Marlborough Lines Limited v Takeovers Panel HC Wellington CIV 2010-485-1150
[2010] NZHC 1863
•12 October 2010
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2010-485-001150
UNDER the Judicature Amendment Act 1972
BETWEEN MARLBOROUGH LINES LIMITED Plaintiff
ANDTHE TAKEOVERS PANEL First Defendant
ANDHORIZON ENERGY DISTRIBUTION LIMITED
Second Defendant
Hearing: 9-11 August 2010
Counsel: M T Scholtens QC and J B Orpin for Plaintiff
B W F Brown QC and S L Bacon for First Defendant
D J Cooper and S V A East for Second Defendant
Judgment: 12 October 2010 at 3pm
I direct the Registrar to endorse this judgment with a delivery time of 3pm on the
12th day of October 2010.
RESERVED JUDGMENT OF MACKENZIE J
Table of Contents
Introduction [1] Facts [2] The decision not to make a determination [29] Costs and fees decision [50] The decision to assume jurisdiction over Horizon’s costs [70] Relief [90]
MARLBOROUGH LINES LIMITED V THE TAKEOVERS PANEL AND ANOR HC WN CIV-2010-485-
001150 12 October 2010
Introduction
[1] This is an application for judicial review of certain decisions of the first defendant in relation to a takeover offer made by the plaintiff (Marlborough) to acquire shares in the second defendant (Horizon).
Facts
[2] Marlborough is an electricity distributor based in Blenheim. It operates a distribution network in that region. Horizon is an electricity distributor based in Whakatane, operating a distribution network in that region. It is listed on the New Zealand Stock Exchange. Over 77 per cent of the shares in Horizon are held by the Eastern Bay Energy Trust (EBET).
[3] In 2008, EBET issued an invitation to selected parties to make representations regarding the possible sale, transfer, or amalgamation of EBET’s shares in Horizon. The offer was of interest to Marlborough, which has had a policy of looking for opportunities for the aggregation of smaller lines businesses. Discussions took place and Marlborough submitted a proposal to EBET and then a more detailed submission to Horizon. Talks were ultimately unsuccessful and discussion of a possible merger ended in November 2008. Marlborough maintained contact with EBET, and maintained its interest in acquiring an interest in Horizon. Marlborough formed a view that a merger might be possible through Marlborough launching a takeover offer.
[4] On 14 September 2009, Marlborough issued a takeover notice announcing its intention to make, on 29 September 2009, a partial offer for 51 per cent of the shares in Horizon at $3.96 per share. Because Horizon is a listed company, Marlborough’s offer was governed by the Takeovers Code contained in the Takeovers Code Approval Order 2000 (the Code), made under the Takeovers Act 1993 (the Act). The Code specifies detailed requirements which are to be observed by (inter alia) an offeror (as Marlborough was) and a target company (as Horizon was).
[5] Supervision of compliance with the Code is the responsibility of the Takeovers Panel (the Panel) established under the Act. The Panel monitors and assists the takeover process to promote compliance with the Code. All takeover documentation required to be provided pursuant to the Code, and in accordance with a policy published by the Panel relating to the receipt of takeover documents, is considered and reviewed by the Panel Executive, a full time professional secretariat which undertakes day to day work for the Panel. This review process is intended to assist market participants by suggesting changes to documentation to resolve, informally, potential breaches of the Code. The Panel Executive provides this service to any party to a transaction which asks for help. The Panel Executive’s advice is always caveated as being without prejudice to the Panel should the matter come before the Panel itself.
[6] The Panel Executive first learned of Marlborough’s takeover notice when Horizon made a market announcement that the notice had been received. There was no formal obligation on Marlborough to send a copy of the notice to the Panel, but the Panel’s published policy includes the notice as one of the documents which the Panel expects to receive. The Panel Executive obtained a copy of the notice, and on
15 September 2009, wrote to Marlborough raising a number of issues with the notice, and suggesting how these might be addressed. On 17 September Marlborough served an amended notice reflecting those suggestions.
[7] One of the steps required of Horizon by the Code was the appointment of an independent adviser, approved by the Panel. Simmons Corporate Finance Limited was approved for this purpose on 18 September.
[8] On 28 September 2009, Horizon issued a revised profit outlook. The forecast after tax profit for Horizon for the 2009/10 financial year was increased from
$4.5 million to around $6 million. The statement explained the reasons for the revision in this way:
The forecast profit for the current year has been increased as a result of increased revenue, cost savings, and mark to market gains on the Company’s interest rate derivates.
The additional revenue results from increased electricity consumption during the relatively cold 2009 winter. Normal consumption levels are forecast to return at the end of the financial year.
Mr Tait (Horizon’s chairman) said that the cost savings are particularly pleasing and reflect the close scrutiny of all costs within the company.
[9] Marlborough’s takeover offer was made, as signalled, on 29 September. On
5 October, the Panel Executive received from Horizon, and reviewed, the draft independent adviser’s report.
[10] On 6 October, Marlborough wrote to the Panel querying whether the revised profit outlook was a defensive tactic or a misleading statement. Defensive tactics are restricted by r 38 of the Takeovers Code and misleading or deceptive conduct is prohibited by r 64. On 12 October the Panel wrote to Horizon seeking comments on Marlborough’s concerns about the revised profit outlook.
[11] Under the Code, Horizon was required to issue a target company statement responding to Marlborough’s offer. On 8 October, Horizon sent to the Panel a draft of the target company statement, for review. The statement included, as required by the Code, a valuation by the independent adviser, Simmons Corporate Finance Limited. That report expressed the view that the value of Horizon was in the range of $3.96 to $4.68 per share. The draft target company statement included a recommendation from the Horizon directors that shareholders reject Marlborough’s offer. They said that the independent adviser’s valuation range of $3.96 to $4.68 per share did “not adequately reflect the Board’s view of the full value” of Horizon. On
9 October, the Panel Executive wrote to Horizon’s lawyers commenting on the draft target statement. One of the matters raised was the directors’ view on the valuation. The letter asked what was the basis for that view. By letter dated 12 October, Horizon’s lawyers responded in these terms:
The directors of Horizon Energy have taken independent financial advice in relation to their response to the takeover offer. Cameron Partners Limited were engaged by Horizon and have provided assistance to the directors, including by providing a separate indicative valuation of Horizon Energy based on materials provided by the Board. The Board has also had regard to this valuation, its own views on valuation and other matters, including the historic multiples applied to sales on other network assets in making its recommendation.
[12] The target company statement was issued, without any material change from the draft statement, on 13 October.
[13] Marlborough’s offer was dependent upon it being accepted by the majority shareholder EBET. On 19 October 2009 EBET announced that it had decided not to accept the offer. The offer eventually lapsed on 30 October.
[14] Under r 49 of the Code a target company may recover from the offeror expenses properly incurred by the target company. A claim for about $360,000 was made by Horizon. Marlborough was concerned that Horizon might not have acted in compliance with the Code in connection with the takeover, and that that might be relevant to whether or not the expenses claimed were properly incurred. In particular, Marlborough did not believe that the independent adviser’s valuation range was supported by the evidence and it could not understand the basis on which the directors formed the view that there was further value beyond $4.68 per share.
