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Administrative Appeals Tribunal of Australia |
COURT
ADMINISTRATIVE APPEALS TRIBUNALCATCHWORDS
Corporations Law - shareholder acquiring further shares without making formal takeover - ASC decision to modify the law to allow further acquisitions - criteria for ASC decision - "efficient, competitive and informed market" - application of the Eggleston principles -
Notification of affected shareholder by ASC - s.708(5) Corporations Law - procedural fairness - interest fractionally below statutory level requiring notice - whether natural justice requires notification of such shareholders
Corporations Law ss.615, 618, 708(1), (5), 730, 731, 1322 Administrative Appeals Tribunal Act 1975 ss.37, 43(6), Administrative Decisions (Judicial Review) Act 1977 (Cth)
Australian Securities Commission v Peninsula Gold Pty Ltd (1996) 14
ACLC 958.
TNT v NCSC (1986) 11 ACLR 59
HEARING
MELBOURNE, 26 February 1997 7:3:1997
Counsel for the Applicant: Mr M. Shand
Solicitors for the Applicant: Freehill Hollingdale & Page
Counsel for the Respondent: Mr N. O'Bryan
Solicitors for the Respondent: Australian Securities Commission
Counsel for the first Mr A. Archibald QC, Mr C. Maxwell party joined:
Solicitor for the first Mallesons Stephen Jacques party joined:
Counsel for the second Mr C. Pannam QC, Mr M. Anderson party joined:
Solicitor for the second Clayton Utz party joined:
ORDER
The decision under review is set aside and the matter is remitted to the respondent with a direction that the modification applied for by Otter, and granted on 10 January 1997, ought not to have been made.DECISION
G.L. McDONALD and D.L. ELSUM 1. This is an application by Beaconsfield Gold NL ("Beaconsfield") made pursuant to powers granted in s.1317 of the Corporations Law for a review of a decision of the Australian Securities Commission ("ASC") made on 10 January 1997. That decision, made pursuant to s.730 of the Corporations Law, varies the effect of s.618 of that law on Otter Gold Mines Limited ("Otter"), to allow Otter to make acquisitions of shares in Allstate Explorations NL ("Allstate") for a period of six months, from 1 December 1996. Burdekin Resources NL and Tennscourt Oil Pty Ltd (together referred to as "Burdekin") join in supporting Beaconsfield's application.
2. The application is dated 17 January 1997, and was lodged with the Tribunal on 20 January 1997. On 28 January 1997 the Tribunal (constituted by Deputy President Forrest) granted a stay of the ASC decision, and directed that the Tribunal expedite the hearing of this matter to 26 February 1997. An application to the Federal Court of Australia, for a review of that decision, was made pursuant to the provisions of Administrative Decisions (Judicial Review) Act 1977. That application was dismissed on 20 February 1997. At the Tribunal hearing on 26 February 1997 Mr M. Shand represented Beaconsfield, Mr C. Pannam, QC, with Mr M. Anderson represented Burdekin, Mr N. O'Bryan represented the ASC and Mr A. Archibald, QC, with Mr C. Maxwell represented Otter. Witness statements were filed on behalf of Beaconsfield by Mr R. Johannson, a corporate advisor and director of Beaconsfield; on behalf of Burdekin by Mr J. Vitale, a director; and on behalf of Otter by Mr J. Wood, general counsel for Otter and who, in addition, provided professional advice to Allstate. Mr Johannson, Mr Vitale and Mr Wood all gave oral evidence. The ASC did not call any evidence. As well as the documents filed for the purpose of s.37 (the "T" documents) of the Administrative Appeals Tribunal Act 1975 ("the AAT Act") some other documentary evidence was submitted, and statements of issues, facts and contentions were filed on behalf of Beaconsfield, Burdekin and Otter.
