Trade Practices Commission v Santos Ltd
[1993] FCA 750
•11 Oct 1993
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| I | JUDGMENT No. ........ ....... | 750 1 9 3 | .-m | .m.e-el-u* |
| 1 | i | IN THE FEDERAL COURT OF AUSTRALIA ) | |
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GENERAL DIVISION 1 B E T W E E N :
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TRADE PRACTICES COMMISSION
Applicant
SANTOS LIMITED
First Respondent SAGASCO HOLDINGS LIMI!rED
Second Respondent
JUDGE : Heerey J m: 11 October 1993 PLACE : Melbourne MINUTE OF ORDER
The Courts orders that: of the trial the following question be determined:
"Does s.50(1) of the Trade P r a c t i c e s Act 1974 apply to the proposed acquisition alleged in par 16 of the amended statement of claim and admitted in par 16 of the amended defence of Santos as if the amendments
NOTE : Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules made by the Trade P r a c t i c e s L e g i s l a t i o n Amendment
Act 1992 had not been made?"
IN THE FEDERAL COURT OF AUSTRALIA )
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VICTORIA DISTRICT REGISTRY 1 No. VG 377 of 1992 1 GENERAL DIVISION ) B E T W E E N : TRADE PRACTICES COMMISSION
Applicant
SANTOS LIMITED
Flrst Respondent
SAGASCO HOLDINGS LIMITED
Second Respondent
JUDGE : Heerey J m: 11 October 1 9 9 3 PLACE : Melbourne RULING
On 7 October I ruled that the question whether this case is governed by the old or new form of s.50 of the T r a d e P r a c t i c e s Act 1974 should be determined at an early stage.
There has now been argument as to the form which that
determination should take. The competing contentions will be stated in a little more detail in the course of these reasons. For the moment it is sufficient to say that the TPC and Sagasco put forward a series of questions which they say will have to be declded upon evidence adduced for the purpose, prefaced by further discovery. Santos on the other hand says that the question can and should be determined on the pleadings and without discovery or evidence.
These competing contentions need to be considered in the light of the history of the case thus far.
On 1 September 1992 Santos lodged with the ASC a Part A Statement in respect of an offer for all the fully paid ordinary shares in Sagasco at $2.70 per share, conditional on 56 per cent acceptance and also on the South Australian
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I Government Financing Authority accepting the offer in relation: to all of its shares. I shall refer to this proposal as "the Part A offer".
On 16 September the TPC advised Santos that it had "formed the view that the proposed acquisition is likely to contravene s.50 of the T r a d e P r a c t i c e s Act 1 9 7 4 " . Some inconclusive negotiations then took place but without success. On 1 October the TPC commenced this proceeding seeking interlocutory and permanent injunctions restraining Santos from acquiring
"(a) any shares in the capital; (b)
any interest legal or equitable in any shares in the capital; or
(c) any assets of
Sagasco Holdings Limited."
The TPC's application for an interlocutory injunction came on for hearing before me. On 16 October I dismissed that application and instead accepted undertakings proffered by Santos which were in substance that if it acquired more than 20 per cent of Sagasco's issued share capital, it would not, pending the determination of the proceeding, appoint more than two directors to the Sagasco board or intermingle the assets of Santos and Sagasco. The consequence was that Santos could proceed with the takeover, but if the TPC were to win the case Santos would face a divestiture order which, as a result of the undertakings, could be effectively implemented.
The TPC sought leave to appeal to the Full Court and special leave to appeal to the High Court against the dismissal of its interlocutory injunction application, but without success.
On 12 November the TPC filed and served a statement of claim which included the following allegation:
"13. On 2 September 1992, Santos lodged with the Australian Securities Commission ("the ASC") a document in the form of a Part A Statement for the purposes of the Corporations Law in respect of a proposed offer by Santos to acquire all of the issues shares in SAGASCO pursuant to a takeover scheme ('the proposed acquisition')."
In the meantime Santos had reconsidered its position. On 17 November it announced to the Stock Exchange and the media that it was not proceeding with the Part A offer. The announcement included the following:
"The board of SANTOS has reluctantly decided not to proceed with its proposed takeover offers for the shares in SAGASCO.
Although the decisions of the Federal Court and the High Court not to grant the Trade Practices Commissions ("TPC") an interlocutory injunction have freed SANTOS to proceed with its bid, the board considers that it would not be in the best interests of the shareholders of SANTOS to dispatch its
offers . The TPC remains opposed to SANTOS in this matter and has brought proceedings for a permanent injunction to restrain SANTOS from acquiring shares in or assets of SAGASCO.