[15] The Panel has responsibilities for monitoring compliance with the Code. It has investigative powers. Under s 32 of the Act it may, if it considers that a person may not have acted or may not be acting or may intend not to act in compliance with the Takeovers Code, hold a meeting for the purpose of determining whether to exercise its powers to make a determination as to whether or not there has been compliance. On 22 February 2010 Marlborough made a formal request to the Panel that it hold a meeting so that it could investigate and determine whether Horizon had breached the Code, raising a number of matters of concern to Marlborough.
[16] On 9 March 2010 the Panel advised Marlborough and Horizon that it had decided to hold a meeting. It advised that there were two respects in which it considered that Horizon may not have acted in compliance with the Code. Those two respects did not cover all of the concerns which had been raised by Marlborough. The notice of meeting said that on the basis of information available to it the Panel considered that:
(a)Horizon and/or the directors of Horizon may not have acted in compliance with r 64 of the Code by issuing a revised profit outlook on 28 September 2009, if there was no reasonable basis for issuing that reviewed profit outlook; and
(b)The directors of Horizon may not have acted in compliance with r 64 of the Code by stating in the target company statement in response to the partial offer by Marlborough for Horizon that the valuation range of $3.96 to $4.68 per share did not reflect the full value of Horizon, if they had no reasonable basis for making that statement.
[17] The Panel’s processes are largely inquisitorial. The Panel summonsed documents from Horizon and from Cameron Partners Limited, a company which the Panel knew, from its earlier involvement with the target company statement, had acted as advisers to Horizon on the takeover offer.
[18] On 18 March, Marlborough was served by Horizon with copies of affidavits from two Horizon directors. Those affidavits indicated to Marlborough that a material portion of the increase in the profit forecast announced in the revised profit outlook on 28 September 2009 was the result of a previously unannounced change in accounting treatment of the capitalisation of costs for capital works. Marlborough also learned that Horizon had received valuation advice in relation to its share price from Cameron Partners and had relied on this advice when it expressed the view that the independent adviser’s valuation range did not represent full value for Horizon. Marlborough came to the view, from this information, that Horizon, by failing to disclose either of those matters in the context of the takeover, may have committed other breaches of the Code than those the Panel indicated it would consider at the meeting. It drew these matters to the Panel’s attention in submissions filed at the start of the s 32 meeting as well as in submissions filed after it. One issue which Marlborough raised was whether, by reason of the reliance by the directors on the Cameron Partners’ advice in expressing their opinion on value, that advice should have been included in the target company statement.
[19] The s 32 meeting was held on 22 March 2010. In addition to the two issues raised in the notice of meeting, the Panel raised with Horizon the question whether the failure to disclose the change in accounting treatment may have been in breach of the Code. The Panel indicated it wished to consider that matter and Horizon did not object to it doing so. At the beginning of the meeting, counsel for Marlborough presented written submissions, which he addressed orally. Counsel for Horizon responded orally. The Panel then heard from witnesses, who were questioned by counsel assisting the Panel and by Panel members. Counsel for Marlborough and
Horizon each presented brief oral closing submissions. At the conclusion of the meeting the Panel reserved its decision and allowed an opportunity for the simultaneous filing of written submissions.
[20] The Panel’s determination and statement of reasons was issued in a 42 page decision delivered on 10 May 2010. The Panel considered three issues. The first two were considered together. These were:
(a)Whether Horizon and/or its directors acted in compliance with r 64 of the Code by issuing a reviewed profit outlook on
28 September 2009 if there was no reasonable basis for issuing the reviewed profit outlook;
(b)Whether Horizon and/or its directors acted in compliance with r 64 of the Code, by issuing a reviewed profit outlook on
28 September 2009 that omitted to include information regarding the
change of the application of an accounting treatment, including the impact on the reviewed profit outlook.
[21] On the revised profit outlook issue the Panel found there was no breach of the Code. It came to this conclusion because it regarded the revised profit outlook as a statement of opinion which was honestly held and reasonably based in the light of management forecasts. On the accounting treatment issue the Panel found that Horizon had breached r 64 because the effect of the change in application of the accounting treatment was material and the reasons for the uplift in forecast profit could have had an influence on shareholders’ understanding of the reasons for Horizon’s improved profitability.
[22] The third issue considered by the Panel was:
(c)Whether the directors of Horizon acted in compliance with r 64 of the Code by stating in the target company statement in response to the partial offer by Marlborough that the valuation of $3.96 to $4.68 per share did not reflect full value for Horizon.
[23] The Panel found that there was no breach of r 64 because it concluded that the directors’ opinion to that effect was honestly held and that, although the conclusion was finely balanced, the Horizon directors’ opinion was reasonably based, being based on a number of factors, of which the Cameron Partners’ valuation
was only one. It further held that the Horizon directors’ opinion on Horizon’s value was not demonstrably wrong.
[24] The Panel then commented that one of the issues raised by counsel for Marlborough in submissions following the s 32 meeting was whether Cameron Partners’ indicative valuation should have been included in Horizon’s target company statement pursuant to clauses 18(5) and 24 of Schedule 2 of the Code. It said that the issue was not included in Marlborough’s request for a s 32 meeting because Marlborough did not become aware of it until the Panel’s notice of meeting had been sent out. It said that the issue was not before the Panel at the s 32 meeting and the Panel makes no finding or determination on it.
[25] As to remedies, the Panel considered that the mischief arising from the breach which it had found was remedied by the determination disclosing that change and that as the Marlborough offer had closed in October 2009 the Panel had decided not to pursue any remedies. Finally, the Panel reserved its decision on the matter of fees and costs and said that it would advise the parties in due course.
[26] On 20 May 2010, the Panel advised Marlborough of its fees and costs decision, and of its reasons. The Panel’s total recoverable costs were $200,000. These were apportioned: $146,000 to be recovered from Marlborough and $54,000 from Horizon.
[27] Horizon’s claim against Marlborough for expenses under r 49 of the Code referred to at [14] remained unpaid. Horizon wrote to the Panel on 21 May 2010 requesting that the Panel convene a further s 32 meeting, to determine whether Marlborough had failed to comply with the Code by failing to reimburse Horizon for the expenses claimed by Horizon as having been incurred in connection with Marlborough’s unsuccessful partial takeover offer, and for 80 per cent of the expenses incurred by Horizon in connection with the earlier s 32 meeting requested by Marlborough. Marlborough disputed the Panel’s jurisdiction to call a meeting in respect of those matters. On 4 June 2010 the Panel advised Marlborough and Horizon that it considered that it did have jurisdiction to hold such a meeting and
that it intended to do so. No further steps in relation to such a meeting have been taken pending the outcome of this proceeding.
[28] In this proceeding, Marlborough seeks judicial review of the following decisions taken by the Panel:
(a)The decision by the Panel on 10 May 2010 not to make a determination on whether the Cameron Partners report or a summary of that report should have been included in the target company statement pursuant to clauses 18(5) and 24 of schedule 2 of the Code; and
(b)The Panel’s decision to recover $163,609.58 (including GST ) from Marlborough as fees and costs associated with the s 32 meeting pursuant to the Takeovers (Fees) Regulations 2001; and
(c)The Panel’s decision that it has jurisdiction to convene a further s 32 meeting in respect of Horizon’s claims for expenses recoverable “as a debt due” pursuant to r 49(2) of the Code.