3. Section 615 of the Corporations Law prohibits a person holding more than the prescribed percentage (i.e. 20 per cent) of the voting shares in a company from acquiring further shares, without that person making a takeover offer for all of the remaining shares in the company. There are a number of exceptions to this law, including as permitted by s.618. Section 618, by reference to a complex formula based on the number of shares held, allows a shareholder with a prescribed percentage to obtain more shares in the subject company by acquiring not more than a net 3 per cent increase in any continuous 6 month period (the so-called entitlement to "creep"). In cases where the subject company increases its share capital, including a placement to an unrelated third party, the section would prevent in a person holding a prescribed percentage from maintaining the same proportion of shares already acquired to shares issued. This is because the formula relates to the number of shares held by the holder of the prescribed percentage, rather than to the proportion of shares held by that person. As the legal committee of the Companies and Securities Advisory Committee noted in a report of March 1994: "The section (618) creates anomalies where there is a change in the company's issued share capital during the six month period. When share capital is increased, the provision does not permit a person's entitlement to increase by the full 3 per cent . . . The anomalies arise from basing the section on numbers of shares rather than percentage entitlement."1
4. Section 618 of the Corporations Law is as follows: "618 (1) Section 615 does not prohibit an acquisition of voting shares in a company because of the effect of the acquisition on the entitlement to voting shares in the company of a person (in this section called a 'relevant person') if: (a) the relevant person has been entitled to not less than the prescribed percentage of the voting shares in the company for a continuous period of not less than 6 months ending on the day immediately before the day on which the acquisition takes place; and (b) the number ascertained in accordance with the formula 100 (VA1 + VA2 - VD) does not exceed 3 v 618 (2) For the purposes of paragraph (1)(b): VA1 is the number of voting shares to be acquired; VA2 is the number of voting shares in the company: (a) that were acquired by any person within the 6 months ending on the day immediately before the day on which the first-mentioned acquisition takes place, excluding any voting shares acquired by the person concerned by an allotment: (i) in relation to which subsection 621(1) or a corresponding previous law applies; and (ii) that was made to the person concerned as a result of that person's acceptance of an offer made in accordance with paragraph 621(2)(b) or a corresponding previous law; and (b) the acquisition of which by the person concerned increased the number of voting shares in the company to which the relevant person was entitled; VD is the number of voting shares in the company: (a) that were disposed of by any person during the 6 months ending on the day immediately before the day on which the first-mentioned acquisition takes place; and (b) the disposal of which by the person concerned decreased the number of voting shares in the company to which the relevant person was entitled; and V is the total number of voting shares in the company. 618 (3) In subsection (1): 'prescribed percentage' means: (a) subject to paragraph (b), 19%; or (b) where a lesser percentage is prescribed by regulations in force for the time being for the purposes of this section - that lesser percentage."
5. The difficulty identified with the application of s.618 in cases where a company increases its share capital is recognised in the ASC Policy Statement 572 ("PS57"), which is as follows: "618 The policy of s618 is to allow a person (a substantial shareholder) to acquire control of a company at a sufficiently slow rate to allow: (a) shareholders to assess the impact of acquisition; and (b) the share market to incorporate the acquisition into the price of the shares in an orderly way. Section 618 does this by permitting a person to buy enough voting shares in a company to achieve a net 3% increase in percentage entitlement from the position 6 months earlier. However, the section does not fully implement this policy when the company issues shares either to the substantial shareholder or to other persons, by placement, conversion or exercise, etc, which has the effect of expanding the company's share capital."3
6. In PS57.68 the ASC indicates it will modify the effect of s.618 in cases where there is an involuntary dilution arising from a subject company issuing shares. PS57.69 states it as the ASC policy to limit the rate of acquisition to 3 per cent of the diluted capital in each 6 month period. The policy sets out a proforma declaration to be used in modifying the law at PS57.79. A note to the proforma is in the following terms: "Relief to allow the person to make the 'replacement' acquisition will only be available for acquisitions made within six months of the diluting allotment."
