Winpar Holdings Limited v Austrim Nylex Limited

SUPREME COURT OF VICTORIA

COURT OF APPEAL

No. 4908 of 2001

WINPAR HOLDINGS LIMITED
	Appellant
v.
AUSTRIM NYLEX LIMITED	Respondent
	(Plaintiff below)

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JUDGES:	CHARLES, BUCHANAN and EAMES, JJ.A.
WHERE HELD:	MELBOURNE
DATES OF HEARING:	10 & 11 May 2004
DATE OF JUDGMENT:	25 August 2005
MEDIUM NEUTRAL CITATION:	[2005] VSCA 211	1^st Revision – 31 August 2005

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CORPORATIONS – Compulsory acquisition – Minority interests – Preference shares – Fair market value – Synergies achieved by acquisition – Special benefits achieved – Premium for forcible taking – Time for assessment of fair value – Methodology of valuation – Adequacy of notice to minority shareholders – Disclosure of information – Independent expert’s valuation – Acquisition of property other than on just terms – Constitution of the Commonwealth, s.51(xxxi) – Corporations Act 2001 (Cth) s.667C.

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APPEARANCES:	Counsel	Solicitors
For the Appellant	Mr N.A. Cotman, S.C.	Stephen Blanks & Associates Frenkel Partners
For the Respondent	Mr J.G. Santamaria, Q.C. And Mr J.P. Moore	Clayton Utz

CHARLES, J.A.:

The plaintiff (now the respondent), Austrim Nylex Limited (“Austrim”), made an offer to acquire compulsorily the remaining minority units in a company, National Consolidated Limited (“NCL”), in which Austrim held over 90 per cent of the issued shares. Austrim then issued proceedings under s.664F(1) of the Corporations Act 2001 (Cth) seeking court approval of the proposed compulsory acquisition of the remaining minority units, relying on the compulsory acquisition provisions of the Corporations Act.

The defendants, eleven minority shareholders, opposed the application on a number of bases, but principally on the ground that the offer made by Austrim for the minority shareholding did not give fair value and was not fair, and that the independent expert’s report failed to take into account benefits that Austrim would derive if it acquired 100 per cent ownership of NCL. They also contended that the statutory provisions relied on by Austrim were unconstitutional and invalid. Written submissions of the Attorney-General for the Commonwealth in a similar matter, supporting the validity of the impugned provisions, were provided to the trial judge by the plaintiff.

After a trial in which expert evidence was called by both sides, the judge, Warren, J., concluded that Austrim had offered fair value for the NCL shares and approved the compulsory acquisition.

The ninth defendant, Winpar Holdings Limited (“Winpar”), now appeals to this court on a variety of grounds, seeking to have set aside the judge’s orders below and in particular her Honour’s approval of the compulsory acquisition. The other defendants were named as the second to eleventh respondents in the appeal.

The background

NCL had on issue 202,744,917 ordinary shares and 50,000 cumulative non-redeemable preference shares. Austrim owned all the ordinary shares and 6,307 of the preference shares (99.98 per cent of the total issued shares) in NCL. The remaining 43,693 preference shares in NCL were owned by 20 shareholders. The appellant and the second to eleventh respondents joined to this appeal were all the owners of preference shares in NCL who objected to the proposed compulsory acquisition by Austrim.

On 28 April 2000 Austrim had engaged DMR Corporate Pty. Ltd. (“DMR”), an expert nominated and approved by the Australian Securities and Investments Commission (“ASIC”) to prepare a report in accordance with s.667A of the then Corporations Law of Victoria as to the fair value of the remaining preference shares. The principal author of the DMR report was Paul Lom. In the DMR report dated 22 December 2000, DMR said that the maximum value of each of the remaining preference shares was $1.71. Austrim later offered the minority shareholders the amount of $2.00 for each remaining preference share. On 15 January 2001 in accordance with the requirements of s.664C(2)(b) of the Corporations Law, Austrim forwarded to each of the affected minority shareholders a notice of compulsory acquisition, the initial report of DMR and an objection form. Eight minority shareholders accepted the offer. Austrim received 12 objections to the notice of compulsory acquisition from the defendants to the present proceeding.

A trial was held between 28 November 2001 and 4 December 2001. Judgment was delivered on 24 May 2002. Orders were made on 31 May 2002, including an order pursuant to s.664F of the Corporations Act 2001 of the Commonwealth (which had by then come into force) approving the acquisition of the preference shares covered by the compulsory acquisition notices issued by Austrim on 15 January 2001.

The major issues dealt with at trial

The principal issues at trial included the following: first, is Part 6A.2 of the Corporations Act 2001 (as the Corporations Law had, in effect, by then become) constitutionally valid? Secondly, did the terms proposed by Austrim in its compulsory acquisition notice give a fair value for the shares covered by the notice? Thirdly, had there been compliance with the requirements of s.664C(2) in relation to the disclosure by Austrim in its compulsory acquisition notice? If not, should the court exercise its power under ss.1322 or 1325D of the Corporations Act to relieve Austrim from the consequences of any proved non-disclosure?

On the issue of fair value, the principal legal submissions of the defendants were as follows -

(i)section 667C of the Corporations Act provided only non-exhaustive guidance as to the fair value of the shares to be acquired – i.e., other matters not specified by s.667C might be taken into account in determining whether fair value was offered for the preference shares;
(ii)the value of special benefits to the compulsory acquirer that would flow from the acquisition should be included in the valuation of the minorities’ shares;
(iii)a “premium for forcible taking” should be included in the fair value of each preference share.

The defendants also raised a variety of factual disputes, to which I shall turn later.
Section 667C of the Corporations Act

Section 667C was central to the issues considered in the trial. Under the heading “Valuation of Securities”, the section provides –

“(1) To determine what is fair value for securities for the purposes of this Chapter:
(a)first, assess the value of the company as a whole; and
(b)then allocate that value among the classes of issued securities in the company (taking into account the relative financial risk, and voting and distribution rights, of the classes); and
(c) then allocate the value of each class pro rata among the securities in that class (without allowing a premium or applying a discount for particular securities in that class).

(2)Without limiting sub-section (1), in determining what is fair value for securities for the purposes of this Chapter, the consideration (if any) paid for securities in that class within the previous six months must be taken into account.”

General principles as to the concept of fair value

In Capricorn Diamonds Investments Pty. Ltd. v. Catto[1] Warren, J. considered the determination of fair value under s.667C and for that purpose identified various principles from relevant authorities. Her Honour in the judgment now under appeal made reference[2] to the principles applied in Capricorn Diamonds as including the following –
[1](2002) 5 V.R. 61; 168 F.L.R. 146; 41 A.C.S.R. 376.
[2]Judgment at para.[14].