The decision not to make a determination
[29] The decision referred to in [28](a) relates to the issue described at [24]. The grounds on which Marlborough seeks judicial review of the Panel’s decision not to make a determination on whether the Cameron Partners’ report should have been included in the target company statement are as follows:
(a)That the Panel made an error of law when it determined that the issue of whether the Cameron Partners valuation should have been disclosed in the target company statement was not before it;
(b)The decision not to consider whether the Cameron Partners valuation should have been disclosed in the target company statement was irrational;
(c)The Panel’s decision involved a breach of natural justice in that it had a relevant prior undisclosed involvement in the issue of whether the Cameron Partners report should have been disclosed; and
(d) The Panel’s breach of natural justice in failing to disclose its prior involvement in the issue denied Marlborough an opportunity to clarify the matters before the Panel.
[30] The Panel’s reasons for not addressing the question whether the failure to disclose the Cameron Partners’ advice in the target company statement might have been a breach of the Code were expressed in its determination in these terms:
146.One of the issues raised by Mr Kós in his submissions following the s 32 meeting was whether Cameron Partners’ indicative valuation should have been included in Horizon’s target company statement pursuant to clauses 18(5) and 24 of Schedule 2 of the Code. This issue was not included in the Marlborough Lines’ request for a s 32 meeting because Marlborough Lines did not become aware of the existence of Cameron Partners’ valuation until after the Panel’s
9 March 2010 notice of the s 32 meeting had been sent out. The issue was not before the Panel at the s 32 meeting and the Panel
makes no finding or determination on it.
[31] In this proceeding, the Panel’s position on this issue is expressed in its statement of defence in these terms:
The Panel … says … that the issue of whether the CP valuation should have been included in the target company statement was not properly before the Panel at the meeting, it was not a matter in respect of which the Panel had given written notice to Horizon and the Panel did not and could not make a finding or determination on it.
[32] Marlborough submits that the Panel had jurisdiction to deal with the non disclosure of the Cameron Partners’ valuation at the s 32 meeting. Ms Scholtens QC submits that, as a matter of fact, the issue of the non disclosure of the Cameron Partners’ report was before the Panel and that as an inquisitorial body with a responsibility to investigate breaches of the Code and evidence before it that Marlborough was not privy to, the Panel should have considered the issue of the non disclosure of the Cameron Partners’ valuation and could have done so without offending Horizon’s right to natural justice. Mr Brown QC for the Panel expresses the Panel’s position in his submissions in these terms:
55.The notice of meeting served on Horizon pursuant to s 32(1) of the Act (Notice of Meeting) was explicit. It identified the two breaches of the Code complained about by Marlborough that the Panel considered reached the requisite threshold for calling a s 32 meeting.
56.The Disclosure Issue did not form part of Marlborough’s request for a s 32 meeting and was not included in the Notice of Meeting.
57. The right to notice is an element of the right to a fair hearing afforded to all those who are parties to a proceeding before a body
required to observe the rules of natural justice. The Panel is required to observe the rules of natural justice.
…
61.In order to discharge its obligation of natural justice to Horizon the Panel was required to identify with precision exactly what allegations Horizon was required to meet.
62.It was not open to the Panel to simply “add” to the hearing during its course a further allegation without affording Horizon adequate notice.
63.Even if the Panel was not required in every case to give notice, which is denied, the fact that in the present case the Notice of Meeting explicitly identified the alleged breaches prior to the meeting operated as a bar to the Panel considering issues at the meeting other than those identified in the Notice of Meeting.
64.The obligations of natural justice owed to the party against whom allegations of breach have been made are much stronger than the obligation owed, if any, to the requesting party.
65.It is axiomatic that the Panel was required to err on the side of caution, and with the benefit of the legal advice it received, the Panel accepted that it had no jurisdiction to hear or determine the Disclosure Issue.
[33] The Cameron Partners’ advice was directly in issue on the third issue considered by the Panel, set out at [22]. The Panel posed three questions in considering whether the directors’ statement on value was in breach: was the opinion honestly held; was it reasonably based; was it not demonstrably wrong? In its discussion of these questions, the Panel referred to the Cameron Partners’ advice, in describing the material the directors had taken into account in forming their opinion as to the value range of Horizon. The Panel concluded that the Horizon directors’ opinion was honestly held. It noted that Horizon’s management forecasts formed the basis for the Cameron Partners’ valuation and that there was no evidence that Horizon’s directors thought those management forecasts were unreasonable. On the question of whether the directors’ opinion was reasonably based, the Panel noted the directors’ evidence that their opinion was based on a number of factors, of which the Cameron Partners’ valuation was only one. The Panel had difficulty accepting that some of the factors quoted in the target company statement in support of the opinion could reasonably form the basis for the directors’ opinion of Horizon’s value. Those factors were regarded as being too insignificant to provide a reasonable
basis for an opinion about the extent of Horizon’s full value over and above that assessed by the independent adviser. However, the Panel acknowledged that the directors were entitled to rely on advice provided by the Horizon strategy advisers Cameron Partners and focused its inquiry on whether it was reasonable for the Horizon directors to base their opinion on the indicative valuation prepared by Cameron Partners. It considered there was scope for differences between experts and that it was not unreasonable for the Horizon directors to rely on the Cameron Partners’ valuation as a basis for their opinion provided with their experience as directors for Horizon they honestly believed the valuation to have been reasonable. The Panel accordingly reached the conclusion that the Horizon directors’ opinion was reasonably based, although it described that conclusion as finely balanced. The Panel further held that the opinion was not demonstrably wrong.
[34] The essence of the question in this proceeding is whether it was open to the Panel, in considering whether the directors’ statement of opinion constituted a breach of r 64 of the Code, to take into account the directors’ reliance on the Cameron Partners’ report, without also considering whether the directors reliance upon that report gave rise to an obligation to disclose it in the target company statement under cl 18(5) and cl 24 of Schedule 2 of the Code. Those provisions require disclosure of any information that could reasonably be expected to be material to the making of a decision by the offerees to accept or reject the offer.
[35] There is clearly a linkage between two questions, namely:
a) Whether the expression of opinion by the directors that the valuation range in the independent adviser’s report was too low was false or misleading; and
b)Whether the information on which the directors’ opinion was based was itself material to a decision to accept or reject the offer.
[36] Horizon had, in its responses to the Panel, both to the Panel Executive on
12 October 2009 (referred to at [11]) and to the Panel in the s 32 meeting, relied upon the Cameron Partners’ valuation advice. It is at the least arguable that, if the
Cameron Partners’ report was information upon which the directors could properly rely to express a view as to the value of Horizon, then the Cameron Partners’ report would also be material to a decision by a shareholder whether to accept or reject the offer. If that were so, then the two questions cannot readily be separated or viewed in isolation.
[37] The Panel has held that it could not consider the second question in the context of the s 32 meeting. It has considered the first question. It is implicit from that method of proceeding that the Panel must have considered that the answer to the first question was in no way dependent on the answer to the second question, or that it did not necessarily raise, as an issue which needed to be addressed by the Panel, the second question.