7. While the power of the ASC to change the law is necessarily broad, see Gobbo J in TNT v NCSC (1986) 11 ACLR 59, Peninsula Gold Pty Ltd and Australian Securities Commission (1996) 23 ACLC 958, the power is not, however, unfettered. It is subject to the provisions of s.731 of the Corporations Law. Section 731 provides that ". . . the desirability of ensuring that the acquisition of shares in companies takes place in an efficient, competitive and informed market . . .", and provides a number of principles (the so-called Eggleston principles) to ensure that this occurs. Section 731 is in the following terms: "731 In exercising any of its power under section 728 or 730, the Commission shall take account of the desirability of ensuring that the acquisition of shares in companies takes place in an efficient, competitive and informed market and, without limiting the generality of the foregoing, shall have regard to the need to ensure: (a) that the shareholders and directors of a company know the identity of any person who proposes to acquire a substantial interest in the company; (b) that the shareholders and directors of a company have a reasonable time in which to consider any proposal under which a person would acquire a substantial interest in the company; (c) that the shareholders and directors of a company are supplied with sufficient information to enable them to assess the merits of any proposal under which a person would acquire a substantial interest in the company; and (d) that, as far as practicable, all shareholders of a company have equal opportunities to participate in any benefits accruing to shareholders under any proposal under which a person would acquire a substantial interest in the company; but nothing in this section requires the Commission to exercise any of its powers in a particular way in a particular case."
8. There was no dispute as to the following facts. Beaconsfield, Allstate and Golden Shamrock Mines Ltd are involved as joint venturers in a gold mining project in Tasmania (the Beaconsfield Gold Joint Venture). Allstate manages the joint venture. Immediately before 18 April 1996, Otter4 was entitled to a total of 46.321 per cent of the issued voting shares in Allstate.
9. On 18 April 1996 Allstate placed 1,266,000 shares (and 422,000 options) to persons other than Otter. The placement reduced Otter's percentage entitlement in Allstate from 46.321 per cent to 43.214 per cent.
10. On 19 April 1996, Beaconsfield announced a takeover bid for all of the issued shares in Allstate. On 18 April 1996 Beaconsfield had issued a Part A statement in relation to the fully paid ordinary shares in Allstate. At that time, Beaconsfield held less than 1 per cent of the issued shares in Allstate. On 13 August 1996, following the close of the takeover offer period (2 August 1996), Beaconsfield notified the Australian Stock Exchange ("ASX") that it had acquired 36.6 per cent of the ordinary shares in Allstate.
11. By letter dated 16 May 1996 (T3), Otter applied to the ASC under s.730 of the Corporations Law for modification of the provisions of s.618 to allow it toÐ "(a) . . ., return its percentage entitlement to 46.321% being the level it was entitled to be at before Allstate made the diluting allotment; and (b) increase its percentage entitlement by 3 per cent in the 6 month period following the diluting allotment."
12. The application for relief to acquire shares greater than the 3 per cent entitlement otherwise provided for in s.618, enabled Otter to be restored to its position prior to the Allstate placement, and is in accord with ASC Policy Statement 57.
13. On 31 May 1996 (T4) a delegate of the ASC granted the relief in the following terms: "AUSTRALIAN SECURITIES COMMISSION CORPORATIONS LAW SECTION 730 DECLARATION Pursuant to subsection 730(1) of the Corporations Law (Law) the Commission declares that during the period ending 6 months from and including the date of this instrument, Chapter 6 of the Law applies in relation to the person named in Schedule A in the case referred to in Schedule B as if: 1. subsection 618(1) was varied by omitting paragraph (b) and substituting: '(b) the acquisition does not result in the percentage entitlement of the relevant person to voting shares in the company increasing to a figure greater than the sum of: (i) the percentage entitlement of the relevant person to voting shares in the company at a date six months before the date of the acquisition; and (ii) 3%'; and 2. section 618 was varied by omitting subsection (2). Schedule A Otter Gold Mines Limited (ARBN 003 082 773) Schedule B The acquisition by the person name in Schedule A of ordinary shares in Allstate Exploration NL (ACN 000 796 403). Dated 31 May 1996."