1.Fair value of an asset is its fair equivalent in money ascertained by a supposed sale by voluntary bargaining between vendor and purchaser, each of whom is both willing and able, but not anxious, to trade and with a full knowledge of all the circumstances which might affect value;
2.the fact that the units must be disposed of at a fair value should not be a factor leading to a discount or lower valuation than would otherwise obtain, nor should it be a factor leading to a premium or higher valuation;
3.a fair value does not require that any amount should be included in respect of ransom value or a power of veto;
4.the value of special benefits to the acquirer is not properly to be included in the calculation of the value of the company as a whole;
5.generally, apart from s.667C, fairness requires that the value of any special benefit should be allocated pro rata amongst securities in the same class;

6.if the value of special benefits is to be included under s.667C, their value should be allocated pro rata under that section;
7.when deciding whether the consideration is fair, the proper approach is to consider whether it is fair to all shareholders, rather than whether it is fair to a particular shareholder or class of shareholders in the peculiar circumstances of the case. It follows that a shareholder’s individual taxation position and like matters said to give rise to a premium for forcible taking are not relevant to the value of the company as a whole, nor are the acquirer’s individual circumstances relevant;
8.fair value may require a more liberal estimate of value within a range of possible values where there is a compulsory acquisition of property; but it does not permit or require a premium for forcible taking.

Next, Warren, J. had considered in detail in Capricorn Diamonds[3] the meaning and application of s.667C(1)(a). Applying the same principles in the present case, her Honour took the view that s.667C(1)(a) requires an assessment of value of a company as a whole to be made and that as a result no allocation may be made that is not included in the value of the company as a whole. Quoting from her previous judgment in Capricorn Diamonds, her Honour held[4] with respect to the value of the company as a whole –
[3](2002) 5 V.R. 61 at paras.[61]-[62].
[4]Judgment at para.[16].

“No additional share of the value to be allocated may be allocated to units held by minority holders disproportionately to the share to be allocated to units held by the majority holders. Section 667C(1)(c) by its express terms does not allow any premium or discount for particular securities in a class of securities and expressly provides that the allocation must be pro rata amongst all the holders of securities of the class concerned.”

And further[5] –

“In addition, it is to be observed that the prohibition in s.667C(1)(c) on allowing any premium for particular securities in a class does not mean that fair value compensation is not full compensation for that which has been lost. Rather, in my view, the prohibition serves to prevent the compensation becoming artificially inflated to take into account the ransom value that minority security holders might otherwise be able to extract for their securities by reason of their minority status.”
[5]Judgment at para.[17].

Her Honour accordingly took the view[6] that s.667C(1) requires pro rata allocation of the value of the company as a whole so that shares in the same class are treated in the same way whether held by the 90 per cent holder or the minority holders. Warren, J. also followed the approach[7] that an expert reporting in accordance with s.667C is not required to take into account any special value that 100 per cent ownership may achieve as the associated factors do not reside in and are not embodied in the company as a whole, and do not form part of the asset or the enterprise to be valued for the purposes of the section. Such special benefits, her Honour said, are more properly construed as external to the asset for they do not exist at the time when the valuation occurs and will only ever exist after the transaction has taken place. The time for determination of the fair value was the time of the compulsory acquisition notice.[8]
[6]Judgment at para.[18].
[7]Judgment at paras.[20]-[21].
[8]Judgment at para.[25].
Prior consideration of Part 6A.2 of the Corporations Act and s.667C

The process by which Part 6A.2 was introduced into the Corporations Act 2001 was discussed at length by Warren, J. in Capricorn Diamonds[9]. It is sufficient to say here that Part 6A.2 was in force in the former Corporations Law of Victoria until it was enacted in the Corporations Act 2001 of the Commonwealth, which commenced operation on 15 July 2001. It was not in dispute that the legislative history of Part 6A.2 shows that it was the primary intention of the Commonwealth Parliament to “make it easier for majority shareholders to obtain the benefits of 100 per cent ownership” and to “discourage minority shareholders from demanding a price for their securities that is above a fair value (often referred to as “greenmailing”).”[10]
[9](2002) 5 V.R. 61 at [13]-[28].
[10]Explanatory memorandum to the Corporate Law Economic Reform Bill, [4.4] and [7.30]-[7.31].

Pauls Ltd. v. Dwyer[11] was the first occasion on which a court was asked to interpret Part 6A.2 and s.667C. Pauls Ltd. made application pursuant to s.664F (of the then identical Queensland legislation) for an order approving its acquisition of those non-redeemable $2 preference shares which it did not already own in Pauls Victoria Ltd. at the price of $2.57 per share. The total number of shares sought to be acquired was 24,263. Douglas, J. granted the application, holding that the purpose of Part 6A.2 was to allow for compulsory acquisition in an efficient way subject to the shareholder receiving “fair value” for the shares acquired. His Honour held that no question of special value arose because the valuation of the shares in question was done according to the procedures prescribed by Part 6A.2 for the determination of “fair value”, which was supported by the fact that s.667C(1)(c) used the words “without allowing a premium” in connection with the valuation. His Honour also held that because Pauls Victoria Ltd. could be worth more to Pauls Ltd. than to a third party, this did not mean that the additional value should be attributed wholly to the preference shares or to the minority interests.
[11][2001] Q.S.C. 67; (2001) 19 A.C.L.C. 959.

In Capricorn Diamonds[12] Warren, J. considered the interpretation and application of Part 6A.2 and s.667C of the Corporations Act 2001 in circumstances where the plaintiff, Capricorn Diamonds, held nearly 97 per cent of the units in a listed unit trust (“WADT”) and gave notice under s.664C to the minority unit-holders offering $2 for each unit. The offer did not provide for special benefits obtained by the plaintiff or for a premium for forcible taking. The defendants, a representative group of minority unit-holders, opposed the application principally on the ground that the notice of proposed acquisition did not give a fair value for the units as required by the Act. Among the grounds relied on by the defendants was an allegation that the statutory provisions in question were unconstitutional and invalid because they involved an appropriation without just terms in breach of s.51(xxxi) of the Commonwealth Constitution.
[12](2002) 5 V.R. 61.

Warren, J. rejected each of the challenges made by the minority unit-holders, applying the principles to which I have previously made reference in paragraphs [11] to [13]. Her Honour, in an elaborately reasoned judgment, followed the decision of Douglas, J. in Pauls Ltd. v. Dwyer and, in rejecting the attack on the constitutionality of Part 6A.2, also followed the related decision of the Queensland Court of Appeal in Pauls Ltd. v. Elkington[13]. The evidence for the defendants came principally from Wayne Lonergan, of Lonergan, Edwards & Associates, who assessed the fair value of the units at either $2.65 or $2.80 depending on certain assumptions. The plaintiff’s expert had assessed the fair value of the units at between $1.06 and $1.22. Warren, J. found that the plaintiff’s offer of $2 per unit gave more than the fair value for the units, and, in doing so, rejected the evidence of Mr Lonergan. Her Honour said of the expert evidence[14] -

“I observe that the LEA report as prepared by Lonergan was based upon factors that do not usually form a part of valuation methodology or accord with normal market practice. To the extent that Lonergan’s evidence relied on a premium for forcible taking or a disproportionate allocation of value in favour of the units to be acquired it was erroneous. To the extent it relied on the addition of the value of items that do not go to the value of WADT as a whole, such as special benefits and synergies, to increase that value, it proceeded on a misconceived basis.
It follows from the analysis of the expert evidence that the evidence relied upon by the defendants is rejected. Hence, even if the construction placed upon the statutory regime as to the assessment of fair value was erroneous, I nevertheless do not accept the evidence of Lonergan. In my view, the evidence of Lonergan was not substantiated and was contrary to normal market and valuation practice and methodology. The expert evidence elicited by the plaintiff is to be preferred.”

