MR BENNETT:  Your Honour, that would produce the result that

there would be a difference, depending upon whether

one proposed conditionally to proceed with the

offer or whether one proposed absolutely.

DAWSON J:  Precisely. Your submissions can only relate to

the first situation.

MR BENNETT:  Your Honour, we would submit that that is not

quite so because one must look at the possible

effects in the light of what actually occurs, in

the light of the event occurring.

DAWSON J:  Why?

MR BENNETT: Because, Your Honour, if the benefit is not

given one never gets to the section in the first

place.

DAWSON J: It does not matter, before the benefit is given

at the time the offer is made those are shares

which, if the offer is not accepted, will form part

of the takeover scheme, if, in the second

situation, if possible?

MR BENNETT:  Your Honour says "before", we would submit it

is at the time of.

Sagasco(2) 41 16/3/93

DAWSON J: At the time of the offer, that is all right,

before the acquisition.

MR BENNETT:  We are dealing with a case where a benefit is

given. Now, if one gives a benefit which consists

of acquiring the whole of the parcel of shares,

then if one asks the question: is that a person

whose shares may be acquired? The answer is "No".

Because the very fact the benefit was given - - -

DAWSON J:  No, no. What you are looking at is the time at

which the offer of the benefit is made. It has not

been given and the shares have not been acquired

and at that time those are shares which, if the

benefit is not accepted, will form part of the

takeover scheme in the second situation wh::h you

posit.

MR BENNETT: That looks only at the situation where the

offence-_is an offer and not a situation where the

offence is to give.

DAWSON J: Yes, but before you give you presumably have got

to have an offer.

MR BENNETT:  I suppose the offer might come the other way or

it might be a response to an invitation. But there

was a triple prohibition: give, offer to give, or

agree to give. If I can just take them separately.

So fa.r as give is concerned, which is the one

relevant here, where the breach all~ged is a breach

of the word "give" then by its ver nature what is

given is a benefit for the acquisi ~n of all the

shares, at the time of the giving i~ the person

could not have been a person whose shares may be

acquired. It just did not arise.

If one is taking the offer situation it may

be, as Your Honour puts to me, that there is a

distinction between the case where one makes the

offer intending not to go ahead with the takeover

if it is rejected, and the case where one makes the

offer intending not to go ahead with the takeover

if it is rejected and the case where one makes the

offer intending to go ahead willy-nilly.	And there
may well be that distinction.	But in the situation

which is the present case where it is a matter of

giving the benefit then we submit the section

simply does not apply.

DAWSON J:  Why not? Why do you not look at it immediately

prior to the gift?

MR BENNETT:  Because you look at the moment of the gift,

Your Honour. Why would one go prior?

Sagasco(2) 42 16/3/93

DAWSON J: Because you are looking at shares, not the gift.

You "shall not ..... give to a person whose shares

may be acquired''. Well those shares may be

acquired if the gift is not accepted.

MR BENNETT:  Then it would not be a gift, Your Honour.

DAWSON J: True enough, but that is a reasonable way of

construing the section.

MR BENNETT:  One construes the section, we would submit, irt

the light of what actually occurs under it and

there is no reason why one should go back before

the time of which the section is speaking. One

looks at that time and one takes into account all

the circumstances which cause the section to be

invoked. If someone has given, then we must look

at the time he has given and at the circumstances

consequent on that giving.

DAWSON J: Let us take the exact time - is giving - and at

the time he is giving a benefit in relation to
those shares those shares are shares which may be
acquired. After he has given and his shares have

been acquired, true enough what you say.

MR BENNETT:	At the moment where he is giving, presumably at that very moment there is a simultaneous obligation
to hand over the scrip and the shares which is done in exchange for the money, no doubt. At that split
moment in time they are not shares which can be
subject to a takeover. That is the first point.
This is a case of give, not a case of offer to
give. And secondly, there is - - -
McHUGH J:	Why do you say that, Mr Bennett?
MR BENNETT:	It is a case of the shares were acquired,

Your Honour.

McHUGH J: But that is the whole point, is it not? Why does

not the offering to give itself create the offence

the moment you offer to give the benefit?

MR BENNETT: Well, Your Honour, what occurred in this case

was not an offer to give. There may or may	not
have been, but that is not the allegation.	The
allegation is that we gave.

MCHUGH J: Well, as it turned out.

MR BENNETT:  Yes. .,,

McHUGH J: But why would not the offer to give be a breach?

MR BENNETT:  Your Honour, we do not know if there was an

offer to give. But, Your Honour, the answer is in

Sagasco(2) 43 16/3/93

my friend's very submissions about sequence. My

friend submitted - and we do not take issue with

him for purposes of this appeal - that one has a

series of events taking place in a day, no evidence

of an intermediate decision and therefore it is

clearly part of an overall plan: acquire these

shares and make the takeover.	My friend says
that - - -

McHUGH J:  I know, but do not the facts of this case

demonstrate how unfair and unequal your

construction of the section is? I mean, BT must

have been screaming when they heard that the

takeover offer was announced because they miss out

on the opportunity to get an increased price by

reason of escalation of the shares.