Despite its decision not to proceed with its proposed offers for SAGASCO, SANTOS' view as to the desirability of acquiring control of SAGASCOrs
resource assets remains unchanged. SANTOS therefore intends to oppose the TPC's application for a permanent injunction so as to allow it in due course to acquire shares in or assets of SAGASCO unhindered. This application will be determined by a trial in the Federal Court, which is expected to commence in March next year. SANTOS has Senior Counsel's advice that it has a strong case and that the TPC is unlikely to succeed at trial.
In the interim, it is SANTOS' intention to seek to acquire a substantial shareholding in SAGASCO, up to
19.9 per cent, at a price per share up to $2.635,
and to seek board representation commensurate with
that shareholding."
On 23 November Santos filed its defence which, amongst other things, effectively admitted paragraph 13 of the TPC1s statement of claim.
Sagasco has been a respondent to this proceeding from its commencement. In a cross-claim against Santos filed on 24
November Sagasco pleaded:
"3. Santos Limited ("Santos") threatens and intends to acquire dominance or control of Sagasco
and/or its resource assets."
Particulars based on Santos' media release of 17 November were then given and the cross-claim concluded with a claim for:
"(1) A declaration pursuant to section 163A of the Trade Practices Act and/or section 21 of the Federal Court of Australia Act that the acquisition by Santos directly or indirectly of:
(a) any share in the capital;
(b)
any interest, legal or equitable, in any share in the capital; or
(c) any assets;
of SAGASCO 'so as to give Santos a commanding influence over SAGASCO or its resource assets is in breach of and/or would constitute a breach of section 50 of the Trade Practices Act and is or would be unlawful."
Also on 24 November Santos acquired 19.9 per cent of the issued share capital of Sagasco.
There then followed some correspondence between the TPC's solicitor and Santos' solicitor in which the former sought advice as to Santos' "present intention" to acquire more shares in Sagasco.
On 6 January 1993 the solicitors for Santos replied advising
that their client "presently proposes to acquire further shares in or assets of" Sagasco. The letter stated: "In order to clarify any uncertainty about whether this matter is presently before the court, we enclose for your information a copy of a letter and cross-claim served upon the Melbourne office of the Australian Government Solicitor today."
The cross-claim referred to, which was filed on that day, included an allegation that, subject to no relief being granted to the TPC and subject to the provisions of the Corporations Law, "Santos presently proposes to acquire further shares in or assets of Sagasco ('the proposed acquisition')".
The claims in the prayer for relief in the cross-claim of
Santos included the following:"A declaration pursuant to section 163A of the Act and/or section 21 of the Federal Court of Australia Act that the acquisition by SANTOS directly or indirectly of in excess of 5 0 % of the issued shares in the capital of SAGASCO will not constitute a contravention of section 50 of the Trade Practices Act 1974."
On 19 January the solicitor for the TPC wrote to the solicitors for Santos a letter which included the following:
"In the light of your client's decision to withdraw its take-over offer for shares in Sagasco Holdings Limited, its decision not to proceed with any fresh take-over offer for shares in that company and the absence of any present intention by Santos to proceed with the acquisition of particular shares and/or assets in Sagasco at a particular point in time, the Commission has decided to discontinue the abovementioned proceedings.
client to the Commission's proposal to discontinue In the circumstances I seek the consent of your the proceedings. I would also ask that your client discontinue its cross-claim. In the event that your client is unwilling to do this I advise that I will be obliged to issue a Notice of Motion."
The solicitors for Santos replied to that letter on 20 January stating:
"Our client has made its intentions clear through our correspondence with you, its cross-claim filed on 6 January 1993 and in its media announcements.
It has been the intention of SANTOS Limited since September 1992 and remains its present intention to acquire further shares in Sagasco Holdings Limited, with the ultimate object of controlling that company. For obvious reasons, SANTOS Limited cannot make any further such acquisition until:
(a)
The threat of proceedings seeking injunctive or other relief is removed. (This could be achieved by your client discontinuing the present proceeding - a matter which would require the leave of the court and payment of our client's costs - and consenting to judgment in favour of SANTOS Llmited in relation to its cross-claim in the proceeding); and
(b)
SANTOS Limited is released from its undertakings given to the Court in the proceedings."