[13](2001) 189 A.L.R. 551.

[14](2002) 5 V.R. 61 at paras.[230]-[231].

The decision of Douglas, J. in Pauls Ltd. v. Dwyer was upheld by the Queensland Court of Appeal in a decision of the same name[15]. The principal judgment in the Court of Appeal was that of Davies, J.A., who endorsed the same principles in the interpretation of s.667C as had been applied by Warren, J. in Capricorn Diamonds[16]. Davies, J.A. also rejected the constitutional challenge based on s.51(xxxi) of the Constitution. The other members of the Court agreed, save that Jerrard, J.A. dissented in part as to the last point, on a matter not now relevant in this appeal.
[15](2002) 171 F.L.R. 369; 43 A.C.S.R. 413; [2004] 2 Qd.R. 176.
[16]171 F.L.R. 369 at paras.[16], [21], [24] and [29]-[30].

In Energex Ltd. v. Elkington[17], the Queensland Court of Appeal considered an acquisition of preference shares very similar to the present. Energex owned all of the ordinary shares in Allgas Energy Ltd., and 58.5 per cent of the preference shares (i.e. 116,995 out of a total of 200,000). Energex offered $2.05 per preference share, its expert having valued the preference shares at between $1.61 and $1.79 each. As in Capricorn Diamonds, the appellants relied on the evidence of Wayne Lonergan who set substantially higher values on the preference shares.
[17](2003) Q.C.A. 430; 47 A.C.S.R. 442.

The Court, the principal judgment being that of de Jersey, C.J., again rejected a challenge to the constitutionality of Part 6A.2 of the Corporations Act. It concluded that the provisions of this part do not provide for acquisition on terms which are other than just. Following Pauls v. Dwyer and the decision in Capricorn Diamonds and that of Warren, J. in the present matter, the Court of Appeal held that it was impermissible in determining fair value to make any allowance for synergies to be achieved by the acquisition, or take into account special benefits deriving from full ownership. Insofar as Lonergan’s report differed from that of Energex’s valuer, the Court of Appeal held that the judge was entitled to accept the latter’s opinion. The appeal against the judge’s order approving compulsory acquisition was accordingly dismissed.

Applications for special leave to appeal were made to the High Court in both Pauls v. Dwyer and Energex v. Elkington. The applications were heard together and dismissed by Gleeson, C.J. and Callinan, J. on 23 June 2004.

The expert evidence at trial

The report of DMR, the independent expert, had been prepared by Paul Lom and Derek Ryan. The report was tendered, and Lom was orally examined. The process by which Lom assessed the value of NCL and his conclusions were summarised by her Honour[18] in the following terms –

“… the evidence of Lom considered the history of NCL, its share capital and its operating performance. He also considered the net assets, share price history and cash flows. In addition, Lom considered an earnings based valuation (‘EBV’) and for comparative purposes valuation applying earnings before interest and tax (‘EBIT’) or earnings before interest, tax depreciation and amortisation (‘EBITDA’). Ultimately, Lom concluded that after considering these valuation methods the maintainable EBIT ought be in the range of $50,000,000 to $60,000,000. Following these valuation methods through, Lom concluded that a preliminary low valuation was in the sum of $300,000,000 and a high sum of $390,000,000. He made adjustments for surplus assets and interest bearing liabilities and eventually concluded that based on the capitalised maintainable earnings before interest and tax methodology the value of NCL was in the range of $227,000,000 to $317,000,000 equating to a value per ordinary share in the range of $1.12 to $1.56. Applying earnings based valuations, therefore, Lom concluded that on a capitalisation of earnings methodology the value of NCL is in the range of $200,000,000 to $270,000,000 deriving a value in the range of $0.99 to $1.33.”

[18]Judgment at [52].

Next, her Honour turned to the valuation of NCL preference shares, and I again quote her Honour’s summary of the evidence, which was as follows[19] -

“With respect to the valuation of NCL preference shares Lom took account of a number of factors. They included that the preference shares are not convertible into ordinary shares, cannot be redeemed, return a fixed rate of 5 per cent, carry voting rights in defined circumstances only and that the shares are cumulative. Lom observed, also, that there is no obligation [on] NCL to frank dividends paid to holders of preference shares and that the shares are unlisted and therefore an ‘illiquid investment’. With these and other factors in mind Lom concluded that the NCL preference shares should be valued by capitalising the future maintainable dividend attaching to the preference shares. He gave consideration, further, to market history and concluded that the value of NCL preference shares is in the range of $1.26 to $1.61.
Lom considered, in addition, the fact that the preference shares are in effect a perpetual debt of NCL because they are not redeemable. He considered the preference shares could be valued, therefore, by reference to other long term debt instruments. After considering suitable alternatives such as ten year Commonwealth bonds and their relevant yield Lom concluded that the NCL preference shares would not exceed a value beyond $1.71 per share. Weighing the market evidence and the value as a debt instrument Lom concluded that the fair value of the preference shares is in the range of $1.26 to $1.71. Ultimately, Lom concluded that as the cash consideration offer was the sum of $2.00 thereby exceeding the maximum value of $1.71 thereby the terms proposed in the compulsory acquisition notice gave a fair value for the securities. He observed, also, that in accordance with the requirements of s.667C(2) of the Act he had given consideration to the preference shares in the preceding six months period and noted that the last recorded sale was on 13 January 1998 when 50 shares were sold at a price of $1.42 per share.”

[19]Judgment at paras.[53] to [54].

The defendants relied on the expert evidence of Wayne Lonergan, who, it will be recalled, had also given evidence in Capricorn Diamonds and Energex v. Elkington. Lonergan’s summary of his attitude towards the report of the independent expert and his assessment of fair value was in the following terms –

“DMR concluded that, in its opinion, the price offered by Austrim of $2 per preference share represents ‘fair value’. However in our opinion, DMR’s assessment of the ‘fair value’ of the National Consolidated preference shares is far too low because:
(a)DMR has valued the preference shares on the basis that they are a pure income producing debt instrument only;
(b)DMR ignores the fact that Austrim can be expected to generate substantial benefits from acquiring all the remaining preference shares (e.g. cost savings and interest rate benefits from being able to continue to charge National Consolidated’s assets for group borrowing);
(c)DMR ignores the fact that Austrim should be prepared to pay a proportion of the value of special benefits to minority shareholders in order to obtain the substantial benefits which Austrim will not obtain unless they acquire the remaining preference shares in National Consolidated;
(d)DMR attributes no premium value to take into account the fact that minority shareholders are being forced to sell their shares and will be financially disadvantaged by doing so;
(e)DMR attributes no value to the voting rights attributable to the preference shares.

