Trade Practices Commission v Australian Iron & Steel Pty Ltd

Re: TRADE PRACTICES COMMISSION
And: AUSTRALIAN IRON AND STEEL PTY. LTD.; THE BROKEN HILL PROPRIETARY
COMPANY LIMITED; TUBEMAKERS OF AUSTRALIA LIMITED; STEEL AND TUBE
HOLDINGS LIMITED and HELENUS CORPORATION LIMITED
No. G591 of 1989
FED No. 18
Trade Practices - Practice and Procedure
22 FCR 305

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Lockhart J.(1)

CATCHWORDS

Trade Practices - Merger - Construction of s. 50 of the Trade Practices Act 1974 - meaning of "acquire", "corporation", "body corporate", "directly or indirectly" - the extraterritorial operation of s. 50 - The interaction of sub-s. 5(1) with s. 50 - Whether s. 50A bears upon the construction of s. 50 - Remedies - Meaning of "as a result of the acquisition".

Practice and Procedure - Whether the statement of claim is so confusing, prolix and embarrassing that it should be wholly struck out.

Trade Practice Act 1974: ss. 4(1), 4(4), 4C, 5(1), 50, 50A.

HEARING

SYDNEY

#DATE 7:2:1990

Counsel for the Applicant: Mr. C.A. Sweeney Q.C.,

Mr. D.M. Yates, Mr. C. Hodgekiss

Solicitors for the Applicant: Australian Government

Solicitor

Counsel for the First and Mr. S. Charles Q.C.,
Second Respondents: Mr. J.D. Heydon Q.C.,

Mr. Robertson Wright

Solicitors for the First and
Second Respondents: Blake Dawson Waldron

Counsel for the Third Respondent: Mr. J.S. Hilton Q.C.

Solicitors for the Third
Respondent: Clayton Utz

ORDER

The first amended statement of claim filed on 3 November 1989 be struck out.

Leave to file the document headed "Amended Statement of Claim" handed to the Court on 11 December 1989 whether with or without the document "Addenda to Proposed Third Amended Statement of Claim" be refused.

The Commission be at liberty to apply to the Court within 21 days from today for leave to amend its statement of claim on production of such affidavit or affidavits as show that there really are facts which can probably be proved and which, if proved, would support the general statements made in the statement of claim.

The Commission pay the costs of Broken Hill Proprietary Company Limited, Australian Iron and Steel Pty. Ltd. and Tubemakers of Australia Limited of all five motions before the Court.

Each party be at liberty to apply generally on seven days notice.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

Introduction

These are five motions which were heard together by consent. The questions which arise fall broadly into two categories: first, questions of construction of s. 50 of the Trade Practices Act 1974 ("the Act") relating to mergers and secondly, whether the statement of claim is so confusing, prolix and embarrassing that it should be wholly struck out.

The proceeding was commenced on 1 September 1989 by the applicant, Trade Practices Commission ("the Commission"), to restrain The Broken Hill Proprietary Company Limited ("BHP") from taking over New Zealand Steel Limited ("NZ Steel"), a New Zealand corporation, and seeking divestiture orders under s. 81 of the Act to restore the status quo in the event that the takeover takes place, which in fact it has and with the approval of the New Zealand Commerce Commission. The Commission alleges that BHP, Australian Iron & Steel Pty. Limited ("AIS"), Tubemakers of Australia Limited ("Tubemakers") (all of which are companies incorporated in Australia) and Steel And Tube Holdings Limited ("Steel And Tube Holdings") (a company incorporated in New Zealand) used another New Zealand corporation, Helenus Corporation Limited ("Helenus"), as a vehicle to enable BHP to gain control of NZ Steel without contravening Part IV of the Act.
The Commission asserts that a result of the takeover would be or be likely to be a substantial strengthening of the power of BHP to dominate the market in Australia for steel and steel products, thus constituting a contravention of para. 50(1)(b) of the Act. This is a brief and broad description of what the Commission seeks to achieve in this litigation, but it will be necessary to refer later in some detail to the statement of claim.
Two of the five motions are by AIS and BHP jointly, two by Tubemakers and the fifth by the Commission seeking to file a further amended statement of claim. I shall for convenience refer to BHP, AIS and Tubemakers collectively as "the respondents"; though there are five respondents, the additional two respondents being Steel And Tube Holdings and Helenus Corporation. As Steel And Tube Holdings and Helenus are companies incorporated in New Zealand they cannot be served with the originating process without leave of the Court pursuant to Order 8 rules 1 and 2 and leave has not been given. Leave was given previously to the Commission to serve those two companies out of the jurisdiction, but the order was later discharged: see my reasons for judgment of 28 September 1989. Subject to one exception, the Commission opposes everything sought by the respondents who in turn oppose everything sought by the Commission. The exception is that certain relief is sought in the alternative by BHP and AI&S for the hearing of separate questions before trial; but, as argument developed before the Court, this application, though not abandoned, was not pressed. AIS and BHP reserved their rights, however, with respect to that alternative order depending upon the outcome of the motions to strike out and enter judgment.
The Commission filed a statement of claim on 28 September 1989 and an amended statement of claim on 3 November 1989 (to which I shall refer as "the first amended statement of claim"). On 7 November 1989 the Commission filed an amended application. At the commencement of the hearing of the motions by the respondents the Commission sought leave to file a second amended statement of claim and later during the hearing to add to that document certain additional material set forth in a document headed "Addenda to Proposed Third Amended Statement of Claim". This was opposed by the respondents. The respondents seek to strike out the first amended statement of claim or in the alternative to strike out the material paragraphs thereof and also seek the entry of judgment against the Commission. Tubemakers did not in its notices of motion seek the entry of judgment, but during argument counsel for Tubemakers sought the entry of judgment in its favour and no objection was taken to treating its motions as including the request for this order.
Statement of Claim and Section 50
The submissions of counsel for the respondents were twofold: first, an argument based on the construction of s. 50 of the Act and, second, that upon examining each of the paragraphs of the proposed amended statement of claim, a picture emerged of such confusion, uncertainty and irrelevance - failure to plead material facts, pleading conclusions and raising false issues - that the whole of the pleading should be struck out. It is convenient to consider the argument under these two headings.
Counsel for certain of the parties prepared helpful schedules which enable the reader to follow as clearly as can be in the circumstances the differences between the statement of claim in its original form, the first amended statement of claim and the proposed amended statement of claim. There is no purpose in my pointing out any of these differences as it is common ground that the motions should be decided on the footing that the case for the Commission is put at its highest in the proposed amended statement of claim with the addition of the document "Addenda to Proposed Third Amended Statement of Claim". This was the way in which the argument proceeded and obviously is the sensible way for me to approach the matter. As my references henceforth will be to the proposed amended statement of claim together with the addenda I shall use the expression "the proposed statement of claim" to encompass both documents.
It is not easy to summarise the allegations in the proposed statement of claim, yet it would be a futile and oppressive task to set out all the allegations. I attach for convenience a schedule which sets out in diagrammatic form the interlocking corporate structures involved in the takeover under attack. There are some differences between the allegations in the proposed statement of claim and the diagram, but it was common ground that the diagram should be treated as correct. Nothing turns on those differences, so I shall assume that the proposed statement of claim is to be read as if it conformed to the diagram.
The Commission alleges that the takeover of NZ Steel by BHP (for descriptive purposes I draw no distinction between BHP and any of its subsidiaries) had two limbs. The first limb consisted of AIS, being a wholly owned subsidiary of BHP, acquiring 31% of the issued share capital of Helenus which, as mentioned earlier, is the company that ultimately acquired 100% of NZ Steel. The second limb is more complicated. It is alleged to consist of BHP acquiring a further 25% of the share capital of Helenus. The actual purchase of shares in Helenus was made by Steel And Tube Holdings. BHP's connection to Steel And Tube Holdings is established through a chain of companies commencing with its wholly owned subsidiary BHP Nominees Pty. Ltd. This company has a wholly owned subsidiary, BHP Nominees Investments (No. 1) Pty. Ltd., which in turn has a 49.73% shareholding in Tubemakers. Tubemakers holds all of the ordinary shares in the capital of Tubemakers of New Zealand Limited ("Tubemakers of New Zealand"), a New Zealand company which has a 49.98% shareholding in Steel And Tube Holdings. The combined effect of the two limbs is alleged to be that BHP in effect controls the affairs or is in a position to exert directly or indirectly a substantial degree of influence over the activities of the relevant bodies corporate so that NZ Steel in effect does BHP's bidding.
At this point it is desirable to set out the terms of s. 50 of the Act so that my summary of the allegations in the pleading may be understood. Section 50 provides as follows:

"50.(1) A corporation shall not acquire, directly or indirectly, any shares in the capital, or any assets, of a body corporate if -

(a) as a result of the acquisition, the corporation would be, or be likely to be, in a position to dominate a market for goods or services; or

(b) in a case where the corporation is in a position to dominate a market for goods or services -

(i) the body corporate or another body corporate that is related to that body corporate is, or is likely to be, a competitor of the corporation or of a body corporate that is related to the corporation; and

(ii) the acquisition would, or would be likely to, substantially strengthen the power of the corporation to dominate that market.

(1A) A person other than a corporation shall not acquire, directly or indirectly, any shares in the capital, or any assets, of a corporation if -

(a) as a result of the acquisition, the person would be, or be likely to be, in a position to dominate a market for goods or services; or

(b) in a case where the person is in a position to dominate a market for goods or services -

(i) the corporation or a body corporate that is related to the corporation is, or is likely to be, a competitor of the person; and

(ii) the acquisition would, or would be likely to, substantially strengthen the power of the person to dominate that market.

(2) If -

(a) a body corporate that is related to or associated with a corporation is, or two or more bodies corporate each of which is related to or associated with the one corporation together are, in a position to dominate a market for goods or services; or

(b) a corporation, and a body corporate that is, or two or more bodies corporate each of which is, related to or associated with that corporation, together are in a position to dominate a market for goods or services, the corporation shall be deemed for the purposes of this section to be in a position to dominate that market.

(2A) For the purposes of this section, a body corporate shall be taken to be associated with another body corporate (not being another body corporate that is related to the first-mentioned body corporate) if one of those bodies corporate (in this sub-section referred to as the 'dominant body corporate') is, either alone or together with another body corporate that is, or other bodies corporate each of which is, related to the dominant body corporate, or associated with the dominant body corporate by another application or other applications of this sub-section, in a position to exert, whether directly or indirectly, a substantial degree of influence over the activities of the other body corporate.

(2B) For the purposes of sub-section (2A), the fact that a body corporate is in a position to exert a substantial degree of influence over the activities of another body corporate by reason only that -

(a) those bodies corporate are in competition in the same market; or

(b) one of those bodies corporate supplies goods or services to the other, shall be disregarded.

(2C) This section does not apply to the acquisition by a person of any shares in the capital, or any assets, of a body corporate where-

(a) before the acquisition, the body corporate was in a position to dominate a market for goods or services; and

(b) as a result of the acquisition, the person is not, and is not likely to be, in a stronger position to dominate that market.

(3) In this section -

(a) a reference to a market for goods or services shall be construed as a reference to a substantial market for goods or services in Australia in a State or in a Territory; and

(b) a reference in this section to dominating a market for goods or services shall be construed as a reference to dominating such a market either as a supplier or as an acquirer of goods or services in that market.

(4) Where -

(a) a person has entered into a contract to acquire shares in the capital, or assets, of a body corporate;

(b) the contract is subject to a condition that the provisions of the contract relating to the acquisition will not come into force unless and until the person has been granted an authorization to acquire the shares or assets; and

(c) the person applied for the grant of such an authorization before the expiration of 14 days after the contract was entered into, the acquisition of shares or assets shall not be regarded for the purposes of this Act as having taken place in pursuance of the contract before -

(d) the application for authorization is disposed of; or

(e) the contract ceases to be subject to the condition,

whichever first happens.

(5) For the purposes of sub-section (4), an application for an authorization shall be taken to be disposed of -

(a) in a case to which paragraph (b) of this sub-section does not apply - at the expiration of 14 days after the period in which an application may be made to the Tribunal for a review of the determination by the Commission of the application for the authorization; or

(b) if an application is made to the Tribunal for a review of the determination by the Commission of the application for the authorization - at the expiration of 14 days after the date of the making by the Tribunal of a determination on the review."