On 21 January the Trade Practices Legislation Amendment Act
1992 came into force. That Act amended s.50 of the Trade
Practices Act by substituting substantial lessening of competition for market dominance as the criterion for unlawfulness of acquisitions. Section 21 of the amending Act relevantly provided:
"21. (1) Subject to this section, the merger amendments apply to any acquisition that happens after the commencement of this Act.
proceedings under the Principal Act in- connection proposed acquisition was the subject of any court (2) If at the commencement of this Act a with the operation of section 50 or 50A of the Principal Act, the Principal Act continues to apply to the following acquisitions as if the merger amendments had not been made:
(a) the proposed acquisition;
On 10 and 11 February Ryan J heard an application by the TPC for leave to discontinue this proceeding. On 19 February his Honour dismissed that application.
In the course of his reasons his Honour noted (at 2 3 ) that:
"... the TPC does not assert that there has been, or
may have been, a new proposed acquisition. Rather, it contends that by reason of the withdrawal of the Part A Statement, there is no longer any proposed acquisition. For the reasons already given, I do not regard that contention as so obviously correct in point of fact as to compel this Court to conclude that it is henceforth required to express an advisory opinion on a purely hypothetical set of facts." [His Horiour's emphasis]
On 30 March the TPC filed and served an amended statement of claim pursuant to leave given by Ryan J and on 20 April Santos filed and served a defence to that pleading. Those pleadings included the following:
TPC's Amended Statement of Claim
13. On about 1 September 1992 Santos lodged with the Australran Securrtres Commissron ("the ASC") a document in the form of a Part A Statement for the purposes of the Corporations Law in respect of proposed offers by Santos to acquire all of the issues shares in SAGASCO pursuant to a takeover scheme.
14. On about 17 November 1992 Santos made an announcement to
the effect that:-
(a) the board of Santos had reluctantly declded not to proceed with its proposed takeover offers for the shares
In SAGASCO; (b) santos rntended to oppose the Commissron's application for a permanent injunction so as to allow it in due course to acqurre shares in or assets of SAGASCO unhindered;
(c) santos' view as to the desirability of acquiring control of SAGASCO'S resource assets remalned unchanged; (d) rn the rnterrm rt was Santos' intentron to acqulre a substantial shareholding rn SAGASCO, up to 19.9%, at a prrce per share of $2.635 and to seek Board representation commensurate wlth that shareholding.
15. In about late November 1992 Santos acqurred 19.9% of the lssued shares In the caprtal of SAGASCO.
16. subject to thrs Honourable Court not granting to the Commrsslon relief in these proceedrngs whrch would restraln it from so doing and subject to the provisions
of the Corporations Law, Santos presently proposes to acquire all of the shares, or alternatrvely a ma~ority of the shares, rn SAGASCO as soon as it is appropriate to do so ("the proposed acqursrtion").
....
93. Further or m the alternative, by reason of the matters aforesaid, were Santos to proceed with the proposed acquisrtlon, the acqursrtion would, or would be likely to, substant~ally strengthen the power of Santos to dominate each of the markets referred to in paragraphs 38(a), 47, 60, 66 and 67 herernbefore referred to, or one or more of them, ln contraventron of section 50(l)(b) of the Act as it was prior to 21 January 1993.
94. Further or in the alternative, by reason of the matters aforesaid, were Santos to proceed with the proposed
acquisition, the acquisitron would have the effect, or be
lrkely to have the effect, of substantially lessening competit~on in each of the markets referred to in paragraphs 38(a), 38(b), 38(c), 47, 60, 66 and 67 hereinbefore referred to, or one or more of them, in
contravention of Sectron 50(1) of the Act as rt has been
slnce 21 January 1993.
Santos' Defence
13. It admlts the allegatlons contalned in paragraph 13 thereof.
14. It admlts the allegatlons contarned in paragraph 14 thereof.
15. In or about late November 1992 it acqulred 31 million shares in the capltal of Sagasco and MH & D Nominees Pty. Ltd. on its behalf acqulred 11 m~llron shares in the capital of Sagasco the total of whrch shareholdings is approxrmately 19.9% of the issued shares in the capital of Sagasco. Save as aforesard it denres each and every allegation contained in paragraph 15 thereof.
16. It admlts the allegatron contalned m paragraph 16 thereof and says that subject to thrs Honourable Court not grantrng to the Commrssron relref in these
proceedrngs whlch would restrain it from so doing, and
has at all trmes since at least 1 September, 1992 subject to the provlslons of the Corporatrons Law, Santos proposed to acqulre all of the shares, or alternatively a majority of the shares, in Sagasco ("the proposed
acqursrtion") . ....