Our Assessment of ‘Fair Value’

In our opinion, the ‘fair value’ of the preference shares comprises the following elements:
(a)The value of the preference share as a secure income producing security; plus
(b)A share of the ‘special benefit’ that will be able to be accessed as a result of the acquisition of the remaining preference shares; plus
(c)A premium for forcible taking to compensate preference shareholders for the disadvantages they will suffer as a result of the compulsory acquisition of their shares.

In other words, an offer consideration would, in our view, be demonstrably unfair if it leaves the preference shareholders with less income and less security of income than they would have had but for the acquisition. It would also, in our view, be demonstrably ‘unfair’ if the preference shareholders did not share in the special benefits created by their acquisition plus a premium for forcible taking to compensate them for the financial and other disadvantages that they will suffer.
Special Benefits
In our opinion, the total value of special benefits is approximately $3.88 million to $7.48 million, representing $0.28 million (being the value of cost savings) plus $3.6 million to $7.2 million in estimated interest rate benefits.”

The logic of Lonergan’s opinion that preference shareholders should be entitled to the value of special benefits was as follows. He took the view that the special benefit would not exist in the absence of the acquisition; the preference shareholders would not otherwise share in the special value benefit since they do not participate in the profits and assets of the company other than to the extent of their fixed dividend entitlements, but the consent of preference shareholders was required so that ordinary shareholders could get access to the special value benefits; that ordinary shareholders could only receive the special value benefits through acquiring all the preference shareholders’ shares, which he considered they were unlikely to do unless they shared the special benefits with the preference shareholders; all of which led to his conclusion that neither the ordinary nor preference shareholders could share in the special benefits without the consent of the other. He asserted that –
“Given that both ordinary and preference shareholders therefore have to agree (in the absence of compulsion) in our opinion, it is therefore reasonable to apportion the special value benefits equally between the share classes.”

Warren, J. said[20] that in reaching these views –

“Lonergan imposed his own interpretation on the requirements of the Corporations Act in particular s.667C to provide the foundation of an allowance for that which he termed ‘income value’ being a secure perpetual income stream for the minority shareholders. He imposed his own interpretation of the statute to justify the allocation of a special benefits value and, also, a premium for forcible takings. For the reasons set out already, in particular those recited in Capricorn Diamonds, I reject the construction imposed by Lonergan under the statute.”

[20]Judgment at para.[58].

From the foregoing it will be seen that the independent expert concluded that the value of NCL preference shares fell in the range of $1.26 to $1.71 taking into account the capitalisation of future maintainable earnings, market dividend yield, and using an analogy between the NCL preference shares and other long term debt instruments. On this basis, DMR concluded that the value of NCL preference shares did not exceed $1.71. The evidence of Lonergan on the other hand contemplated fair values ranging between $40.48 and $76.66, $46.08 and $87.46 and $6.12 and $18.98. After considering these potential values Lonergan said –

“It is our opinion that the ‘fair value’ of the preference shares comprises:
(a) their value as a secure income producing security;
(b)a 50 per cent share of the special benefits from acquiring the remaining preference shares together with
(c)a premium for forcible taking (including loss of voting rights).”

These considerations led Lonergan ultimately to select $11.00 as a single point estimate of fair value being within a selected lower range of $6.12 and $18.98.

In answer to the Lonergan report, Austrim relied on a supplementary DMR report dated 4 October 2001. In that report Lom rejected a number of aspects of Lonergan’s evidence, including expressing the view that no premium should be incorporated in fair value to reflect the fact that minority shareholders were being forced to sell their shares. He also took the view that it was inappropriate to assume that preference shares last “forever”. Lom considered that even if special benefits were to be taken into account they must be allocated equally amongst all shares in the company, pro rata. In his view when the total value of special benefits alleged by Lonergan were allocated pro rata, they increased the value of the preference shares by only between 2 and 4 cents, compared with Lonergan’s suggested 50/50 split, which increased the value of each preference share by between $38.80 to $74.80.

Lonergan considered that cost savings derived from the acquisition ought to be factored into the valuation. There was evidence however from Phillip Kershaw, a director and company secretary of Austrim, that the cost savings suggested by Lonergan were largely trivial save in one possible respect. Kershaw’s evidence was that there would be no cost reductions in relation to the maintenance of the share registry, there would be trivial cost savings in relation to “secretarial aspects” and the preparation of compliance certificates by external lawyers, no tax benefits accruing to Austrim by reason of the acquisition of the NCL preference shares, and there might be savings in the vicinity of only $20,000 in respect of the auditing of separate accounts. Her Honour accepted Kershaw’s evidence that there would be no cost savings from the acquisition, save in respect to potential audit fees, which might be of the order of $20,000 per annum, and said of these costs that they were comparatively small and not satisfactorily established on the evidence.

Lonergan next identified a supposed advantage or benefit of Austrim obtaining 100 per cent ownership of NCL as being that if Austrim acquired 100 per cent of all the shares in NCL, Austrim could offer all the assets of NCL to its bankers as security for its own borrowings and in doing so reduce the cost of borrowings. Lonergan assessed the benefit resulting as an interest rate improvement of between 0.5 per cent to a maximum of one per cent. His argument was that this benefit would be available only if Austrim achieved 100 per cent ownership of NCL.

The evidence however established that Austrim already has the ability to cause NCL to charge its assets in favour of Austrim’s borrowings, so that the alleged benefit never existed and did not depend upon Austrim achieving 100 per cent of NCL. There were various other ways in which Austrim was legally entitled to cause NCL to charge its assets in favour of the Austrim Nylex Group borrowings. Accordingly, her Honour rejected the view that this special benefit should be taken into account and concluded that insofar as Lonergan had done so, his analysis was erroneous.

Lonergan also asserted that there were other items which should be taken into account to determine the compensation for forcible taking. These included the voting rights of the minority, to which he assigned a value of 7 cents per share. He argued that preference shareholders should be compensated for the fact that they were being compelled to give up a valuable security, particularly as shareholders lost tax and investment benefits. Austrim called evidence from John Selak, a chartered accountant of Ernst & Young, who said that preference shareholders, whether or not they were required to pay tax on the proceeds of $2 per share, would be better off than they were at present if they invested in government bonds. In cross-examination Lonergan agreed that preference shareholders would be better off if they invested in government bonds.