MR BENNETT: There was no escalation.

MCHUGH J: There-was not, but there might be in the course

of it. -Was that not the reason that you were

advised to proceed in this way by whoever it was

from Lloyds?

MR BENNETT: That is the very thing which is permitted by

the whole structure of this Act. It says one must

make an offer at the highest price one has paid.

It does not prohibit the making of an offer at

higher than the higher price one has paid.

McHUGH J:	I know that, but it is the question of what happens after the offer is made and the escalation.
If you look at page 213 of the record at line 10 in
Mr Jephcott's advice, he said:

it was my view, which I communicated to the

Board, that BTAL would be reluctant to sell

its shares in MPAL and/or MPC if it suspected

that there was a possible forthcoming takeover

offer to MPAL prior to that takeover offer

would thereby be excluded from participating	commencing because of the likelihood that BT	in any escalation of the share price which
occurred as a result of any takeover offer.

MR BENNETT: Yes, but that is not the vice to which any part

of the Act is directed, Your Honour. Indeed, there

is a prohibition on an escalation clause which

would avoid that very vice. So the avoidance of

that vice is actively prohibited. It is not a

vice, Your Honour. It is not a vice which is

contrary to the policy of the Act or the Act. The

Eggleston principle requires equal treatment for

shareholders at the time of the scheme, it does not

require equal treatment for those who have chosen

to sell out at some earlier period.	It is as
simple as that.

Sagasco(2) 44 16/3/93

McHUGH J: Well, I mean, is there not something circular

though in what you assert? I mean you say, "Well,

they have sold out and they have got nothing to

complain about". But in this particular case one

might think BT would have something to complain

about.

MR BENNETT: It is not designed for their protection, Your

Honour, it is designed to prevent them getting

more, not to prevent them getting less. The

purpose of 698(2) is not to protect BT, it is to

prevent BT getting an advantage.

MCHUGH J:	Yes, I follow.
MR BENNETT:	The device Your Honour refers to is simply no

part of what this section, or indeed the Act, is

concerned about. It is part of the give and take

of the takeover battle which is left of the
marketplace. That is not surprising, one would not

expect to find something designed to protect a

substantial shareholder which chooses to sell a

substantial parcel, from getting less than the

common or garden shareholders get under the

takeover offer. The statement at page 213 is fully

in accordance with the policy of the Act.

Your Honour Justice McHugh asked about penalty

and my friend did answer that. The provision is

at, if Your Honours wish to see it, at page 34703

of the CCH publication of the law. It is dealt with in the schedule in a global way and, as he says, the provision is $2500 or six months

imprisonment.

My friend referred to the word "proposal" in

the Eggleston principles. But that must be read,

as Mr Justice Marks said in Intercapital, in the

light of the accepted normal need ~or an offeror to

obtain and acquire a springboard of less than 20

per cent, and the fact that that is regarded as a
separate acquisition.	Those words in the Eggleston

principle were construed in that way and the

Eggleston principle has not been amended. If it

were desired to amend it and to reverse that one
would have thought the Eggleston principle would be

amended by fixing the time as being four months

prior to the takeover offer. But that has not
been done.

My learned friend referred to paragraph 2.e of our submissions about the mischief and he submitted

that the mischief which we have identified is not

one about which there would be concern because he

says you would acquire a relevant interest and then

even if it is under 20 per cent be obliged to be

caught. But the answer to that is section 636(2)

Sagasco(2) 45 16/3/93

which does not exclude offers to one's associates

or to persons who share some relevant interest.

Indeed, ·the predecessor of section 636(2) which requires an offer to be sent in an approved

manner to each holder of shares of the relevant

class was section 16(2)(c) and that section

required one to despatch an offer to each holder of

the shares other than the offeror.	Even the
exclusion of the offerer has been taken out.	But
under both Acts one had to make the offer in
relation to shares in which one had a relevant
interest.

So if one were to engage in the conduct which

we have described, under 20 per cent, one would not

be caught by section 615 because it is under 20

per cent and one would still have to acquire the

shares. So the advice would be exposed.

My ·learned friend referred to the deeming

provisions and to the speech in relation to that.

I have a copy of some extracts from the explanatory memorandum which I can have photocopied for

Your Honours and delivered to Your Honours'

chambers after lunch if Your Honours wish that.	I
only have one here at the moment. But I can read
to Your Honours very briefly what it says, and it goes further than what my learned friend referred
to. This is the supplementary explanatory memorandum, not the second reading speech, but it
said this:

The amendments delete deeming provisions in

Clause 698 in relation to the subclauses

prohibiting the offerors giving benefits to

shareholders in the four months preceding a

takeover offer or announcement without

offering those benefits to all shareholders in

the offer or announcement.	Such deeming
provisions could have produced unnecessarily

harsh results in respect of reasonably

innocuous benefits.

