Australian Securities & Investments Commission v DB Management & Ors S48/1999 [1999] HCATrans 178 (18 June 1999)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S48 of 1999

B e t w e e n -

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Applicant

and

DB MANAGEMENT PTY LIMITED

First Respondent

BATOKA PTY LIMITED

Second Respondent

WINPAR HOLDINGS LIMITED

Third Respondent

SOUTHCORP WINES PTY LIMITED

Fourth Respondent

Office of the Registry

Sydney No S51 of 1999

B e t w e e n -

SOUTHCORP WINES PTY LIMITED

Applicant

and

DB MANAGEMENT PTY LIMITED

First Respondent

BATOKA PTY LIMITED

Second Respondent

WINPAR HOLDINGS LIMITED

Third Respondent

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Fourth Respondent

Applications for special leave to appeal

GUMMOW J

HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 18 JUNE 1999, AT 10.46 AM

Copyright in the High Court of Australia

MS R.S. McCOLL, SC: May it please the Court, I appear with my learned friend, MS C. FRANCAS, for the applicant in the first of those matters. (instructed by V. Malinaric, Regional General Counsel, Australian Securities & Investments Commission)

MR S.D. RARES, SC: If the Court pleases, I appear with my learned friend, MR A.S. BELL, for the applicant in the second matter and the fourth respondent in the first. (instructed by Allen Allen & Hemsley)

MR P.R. GRAHAM, QC: If the Court pleases, I appear with my learned friend, MR K.M. CONNOR, for the first respondent in each matter. (instructed by Stephen Blanks & Associates)

MR R. CATTO appeared in person. I seek leave to appear for Batoka, the second respondent in both matters.

GLEESON CJ: In each applications? Yes. That leave is granted.

MR J.V. GOOLEY: If the Court pleases, I appear for the third respondent in both matters. (instructed by Winpar Holdings Limited)

MR GRAHAM: Your Honours, before my friend commences, may I read an application - - -

GUMMOW J: I am not sure your friend was going to commence. We were going to call on you first actually.

MR GRAHAM: May I read an affidavit of Mr Blanks that was filed yesterday?

GUMMOW J: We have read it, really. There is no need to read it in Court.

MR GRAHAM: Your Honours have it. Well, can it be formally read? It is an affidavit of Stephen Joseph Blanks of 17 June.

GUMMOW J: Yes, that is part of the record. Now, what do you say as to why special leave should not be granted in this matter?

MR GRAHAM: Very well, if the Court pleases. Firstly, the arguments of the Commission and of Southcorp proceed on the premise that Justices O'Connor and Dowsett rejected the accepted principle of construction that the discretion conferred by section 730 is, subject to section 731, confined only by the context or subject matter, scope and purpose of the legislation.

GUMMOW J: The question is, you can see, I imagine, a construction of this provision as a matter of general importance for the commercial community, surely?

MR GRAHAM: Yes, your Honour.

GUMMOW J: Now, there are two views in the Full Federal Court. You say, nevertheless, there is no doubt sufficiently raised by that to warrant a grant of special leave?

MR GRAHAM: I think there are three matters. Firstly, your Honour, as we have said in our submissions, there is legislation currently before the Federal Parliament which will specifically address the question of the acquisition of securities in the form of options. Chapter 6, at present, only applies - - -

HAYNE J: But the section 730 problem extends well beyond options, does it not? That was the particular occasion for the exercise of 730 here, but why does legislation picking up the problem with options take away the problem that is presented in this case?

MR GRAHAM: Well, it would mean, in effect, this Court would be giving an advisory opinion rather than dealing with an issue which is germane to a matter between the principal litigants who are Southcorp and the first, second and third respondents.

HAYNE J: Are you saying that by reason of the settlement agreement that has been reached, that there is no remaining dispute between these parties? The matter is now moot, is that what you are saying?

MR GRAHAM: No, I was firstly putting it in respect of the Corporations Law amendment, which is currently before the Parliament, but, your Honour - - -

GUMMOW J: Yes, but it is put to you that that would not cover the whole of the field.

MR GRAHAM: Secondly, I would put the issue of the agreement between the parties that whatever the outcome of the decision of this Court, there will be a transfer of the shares arising from the exercise of the options to Southcorp. That is, therefore, the decision of the Court on an appeal will be of no utility in terms of deciding one way or another the outcome of the dispute between the parties. The dispute is, in effect, being preserved as a hypothetical question for the Court's consideration so that it may be a vehicle for a consideration of section 730 for other cases.

HAYNE J: This is a matter of fundamental importance. Do you submit that this case is now hypothetical or do you submit that there is a live issue between parties?