Having analysed the expert evidence, her Honour said[21] -

“… I reject the evidence of Lonergan as to method of valuation, special benefits (based on costs savings and the achievement of 100 per cent ownership) and any premium or benefit (based on voting rights and loss of form of investment). Thus, even if the construction I placed on the relevant statutory provisions was inappropriate, I do not accept the evidence of Lonergan in any event. In my view the overall evidence of Lom and Selak is to be preferred to the evidence of Lonergan.”
[21]Judgment at para.[83].

Her Honour concluded that she was satisfied that the compulsory acquisition notice gave fair value for the NCL shares the subject of the notice.[22]
Winpar’s submissions on appeal
[22]Judgment at para.[99].
The constitutional issue

Grounds 18 to 20 of the notice of appeal relate to the constitutional issue, and may be speedily dealt with. The challenge to the constitutionality of Part 6A.2 of the Act was rejected first in Pauls Ltd. v. Elkington[23]. It has since been rejected in the appeal in Pauls Ltd. v. Dwyer[24], by Warren, J. in Capricorn Diamonds[25], and by the Queensland Court of Appeal again in Energex Ltd. v. Elkington[26]. Winpar’s written outline of argument in this Court accepted that the appellant’s constitutional argument was inconsistent with the decision of the Court of Appeal in Pauls Ltd. v. Dwyer; but argued that this decision was erroneous and should not be followed.
[23](2001) 189 A.L.R. 551.
[24](2002) 171 F.L.R. 369.
[25](2002) 5 V.R. 61 at [111]-[120].
[26](2003) 47 A.C.S.R. 442 at [8] to [11].

This submission must inevitably fail. As was said in Australian Securities Commission v. Marlborough Goldmines Ltd.[27], uniformity of decision in the interpretation of uniform national legislation is a sufficiently important consideration to require that an intermediate appellate court should not depart from an interpretation placed on such legislation by another Australian intermediate appellate court unless convinced that the interpretation is plainly wrong. In Energex v. Elkington de Jersey, C.J. said[28] after referring to Pauls Ltd. v. Dwyer that courts have consistently rejected the contention that the validity of these provisions is effected by s.51(xxxi) of the Constitution, that in any event they do not provide for acquisition on terms which are other than just, and that s.1350 of the Corporations Act constitutes an ultimate safeguard against any invalidity of Part 6A.2. The fact that applications for special leave in both the cases just mentioned were rejected by the High Court leaves no room for doubt that this challenge to the constitutionality of Part 6A.2 should be rejected.
[27](1993) 177 C.L.R. 485 at 492.
[28]47 A.C.S.R. 442 at [10].

Winpar’s challenge to the judge’s interpretation of s.667C

Winpar’s written submissions as to the operation of s.667C acknowledged at the outset that they put forward arguments that were contrary to the decision in Pauls Ltd. v. Dwyer (and thus inevitably also to the decision of the Court of Appeal in Energex v. Elkington and Warren, J.’s prior decision in Capricorn Diamonds). The appellant contended that Pauls v. Dwyer was wrongly decided and should not be followed. We were, however, asked to delay the giving of judgment until after the High Court had considered the applications for leave which were then pending. Winpar’s submissions should therefore now be rejected for the same reasons as were given in paragraphs [32] and [33] above for rejecting the appellant’s constitutional argument.

In oral submissions to this Court, Mr Cotman covered much the same ground as in paragraphs [45] to [99] of the written outline. His arguments retraced in one form or another most, if not all, of the arguments which had been previously rejected in Pauls v. Dwyer, Capricorn Diamonds and Energex v. Elkington. Pauls v. Dwyer and Energex v. Elkington both involved the compulsory acquisition of minority preference shareholdings; and in Capricorn Diamonds and Energex v. Elkington, evidence given by Wayne Lonergan similar to his opinions in the present case was rejected. Furthermore the Court of Appeal of Queensland in Energex v. Elkington expressly approved[29] the approach taken by Warren, J. in Capricorn Diamonds. Much of what was put by Mr Cotman in this Court was repeated in argument by counsel for the applicants and Dr Elkington himself in the unsuccessful applications for special leave to appeal in the High Court. That fair value under s.667C should not include a premium either for forcible taking or gaining 100 per cent control was decided at first instance in Pauls v. Dwyer by Douglas, J.[30]; by Davies, J.A. on appeal[31]; and in Energex Ltd. v. Elkington[32]. That it is impermissible in determining fair value to make any allowance for synergies to be achieved by the acquisition was decided in Pauls Ltd. v. Dwyer[33] and Energex Ltd. v. Elkington[34] by de Jersey, C.J., expressly approving what Warren, J. herself had said on the subject in Capricorn Diamonds[35]. That it is impermissible in determining fair value to take into account special benefits deriving from full ownership was decided in Energex Ltd. v. Elkington[36] by de Jersey, C.J., expressly approving what Warren, J. had said on the subject in Capricorn Diamonds[37].
[29]47 A.C.S.R. 442 at [13] and [21].
[30](2001) 19 A.C.L.C. 959 at [20]-[24].
[31]171 F.L.R. 369 at [21], [24], and [29]-[30].
[32]47 A.C.S.R. 442 per De Jersey, C.J. at [17].
[33]171 F.L.R. 369 at [27]-[30].
[34]47 A.C.S.R. 442 at [13].
[35](2002) 5 V.R. 61 at [56] and [62].
[36]47 A.C.S.R. 442 at [21].
[37](2002) 5 V.R. 61 at [63].

I now turn in more detail to Mr Cotman’s oral submissions in this Court. His argument as to the interpretation of s.667C and the assessment of fair value may be summarised in the following eight submissions –

1.The independent expert made no attempt at an allocation of the value of the company as a whole between classes of shares, the value of the preference shares being struck on a stand alone basis by capitalisation of the coupon rate of dividend (albeit that this is an entirely conventional method of valuation of such shares). Accordingly it was submitted that the valuation of the shares as a debt instrument gave the preference shareholders no link to the value of NCL as a whole.
This was precisely the method of valuation of preference shares employed by the independent expert in Pauls Ltd. v. Dwyer[38] and approved by the Court of Appeal in that case. However Mr Cotman submitted that additional value was to be found in the following propositions.