The proposed statement of claim pleads the following direct and indirect acquisitions of shares in the capital of a body corporate, no case being made of acquisition of assets of a body corporate, the acquisitions being alleged to contravene s. 50:-
(i) direct acquisition by AIS of shares in Helenus

(paras. 31, 55 and 56 of the proposed statement of claim);

(ii) direct acquisition by Steel And Tube Holdings of

shares in Helenus (paras. 32, 55 and 56);

(iii) indirect acquistion by BHP of shares in Helenus

(paras. 54, 57 and 58);

(iv) indirect acquisition by Tubemakers of shares in

Helenus (paras. 57, 59 and 60);

(v) direct acquisition by Helenus of shares in NZ Steel

(paras. 35 and 72);

(vi) indirect acquisition by BHP of shares in NZ Steel

(paras. 54, 64 and 66);

(vii) indirect acquisition by AIS of shares in NZ Steel

(paras. 55, 64 and 66); and

(viii) indirect acquisition by Tubemakers of shares in NZ

Steel (paras. 59, 64 and 67).

Paragraphs 76 to 86 of the proposed statement of claim plead various allegations against each respondent of being a party to alleged contraventions of s. 50 by other respondents, being conduct of the kind referred to in s. 75B of the Act.
The above references to certain paragraphs of the proposed statement of claim are not exhaustive, in particular as some of the paragraphs mentioned expressly incorporate by reference preceding paragraphs.
An analysis of the proposed statement of claim may be summarised as follows:-

Paragraph 1 - The Commission's capacity to sue. Paragraphs 2 to 6 - Status of BHP, AIS, Tubemakers, Steel And Tube Holdings, Helenus and NZ Steel as corporations and various other statements about them one of which is important (paragraph 6) and to which I shall return later.

Paragraphs 7 to 19 - These relate to the issue of dominance posed by s. 50 and contain allegations of various inter-corporate relationships which are said to establish "related" or "associated" bodies corporate: - BHP and AIS as "related" corporations for the purposes of sub-s. 4A(5) of the Act (paragraph 7); - BHP and Tubemakers as "associated" corporations (paragraphs 9 - 13); - Tubemakers and Steel And Tube Holdings as "associated" corporations (paragraphs 14 - 18);

- BHP and Steel And Tube Holdings as "associated" corporations (paragraphs 12, 17 and 19).

Paragraphs 20 to 28 - certain persons were directors of certain of the corporations:- - Mr. Prescott a director of BHP, AIS, Tubemakers and Helenus (an Australian resident);

- Mr. Parker a director of AIS, Tubemakers and Helenus;

- Mr. Daniels a director of Tubemakers, Steel And Tube Holdings, an Australian resident and citizen; - Mr. Cocks, a director of Tubemakers, Steel And Tube Holdings and Helenus; - Mr. Stubbs, a director of Tubemakers and Steel And Tube Holdings; - Mr. Every, a director of Steel And Tube Holdings;

- Mr. Griss, a director of Helenus; - Mr. McGregor, a director of Helenus and an Australian resident. Paragraph 29 - Alleges a contract or arrangement or understanding to acquires shares in NZ Steel in such a way as to not breach Part IV of the Act. The parties to the alleged contract, arrangement or understanding are said to be BHP, AIS, Tubemakers, Steel And Tube Holdings and the directors and Chief Executive Officers of each of them.

Paragraph 30 Particulars of the terms of the contract, arrangement or understanding which I do not find it necessary to set out except to say that they are assertions to the effect that all the allotted shares in NZ Steel should be acquired and that various corporate structures that were employed as "vehicles" were for the purpose of avoiding or attempting to avoid contravention of Part IV of the Act. Allegations are made also that various steps were taken to ensure that NZ Steel acted after the acquisition of its shares in accordance with the wishes of BHP. Paragraph 31 The direct acquisition by AIS of 31% of the capital of Helenus. Paragraph 32 The direct acquisition by Steel And Tube Holdings of 25% of the capital of Helenus. Paragraphs 33 and 34 - Control by BHP of the composition of the board of Helenus. Paragraph 35 Direct acquisition by Helenus of NZ Steel. Paragraphs 36 to 43A - A number of allegations relating to the relevant product market in which BHP, AIS, NZ Steel And Tubemakers are or are likely to be competitors. Paragraph 43A asserts also that NZ Steel was or was likely to be a competitor of Steel And Tube Holdings and that Helenus was likely to be a competitor of AIS and Steel And Tube Holdings. Paragraphs 44 to 49 - Matters which are said to establish BHP's and AIS's dominance. Paragraphs 50 to 53 - Allegations of facts relating to New Zealand and NZ Steel which found subsequent allegations of dominance. Paragraph 54 - Dominance in the steel and steel products markets in Australia by BHP. Paragraph 55 - Dominance by BHP being attributable to each of AIS and Steel And Tube Holdings by virtue of sub-ss. 50(2) and (2A) of the Act. Paragraph 56 - Each of the relevant acquisitions by AIS and Steel And Tube Holdings of shares in Helenus has substantially strengthened or will be likely to have substantially strengthened the attributed position of dominance of each of AIS and Steel And Tube Holdings in the steel and steel products market in Australia. Paragraph 57 - The indirect acquisition by BHP of 31% of the capital in Helenus through AIS and 25% of the capital of Helenus through Steel And Tube Holdings. The paragraph also asserts the indirect acquisition by Tubemakers of 25% of the capital of Helenus through Steel And Tube Holdings.

Paragraphs 58 to 60 - The indirect acquisition alleged in paragraph 57 has led to increased dominance by BHP and Tubemakers in the market. Paragraphs 61 and 62 - BHP is in a position to exert a substantial degree of influence over the activities of Helenus and that the position of dominance of BHP is attributable to Helenus. Paragraph 63 - The acquisition by Helenus of the share capital of NZ Steel led to increased dominance of Helenus in the market. Paragraph 64 - Indirect acquisition by AIS and BHP of the 31% of the capital of NZ Steel and indirect acquisition by Tubemakers and BHP of 25% of the capital of NZ Steel. Paragraphs 65 to 67 - The dominance of BHP in the market has been substantially strengthened by reason of the matters previously pleaded and that the substantial strengthening of the attributed position of dominance of AIS and Tubemakers is a result of the acquisition of the shares in NZ Steel.