MR GRAHAM: The manner in which the agreement is expressed leaves open the live issue between the parties but in terms of what flows from the decision of the Court, the parties have agreed that whichever way the Court determines the matter, the result will be the same and there will be a transfer of title to the shares to Southcorp.

HAYNE J: I must say that is not how I had understood the agreement to operate but if I am wrong and you are right, it seems that the matter is moot. Is that your contention?

MR GRAHAM: That is, your Honour, and I refer the Court to clauses 1, 3, 4 and 5 of the agreement.

GUMMOW J: Let me ask Mr Rares, Mr Graham. Is that your client's view of what this agreement means?

MR RARES: No, it is not. We say that the agreement clearly provides a real issue between the parties as still remaining.

GUMMOW J: You had better come to the middle so you can be recorded.

MR RARES: Your Honours, our submission is that there is a real issue still alive between the parties.

GUMMOW J: What is that?

MR RARES: Firstly, there was an error of law - - -

GUMMOW J: No, in the light of this agreement. What Mr Graham points to is matters of construction. Do you dispute those?

MR RARES: Your Honour, as a matter of construction on the agreement, there is still a live issue. Clause 5 creates two different outcomes financially for my client in the event that the appeal or special leave is granted or refused.

GUMMOW J: What, shortly, is the different nature of the financial outcomes?

MR RARES: The financial outcomes are that if we succeed in the appeal, the limit upon the costs we have to pay will be a real contravener in these proceedings to indemnify the other side for the High Court proceedings. If we fail, we have to pay up to $100,000 worth of costs plus indemnify them in respect of all the proceedings below.

GUMMOW J: Thank you. Yes, Mr Graham.

MR GRAHAM: Well, if I understand my friend correctly, your Honour, what he is saying is that, in effect, the case is won over costs and that, with respect, ought not to be a proper occasion for the Court granting special leave to allow that issue to be resolved one way or the other.

GUMMOW J: That is your second point.

MR GRAHAM: That was my second point. My third submission, with respect, is that the decision of the majority is not one attended with sufficient doubt in respect of the issue which was before the Court. What is being sought, in effect, by the applicants is an advisory opinion on the operation of section 730 in respect of a variety of factual situations. They are not particularly concerned, in our submission, with the facts in this case which concern whether or not you could have compulsory acquisition of shares arising from the exercise of renounceable options, which shares are issued two years after the close of the takeover.

When one approaches the matter the way Justices O'Connor and Dowsett did, they, in fact, applied the principle of construction which required them to have regard to context, scope and purpose. What they did was, they then proceeded to analyse the relevant provisions of the Corporations Law and they addressed the matter at three separate levels.

GUMMOW J: They may have but what you have to face up to is why there is nothing of sufficient substance in what Justice Beaumont was saying.

MR GRAHAM: Well, because, with great respect, Mr Justice Beaumont fell into error in his understanding of what was involved. At page 56, line 32, what his Honour said is:

In other words, provided there is a high level of acceptance, and subject to the prescribed safeguards, the clear legislative policy.....is to facilitate the acquisition of the minority shares.

Now, that is just wrong, and plainly wrong. The clear legislative policy is to facilitate the acquisition of the shares held by dissenting offerees. My learned friend, Mr Rares, in his submissions, has referred to the Green Report where reference is made to the law preventing oppression of the majority by the minority. What the policy of section 701 is, to ensure that if your peer group demonstrably and overwhelmingly supports the takeover, then those to whom the offer was made, who are in the minority, can have their shares compulsorily acquired, and that makes sense.

What they have sought to do in this case is to use that philosophical approach to say that if one class overwhelmingly approves it then another class to whom the offer was not made, and who did not have the opportunity to join the majority or fall into the minority, that they also should have their rights affected by the decision of a majority of another class. That is where, with great respect, Justice Beaumont fell into error, is that he failed to distinguish between the philosophy of the Act, which was plainly directed at dissenting offerees, and not at those classes of people covered by section 703(4) of the Corporations Law, that is to say, holders of non-voting shares, holders of convertible notes, holders of renounceable options, for whom the only legislative provision was to confer upon them a right to bail out, in the circumstances mentioned, rather than conferring any obligation or right on the offeror to take away their rights.

In our respectful submission, the judgment of Justices O'Connor and Dowsett is one that needs to be looked at as, in effect, indicating three levels of reasoning. Their primary reasoning is to be found at page 68, and what they say at 68, line 35, is this:

It is, in our view, much easier to answer the narrow question -

and that is all this Court would be concerned with on an appeal, would be whether the narrow question is or is not rightly decided, otherwise it would be merely an advisory opinion - - -

HAYNE J: The relevant narrow question being whether section 730, on its true construction, permitted this declaration.