14. Clause 1(b)(i) of the Declaration permits, without of course compelling, Otter to acquire up to the percentage holding it held in Allstate prior to 18 April 1996 (i.e. to 46.32 per cent). Sub-clause (ii) allows Otter to purchase a further 3 per cent of the total aggregate shares it then held in Allstate. It follows that Otter had, as the result of the modification, the ability to take its interest in Allstate shares up to a total of 49.32 per cent. We shall refer to this as "the first modification".
15. In his witness statement of 21 February 1997, Mr Wood outlines the steps taken to obtain the first modification5. Otter's letter to the ASC of 16 May 1996 seeking the modification, included an annexure of a proposed form of declaration. It is relevant to know that there was apparently some difficulty over the then proforma used by the ASC for such declarations, and a new proforma - then in the course of drafting - was not yet available. However, the letter attaches Mr Wood's suggestion for the form of the proposed declaration of modification. It should also be noted that Mr Wood is a solicitor, and was a partner in a national Australian law firm prior to taking up his current appointment. According to his uncontradicted evidence, there were discussions between him and an ASC officer, culminating in the ASC forwarding a copy of the proposed declaration, with some alterations made by the ASC, to him on 30 May 1996. At no time was there apparently any discussion concerning any proposed alteration to sub- clause (b)(ii). Mr Wood said that, as a result of oral assurances given to him by the ASC officer, "It was my understanding that if Allstate had not made the placement, Otter would have been entitled to 46.321% of the shares in Allstate and would have been entitled to acquire a further 3% of the shares in Allstate each six months."6
16. Some confusion has arisen as to the interpretation to be applied to sub-clause (b)(i) of the first declaration. Mr Wood said that, in a telephone conversation with the ASC officer on 31 May 1996, he expressed concern as to how the relief was to operate in respect of the period 18 October to 30 November 19967. According to Mr Wood, the officer responded by acknowledging the proposed instrument was ". . . not all that clear" but that, since he was going on leave that day for a period of 3 weeks, it would be better to issue the instrument and address any shortfalls at a later date. It seems that this was the course adopted.
17. Mr Johannson said that he took the instrument to mean that Otter could not increase the percentage of shares held in Allstate beyond its (maximum) percentage entitlement in the company at a date 6 months before the date of acquisition plus 3 per cent, i.e. that Otter had 6 months from the date of the diluting allotment (to 18 October 1996) to remedy the effect of that allotment on Otter's percentage entitlement (i.e. to return that entitlement to 46.321 per cent). Additionally, Mr Johannson was of the view that, if in the period to 18 October 1996 Otter did recover its position to the percentage held prior to the date of the diluting allotment, and it wished to exercise the 3 per cent entitlement (to take its interest in Allstate to 49.32 per cent), then it must do so by 18 October 1996. On the other hand, if Otter did not increase its entitlement to the full extent of 46.32 per cent prior to 30 November 1996, then any acquisitions occurring between 18 October and 30 November 1996 of up to 3 per cent would properly be characterised as acquisitions made for the purposes of sub-clause (b)(ii) as a second modification. Although Mr Johannson said that he recalled discussing this issue with other Beaconsfield directors, he agreed that he had not raised his concerns with the ASC or Otter, even after seeing what would amount, on his interpretation, to a misstatement as to the applicable dates contained in the notification of the modification of 3 June, from Otter to ASX.
18. On the other hand, Mr Vitale thought that Otter could increase its entitlement to the previous 46.32 per cent level, plus use the 3 per cent "creep" provision at any time in the period up to 30 November 1996. Mr Wood had a similar understanding on this point to Mr Vitale. The Tribunal found it curious that Mr Wood expressed this view because, in his capacity as general counsel for Allstate, he said that he had read and approved the Part B statement of 5 June 1996 which had been issued in response to Beaconsfield's Part A takeover offer. The Part B statement expressed a view consistent with that held by Mr Johannson.