Paragraphs 68 to 75 - Various contraventions of the Act. Paragraphs 76 to 86 - Aiding and abetting allegations. Paragraph 87 - The final paragraph which claims the relief set forth in the amended application. "Acquire"

I turn to the construction of s. 50. The first question of construction is the meaning of the word "acquire". Sub-section 50(1) prohibits a corporation from acquiring, directly or indirectly, any shares in the capital, or any assets, of a body corporate if there ensues the consequence specified in paragraphs (a) or (b) of the sub-section.
"Acquire" is defined by sub-s. 4(1) of the Act as including:

"(a) in relation to goods - acquire by way of purchase, exchange or taking on lease, on hire or on hire-purchase, and

(b) in relation to services - accept."

This definition is therefore confined to acquisitions in relation to goods or services. As sub-section 50(1) relevantly prohibits the acquisition of shares in the capital of a body corporate, and shares are neither "goods" nor "services", the statutory definition of "acquire" is of no assistance for present purposes.
Section 4C provides that, unless the contrary intention appears, a reference to the acquisition of goods includes a reference to the acquisition of property in, or rights in relation to, goods in pursuance of a supply of the goods; and that a reference to the supply or acquisition of goods or services includes a reference to agreeing to supply or acquire goods and services. This definition is also of no assistance for present purposes for the same reason as I gave with respect to the sub-s. 4(1) definition of "acquire".
Sub-section 4(4) is relevant. It provides:

"(4) In this Act -

(a) a reference to the acquisition of shares in the capital of a body corporate shall be construed as a reference to an acquisition, whether alone or jointly with another person, of any legal or equitable interest in such shares; and

(b) a reference to the acquisition of assets of a body corporate shall be construed as a reference to an acquisition, whether alone or jointly with another person, of any legal or equitable interest in such assets but does not include a reference to an acquisition by way of charge only or an acquisition in the ordinary course of business."

This sub-section appears to be primarily, if not solely, an aid to the construction of s. 50, so that an acquisition of shares in the capital or assets of a body corporate must necessarily involve obtaining or gaining ownership of some legal or equitable interest in shares in the capital or assets of a body corporate. The expression "shall be construed as" is a curious expression. It is not so much an exhaustive definition as a deeming provision in that it is an attempt to give a clear meaning to an expression which otherwise would be susceptible of some degree of ambiguity or vagueness. For presently relevant purposes s. 50 is directed to the acquisition of shares in the capital of a body corporate in the sense of an acquisition, whether alone or jointly with another person, of any legal or equitable interest in such shares. The interest in the shares must be of a proprietary kind. Most possessory rights would not answer the statutory description, although some may do so provided they constitute a proprietary right.
I was referred by counsel to reported cases where the word "acquire" has been limited to the acquisition of ownership in property, for example, John MacKintosh & Sons v Baker's Bargain Stores (Seaford) Limited (1965) 3 All ER 412 at 413-5 and Re K (Deceased) (1985) 1 All ER 403 at 404. These cases involve the notion of acquisition in different contexts from s. 50 and sub-s. 4(4) of the Act and are of little assistance here.
The dictionary definitions are of some help. I have looked at the Oxford English Dictionary, Collins English Dictionary, Australian Edition, and the Macquarie Dictionary. Although certain of the definitions of "acquire" there given are inappropriate for present purposes, one meaning of the word that is apt is to gain or obtain or get as one's own the ownership of something or to come into possession of something.
In my opinion when sub-s. 50(1) prohibits a corporation from acquiring shares in the capital or assets of a body corporate it is prohibiting the acquisition in the sense of obtaining ownership of any legal or equitable interest in those shares or assets, whether the acquisition is by a person alone or jointly with another person.
"Corporation" and "Body Corporate"
It is the acquisition by a "corporation" of shares in the capital or assets of a "body corporate" that sub-s. 50(1) prohibits. The word "corporation" is defined in sub-s. 4(1), in terms reflecting the constitutional constraints imposed upon the Commonwealth by the corporations power (s. 51(xx)), as meaning:

"A body corporate that:

(a) is a foreign corporation;

(b) is a trading corporation formed within the limits of Australia or is a financial corporation so formed;

(c) is incorporated in a territory; or

(d) is the holding company of a body corporate of a kind referred to in para. (a), (b) or

(c)."