MR GRAHAM: That is so.

GUMMOW J: Well, you have to construe the section.

MR GRAHAM: Yes, that is so.

HAYNE J: Thus far, the matters you have mentioned seem to go to only the issue of whether the declaration, if made, was made improvidently rather than whether there was power to make it.

MR GRAHAM: What they, with great respect, address is the question of power and they say, in line 37 - they give three reasons. They say:

The structure of Pt 6.5 strongly suggests that s 730 does not authorize a declaration such as that now in question.

Then they say, one:

The express provision for the compulsory acquisition of outstanding shares -

and that is, of course, a defined expression, and two:

the absence of any provision relating to shares which were not the subject of the original offer point to that conclusion -

and, three:

In addition, that part -

which should be a capital P -

deals expressly with options, but no provision is made for the compulsory acquisition thereof at the suit of an offeror.

HAYNE J: To put the matter at its most tendentious, their Honours' reasoning seems to be that section 730 does not permit variation except in accordance with the law as it stands unvaried.

MR GRAHAM: No, with great respect, your Honour, that does not do justice to their reasoning. What they say is, one needs to discern what is the policy of the legislature which is to be discerned from the context, scope and purpose, and having done so, they conclude that the legislative power which is conferred in section 730 on the Commission, is one which cannot be exercised to create a new class of liability for which the Act made no provision whatsoever and, indeed, it clearly intended that no provision be made, and that is the essence of it, is the way in which renounceable options are dealt with in the chapter, demonstrates that there was no intention to trespass into the area which the legislative change effected under 730 by the Commission undertook.

Much of the reasoning of the Courts in the past, in relation to this, have been to accept as correct what Mr Justice Gobbo said in TNT and, in our respectful submission, in so far as that case suggest that a modification under section 58 of the Companies Acquisition of Shares Code could be permitted even if it constituted a fundamental departure from the Code, must be wrong. It was put to him, in that case, that it was confined by the fundamental elements that the power of section 730 was confined, or 58 as it was there, by the fundamental elements in chapter 6 and his Honour rejected that, indicating, in effect, that it would be hard to discern what they are.

But in the fact situation presently before the Court, the fundamental elements are patently obvious and, in our respectful submission, Justice Gobbo's decision could not stand in the light of Otter Goldmines, the Full Court decision of the Federal Court which has, in fact, been followed by Justices O'Connor and Dowsett in this case.

GUMMOW J: Now, Mr Graham, I would rather assume that there was some arrangement between yourself, Mr Catto and Mr Gooley as to the sharing of time on your side of the record and that you would take the lion's share of it. Am I right in thinking that?

MR GRAHAM: I have not discussed the matter with them, your Honour, but I think I have put what I wish to put.

GUMMOW J: Mr Catto, do you wish to add anything to what has been said by Mr Graham?

MR CATTO: Just three sentences, your Honour.

GUMMOW J: Perhaps, if you would come to the middle so it can be recorded.

MR CATTO: Your Honour, when public servants are hired they are supposed to have qualifications, initiative and nous. Nous sufficient to know the limits of their discretion. This matter is settled commercially as I do not wish to see my money to be used to help such public servants to know the limits of their discretion and the Court has better things to do with its time than to help such public servants with their tasks.

GUMMOW J: So, you are saying the only issue left is costs and this is all moot.

MR CATTO: Yes, your Honour.

GUMMOW J: Thank you. Mr Gooley?

MR GOOLEY: I have nothing further to add to Mr Graham's submissions.

GUMMOW J: Yes, Mr McColl?

MS McCOLL: May it please the Court?

GUMMOW J: What do you say about this mootness point?

MS McCOLL: It is certainly not a moot point as far as this applicant is concerned, your Honour. This case concerns a fundamental power available to the applicant to regulate the course of takeovers in the Australian community. It is a live issue as regard the width of its power - - -

GUMMOW J: Well, it is of great interest to you but - - -

HAYNE J: Is this issue moot, in this case?

MS McCOLL: No, we would submit, your Honours. It is not moot in so far as this applicant is concerned. We are not parties to whatever settlement has taken place between Southcorp - - -

GUMMOW J: You have still got a costs order against you from the Full Court.

MS McCOLL: We still have both a costs issue and we had the benefit of one which we will have lost.

GUMMOW J: Yes, but apart from costs questions, what is your role as an active player in all of this? Why are you different from a Hardiman Case regulatory body?