[38]See 171 F.L.R. 369 at [25].
2.The preference shares were alleged to be trading at a price higher than that reflected by the price offered in the acquisition notice. It was submitted that the respondent’s experts had made no enquiry as to what it was that occasioned the preference shares enjoying a market value significantly in excess of their method of analysis.
There is nothing in this submission. Warren, J.[39] noted that Lom had given consideration to market history and had weighed it; and he had noted that the last recorded sale was on 13 January 1998 when 50 shares were sold at a price of $1.42 per share. Lonergan had relied in his evidence on the price at which other preference shares had been traded over the last decade, including a price of $7.50 paid for preference shares in Ampol. However, as her Honour said[40], Lonergan acknowledged that the price paid for these shares was a “greenmail” value.
[39]Judgment at [53] and [54].
[40]Judgment at [70].
3.It was submitted that the independent expert’s assessment included no premium for control, and that if such a premium were left out, the assessment would not amount to a valuation of the whole of the company, and would fail to allocate the whole of the value as required by s.667C. The rejection of this submission accords with the authorities previously quoted.
4.Next it was argued that the seller, being persuaded to sell, wished to share in the value of special benefits, risks, timing, and taxation liability, all of which should be taken into account to capture the significant uplift in value once 100 per cent ownership of NCL has been achieved, an uplift in value which might be as much as 33 per cent between the market value of shares and the value of the company as a whole.
Her Honour’s rejection of this argument is consistent with the authorities previously quoted, concluding that it is impermissible in determining fair value to take into account special benefits deriving from full ownership. But in any event her Honour concluded on the facts before the Court that there were no special benefits with the possible exception of the trivial amount of $20,000 in respect of the auditing of separate accounts. This conclusion was unquestionably open on the evidence. The submission therefore fails both on the facts and the law.
5.Lonergan’s expert opinion was that the value of the company as a whole should be allocated 50/50 between class holders, half to the preference shareholders. He put it that when an element of the value of the company becomes available to one class of shareholders if another leaves, that it would be reasonable to share that allocation on a 50/50 basis. He argued that the Austrim approach did not allocate pro rata within a class, and that s.667C(1)(c) only forbids a premium within a class.
This argument was made in support of the appellant’s submission that some premium for control should be paid. Furthermore, it was explicitly rejected in the Court of Appeal in Pauls v. Dwyer[41]
6.Next it was submitted that fair value should include some special value in consequence of the acquirer achieving 100 per cent full control. It was argued that there should be a premium for control falling to preference shareholders and that this was embodied, for example, in the removal of a negative pledge, the cost of a separate registry, the ability to borrow and pledge NCL’s assets, in interest costs and in the ability to prevent capital reorganisation. The submission was that preference shareholders were not being allowed to share in the special value achieved by Austrim in obtaining 100 per cent ownership.
This argument again falls foul of the authorities which have determined both that a premium for control is not part of fair value and also that special benefits should not be taken into account in determining fair value. As already noted, her Honour found that with the one exception already mentioned no such special benefits existed. This argument also fails both on fact and law.
7.It was submitted that her Honour’s judgment misunderstands s.667C as foreclosing any kind of premium at all. A subsidiary argument under this heading was that ordinary shareholders could not conduct the company in whatever way they wished, having regard to the presence of a minority preference shareholding. It was argued that insofar as such inhibition existed, the removal of it should be taken into account in assessing fair value, and that there must be some value to the company in being rid of this inhibition. This argument also must be rejected having regard to the authorities referred to above.
8.Finally, Mr Cotman relied on what was called the Gambotto argument[42], the submission being that shares as a collation of rights reflect a reciprocal inhibition. The company involved suffers, so it was said, degrees of advantage and disadvantage from the existence of a special class of shares. It was submitted that there should be some value in what it was worth to the majority to be rid of the additional shareholding class. Merely to value the preference shares as debt instruments did not, so the argument ran, give effect to s.667C.
This argument also must be rejected both on the ground that it is impermissible in determining fair value to take into account special benefits deriving from full ownership and having regard to the judge’s rejection of the factual foundation on which the argument was based.

[41]171 F.L.R. 369 at [27]-[30].

[42]Gambotto v. WCP Ltd. (1995) 182 C.L.R. 432, per Mason, C.J., Brennan, Deane and Dawson, JJ. at 447, and per McHugh, J. at 457.

Each of the appellant’s oral arguments that Austrim failed to offer fair value for the preference shares should therefore be rejected.

Winpar’s grounds of appeal as to “fair value”

Winpar’s grounds of appeal were framed in terms that were most unhelpful to the Court, being both ambiguous and highly repetitive. Adding to the Court’s difficulty in deciding the appeal was the fact that Winpar failed to comply with the Court’s procedural rules, both as to the filing of summaries of fact and issues, and as to outlines of argument. The result was that it became necessary for the respondent to the appeal to file both a summary of proceedings and issues and an outline of argument, attempting to anticipate the issues to be raised by Winpar, and its arguments. In consequence the Court was ultimately provided with a series of conflicting summaries and it became necessary for Austrim to file three outlines of argument responding to the various issues repetitiously raised by Winpar. All of this caused considerable inconvenience and delay in the preparation of judgment. Furthermore long after argument had been completed the Court received a letter from the second respondent, Irene Juliana Kroll, making, without leave, further submissions.

Turning to the appellant’s grounds of appeal, the following comments are made.

Grounds 1 and 2 are in general terms going only to the ultimate issue. Grounds 3 to 10 in each case raise questions of fact on which the judge arrived at a conclusion contrary to the appellant’s case. In each case the factual conclusion to which her Honour came was open on the evidence. Insofar as grounds 5, 7, 9 and 10 raise questions of law, her Honour’s conclusion was consistent with the decision in Pauls v. Dwyer, and approved expressly in Energex v. Elkington. No error has been established. As to ground 11, the claim that her Honour ignored the submissions of Mr Catto and Dr Elkington is incorrect. Her Honour dealt with their evidence, and decided that it had little or no relevance to the assessment of fair value for the purposes of s.667C. Mr Catto and Dr Elkington had both given evidence as to the impact of the acquisition and the prices paid for preference shares in other companies obtained through a commercially negotiated bargain. Her Honour was entitled to arrive at the conclusion that this evidence had little or no relevance to the assessment of fair value for the purposes of s.667C. I note that Dr Elkington raised the same argument in his own submissions to the High Court in the application for leave to appeal, an application which, as I have already said, was rejected.

Ground 13 raises a question of fact, on which her Honour’s decision was plainly open on the evidence. Ground 14 complains that the judge erred in finding that the time for determining “fair value” for the purposes of s.667C is at the date of the compulsory acquisition notice. The same conclusion had been reached in Pauls v. Dwyer[43]. Ground 15 claims that the judge erred in finding that the benefit of distributions that are undeclared at the time of the compulsory acquisition notice accrue to the acquirer. This ground may be put to one side since there was no evidence of any such distributions. Both grounds 16 and 17 complain, in effect, that the judge erred in failing to find that a “premium for forcible taking” is a necessary element of fair value. These grounds should be rejected by reference to the decided cases already quoted.
[43]171 F.L.R. 369 at [21].

Ground 12

Ground 12 alleges that the judge erred in failing to have regard to the evidence of Kershaw that he dictated the opinions of the independent expert.

Under this ground Mr Cotman sought to argue a rather different issue, that the evidence disclosed not only that Lom was not independent but also that he was an “associate” of Austrim within the meaning of s.667B of the Corporations Act by reason of the extent of his involvement with Austrim in the preparation of the expert report and in the formation of the expert’s opinion. It followed accordingly, so the argument ran, that the compulsory acquisition notice was invalid because of material non-disclosure and because of failing to accompany a compliant expert’s report.