[38] I do not consider that the Panel was correct in taking that view of the lack of a relationship between the two questions. I consider that the Panel could not properly address the issue of whether Horizon had acted in compliance with the Code, in relation to the expression of opinion that the independent adviser’s valuation range was too low, without considering both questions.
[39] If the first question is answered without reference to the second, that carries with it the implication that the answer to the first question is in no way dependent on the answer to the second question, and that it is unnecessary to consider, in determining whether the directors could properly rely on the Cameron Partners’ advice in expressing their opinion, whether the Cameron Partners’ advice is information that could reasonably be expected to be material to the offerees’ decision. If that is the case, then it must necessarily follow that the directors could properly rely upon information which is not disclosed in the target company statement, even where that information might be material information which ought to have been disclosed. I think it unlikely that the Panel would have intended to suggest that implication, but I consider that it necessarily follows from the Panel’s approach.
[40] I do not consider that the two questions can be separated in the way that the
Panel has done. I consider that, before the Panel could properly determine whether
or not there was a breach of the Code, both issues needed to be determined. There would be a breach of the Code if either:
a) The directors’ reliance upon an undisclosed report did not provide a reasonable basis for their opinion as to value; or
b)The undisclosed report provided a reasonable basis for their opinion, but the report was material information which ought to have been disclosed.
[41] I consider that it was not properly open to the Panel to consider one of these possible breaches without also considering the other. The two are inextricably linked.
[42] The Panel itself seems to have adopted reasoning similar to that which I have expressed, in dealing with the first and second issues which it considered as set out in [20]. The question initially raised in the notice of meeting, set out at [16](a), was whether there was a reasonable basis for issuing the revised profit outlook. When the material which had been relied upon to support the issue of the revised profit outlook was put before the Panel by Horizon, the Panel determined that it was necessary to consider whether the material relied upon (that is, the change in accounting basis) should itself have been separately disclosed. The Panel raised that matter at the outset of the hearing, and it was dealt with. So, the first issue raised in the notice of meeting was considered as two issues at the meeting.
[43] In my view, similar considerations should have applied in relation to the second issue in the notice of meeting, at [16](b). A similar inquiry should have been made in relation to the information relied upon by the directors in forming their opinion as to value. When Horizon relied upon the Cameron Partners’ advice to support the directors’ opinion, the question of whether the Cameron Partners’ report was material information which ought to have been disclosed necessarily arose and needed to be determined.
[44] I do not accept Mr Brown’s submission that the Panel’s obligations of natural justice to Horizon required it to exclude the question of the disclosure of the Cameron Partners’ report from its consideration. That question was necessarily raised by Horizon’s reliance on the Cameron Partners’ report in dealing with the issue that had been raised by the Panel. The Panel is required, by s 8(2) of the Act, to comply with the principles of natural justice. Horizon could have no proper objection, on natural justice grounds, to the Panel addressing the question which Horizon itself had necessarily raised. Further, the requirements of natural justice depend upon the circumstances. In this case, an adequate opportunity to be heard on the question of whether the Cameron Partners’ report was material information which should have been included in the target company statement could have been afforded to Horizon. This hearing was not attended by the urgency which normally attaches to the Panel’s investigations, since the takeover bid was no longer extant. The opportunity for further submissions, or if necessary a further hearing, could readily have been given.
[45] I consider that Marlborough’s submission that the Panel made an error of law in determining that the issue of whether the Cameron Partners’ valuation should have been disclosed in the target company statement was not before it must be upheld.
[46] Marlborough also submits that the Panel’s failure to address the question whether the Cameron Partners’ advice was material information which ought to have been disclosed was a breach of Marlborough’s right to natural justice. It is submitted that Marlborough’s right to natural justice was breached because of the Panel’s prior and undisclosed knowledge of the reliance Horizon placed on the Cameron Partners’ valuation, and because the Panel had, in its earlier involvement, considered whether the valuation should have been disclosed. That submission might more aptly be labelled as a potential bias or predetermination than a breach of natural justice. That is of little moment. It is the substance, not the form, of the submission which must be considered.
[47] Marlborough submits that there is no jurisdiction under the Act for the Panel to review draft documents. I do not accept that submission. The Panel’s functions are set out in s 8(1). These include:
(d)To investigate any act or omission or practice for the purpose of exercising its powers and functions under [Parts 3 and 4]:
(e) To make determinations and orders and make applications to the
Court in accordance with Part 3 of this Act:
[48] These functions need to be interpreted in a way which gives effect to the purposes of the Act. A narrow construction is not appropriate. I consider that the Panel may properly, in the exercise of its functions, assist participants by reviewing draft documents with a view to ensuring compliance with the Code, in an attempt to avoid breaches which might otherwise require the exercise of the specific enforcement powers conferred on it. I find nothing in the Act to confine the Panel to the role of ambulance or policeman at the bottom of the cliff, to the exclusion of its being also a fence builder at the top.
[49] The exercise of the Panel’s functions in this way does, however, raise the question of the impact of that prior assistance on the Panel’s investigative functions if they later need to be exercised. I have described, at [5], the Panel’s practice of reviewing, through the Panel Executive, draft documentation for the assistance of market participants. I have also described, at [11], the exchanges between the Panel and Horizon over the draft target company statement. Marlborough submits that the effect of this is to disqualify the Panel, by reason of apparent bias. Counsel cites in support of that submission the well known authorities on the test for apparent bias in the context of a Court. The test is whether a fair-minded lay observer might reasonably apprehend that the Judge might not bring an impartial mind to the question the Judge is to decide. Ms Scholtens submits that the same test should apply to other decision makers. She cites no authority for that proposition. Mr Brown does not accept that this test must be applied in the same way (to the same rigorous standard) to decision makers other than Judges. I accept Mr Brown’s submission. I prefer not to venture into the potentially difficult question whether a lesser obligation on the Panel arises because the fair minded observer test does not apply, or because the circumstances to be taken into account by the fair minded observer would, in this case, include the wider role of the Panel than purely that of decision maker. Either way, I do not consider that the Panel’s earlier involvement, through the Panel Executive, was a matter which disqualified the Panel from exercising its powers under s 32. Nor do I consider that the prior involvement
needed to be disclosed to Marlborough. The Panel’s willingness to offer advice was well publicised. The Panel had in this case also offered advice to Marlborough. I would not uphold Marlborough’s challenge to the determination on the first issue on these grounds.
Costs and fees decision
[50] The Takeovers (Fees) Regulations 2001 enable the Panel to require payment to it of fees and costs in respect of a meeting held under s 32 of the Act. Regulation 5 provides:
(1) The Panel may require payment to it of—
(a)a fee of $1,125 in respect of a meeting that is requested by a third party to be held under section 32 of the Act; and
(b)a fee calculated at the following hourly rates in respect of a meeting held under section 32 of the Act and in respect of the exercise of any of the Panel's powers under that section:
(i)for work carried out by a member of the Panel, an hourly rate of $225:
(ii) for work carried out by an officer or employee of the Panel or of the Securities Commission who holds a qualification in accountancy, business, commerce, economics, or law, an hourly rate of $163; and
(c)the costs incurred by the Panel in obtaining, in respect of a meeting held under section 32 of the Act and in respect of the exercise of any of the Panel's powers under that section, expert advice or expert assistance.