That is what my learned friend referred to. It

went on and said:

In the absence of these deeming provisions, contraventions of subsections 698(2) and (5)

will have to be proved by reference to the

offerer's intentions, inferences about which

were appropriate may be made from relevant

conduct.

That is the point I was making to Your Honours

in-chief. One of the reasons why the deeming provision was able to go is that it is simply

Sagasco(2) 46 16/3/93

unnecessary, because in the case one is primarily concerned about the inference about the intention

to make a proposal will be apparent from the

relevant conduct. It will be apparent from the

form of the very offer which is subject to attack,

which is:	I will give a benefit if you accept my
offer.	So that remark is apposite, we would

respectfully submit, to our interpretation.

My learned friend referred to the remark by the legal committee of the Australian Securities

Commission not being referred to in the judgment.

That is partially so. There is a reference at

page 255 of the appeal book, at line 20. They

refer to it as an argument but do not express a
view on it.

It is argued that any wider construction would produce results unlikely to have been

intended; for example, would prohibit the

buying of shares off-market for cash during

the four month period because the vendor would receive the benefit of immediate cash payment.

Thus, it is said for Sagasco, the third

respondents were never "persons -

et cetera.

(It is unnecessary to pause to consider

whether this interpretation, if correct, would

avail Sagasco in this instance if, when the

proposed takeover offers are made, the third

respondents are still registered as

shareholders and thus are offerees).

So, they refer to it but do not decide it. But it

was certainly referred to in the judgment and
whether the remark was based on something said in

argument, of course one just does not know.

My friend referred to Cuming Smith and he

sought to distinguish that case on the basis that

the statute there permitted offers to be made to something less than all the shareholders, and he

said that that is decisive. But, we would submit, that is identical for present purposes as the case

where the shares are acquired and therefore

unavailable for that reason.

It does not matter whether they are not shares

which may be subject to the takeover offer because

one is entitled to exclude them, as one was under

the old Act, or whether they are not subject to the

offer because they were already acquired and

therefore not subject to it. In either event,
there is no relevant proposal to acquire those

shares. And we would submit that the analogy

Sagasco(2) 16/3/93

remains, although even though the Act was amended

it simply means that there is a different factor

giving rise to the same matter.

The only remaining matter, my learned friend

submitted that as one of his central arguments on

construction, that because a scheme requires that

all shares be acquired, that must include the

relevant shares. But that comes back to the

question of timing. If my submission is correct

about proposed scheme, then one must be looking now

at the time of the giving of the benefit at what

may be acquired later at the time of the scheme. shareholders does not affect the argument. It is

all shareholders, but all shareholders who will be

shareholders at the relevant time.

My-friend also referred to the situation where

the offeror changes his mind, having proposed a

takeover scheme and he does not go ahead with it.

But that again does not affect the use of the word

"may". What the section is looking at is: is

there a possibility that these shares will be

acquired under the scheme? And we submit that if

one acquires them all there is not.

Similarly, if one is speaking of offers, if

one intends only to go ahead with the scheme if the

offer is accepted, again there is no intention and

no possibility of acquiring these shares under the

scheme. That, of course, is central to the point

made by Mr Justice Marks in the Intercapital case.

For those reasons, Your Honours, it is submitted

that the appeal should be allowed.

MASON CJ:	Mr Bennett, there is one question I wanted to ask you, but before I indicate what it is I should say
that I am not sure that I altogether understand the inter-relationship between the various provisions in section 698 and that may partly proceed from a
lack of commercial knowledge. But I did want to
ask you about subsection (2) and subsection (4).
They appear to be parallel provisions directed in
one case to a proposed takeover offer and in the
other case to a proposed takeover announcement. In
(2) the reference is:

to a person whose shares may be acquired under

the takeover scheme -

In (4) the reference is:

to a person whose shares may be acquired

pursuant to the takeover announcement -

Sagasco(2) 48 16/3/93

Is there any relevance or significance in the

difference in language?

MR BENNETT:  Your Honour, in each case there is language of

futurity. In each case one is concerned about

shares which under one's present proposal may be

going to be acquired pursuant to the announcement

or under the scheme. The difference between

pursuant and under is simply the difference between

an announcement and a scheme. One acquires shares

under a scheme but pursuant to an announcement. It

is simply a question of the appropriate preposition

in relation to the concept.

The announcement, of course, is simply an announcement that one intends to acquire on market.

So where one makes an announcement one does not

acquire shares under it, but one acquires shares on market pursuant to it and the difference is no more

signifidant than that. But subsection (4) is

useful as underlining the importance of the

futurity to which I have referred.

The other aspect of Your Honour's question

concerns the relationship of the various parts of

section 698 and really we say that the phrase "a

person whose shares may be acquired under the

takeover scheme" is one which was in 698(1) in its
predecessors and really has to have the same

meaning that it has there.

MASON CJ:  Thank you. The Court will consider its decision

in this matter.

AT 12.43 PM THE MATTER WAS ADJOURNED SINE DIE

Sagasco(2) 49 16/3/93