MS McCOLL: Well, we are different in this sense, that we have an active role to play in administering the power under the Corporations Law as opposed to merely making a decision as the case may come before us in the case of Hardiman which was the Broadcasting Tribunal. We have to administer this power, we have to administer this power in the interests of the commercial community and the efficient operation of takeovers within that community. We have a live interest in ensuring that the power is properly defined, we would submit, and the fact that the other parties to the original proceedings may have resolved a commercial issue between them does not extinguish the life which is in the interests we hold in the proper interpretation of that power.

At the moment, the decision of the majority makes the operation of that power unworkable in the context of takeovers and as we sought to set out in our submissions on the reason why special leave ought to be granted, the Court will see that there are a number of policy decisions, or policy statements, under which we already operate which potentially impinge on the operation of third party rights and, of course, the decision of the majority, we would submit, went beyond the mere facts of the particular case as to establish a broad proposition about the ability of the applicant to exercise its power in a way which would impinge upon third party rights. That is still a very live issue and one which we would submit is an appropriate one for the High Court to consider and determine in the context.

GUMMOW J: What do you say about the proposed legislation? I suppose it has to be passed first, in any event.

MS McCOLL: Well, that is the first question, your Honours. It has to get through the Senate and that may be a difficulty, as we understand it, but we would submit, in any event, that it will be a live issue under any amendment to the Act because there will be a provision of the sort which is section 730 albeit in a slightly differently expressed term but, in any event, section 730 still continues to have operation at least until those provisions were passed and will have operation in relation to takeovers which are currently underway, none for some time. There is absolutely no certainty as to whether or not that Bill will be passed, but we would submit - - -

HAYNE J: If leave were granted, if the matter came on and the view of the Full Court were majority were rejected, what work, if any, would be left for the section 730 declaration in the events that had then happened?

MS McCOLL: This particular section?

HAYNE J: Yes, this one.

MS McCOLL: This particular section - - -

GUMMOW J: The order. We would make an order which would have the effect of reinstating what was done in the AAT by Mr McMahon, namely, to uphold what you did.

MS McCOLL: Well, it would have that operation, it would underline the validity in essence of the course which is - - -

HAYNE J: But what would the declaration do to the rights or duties of any party?

MS McCOLL: Well, it would confirm the basis upon which the parties have proceeded in acquiring the shares, exercising the power under the declaration - - -

HAYNE J: No, they have made a private agreement for sale, have they not, now?

MS McCOLL: But, in effect, pursuant to the exercise of the option and the acquisition of those shares which issued on the exercise of the option, a matter which they could have only undertaken in reliance upon the declaration.

HAYNE J: You would need to explain that to me. I do not understand why that is so, why they could not have made the private agreement they have now made, probably spurred on by the pendency of this litigation, be it assumed, but how does the declaration bite on, if at all?

MS McCOLL: That is correct. The declaration no longer bites. They are entitled to make the private agreement. I was looking at the antecedent step which, as I understand it, and we not having been parties to it, but certainly the precedent step which triggered the ultimate settlement was the acquisition of the shares in reliance upon the declaration and then there has been a subsequent commercial resolution. But, initially, the declaration worked, as we understand it, to get the proceedings before the Federal Court and it is those proceedings which have been resolve - - -

GUMMOW J: There is not another collection of parties out there who would be still affected by restoration of the efficacy of this decision?

MS McCOLL: Yes, there are, because policy statement 126, which reflects the declaration which was made in this case, is operative and there had been - - -

GUMMOW J: No, in this particular takeover.

HAYNE J: In this target.

GUMMOW J: In this target operation.

MS McCOLL: No, I do not understand that there are, but there are other cases in which this modification has effectively been made, as I understand it, and so it is certainly a live issue in the commercial community.

GUMMOW J: One of them might come here, I suppose.

MS McCOLL: I am sorry, your Honour?

GUMMOW J: One of them might come here in due course.

MS McCOLL: Well, I hope not, if the Court resolves it in these proceedings in favour of the applicant.

HAYNE J: I do not need persuasion at the moment, Ms McColl, of the importance of the matter or of the arguability of the matter. What is troubling me greatly is whether, in truth, the matter is now moot?

GUMMOW J: That is my concern as well.

MS McCOLL: Yes, well, we would submit it is not, your Honours, because not only of the cost issues but because of that live issue concerning the exercise of the power which has not been resolved between us and any of the respondents.

GUMMOW J: Ordinarily, whilst technically it would not be moot while there was a costs question, the mere fact that that still persisted would not be enough to get a grant of leave. That is, maybe, what it comes down to.