(2)The fees and amounts set out in subclause (1) are payable, at the discretion of the Panel, either by—
(a)a third party who has requested that the Panel hold a meeting under section 32 of the Act; or
(b)a person against whom the Panel has made a determination under section 32(3)(b) of the Act.
[51] Following the s 32 meeting, at which the Panel’s decision was reserved, the Panel Executive prepared, on 30 April 2010, advice to the Panel on the allocation of costs for the s 32 meeting, in accordance with its usual practice. The Panel met to consider the issue of allocating costs on 11 May 2010. The minutes of that meeting
record that the Panel did not yet know the actual quantum of costs and so considered the principles under which costs should be recovered. It decided that the full quantum of costs recoverable under the regulations should be recovered from the parties. It noted that it had held the s 32 meeting at Marlborough’s request and had considered three issues of potential Code breaches by Horizon. It considered that costs should be allocated between Marlborough and Horizon based on how those issues were decided, in that Marlborough would bear the costs attributable to any issues on which the Panel found no breach of the Code and Horizon would bear the costs attributable to any issues on which the Panel found there was a Code breach. With one exception, all recoverable costs should be allocated evenly to all three issues considered at the meeting. The one exception was the amount payable in respect of an independent expert who had been engaged by the Panel only on the third issue. His costs were to be attributable to that issue only. The Panel noted that it had found that Horizon had breached the Code on only one of the three issues considered at the s 32 meeting, not being the issue on which the independent expert had provided assistance. The Panel therefore decided that Horizon would bear one third of the recoverable costs, excluding the independent expert’s fee. Marlborough Lines would bear the remaining two thirds, plus the independent expert’s fee.
[52] In accordance with that statement of principle, the Panel executive sought payment of costs of $145,430.74 from Marlborough and $53,365.37 from Horizon. Marlborough’s position is summarised in its submissions in these terms:
5.1 Marlborough seeks judicial review of the Panel’s Costs and Fees
Decision on the following grounds:
(a) The Panel breached Marlborough’s right to natural justice by not providing it with an opportunity to make submissions on how costs and fees should be awarded;
(b) The Panel was wrong as a matter of law to make an allocation of fees and costs in the way that party costs might be awarded in litigation;
(c) It was irrational to adopt such an allocation; and
(d) The Panel failed to take into account relevant considerations.
[53] The first question for consideration is whether, before fees can be recovered under reg 5, the party from whom recovery is sought is entitled to an opportunity to be heard in relation to the quantum of fees, or the allocation of fees. Marlborough submits that it should, and that the breach of natural justice was particularly significant in circumstances where the Panel was considering recovering a large sum from Marlborough as the requestor. It further submits that the amount of Panel members and Panel Executive time was significant and Marlborough had no opportunity to query why such a large amount of time was spent.
[54] The Panel submits that the statement in the Panel’s substantive determination that it “reserves its decision on the matter of fees and costs and will advise the parties in due course” put the Panel on notice that the Panel was not expecting the parties to provide submissions on costs prior to a determination being made by the Panel and if Marlborough was concerned about the course of action proposed by the Panel it was incumbent on Marlborough to raise this issue with the Board. It says that Marlborough was on notice that the Panel intended on making a determination and it was open to it to indicate that it wished to be heard.
[55] There is no explicit requirement in the Act or the Regulations requiring that parties be heard before an order for costs is made. The question is whether the principles of natural justice require an opportunity to make submissions on either the quantum or the allocation of costs.
[56] Dealing first with quantum, I do not consider that the Panel is required to give the parties an opportunity to be heard on quantum. The hourly rates payable for work carried out by a member of the Board, or by an officer or employee of the Panel, are prescribed in reg 5(1). The question of the fee recoverable by the Panel will accordingly be a function of the amount of work carried out. By the time costs come to be considered, that work will have been carried out. The level of work necessary to carry out its functions is a matter for the Panel, and not one on which the input of the parties should be required before the work is undertaken. The level of fees will have been determined, at least substantially, before any opportunity to make submissions would arise. There is accordingly no basis upon which meaningful submissions as to quantum could be made.
[57] The next question is whether an opportunity to make submissions on allocation is required. I include within that term two aspects: whether there should be a full recovery or only a partial recovery of costs, and how that recovery is to be apportioned between the parties. The Panel has issued administrative guidelines as to the way in which the fees regulations will be applied by the Panel. Those guidelines include the following:
23.If the Panel calls a s 32 meeting, on its own initiative or at the request of another party, and decides that it is not satisfied that the person has acted, or is acting, or intends to act, in compliance with the Code, then the person will be required to meet the Panel’s full fees and costs.
…
25.If the Panel calls a s 32 meeting on its own initiative and decides that it is satisfied that the person has acted, or is acting, or intends to act in compliance with the Code, the Panel would not impose any fees or costs on the person who was the subject of the meeting.
26.If the Panel calls a s 32 meeting at the request of a third party made under s 35 of the Act and the Panel decides that it is satisfied that the person who was the subject of the meeting has acted, or is acting, or intends to act in compliance with the Code, then the Panel would normally require the person who requested the meeting to meet the full fees and costs of that meeting.
[58] Regulation 5 is framed in terms that indicate that a full recovery of costs is contemplated, not simply a contribution to costs. The administrative guidelines reflect that principle. It is not, however, an invariable outcome that there will be full costs recovery. It cannot be said that an opportunity to make submissions on whether there should be a full recovery in a particular case would be futile or would serve no useful purpose.
[59] As to the apportionment between parties, the application of the guidelines is not a purely mechanical exercise in this case. An exercise of some judgment is required on at least two questions:
a) Whether this was a meeting held on the Panel’s own initiative or at the request of a third party. While a request had been made by Marlborough for a meeting, the Panel exercised its own judgment as to whether a meeting was required, and as to the issues to be
addressed. Not all of the issues raised by Marlborough were the subject of the meeting.
b)What was the outcome of the meeting. The guidelines are framed in terms which suggest a single issue, on which the person who was the subject of the meeting has succeeded or failed. They do not deal directly with a case such as this, where there are several issues with different outcomes.
[60] The application of the guidelines is accordingly not a mechanical exercise and requires the making of a value judgment, or the exercise of a discretion.
[61] In litigation, natural justice will ordinarily require that the parties be heard before a discretion to order costs is exercised, at least where the application of the principles is not straight forward or the amount is large. Counsel for Marlborough refers in this regard to Matthews v Marlborough District Council,[1] and Parts & Services Limited v Brooks.[2]
[1] Matthews v Marlborough District Council [2000] NZRMA 451 (HC).
[2] Parts & Services Limited v Brooks HC Rotorua CIV-2005-463-431, 25 November 2005
[62] I do not consider that the wording of the substantive determination referred to by counsel for the Panel is sufficient to provide an opportunity to Marlborough to be heard. There was no indication that the Panel was expecting, or would be receptive to, submissions.