The appellant’s original written outline and summary of facts and issues made no reference to these allegations apart from briefly mentioning that they were major issues dealt with at the trial. However a “supplementary summary of argument” filed shortly before the hearing of the appeal commenced, addressed them. In this outline it was claimed that at trial the appellant alleged that Austrim had breached ss.664C(e)(i)(ii) and (iii) in that it had prepared a compulsory acquisition notice which failed to disclose information that was known to Austrim, material to the minority shareholders’ decision, and not disclosed in the expert’s report. The respects in which the compulsory acquisition notice was said to be improper, in breach of s.664C, were that –

(a)it failed to disclose information regarding the value of likely synergy benefits and cost savings in respect of which it would receive a benefit following the compulsory acquisition;
(b)it failed to disclose that the expert was an associate of Austrim, in breach of s.667B(1);
(c)it failed to disclose the details of the relationship Austrim had with DMR, including –
(i)the circumstances in which DMR was retained by Austrim to advise and support an application it made to ASIC in April 2000 to modify the law in an attempt to avoid the necessity of the expert assessing the fair value of the shares according to the method set down in s.667C;
(ii)the circumstances in which DMR advised Austrim details of the valuation methodology it would adopt if retained as an expert under s.667A at a time when Austrim had yet to determine the terms of the offer price; and
(iii)the extent to which the expert permitted Austrim to dictate various values, calculations and analytical content in circumstances where the expert ultimately incorporated this material into his report as representing the results of his own independent valuation assessment and conclusions.

The written outline alleged that at trial the appellant claimed that Austrim failed to give an “expert’s report” for the purposes of s.667A to the minority shareholders at the time of giving the notice of compulsory acquisition, arguing that the report prepared by DMR did not meet the requirements of s.667A because the evidence established that the expert was an associate of the first respondent in breach of the prohibition contained in s.667B(1), and failed to disclose the details of his relationship and prior dealings with Austrim and NCL as he was required to do pursuant to s.667B(2). The argument ran that the failure of the 90 per cent holder to adhere strictly to the statutory procedure in s.664C(2)(b)(ii) should halt the compulsory acquisition process. It was said to be incumbent upon a majority shareholder to ensure that the expert’s report given to minority shareholders was both independent and unbiased.

The argument continued that, at trial, the appellant contended that Lom was not a validly appointed expert because he was an associate of Austrim, that state of affairs being prohibited by s.667B of the Act. The factors which were alleged to undermine Lom’s independence were said to have included first that he was not independent from the time he was first approached by Austrim until his final report was published, that he was commissioned to prepare a report before the proposal to be reported on was finalised, that he began to write the report before the report was finalised, and discussed the appraisal method to be employed before the client had commissioned him. The lack of independence was said to arise as a result of discussions between Lom and Austrim on 7 April 2000, and the meeting between them held on 18 April 2000. As a result of these communications, Lom was said to be aware that his engagement to prepare a report under s.667A depended in part upon his agreement with Austrim that a valuation of the company as a whole in compliance with s.667C was not appropriate and his agreement to support an application by Austrim to ASIC to modify the Corporations Law so as to exempt Austrim from the requirement of providing minority shareholders with an expert report prepared for the purposes of s.667A.

Next it was alleged that if this Court was persuaded that the notice was invalid for the reasons stated above, the view taken by the judge that she would in any event regard any failure by Austrim to provide material information as a procedural irregularity, and that Austrim should be relieved from such invalidity pursuant to s.1322(4), was wrong.

In his oral argument to this Court, Mr Cotman put it that the sequence of events showed that drafts had been exchanged between Lom and Austrim before the offer price at $2 was struck. The appellant accordingly was entitled to claim that the minority shareholders did not have the advantage of a price struck by what the offering party might pay to be rid of preference shareholders. It was also said to have influenced the expert’s view that it was only the income stream that made up the value of the shares. If, the argument seemed to be, the expert had assessed the value of the company as a whole independently, considering market evidence as to the prices at which preference shares had been dealt with, an offer price at a value exceeding $2 would have resulted.

During argument Mr Cotman accepted that it had never been put directly to Lom in the witness box that he was not acting independently of Austrim in preparing his report, or that he was an associate of Austrim, and that no ground other than ground 12 in the notice of appeal related to this issue. However, he argued that the course of dealing between the parties and the exchanges of information between them showed that the independence necessary for an expert under Part 6A.2 could not be established. The process was, he submitted, well documented. Lom had laid out to Austrim all the integers of his valuation approach before the offer price was fixed, so the fixing of the price became simply a matter of mathematics. The result was that the minority shareholders did not have an independent mind addressing what Austrim would offer. It could not therefore be said that the independent expert had formed his views independently. He had laid bare to Austrim in these communications how he valued the company. The problem, so Mr Cotman said, was not that the independent’s view was compromised, rather in this situation one did not have two minds proceeding independently to arrive at the fair value. He argued that there should be two separate minds addressing the issue. The result of the process followed by Lom and Austrim was that Lom had formed the view he did and the range of values at which he arrived was in a narrow band. The company could therefore form a view about his likely opinion as to the range of values. The process, it was argued, was not corrupt, rather it showed a technical but important lack of independence from facts not in dispute. It was not argued that there had been any involvement in the expert’s method of valuation on the part of Austrim but rather there had been an active involvement by Austrim in arriving at integers of the expert’s calculation all done before the offer price was fixed at $2. In summary, the argument seems to have been that Austrim’s proposal should have been anterior to the expert’s report, the acquirer being required to put its best foot forward and live by the consequences, so that the acquirer made its best offer before the expert was required to comment upon it.

Accepting that no ground other than ground 12 related to the issue of independence, Mr Cotman at the end of his reply sought to amend his notice of appeal to include a new ground, alleging that the judge should have found that Lom’s report dated 22 December 2000 did not comply with s.667A of the Act by virtue of the fact that he had supplied a copy of his expert’s report to Austrim before Austrim fixed the acquisition price in its offer to preference shareholders of 15 January 2001. The respondent opposed the making of any such amendment.