MS McCOLL: Well, it may be, your Honours, but we would submit that the proceedings were initiated against the applicant to challenge its power. The challenge to the power is extant. There is still a live issue of costs and those matters coupled together would suffice, in our submission, to make it a proper vehicle for leave to be granted.

GUMMOW J: Mr Rares?

MR RARES: Your Honours, we adopt what my learned friend, Ms McColl said. There is one other option holder who has not been dealt with by Southcorp which is still outstanding and that appears from page 18 of the book, at line 38. One of the points that was made against us before Deputy President McMahon in the AAT, was that there were two lost option holders. One of those was Mr Harrison who joined the 701(6) application that has been withdrawn and now is without jurisdiction, in any event, but there is the second one, and he is not bound by orders or agreements, on my instructions, and he owns, I think, 3,250, either options or shares.

HAYNE J: If, then - can I follow it out, I am sorry to be slow about it - leave were granted, the appeal were allowed, would it then be open to compulsorily acquire his interest, if I can call it as loosely as that, in the company?

MR RARES: I think that is so, your Honour, yes.

HAYNE J: And if things stood as they do now with the Full Court, would it be open to do so?

MR RARES: No, because the Full Court has held that the declaration is made without power so there is no declaration in force at the present time and, of course - - -

GUMMOW J: We do not know anything about the attitude of this third person.

MR RARES: I do not, at this stage, have instructions about that matter, your Honour. The other thing, in relation to this, is that in Mellifont v The Attorney-General for Queensland, that the Court looked at the question when Parliament allowed the Attorney-General to refer questions to the Court of Criminal Appeal concerning acquittals, the majority of the Court said that in such circumstances there was an exercise of judicial power because in the interests of justice that the administration of the law be able to correct errors of law at the trial for which there was no other way of doing it.

Now, here you have a substantial error of law, we would submit, or, at least, a real question as to whether there has been an error of law in the majority's approach to this extremely important question on two fronts: firstly, the general power under section 730 and, secondly, the question of compulsory acquisition which is still a live question under the law as it stands now and one does not know what is going to happen in the Senate and, indeed, the legislation was intended to be on the program and on the statute books by 1 July and it is not going to happen because there is disagreement in the Senate, as we understand it.

So that, we would say the point is not moot and that it does have substantial importance and it is not moot because within the terms of the settlement agreement, on its proper construction, there is still an issue between the parties albeit that it may not be of the significance it was immediately before that agreement was made earlier this week. Of course, one of the considerations - - -

GUMMOW J: I think you accept, do you not, that as to the position of Ms McColl's client, if none of these settlement negotiations had taken place, its position would be such as to found an appeal by it?

MR RARES: Absolutely, your Honour. It is of fundamental significance in the administration of the Act.

GUMMOW J: Thank you. Yes, Mr Graham.

MR GRAHAM: Would your Honour just pardon me a moment?

GUMMOW J: No.

MR GRAHAM: I am sorry. No, I have nothing further to add.

GUMMOW J: Thank you. We will take a short adjournment.

AT 11.15 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.19 AM:

GUMMOW J: There will be a grant of leave in each of applications three and four.

MS McCOLL: May I raise a question of whether it might be appropriate to grant expedition for the hearing of the appeal?

GUMMOW J: Everything is urgent here.

MS McCOLL: I appreciate that, your Honour.

GUMMOW J: Some even more urgent than you could imagine.

MS McCOLL: Would it be appropriate to approach the Registry, at least, to see if that would be an appropriate course?

GUMMOW J: Yes, certainly, but the question arises, firstly, how complicated is the appeal book in this matter?

MS McCOLL: It would be very simple, we would believe.

GUMMOW J: Would it have any more material than was in the Full Court book other than small documents?

MS McCOLL: No, except for one exhibit which was the Part A offer which was tendered before the Full Court. I would think that would be all that would be needed to be included.

GUMMOW J: Yes, just pardon me a minute. We are minded to direct that the record for the appeals would be sufficiently constituted if the appeal books that were used in the Full Federal Court were used again supplemented by a volume prepared specially for this Court, which had such documents as are necessary, including that particular exhibit you mentioned as well as the process in this Court.

MS McCOLL: Yes, your Honour.

GUMMOW J: Now, the next question is, how long would this case take to argue? One day, I would have thought.

MS McCOLL: Yes.

GUMMOW J: That may involve some division of time between those in particular interests but does one day seem reasonable?

MS McCOLL: I do feel it was one day before the Full Court.

GUMMOW J: I would have thought so, yes. Well, there is no need to give a direction about that, but we do direct, as I have indicated, as to the composition of the record.

MS McCOLL: May it please the Court.

AT 11.21 AM THE MATTER WAS CONCLUDED