93. It denles each and every allegatron contained in paragraph 93 thereof.
. . . . 94. It denies each and every allegation contained in paragraph 94 thereof and says further that by reason of the operatron of Sectron 21 of the Trade Practrces Leglslatron Amendment Act 1992 and the matters admitted rn paragraphs 13, 14, 15 and 16 above the amendments to Section 50(1) of the Trade Practices Act 1974 effected by Trade Pract~ces Legislatzon Amendment Act 1992 do not apply to the proposed acquisrtron.
The TPC have now submitted the following proposed questions for determination as a preliminary issue.
"(a) On 21 January 1993 was there a proposed acquisition by Santos of shares in the capital of Sagasco within the meaning of Section 21(2)(a) of the Trade Practices Legislation Amendment Act 1992?
(b) If yes to (a), was that proposed acquisition the subject of Court proceedings under the Trade Practices Act 1974 on 21 January 1993? (c) At present is there a proposed acquisition by Santos of shares in the capital of Sagasco? (d) If yes to question (c), is that proposed acquisition the same proposed acquisition that existed on 21 January 1993?" The solicitor for the TPC by a fax sent on 7 October advised the solicitors for Santos that he had instructions to issue subpoenas to each member of the Board of Directors of Santos
factual circumstances relevant to the Court's determination of "to give evidence and produce documents in relation to the the section 21 issue in relation to the proposed acquisition,
(if any), of Sagasco by Santos".Counsel for Sagasco supported the contention of the TPC and also sought an order for discovery of what might compendiously be described as Board papers of Santos on or after 25 November 1992 relating to any proposed acquisition of Sagasco and also
Board papers relatlng to the decision announced on 17 November
1992.I have come to the conclusion that, in the interests of a fair and efficient determination of the real issues which arise in this large and complicated case, the course urged by counsel for Santos should be'adopted and the question determined on the pleadings. No evidence is required, nor should any further discovery be ordered.
In its amended statement of claim on 30 March the TPC alleged that Santos presently proposed to acquire all, or alternatively a majority, of the shares in Sagasco as soon as it was appropriate to do so. It described that proposal, in
the very words of s.21(2), as "the proposed acquisition". It did so after having failed to persuade Ryan J that there was no longer any proposed acquisition, or at least that there was no room for argument on the question.
Having lost the discontinuance application, which it pressed before Ryan J on the basis that the withdrawal of the Part A offer meant there was no longer a proposed acquisition, the TPC seems to me to have elected to continue with this proceeding on the footing that Santos' declared intention to bid for control of Sagasco (if it lawfully could) was as at 30 March a proposed acquisition. Its allegation to that effect is fundamental to the TPC's case. That allegation is admitted by Santos. I do not accept the argument of counsel for the
TPC that the way in which par 16 of the Santos defence is expressed detracts from that conclusion that the issue as to the existence of a proposed acquisition by Santos of Sagasco is now admitted on the pleadings and is no longer open. I
think that conclusion follows as a matter of construction of the pleadings and is supported by a consideration of the forensic and commercial realities of the case.
The lawfulness of the proposed acquisition will be decided by judgment in this proceeding (or on appeal therefrom). Should any dispute arise after the conclusion of this proceeding as to whether an acquisition by Santos is in truth the acquisition which was proposed as at 30 March, that will raise a new and different issue as to enforcement. But it is not something which arises in this proceeding.
My belief that no substantial injustice will be caused to the TPC or Sagasco by the course I propose to take is confirmed by the fact, notwithstanding the prodigious preparation that has
or Sagasco to seek discovery of the Santos Board papers gone into this case, it has not previously occurred to the TPC referred to above or subpoena Santos directors. I shall therefore order that at a time to be fixed upon 48 hours notice during the course of the trial the following question be determined
"Does s.50(1) of the Trade Practices Act 1974 apply to the proposed acquisition alleged in par 16 of the
amended statement of claim and admitted in par 16 of the amended defence of Santos as if the amendments
made by the Trade P r a c t i c e s L e g i s l a t i o n Amendment
Ac t 1 9 9 2 had not been made?"I certify that this and the preceding thirteen ( 13) pages are a true copy of the reasons for ruling of his Honour 1-k Justice Heerey.
Dated: // o&&- /W3
ApDearanCeS
Counsel for the applicant: M r R Rinkelstein QC with Miss M Warren and M r M
GoldblattSolicitor for the applicant: Australian Government
SolicitorCounsel for the first respondent:
Mr A Archibald QC with Mr P Buchanan QC and MI D OfCallaghan
Solicitor for the first
Freehill Hollingdale & respondent: Page Counsel for the second
M r N Young QC with MI J respondent: Beach Solicitor for the second Finlaysons respondent:
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