[63] I consider that an opportunity to make submissions on costs should now be afforded to the parties. I reach that view for two main reasons. First, I consider that, for the reasons I have given, an opportunity to make submissions on costs should have been given in this case. I should not, in reaching that conclusion, be seen as laying down any general principle that the Panel must always afford an opportunity to make submissions before an order is made under reg 5. Each case must be looked at on its own facts. Where the amount involved is not large and where the administrative guidelines give clear guidance, this may be unnecessary.
[64] The second reason is that my findings on the first ground of review have a significant impact on the basis of apportionment which the Panel has used. The allocation of costs ought to be reassessed in the light of those findings. The parties ought to have an opportunity to make submissions.
[65] My decision that costs should be reconsidered makes it necessary to consider whether any guidance on direction should be given as to that reconsideration. Decisions on costs involve the exercise of a discretion. In general that discretion is not to be fettered by the imposition of prescriptive rules. I think it preferable in this case to confine myself to some comments of a relatively general nature on the parties’ submissions on this aspect of the application for review. Beyond that, I do not consider that I should limit the ability of the Panel to reconsider costs afresh, in the light of any submissions that may be made to it.
[66] Counsel for Marlborough submits that in deciding that fees and costs should be allocated on the basis that they follow the event and that the winning party for those purposes should be determined on an issue by issue basis, the Panel was adopting a “litigation based approach” and was wrong as a matter of law to do so. Counsel for the Panel submits that the approach adopted was not a litigation approach but rather one in keeping with the regulations. Mr Brown submits that the Panel’s approach to costs operates as a deterrent, dissuading parties to a takeover from breaching the Code but equally dissuading other parties from raising breaches of the Code for resolution by the Panel unless those breaches are provable. Counsel submits that the latter deterrent is important in that it aims to reduce the attempts to use the Panel to advance the pecuniary or strategic interests of a party involved in the takeover process.
[67] The discretion conferred upon the Panel is a broad one. I consider that there is nothing in the regulations or the guidelines which would preclude the Panel from adopting the approach which it has.
[68] Marlborough further submits that the allocation of costs in the present case was irrational. The outcome of the meeting was a determination by the Panel that Horizon had breached the Code. To the extent that the outcome of the meeting was
exculpatory of Horizon, that finding depended on information that was withheld from both the market and Marlborough. An issue by issue allocation was not an accurate reflection of the outcome of the meeting. That submission is highly dependent on aspects which are affected by my findings on the first cause of action. For that reason, I consider it preferable to express no view on this submission. The Panel will need to consider the matter afresh.
[69] Finally, Marlborough submits that in reaching its costs decision the Panel failed to take into account relevant considerations, namely the inquisitorial nature of the Panel and the s 32 meeting; the issue of the non disclosure of the Cameron Partners’ report; and the public interest in having breaches of the Code properly investigated. Counsel submits that despite the obvious relevance of these factors the Panel appears to have given no consideration to them. The inquisitorial nature of the Panel and the s 32 meeting, and the public interest in having breaches of the Code properly investigated are relevant considerations in the exercise of the Panel’s discretion as to costs. They are matters which underlie the Panel’s decision. I would not infer, from the absence of any express reference to them, that these considerations have not been taken into account. The weight to be given to them is a matter for the Panel.
The decision to assume jurisdiction over Horizon’s costs
[70] The final matter in respect of which judicial review of the Panel is sought relates to the Panel’s stated intention to hold a s 32 meeting, on the request of Horizon, to consider whether Marlborough has acted in accordance with r 49(2) of the Code in failing to pay the sum claimed by Horizon for costs incurred in relation to the takeover offer.
[71] Rule 49(2) of the Takeovers Code provides as follows:
The target company may recover from the offeror, as a debt due to the target company, any expenses properly incurred by the target company in relation to an offer to a takeover notice, whether as a result of refunds made under subclause (1) or otherwise.
[72] Marlborough submits that the Panel was wrong as a matter of law in holding that it has jurisdiction to hold a s 32 meeting in respect of non payment of expenses claimed under r 49(2). Marlborough submits that r 49(2) does not place any Code obligation on an offeror, but simply confers a right on a target company to recover as a debt due any expenses properly incurred by the target company in relation to an offer or takeover notice. Marlborough submits that non payment of expenses is not a breach of the Code and that such expenses must be recovered as a debt in the usual way. It further submits that the Panel has no function or jurisdiction in respect of debts and has no power to order the payment of debts allegedly due to a target company. Counsel submits that it is not until the existence of the debt and the quantum are determined by an action in the District Court or the High Court that the offeror comes under an obligation to pay. Counsel submits that this is not a Code obligation and that if the target company successfully brings an action in debt the offeror’s obligation will be a judgment debt and that the obligation to pay a judgment debt is not a Code obligation. Counsel refers to the precursor to r 49(2), s 11 of the Companies Amendment Act 1963, and to the authorities under that
provision particularly Kiwi Properties Holdings Ltd v Shortland Properties Ltd,[3] and
Canterbury Frozen Meat Company Ltd v Waitaki Farmers’ Freezing Company Ltd.[4]
[3] Kiwi Properties Holdings Ltd v Shortland Properties Ltd [2002] 2 NZLR 645.
[4] Canterbury Frozen Meat Company Ltd v Waitaki Farmers’ Freezing Company Ltd [1972] NZLR 806.
[73] Counsel for the Panel did not consider it appropriate to make submissions on this aspect, so that this aspect was principally addressed by counsel for Horizon. Mr Cooper submits that the Code imposes various duties on a target company, the performance of which necessarily requires the target company to incur significant costs as a result of the bidder’s decision to make an offer. Rule 49(2) allows the target company to recover those costs from the bidder. Counsel submits that by conferring a right on the target company to recover expenses r 49(2) necessarily imposes an obligation on the offeror to pay those expenses and that a failure on the part of an offeror to pay expenses owing under r 49(2) is therefore a failure to perform an obligation imposed by the Code. It is therefore a contravention of the Code and so subject to s 32 of the Act. Counsel submits that there are good practical reasons why this should be so in that the recovery and appropriateness of expenses
incurred in the context of a takeover offer is precisely the type of issue suited to determination by an expert body such as the Panel and that in substance r 49(2) is no different from many other provisions in the Code in that it requires a party engaging in conduct regulated by the Code to perform an obligation as a consequence of that conduct. Counsel submits it would be odd if the enforcement of such an obligation were treated differently from the enforcement of other obligations created by the Code. Counsel notes that in 2008 the Panel sought submissions from market participants and subsequently issued a guidance note in December 2008 giving guidance as to the costs which will be recoverable under r 49(2).