"Foreign corporation" is also defined in the same sub-section, again with constitutional limitations in the mind of the draftsman, as meaning a foreign corporation within the meaning of s. 51(xx) of the Constitution and including a body corporate that is incorporated in an external territory.
The expression "body corporate" is not defined in the Act, so it must be interpreted in accordance with general principles of statutory construction. Plainly the expression "body corporate" has a wider meaning than the statutorily defined word "corporation" because the ordinary meaning of the expression "body corporate" includes a corporation and because the terms of the definition of "corporation" in sub-s. 4(1) compel that conclusion. Also s. 50 itself draws deliberate distinctions between the expressions "corporation" and "body corporate". "Body corporate" is thus a wider expression than "corporation" for the purposes of s. 50.
"Directly or Indirectly"
Critical for present purposes are the words in sub-s. 50(1) "directly or indirectly" because the sub-section imposes a prohibition upon a corporation from acquiring "directly" or "indirectly" any shares in the capital or any assets of a body corporate, provided, of course, the statutory consequences of domination of the relevant market spelt out in paras. (a) or (b) follow the acquisition.
The meaning of the words "directly or indirectly" in sub-s. 50(1) was the subject of much argument before me. I find it a little curious that the words appear in the sub-section at all because I doubt if they add anything to what would otherwise be the construction of the sub-section. They do not appear in other sections in which one might expect to find them: for examples, ss. 47, 48 and 49 relating respectively to exclusive dealing, resale price maintenance and price discrimination. The words "directly or indirectly" do appear however in sub-s. 45(7), though in a different context from sub-s. 50(1). Nevertheless I share the view of von Doussa J. in S.A. Brewing Holdings Limited v Baxt (1989) ATPR 40-942 who distinguished between sub-ss. 45(7) and 50(1), but said (at 50,275) that as there is an interaction between the two sub-sections it is desirable to achieve a similarity in concept between them.
The language of s. 50 itself throws little light upon what constitutes a direct or indirect acquisition. Sub-sections 2A and 2B are irrelevant to this question for they simply deem certain corporations or bodies corporate to be associated with one another for the purpose only of widening the scope of corporate relationships on the question of dominance in the relevant market for goods and services.
The words "directly or indirectly" in sub-s. 50(1) plainly control the immediately preceding word "acquire". They relate to the method of acquisition, not its subject matter. They do not qualify the nature or character of the shares or assets the acquisition of which is prohibited. This follows not only from the syntax of sub-s. 50(1) but from its evident purpose.
What is a "direct" as opposed to an "indirect" acquisition? A "direct" acquisition is one by the corporation itself. An "indirect" acquisition is an acquisition by someone on behalf of the corporation acting as agent, trustee or nominee: see S.A. Brewing Holdings Limited per von Doussa J. at 50,275; and cf. Milk Board v Echo Dairies Pty. Limited (1963) NSWR 1653 per Jacobs J. at 1665; Trade Practices Commission v Legion Cabs (Trading) Co-Operative Society Limited (1978) ATPR 40-092 per Franki J. at 17,905; Melville v Mutual Life & Citizens Assurance Co. Limited (1980) 31 ALR 649 per Lockhart J. at 655.
Sub-section 50(1) imposes the prohibition upon a corporation, by whatever method the acquisition is made, from itself obtaining any legal or equitable interest in the shares in the capital or assets of a body corporate. It is not necessary that all the proprietary rights in the shares or assets are vested in the corporation for the statutory prohibition to operate. It is plain from sub-s. 4(4) that the acquisition may be by the corporation alone or jointly with another person of any legal or equitable interest in the relevant shares or assets; but it is necessary that the corporation acquires the relevant property for the statutory prohibition to apply.
If a wholly owned subsidiary of a corporation acquires shares in the capital of a body corporate the acquisition of those shares is made by the subsidiary, not the holding company, because they are the property of the subsidiary, not the holding company. The position would be different if the subsidiary and the holding company agreed that the subsidiary would acquire on behalf of the holding company the shares in the capital of the body corporate. Equity would then regard the owner of the shares as the holding company, not the subsidiary. In this example there would have been an indirect acquisition by the holding company through the agency of its subsidiary.
It is of course trite law that a shareholder does not have any right to any of the assets owned by the company because he has no legal and equitable interest in them: Macaura v Northern Assurance Co. (1925) AC 619 especially per Lord Buckmaster at 626; August Investments Limited v Poseidon Limited (1971) ACLC 40-001 per Bray C.J. at 27,103-4.
There was considerable argument before me about the principle of corporate distinctiveness and the lifting of the corporate veil. This involved consideration of D.H.N. Food Distributors Limited v Tower Hamlets London Borough Council (1976) 1 WLR 852 per Lord Denning M.R. 860 and R.W. Goff L.J. at 861 and Shaw L.J. at 865; Amalgamated Investment & Property Co. Limited (In Liquidation) v Texas Commerce International Bank Limited (1982) QB 84; Re: Securitibank Limited (In Liquidation) (1978) 1 NZLR 97 per Barker J. at 133 and in the Court of Appeal (1978) 2 NZLR 136 at 158-159 and 164-165; Woolfson v Strathclyde Regional Council (1978) 38 P&CR 521; Walker v Winbourne (1975) 137 CLR 1 and Pioneer Concrete Services Limited v Yelnah Pty. Limited (1986) 5 NSWLR 254. In the end the question is one of construction of the Act. Interesting though the question of listing the corporate veil is, its juridicial basis has no relevance for present purposes.
A similar approach to the construction of s. 50 which I favour was taken by Fox J. in Trade Practices Commission v Bowral Brickworks Pty. Limited (1984) ATPR 40-480. The issued share capital in Bowral Brickworks Pty. Limited was owned as to 50 percent by Midland Brick Company Pty. Limited and as to the other 50 percent by Bristile Limited. Bowral Brickworks commenced to acquire the issued share capital of Calsil Limited. The Trade Practices Commission alleged that the takeover would contravene s. 50 of the Act. Fox J. rejected the argument of the Commission that the two corporate owners of the shares in Bowral Brickworks were acquirers of the shares which Bowral Brickworks sought to acquire in Calsil. His Honour said at 45,512:

"... the more obviously fatal objection in this case is that the two companies (Midland and Bristile) will not in any relevant sense 'acquire' the shares. ... the ownership, between them, of the shares of Bowral Brickworks will not achieve that result."

It is plain from his Honour's reasons that, if the facts had supported the finding that Bowral Brickworks was acting as agent for the other two companies in its proposed takeover of the share capital of Calsil or if there had been evidence of some "mechanism of any control exercised or available by the other two companies" over the shares in Calsil, his Honour may have reached a different conclusion.

In Australian Meat Holdings Pty. Limited v Trade Practices Commission (1989) ATPR 40-932 Davies J. said of s. 50 at 50,094:

"The question is what is an acquisition direct or indirect. Lockhart J. referred to the situation (his Honour had in mind my judgment in Melville v MLC) where an acquisition is made by a nominee, agent or trustee, but the word 'indirectly' may not inevitably be limited to a circumstance where the beneficial ownership of property resides in the acquiring corporation. Section 50 should be given a wide operation for it is intended to deal with cases of domination in the market place. The words 'acquire, directly or indirectly' should be read as encompassing all forms of acquisition and may encompass the situation where assets are acquired in an indirect way, as through the interposition of a wholly-owned subsidiary."