The facts established at trial were not in issue. They were summarised by the respondent in a manner which was accepted as accurate by Mr Cotman. On 7 April 2000 ASIC nominated three persons to prepare an expert’s report. One of these was Lom, who was contacted by Kershaw on 7 April 2000. Lom said that a report could be made available in one week, but Lom and Kershaw discussed the possibility that ASIC might provide an exemption from valuing NCL as a whole. Lom said that it was his view that the value of NCL as a whole was irrelevant to the valuation of the preference shares and that such a valuation should not be required. Accordingly, Lom said that if ASIC granted the exemption, the fee for preparing the report would be $5,000. If no exemption was granted, Lom would need further information from Kershaw before giving a quote as to timing and costs. Then on 26 April 2000 Kershaw wrote to ASIC seeking an exemption from having NCL valued as a whole. On 10 May 2000 Lom wrote to Kershaw enclosing a draft report for checking as to clerical accuracy. On 11 May 2000 Kershaw sent the draft report back to Lom with corrections and insertions. One of the insertions was the inclusion of a figure, left blank by Lom, which Austrim proposed as the cash price for the acquisition of each preference share. When Lom was asked in cross-examination whether he had a role in the fixing of the price stated by Austrim in the compulsory acquisition notice, Lom said “absolutely not”. Kershaw also inserted figures, left blank by Lom, in the paragraph dealing with Lom’s conclusion of the range of fair values for the preference shares. The high figure inserted by Kershaw was $1.54. Kershaw’s evidence was that he had taken that figure from what Lom had himself written in the paragraph immediately above, and Lom’s evidence was that this was his calculation. The low figure inserted was $1.05. Lom said in cross-examination that he had no discussion with Kershaw about Lom’s conclusion as to the fair value of the preference shares.

On 22 May 2000 Kershaw had a discussion with an officer of ASIC, in which Kershaw was told that ASIC was not prepared to grant an exemption from having NCL valued as a whole. Kershaw complained to ASIC that in Austrim’s view and that of the independent valuer, the yield basis was the only appropriate basis for valuing the preference shares, and would not give a different outcome to that of valuing the company as a whole. ASIC nonetheless confirmed to Austrim that an exemption would not be granted. On 6 July 2000, in a conversation with Kershaw, Lom said that in view of ASIC’s decision, a valuation of NCL as a whole was required, and that the estimated cost was in the range of $25,000 to $30,000. Lom said he anticipated completing the valuation in September.

On the basis of these facts, Mr Santamaria for the respondent submitted to this Court that there had been no suggestion that Lom’s engagement was conditional on Austrim receiving an exemption from ASIC. It had never been suggested that an expert report under s. 667A should not be produced. What had been contemplated was that Austrim would seek an exemption from having Lom value NCL as a whole, and paying him for that exercise, when in Lom’s view that value “is irrelevant to the value of the preference shares”. Lom’s expert report provided an independent opinion of the fair value of the preference shares and a comparison of that fair value to the terms of the compulsory acquisition notice.

Mr Santamaria argued that it had never been put to Lom in cross-examination that his opinion as to the fair value of the preference shares was not independent. No argument had been made by the appellant at trial that Lom’s opinion was not independent, or that he was an “associate” of Austrim and hence ineligible to provide an independent opinion. The only argument that had been put in the appellant’s submissions at trial was to the effect that, if Austrim had not obtained expert assistance in setting the price payable under the compulsory acquisition notice, and instead had guessed at what the statutorily-defined fair value might be, Austrim might have set the price higher. None of this, Mr Santamaria argued, meant that the independent expert’s opinion of the fair value of the shares was not accurate and reliable. Nor did it mean that the price to be paid by Austrim was not equal or greater than fair value. The nub of the opposing argument was that the acquirer should fix its offer price before the valuer gives his assessment of fair value. The process actually followed meant that the minority shareholders had lost the possibility that Austrim might have set a price of, say, $10, a price which should have been fixed before the fair value was determined. In other words, Austrim should not know the independent expert’s fair value before it determines the price.

Mr Santamaria contended, and I think rightly, that Part 6A.2 does not include any such requirement, nor is it implicit in it.

Ground 12 in terms is plainly not made out. There was no evidence that Kershaw dictated the opinions of the independent expert.

In my view the evidence did not establish that Lom lacked independence as an expert or was an associate of Austrim. These matters were not raised at trial or put to him in the witness box, and the appellant should not now be permitted to rely upon them. I add that an identical argument was made on behalf of the minority preference shareholders in Pauls Ltd. v. Dwyer[44] and rejected. The same argument was raised by Dr Elkington before the High Court in the unsuccessful application for leave to appeal. The appellant’s application to amend its grounds of appeal should be rejected. Ground 12 fails.
[44]171 F.L.R. 369 at 381-382, in paras.[46]-[53].

Grounds 21-24

No further argument was made in support of ground 21 (alleged material non-disclosure by Austrim) or ground 22 (Austrim’s failure to comply with the requirements of s. 664C(1)(e)), other than those which have already been dealt with under ground 12. No argument was addressed to the Court under ground 23, which claims that the judge erred in finding that Austrim was an owner of the full beneficial interest in at least 90 percent of the NCL preference shares. Ground 24 claims that the judge erred in finding that any procedural irregularity resulting in the invalidity of the compulsory acquisition notice ought to be relieved by virtue of either ss.1322 or 1325D of the Corporations Act. No argument was addressed to the Court under this ground, but there was in any case no error shown in her Honour’s reasons, and further the appellant did not establish that there had been any procedural irregularity. Each of these grounds should be rejected.

The letter to the Court from the second respondent[45] made reference to the rejection by the High Court of the applications for leave to appeal against the decisions of Pauls v. Dwyer and Energex v. Elkington. Her letter asserted that “a great injustice has been done to the minority shareholders in those two Queensland cases” and continued –
[45]See paragraph [38] above.

“It seems to me that when a person buys shares in a company (and it does not matter whether the shares are ordinary shares or preference shares) that person purchases not only the distribution rights attached to the shares, but a proportionate interest in the bargaining position which the class of shares has in various situations involving rearrangements of interests in the company’s share capital. The law respects the bargaining position of each class of shares whenever a scheme of arrangement or selective capital reductions is proposed, and whenever a traditional takeover offer is made. In each of these situations the shareholders in each class may act in their own interest, as a class, to secure for themselves benefits which may have a greater value than what they might get for their shares in the market. That is the way the market allocates value, and it is the very essence of share ownership.

In this case Justice Warren accepted that preference shareholders should be given only the market value of their shares, based on yield and nothing else. If that is right, no one will ever again make a traditional takeover offer for minority classes of shares, and the protection which the takeover provisions offer will be to no avail.
This case should not be about determining the market value of shares, but about allocating value between classes of shares ...”.

These arguments, as the second respondent accepts, are inconsistent with two decisions of the Court of Appeal of Queensland. They were raised expressly by Dr Elkington in the unsuccessful applications for special leave to the High Court. For the reasons given in para.[33] above, it is not now open to this Court to take a different view.

The appeal should be dismissed.

BUCHANAN, J.A.:

I agree with Charles, J.A., for the reasons he has stated, that the appeal should be dismissed.

EAMES, J.A.:

I agree that the appeal should be dismissed, for the reasons stated by Charles, J.A.

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Winpar Holdings Limited v Austrim Nylex Limited [2005] VSCA 211

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Winpar Holdings Lmiited v Austrim Nylex Limited (No 2) [2005] VSCA 301

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[2005] VSCA 211

25 August 2005