[74] The Panel has itself considered its jurisdiction on this issue, in its decision in Abano Healthcare Group Ltd (Takeover Panel’s decision 11 July 2008). Abano had been the subject of an unsuccessful takeover offer. It sought to recover its expenses pursuant to r 49 from the offeror company. When its expenses were unpaid, it sought to offset those against a dividend payable to the offeror company. The offeror company commenced High Court proceedings to obtain payment of the dividend. Abano made a formal request to the Panel to convene a s 32 meeting to consider the offeror’s compliance with r 49(2) of the Code. Prior to the holding of the meeting the parties reached a settlement and asked the Panel not to hold its meeting. The Panel did, however, express its views on the general principle of whether a s 32 meeting was an available procedure to resolve issues under r 49(2). It held that it did have jurisdiction. It said that non payment by the offeror of expenses properly incurred by the target company and for which the target company seeks payment may amount to non compliance with the Code. It said:
18.One of the core functions of the Panel is to enforce compliance with the Code and in the Panel’s view this includes compliance with r 49(2) of the Code. Although the Panel cannot make any order for payment of outstanding expenses, a determination by the Panel that the expenses were properly incurred and payable could be used by the target company to pursue a compensatory order under s 33K of the Act in the Court.
…
39The Panel, as the regulator responsible for enforcing the Code, considers that it has jurisdiction to enforce compliance with the Code, including compliance with r 49(2). The Panel stands willing to exercise its jurisdiction in appropriate circumstances.
…
43.It is unfortunate that the opportunity for the Panel to provide guidance through the forum of this meeting has been lost, as the market has a keen desire to properly understand the meaning and scope of r 49(2). To assist the market, the Panel intends to publish a guidance note on r 49(2) in the near future in relation to its view of “properly incurred” expenses, and will be inviting market participants to provide their submissions on the draft guidance note.
[75] A guidance note was subsequently issued, as counsel for Horizon noted, which gives detailed guidance as to the nature of expenses which the Panel regards as falling within r 49(2).
[76] The question is essentially one of statutory interpretation. The power of the Panel at a s 32 meeting is to make a determination whether it is, or is not, satisfied that a person has acted or is acting or intends to act in compliance with the Code. Is an offeror company which has failed to pay an amount demanded by the target company under r 49(2) a person who has not acted in compliance with the Takeovers Code? The answer to that question must be ascertained from the text of the legislation and in the light of its purpose in accordance with s 5 of the Interpretation Act 1999.
[77] Rule 49 is drafted in terms which confer a right on the target company (to recover the expenses as a debt due to it) rather than in terms which impose an obligation on the offeror company. In that respect, the wording is different from the general run of provisions in the Code. Most are worded in terms which specifically impose an obligation on a particular party to act, or refrain from acting, in a particular way. That difference in wording is not necessarily fatal to the proposition that an offeror company which does not pay an amount demanded is not acting in compliance with the Code, but it is a pointer against that proposition.
[78] I consider that it is necessary to go beyond the provisions of s 32 and of r 49 to answer the question. Some assistance may be obtained by considering what the consequences of a determination of the Panel under s 32 might be. The Panel has certain enforcement powers under Part 3 subpart 1 of the Act. The Panel is empowered, under s 32(4), to make a temporary restraining order or a permanent compliance order. The types of temporary restraining orders which may be made are
described in s 33. None of those types of order would be appropriate as an enforcement mechanism for a failure to pay an amount under r 49. Nor would a permanent compliance order, of the type described in s 33AA, be appropriate. The Court is also given certain enforcement powers under Part 3 subpart 2 of the Act. Under s 33F, the Court may grant an injunction restraining a person from engaging in conduct that constitutes or would constitute a contravention of the Takeovers Code. That would not be an appropriate remedy for failure to pay an amount due under r 49. The Court may also grant certain civil remedies which are described in s 33J. None of those remedies is appropriate for the present purposes. Under s 33K, the Court may make certain compensatory orders. Under s 33M it may make pecuniary penalty orders and declarations of contravention. The purpose of a declaration of contravention is to enable an applicant for a civil remedy order or a compensatory order to rely on the declaration of contravention in the proceedings for that order and not be required to prove the contravention.
[79] Under s 44Q of the Act, the High Court has exclusive jurisdiction under the
Act. Access to the Court for relief is limited by s 35. That section provides:
(1)Where the Panel makes a determination under section 32(3)(b) of this Act (a determination that the Panel is not satisfied that a person has acted or is acting or intends to act in compliance with the takeovers code) the following persons may, subject to subsection (2) of this section, make an application to the Court under [section 33F,
33I, or 33K]:
(a) The Panel:
(b)If the [code company's] securities are, or were at any material time, quoted on [a [[registered exchange's securities market]], that registered exchange]:
(c) The [code company] concerned:
(d) A member or security holder of the [code company]
concerned:
(e)A person who was a member or security holder of the [code company] concerned at the time that the conduct to which the application relates occurred:
(f)A person who, at any time within the period of 6 months before the making of the application, has made an offer or offers to acquire securities in the [code company] in accordance with the takeovers code:
(g) With the leave of the Court, any other person.
(2)A person referred to in any of paragraphs (b) to (f) of subsection (1) of this section is not entitled to make an application to the Court unless—
(a) The Panel has consented to the making of the application; or
(b) That person has requested the Panel in writing to make an application to the Court itself and the Panel has not made such an application before the expiration of 10 days after receiving the request.
(3) Where a request is made to the Panel to hold a meeting under section
32(1) of this Act and the Panel does not, within 14 days after receiving the request, make a determination under section 32(3) of
this Act, the following persons may make an application to the Court under [section 33F, 33I, or 33K]—
(a) If the [code company's] securities are, or were at any material time, quoted on [a [[registered exchange's securities market]], that registered exchange]:
(b) The [code company] concerned:
(c) A member or security holder of the [code company]
concerned:
(d)A person who was a member or security holder of the [code company] concerned at the time that the conduct to which the application relates occurred:
(e)A person who, at any time within the period of 6 months before the making of the application, has made an offer or offers to acquire securities in the [code company] in accordance with the takeovers code:
(f) With the leave of the Court, any other person.
[(4) If the Panel makes a determination under section 32(3)(b) (a determination that the Panel is not satisfied that a person has acted or is acting or intends to act in compliance with the takeovers code), the Panel may make an application to the Court under section 33M.]
[80] The effect of that section is that access to the Court is restricted to cases in which the Panel has made a determination under s 32, or has been requested to hold a s 32 meeting but has not done so.
[81] I consider that it is clear from the wording of r 49 that a party who seeks to recover expenses under r 49 has a right of access to enforce payment which is not subject to the restrictions in s 35. The right to recover the expenses incurred “as a
debt due” is inconsistent with any requirement that the jurisdictional gateway in s 35 must be used to access the Court. Ordinary proceedings in the appropriate Court to recover a debt are available to an offeror company seeking to recover payment. In such proceedings, the question of whether the expenses are “properly incurred” will be an issue for determination by that Court.
[82] The question then is whether an alternative access to the Court, through the s 35 gateway, is also available. A relevant inquiry, in answering the question, is what remedy the Court might grant to effect recovery of expenses under r 49. The potentially relevant form of remedy, referred to by the Panel in the decision, would be a compensatory order under s 33K. Terms of a compensatory order may be as described in s 33L. Those sections provide as follows:
33K When Court may make compensatory orders
(1)The Court may make a compensatory order, on application by any person in accordance with section 35, if the Court is satisfied that—
(a) there is a contravention of the takeovers code; and
(b)a person (the “aggrieved person”) has suffered, or is likely to suffer, loss or damage because of the contravention.
(2)The Court may make a compensatory order whether or not the aggrieved person is a party to the proceedings.