This passage from his Honour's judgment is dicta; but if his Honour was saying that there may be an indirect acquisition for the purposes of s. 50 even if the acquiring corporation has no legal or beneficial ownership of the relevant property, I regret that I am unable to agree. I do agree that the interposition between the acquiring corporation and the target body corporate of a wholly owned subsidiary of the former may fall within s. 50, but in my view only where the subsidiary acts as agent or otherwise for and on behalf of the corporation as principal. Otherwise the well established principle (see Macaura's Case) that a holding company does not own the assets of its subsidiary would be in conflict with the dicta. As s. 50 is a penal provision I am not satisfied that it should be given a wide operation.
I note incidentally that Parliament enacted the Trade Practices Revision Act (No. 168 of 1986) by inserting sub-ss. 50(1A) and (2A) and that sub-s. 50(2A) was introduced into the Act to overcome the finding of Fox J. in Bowral Brickworks that the relevant acquiring corporations were not "related". Parliament did not however seek to overcome the effect of Fox J.'s finding that the two shareholders of Bowral Brickworks were not the acquirers of the shares in Calsil which were acquired by Bowral Brickworks. An examination of the Explanatory Memorandum and Second Reading Speech of the responsible minister demonstrates this.
The Alleged Indirect Acquisitions
My findings do not therefore support the Commission's case of indirect acquisition by any corporation. The facts as pleaded in the statement of claim do not assert a case of acquisition of shares in the capital of Helenus or NZ Steel by any corporation on behalf of the corporation which itself became the acquirer of the shares. The nearest the statement of claim comes to any assertion of agency is paragraph 30, but it seems to me to be directed to a different question to which I refer later and cannot fairly be construed as asserting some concept of trust, agency or nominee relationship. It follows that all allegations to support the alleged causes of action based on indirect acquisition must be struck out.
Extraterritorial Operation of Section 50
The question arises as to how far the provisions of sub-s. 50(1) apply to or with respect to acquisitions made outside Australia of shares in or assets of bodies corporate. The words of the sub-section bear no express territorial limitation, but must be considered with reference to the prima facie general rule expressed in the following terms by James L.J. in Niboyet v Niboyet (1878) 4 PD 1 at 7:

"It is always to be understood and implied that the legislature of a country is not intending to deal with persons or matters over which, according to the comity of nations, the jurisdiction properly belongs to some other Sovereign or State"

This passage was cited with approval by Dixon J. in Barcelo v Electolytic Zinc Company of Australasia Limited (1932) 48 CLR 391 at 424 and by Taylor J. in Meyer Heine Pty. Limited v The China Navigation Company Limited (1966) 115 CLR 10 at 31; see also in Meyer Heine the judgments of Kitto J. at 22-24, Menzies J. at 38-9 and Windeyer J. at 43; and Trade Practices Commission v Australia Meat Holdings Pty. Limited (1988) ATPR 40-876 per Wilcox J. at 49,510-49,511.
No question of power is raised, for a law which is with respect to trade and commerce with other countries can be given an extraterritorial operation to control or regulate conduct outside Australia: R. v Foster; Ex parte Eastern and Australian Steamship Co. Limited (1959) 103 CLR 256 per Dixon C.J. at 267, McTiernan J. at 279, Menzies J. at 300-1 and Windeyer J. at 307 and 309; and Meyer Heine per Menzies J. at 38. Furthermore, the general rule is one of construction only and may be displaced by an Australian statute otherwise within power: Polites v The Commonwealth (1945) 70 CLR 60, per Latham C.J. at 69, Strake J. at 75, Dixon J. at 77 and McTiernan J. at 79; and Meyer Heine per Taylor J. at 31.
The question here is simply one of construction of the Act. If the relevant intention of the legislature could not be gleaned from the terms of the Act itself it would be necessary, however, to examine the juridical basis of the general rule and the possible extra-territorial reach of the restrictive trade practices legislation of various countries, analysis of which was made in Rio Tinto-Zinc Corporation v Westinghouse Electric Corporation (1978) AC 547; Australian Meat Holdings Limited, supra; Mr. P. Sutherland's analysis of the Rio Tinto-Zinc Corporation case in (1978) 5 Monash University Law Review 76; G.R. Taylor, "The Extraterritoriality of the Australian Anti Trust Law" (1979), 13 J Int Law & Econ 273; M. Sornarajah "The Extraterritorial Enforcement of U.S. Anti-Trust Laws: Conflict and Compromise" (1982) 31; Int & Comp Law Quarterly 127; Extra-Territorial Application of Laws and Responses Thereto edited by Professor C.J. Olmstead 1984 Int. Law Assoc. in Association with E.S.C. Publishing Limited, Oxford 1984. In particular, the development of the "effects" doctrine of jurisdiction in the United States of America with respect to anti-trust legislation would require attention, a doctrine succinctly expressed by Judge Learned Hand in the "much debated" Alcoa Case (to use the language of Kitto J. in Meyer Heine at 23), United States v Aluminium Company of America (1945) 148 Fed Rep 2nd. 416 in these terms:

"Any State may impose liabilities even upon persons not within its allegiance for conduct outside its borders that has consequences within its borders which the State reprehends,"

subject to certain exceptions there formulated by Judge Hand.

The operation of s. 50 must be considered in the context of sub-s. 5(1) which extends the operation of Part IV of the Act. Sub-section 5(1) provides as follows:

"Parts IV and V extend to the engaging in conduct outside Australia by bodies corporate incorporated or carrying on business within Australia or by Australian citizens or persons ordinarily resident within Australia."

In my opinion the express provision for extraterritorial operation made by sub-s. 5(1) provides a clear indication that the legislature intended that s. 50 (being within Part IV) was to have extraterritorial application to the extent therein mentioned and no further. The conduct prohibited by sub-s. 50(1) is the acquisition by a corporation of shares in the capital or assets of a body corporate which has the effect of market dominance mentioned in the sub-section. If the corporation which engages in that conduct is incorporated or carries on business within Australia the section applies to such conduct wherever it occurs provided that there ensues the adverse affects upon competition in Australia constituted by dominance in an Australian market (the definition of "market" being an Australian market (s. 4E)): cf. Australian Meat Holdings per Wilcox J. with respect to sub-s. 81(1A).
In my opinion the body corporate, the shares in or assets of which are sought by the acquiring corporation, need not be only a body corporate incorporated in or carrying on business or otherwise present in Australia. It is the conduct constituted by the acquisition of shares in the capital of or assets of a body corporate that is prohibited by sub-s. 50(1). The existence of the body corporate which is the subject of the proposed merger or takeover is an essential component of that prohibited conduct and the extraterritorial operation of s. 50 which is achieved by sub-s. 5(1) necessarily includes that body corporate wherever it is incorporated or carrying on business. The relevant territorial nexus with Australia is derived from the statutory requirement that the corporation which is the subject of the prohibition imposed by sub-s. 50(1) must be incorporated or carrying on business within Australia (sub-s. 5(1)) and that the conduct must affect a market in Australia in the manner mentioned in sub-s. 50(1).
I see no reason to confine the statutory prohibition to shares in the capital of or assets of an Australian body corporate. It would strangle the evident legislative purpose of s. 50 if the body corporate which is the subject of the takeover or merger had to be an Australian body corporate; and as I said earlier it is not that body corporate which is the subject of the legislative prohibition but the acquiring corporation which must be incorporated in or carry on business in Australia.
For a contrary view of the extraterritorial operation of s. 50 see the article by Mr. G.F.K. Santow "Mergers and the Commonwealth Trade Practices Act 1974" (1975) 49 ALJ 52 especially at 69-70.
Sections 50 and 50A
Does s. 50A bear upon the construction of s. 50? I do not regard s. 50A as indicating that s. 50 is to be read narrowly. There are similarities between the two sections, but also differences, both procedural and substantive. Also sub-s. 50A(7), by providing that sub-s. 50A(1) does not apply in relation to an acquisition referred to in that sub-section if sub-s. 50(1) or (1A) applies in relation to the acquisition, is a legislative recognition of the overlap that would otherwise occur between the two sections.
Section 50 and Remedies
The remedies available to prevent a contravention of s. 50 or to correct a situation that has occurred if there has been a contravention, in particular, by invoking the divestiture provisions of s. 81, operate harmoniously with the interpretation which I have placed upon s. 50; c.f. the remarks of Wilcox J. in Australian Meat Holdings, above. Whether injunctions or divestiture orders may be effectively enforced against a body corporate which is not incorporated in Australia or is not carrying on business here will depend upon the facts of the case. As Wilcox J. pointed out in Australian Meat Holdings the divestiture provision (s. 81) will operate where the person from whom the acquirer acquired the relevant shares or assets was "involved in the contravention" (para. 81(1A)(b)). I recognise that in some cases difficulties may be encountered in making divestiture orders where the target company has no relevant presence in Australia; but these are practical questions which will be determined in the light of the facts of the case. They do not present a bar to the proper construction and operation of s.50.
Link Between the Acquisition and Position of Market Dominance
Next it is necessary to consider the nature of the nexus that must exist between the acquisition prohibited by sub-s. 50(1) and the position of market dominance or likelihood thereof as a result of the acquisition (para. 50(1)(a)) or between the acquisition (where there is or is likely to be competition between the body corporate and the acquiring corporation (or related corporations)) and the substantial strengthening of the power of the acquiring corporation to dominate the relevant market or the likelihood thereof (para. 50(1)(b)).
This question was not fully argued so I shall express tentative views only. It is not useful to attempt to put a gloss upon the words of the Act by substituting other words or by saying that the relationship must be "direct" or "immediate" or that it connotes a "sole" or "dominant" cause. In my view sub-s. 50(1) involves a concept of causal sequence of some kind; but "Attempted explanations of causation and consequence can, I feel, be as unhelpful and unhappy as definitions of reasonable doubt": per Windeyer J. in The Commonwealth v Butler (1958) 102 CLR 465 at 479.
Section 50 creates an offence attracting the serious consequences of pecuniary penalties, divestiture and other remedies. There is I think much force in the view that the section should be construed in a similar way to provisions whch impose criminal liability: Trade Practices Commission v Legion Cabs (Trading) Co-operative Society Limited, above; and Trade Practices Commission v Nicholas Enterprises Pty. Limited (1979) ATPR 40-126 at 18,352.
I do not derive much assistance from different statutory fields such as workers compensation. There are many cases relating to workers compensation legislation which consider whether incapacity "results from" an injury: for example, The Commonwealth v Butler, above; Bushby v Morris (1979) 54 ALJR 240; Conkey & Sons Limited v Miller (1977) 16 ALR 479; National and General Insurance Co. Limited v South British Insurance Co. Limited (1982) 149 CLR 327. Cases also deal with questions of causation, consequence and nexus in the field of repatriation legislation: see Repatriation Commission v Law (1981) 147 CLR 635.
For the purposes of sub-s. 50(1) it is not enough that the acquisition is the enabling circumstance or causa sine qua non of the effect on the market to which paras. (a) and (b) of that sub-section are directed. The acquisition must be either a sufficient cause of the existence or likely existence of the state of dominance or substantial strengthening of the power of dominance in the relevant market or one of a number of causes which together lead to or would be likely to lead to that state.
Sub-section 90(9) of the Act has an authorisation test which requires the Commission to be satisfied that public benefit would result or be likely to result from the proposed acquisition. As at present advised I am not persuaded that the nature of the nexus that must exist in sub-s. 50(1) between the acquisition and the position of market dominance is the same as that required by sub-s. 90(9) between the acquisition and benefit to the public.
Consequences of Findings
What are the consequences of my findings to this point? I said earlier that none of the allegations of indirect acquisition can stand, so the related paragraphs of the first amended statement of claim must be struck out.
Steel And Tube Holdings and Helenus are both incorporated in New Zealand, though it is alleged in the proposed statement of claim (paragraph 6) that Steel And Tube Holdings has carried on business in Australia. No such allegation is made with respect to Helenus. As the proposed statement of claim is presently drafted the case against the direct acquisition alleged to have been made by Helenus of all the share capital in NZ Steel must fail, so the supporting pargraphs of the proposed statement of claim must go.
Although Steel And Tube Holdings is alleged to have carried on business in Australia (paragraph 6), the allegation is not supported by any material facts. All that is pleaded is a conclusion from absent facts. I propose to strike out the paragraphs of the first amended statement of claim which relate to this branch of the Commission's case. If this lastmentioned defect was the only problem with the pleading the defects could doubtless be cured by particulars; but the pleading has other problems.
The Relevant Acquisition
The matter to which I now turn is the identification of the particular acquisition which would or would be likely to substantially strengthen the power of the acquiring corporation to dominate the relevant market.
Take the case where A acquires the share capital of B and B acquires the share capital of C. If the facts are, for example, that there is an arrangement between A, the shareholders of B and the shareholders of C to implement the two acquisitions, whether contemporaneous or not, for the purpose of strengthening the market dominance of A, a court would have little difficulty in concluding that the ingredients of the cause of action under s. 50 had been established because it would be the acquisition by A of the shares in B, necessarily involving the acquisition by B of the shares in the capital of C, that would or would be likely to substantially strengthen A's market power of dominance. The relevant acquisition is the acquisition by A of the shares in the shares in the capital of B even though there is necessarily involved the acquisition by B of shares in C before it can be said that substantial strenghtening of A's market power of dominance would or would be likely to occur. It is to this question that the allegations in paragraph 30 of the proposed statement of claim, and perhaps other paragraphs, are directed.
Whether the proposed statement of claim sufficiently pleads the material facts to support the elements of the cause of action that the acquisition of shares in the capital of Helenus would or would be likely to substantially strengthen the power of the acquiring corporation to dominate the market for steel or steel products in Australia (sub-para. 50(1)(b)(ii)) is the present question. I am confining my analysis to the alleged direct acquisitions by AIS of shares in Helenus and by Steel And Tube Holdings of shares in Helenus. The case of dominance as presently pleaded is in essence that Helenus is but a convenient conduit to enable access to the assets and business of NZ Steel which is the end target of the takeover. Mere acquisition of the shares in the capital of Helenus in itself achieves nothing relevant so far as s. 50 is concerned unless Helenus owns the shares in NZ Steel. As the first amended statement of claim is to be struck out I shall simply say on the present question that any further amended statement of claim must reflect the conclusions which I have reached.
The Proposed Statement of Claim Generally
In view of my earlier findings much of the first amended statment of claim must be struck out. To leave the residue would be confusing. On this ground alone I would therefore strike out the whole first amended statement of claim.
If I had been minded to find in favour of the Commission on all substantive questions of law which found its causes of action I would still have been disposed to strike out the whole of the first amended statement of claim. It fails to plead material facts, it contains confusing and irrelevant material, it uses ambiguous terms, pleads particulars rather than material facts and asserts conclusions or opinions. Certain of the matters are perfectly well pleaded, but the defective parts are so inextricably intertwined with offending material that an oppressive burden is cast upon the respondents to spell out the alleged cause or causes of action. The whole pleading must be struck out: c.f. Coe v The Commonwealth of Australia (1979) 53 ALJR 403 per Jacobs J. at 409.
The Commission ought to have an opportunity to replead the case which is left by further amending the statement of claim. Leave to file any further amended statement of claim ought not to be granted, however, except on terms that the proposed amendments be verified by affidavit which should satisfy the Court there really are facts which can probably be proved and which, if proved, would support the general statements made in the statement of claim. This is a similar course to the one taken by the Court of Appeal in England in Salaman v Secretary of State in Council of India (1906) 1 KB 613, though it does not impose as high a threshold as was imposed in that case, and is in my opinion the appropriate course to take here, especially in view of the history of this matter and the number of attempts thus far by the Commission to properly formulate its case.
Finally, I should say that in the course of the hearing before me counsel for the Commission sought to read the affidavit of Paul Rudnev sworn 7 December 1989. Counsel for the respondents objected to the affidavit on the ground that it was irrelevant. I upheld that objection. All matters to which Mr. Rudnev deposed were irrelevant for present purposes. For that reason I rejected the affidavit. I need say no more.
Conclusion
In conclusion, it is useful if I state the views which I have formed in summary form:

. The expression "body corporate" where appearing in s. 50 has a wider connotation than the word "corporation", though the former includes the latter.

. The prohibition imposed upon a corporation by sub-s. 50(1) against acquiring shares in the capital or assets of a body corporate is imposed upon the acquisition of such shares or assets in the sense of obtaining ownership of a legal or equitable interest in them.

. The words "directly or indirectly" in sub-s. 50(1) are qualified by the preceding words "shall not acquire". They relate to the method of acquisition of the shares or assets of the body corporate by a corporation. At the end of the process of acquisition there must be, whether the method of acquisition is "direct" or "indirect", shares in the capital or assets of a body corporate that were acquired by a corporation.

. A "direct" acquisition by a corporation is one whereby the corporation makes the acquisition itself; and an "indirect" acquisition is one whereby it makes it through the intermediary of others whether trustees, agents or nominees. . There must be a causal nexus of some kind between the acquisition and the position of market dominance or substantial strengthening thereof. It is not enough that the former be a causa sine qua non of the latter. . None of the indirect acquisitions alleged in the first amended statement of claim are supportable. They must be struck out.

. Sub-section 50(1) operates extraterritorially as provided in sub-s. 5(1) of the Act and no further. Hence the acquiring corporation must be incorporated in or carrying on business in Australia. The acquisition may take place outside Australia and may involve as its target a body corporate not incorporated or carrying on business in Australia.

. The case against Helenus must fail as presently pleaded because it is incorporated in New Zealand and is not alleged to be carrying on business here.

. The whole of the first amended statement of claim must be struck out, but I leave it open to the Commission to replead its case against AIS with respect to a direct acquisition of shares in Helenus and with respect to a direct acquisition by Steel And Tube Holdings of 25% of the shares in Helenus.

. If any further amendments are sought to the statement of claim they must be supported by affidavit evidence to satisfy the Court that there really are facts which can probably be proved and which, if proved, would support the general statements made in any further amended statement of claim.

The Court orders that:

1. The first amended statement of claim filed on 3 November 1989 be struck out.

2. Leave to file the document headed "Amended Statement of Claim" handed to the Court on 11 December 1989 whether with or without the document "Addenda to Proposed Third Amended Statement of Claim" be refused.

3. The Commission be at liberty to apply to the Court within 21 days from today for leave to amend its statement of claim on production of such affidavit or affidavits as show that there really are facts which can probably be proved and which, if proved, would support the general statements made in the statement of claim.

4. The Commission pay the costs of BHP, AIS and Tubemakers of all five motions before the Court.

5. Each party be at liberty to apply generally on seven days notice.

[1990] FCA 18

07 FEBRUARY 1990