33L Terms of compensatory orders
If section 33K applies, the Court may make any order it thinks just to compensate an aggrieved person in whole or in part for the loss or damage, or to prevent or reduce that loss or damage, including an order (without limitation) to—
(a)direct the person in contravention to pay to the aggrieved person the amount of the loss or damage:
(b)direct the person in contravention to refund money or return property to the aggrieved person:
(c)if a contract has been entered into between the person in contravention and the aggrieved person,—
(i) vary the contract or any collateral arrangement as specified in the order and, if the Court thinks fit, declare the contract or arrangement to have had effect as so varied on and after a date before the order was made, as specified in the order:
(ii) cancel the contract and, if the Court thinks fit, declare the cancellation to have had effect on and after a date before the order was made, as specified in the order:
(iii) require the person in contravention to take any action the Court thinks fit to reinstate the parties as near as may be possible to their former positions
[83] I do not consider that the wording of r 49 is intended to leave open the possibility of a compensatory order as a means of recovering the debt due which arises under r 49. Section 33L gives a broad power to the Court to make any order it thinks just to compensate an aggrieved person for loss or damage. Such a broad power is not readily reconcilable with the power of the Court to order payment of a debt due.
[84] Further, it is a requirement of s 33K that the Court must be satisfied that there has been a breach of the Takeovers Code. The putative breach in issue is a failure to pay a sum properly incurred as expenses. If the s 32 meeting had been held as a necessary prelude to the use of the s 35 gateway, there would necessarily be a finding by the Panel that the offeror company had not acted in compliance with the Code. That would necessarily mean that the Panel must have determined what are the expenses properly incurred, non payment of which constituted non compliance. Because the Court must itself be satisfied that there is a contravention of the Takeovers Code, that finding by the Panel would not be binding on the Court, but it would be persuasive.
[85] If the two gateways to the Court for recovery of the expenses are available, namely the ordinary debt recovery procedure route and the s 35 route, the Court would, whichever route is taken, be required to determine whether the debt was properly incurred. The offeror company may, in defending proceedings to recover the expenses as a debt due, dispute that the expenses were “properly incurred”. In defending proceedings under s 33K, the offeror company may dispute that there is a contravention of the Code, by contending that the expenses were not properly incurred. In both cases, the decision on that dispute is one for the Court. In proceedings commenced under the ordinary debt recovery route, the decision would be entirely one for the Court. Under the s 35 route the decision would be one for the Court, informed by the Panel’s view. The question is whether the wording of the
legislation, read in the light of its purpose opens up these two different pathways, with potentially different outcomes.
[86] The possibility that, if a s 35 gateway were available, there would be a determination by the Panel on a question which is ultimately one for the Court is not by itself necessarily indicative that the s 35 gateway is not available. In other proceedings where the s 35 gateway is used, there will be a determination by the Panel on the question of contravention, which will not be directly binding on the Court. To that extent, the use of the s 35 gateway to recover expenses due under r 49 is no different. The difference is that in the other cases there will not, generally speaking, be also a remedy available through some other means, where the Court must make a decision without the benefit of a determination by the Panel.
[87] Some limited assistance is to be obtained from a comparison with the predecessor legislation. The wording of r 49(2) is essentially identical with that of s 11(2) of the Companies Amendment Act 1963. Under that Act, there was no equivalent of the Panel. Only the debt recovery route was available. If the intention had been to open up a second route to recovery of expenses, it might be expected that this might have been clearly expressed, probably in a way which would have involved some change in wording to that provision.
[88] A consideration which points in favour of the proposition that the Panel does have jurisdiction to determine what expenses are properly incurred is the fact that the Panel is the specialist body with expertise in the oversight of takeovers. It might well be considered the most suitable body to determine that issue. That is a potentially powerful argument, from a policy perspective. It cannot, in the absence of a clear intention to that effect, evident from the scheme of the legislation, prevail in the face of the two most powerful counter-indications, namely that the Panel’s determination cannot be conclusive on the issue of what expenses are properly incurred, and that there is no clearly available debt recovery remedy arising from the Panel’s determination. Any change is a matter for Parliament.
[89] For these reasons, I find that the Panel does not have jurisdiction to determine, through a s 32 meeting, whether or not the expenses claimed by Horizon have been properly incurred.
Relief
[90] I turn to consider what relief may be appropriate in the light of those findings. [91] I have found that the Panel erred in law in deciding that it could not consider
whether the Cameron Partners’ valuation advice should have been disclosed in the target company statement. The relief sought in respect of that is a declaration that the Panel should have considered whether Horizon acted in breach of the Code by failing to disclose the Cameron Partners’ report or a summary of it in the target company statement. I consider that a declaration to that effect is inherent in the reasoning that I have given and that it would be appropriate to give formal effect to that by making a declaration as sought.
[92] Marlborough also seeks a declaration that Horizon acted in breach of the Code by failing to disclose the Cameron Partners’ report, or a summary of it, in the target company statement. Marlborough does not seek any relief by way of referral of that question back to the Panel.
[93] A declaration to that effect would require this Court to answer the very question which the Panel declined to consider. I do not consider it appropriate for the Court to embark upon a consideration of that question. There are situations when, on an application for judicial review, it will be appropriate for the Court to make its own decision on an issue which has not been considered, or has been wrongly considered, by the tribunal whose decision is subject to review. This is not such a case. The Panel is the expert and specialist body which is entrusted by Parliament with the oversight of takeovers. The question whether any particular information is material to an investor so as to require disclosure is a matter which falls quite squarely within the Panel’s jurisdiction and its expertise. The assessment is one which the Panel is well placed to make. I do not consider that it is appropriate to address that question, without the benefit of the Panel’s views. I have not, in this
judgment, considered that question. I regard it as inappropriate, on this application for judicial review, to venture into the substance of a matter which has not been considered by the Panel. Marlborough specifically does not seek a referral of that question back to the Panel. In those circumstances, I decline to grant any further relief in relation to the first determination challenged.
[94] So far as the Panel’s determination as to costs is concerned, I have held that that should be reconsidered. I consider that the appropriate remedy is to direct the Panel to reconsider and determine the issue of recovery of the Panel’s costs. I do not consider it appropriate to give any directions as to that reconsideration, beyond such guidance as can be obtained from the statement of my reasons contained in this judgment.
[95] On the question of the proposed s 32 meeting in respect of Horizon’s costs, I consider that the appropriate remedy is to quash the Panel’s decision to hold a s 32 meeting.
[96] Leave is reserved to apply if any issues arise as to the terms of the judgment to be sealed to give effect to these determinations.
[97] Costs are reserved. The parties may submit memoranda. If a timetable for exchange of memoranda cannot be agreed between counsel, I will fix a timetable.
“A D MacKenzie J”
Solicitors: Radich Law, Blenheim for Plaintiff (email: [email protected]) (Counsel acting: M T Scholtens QC, Wellington
(email: mary[email protected])
Izard Weston Lawyers, Wellington for First Defendant
(email: sarah[email protected]) (Counsel acting: B W F Brown QC, Wellington (email: brendan[email protected])
Bell Gully, Auckland for Third Defendant (email: [email protected])
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