19. The ASC has acknowledged in its statement, prepared for purposes of these proceedings pursuant to s.37 of the AAT Act, of the possibility of the first modification only enabling Otter to make the necessary replacement to the 46.321 per cent by the purchase of Allstate shares in the period prior expiring on 18 October 1996. If the ASC's view was correct, the ASC also acknowledged that all acquisitions made since 18 October 1996 would need to be taken into account by Otter in calculating its 3 per cent creep entitlement.
20. Mr Archibald submitted that the reference in sub-clause (b)(i) of the first modification to the 6 month period, was for the purpose of identifying the percentage which could be acquired, rather than for fixing the point from which time was to run. The latter was accomplished in the opening words of the modification, i.e. 6 months from 31 May 1996.
21. The fact that such confusion exists highlights the need for careful drafting of declarations of modification. In the end this was not a matter which it was necessary for the Tribunal to decide. If it was necessary for us to determine this issue, we would incline to the interpretation suggested by Mr Archibald as being both consistent (with the policy objectives contained within s.618 of the Corporations Law, the policy applied by the ASC in considering modifications of that law and with what Otter was seeking to achieve) as well as rational. For the purposes of this decision, we have adopted the view that Otter could increase its percentage holding in Allstate, to 46.32 per cent, as well as take advantage of the 3 per cent acquisition in the period until 30 November 1996.
22. In fact by 30 November 1996 Otter had increased its holding in Allstate to 46.12 per cent. In exercising the rights under the modification to purchase Allstate shares to a level less than its original holding prior to the dilution allotment, the action Otter took must have been taken under paragraph (b)(i) of the modification. If purchases exceeding that percentage had been made, they would be made under the provisions of paragraph (b)(ii) of the modification. We are satisfied that Otter did not utilise the full extent of the benefits made available to it by virtue of clause (1)(b)(i), and did not take any advantage of the benefit granted by clause (1)(b)(ii) of the modification.
23. It was Mr Vitale's evidence that following a discussion with Mr Johannson in Perth in September 1996, he, on behalf of Burdekin, began taking an active interest in the Allstate takeover manoeuvrings of Beaconsfield and Otter. In late September/early October he said that he became aware of the existence and terms of the first modification. From late September to November he monitored the volume and price at which Allstate shares traded in the market. He noticed that Otter did not appear to be purchasing the volume of shares which would enable it to restore its holding to its pre-18 April 1996 level. In mid-November 1996 Burdekin commenced buying shares in Allstate, at a then price of $1.20 per share. Between 14 and 29 November it acquired 1,417,771 shares at prices which rose by the end of November to $3.30 per share8. Mr Vitale appreciated that Burdekin was paying a premium for the purchase of the Allstate shares. He said that Burdekin felt that this was warranted in order to acquire a strategic stake in Allstate. Burdekin further pursued this by taking up an Allstate 2 for 5 renounceable rights issue at a $1.20 per share, made on 27 November 1996 - which considerably increased Burdekin's costs of retaining its proportionate shareholding. Mr Vitale concluded: ". . . I considered that the opportunity about to arise on the expiration of the First Modification . . . was of such a nature that it warranted Burdekin taking up its full entitlement under the November Rights Issue and continue its on market buying program."9
24. As the result of its acquisitions, on 23 December 1996, Burdekin notified the ASX that it had acquired a 4.99 per cent shareholding in Allstate.
25. As exhibit A to Mr Vitale's witness statement shows, Otter also commenced acquiring a large volume of shares in the closing days of November 1996. As at 30 November, the percentage holdings in Allstate wereÐ Otter - 46.12 per cent Beaconsfield - 38.5 per cent Burdekin - 4.99 per cent Other - 11.4 per cent10
26. Otter continued to purchase shares after 30 November 1996 in Allstate and, as at 20 February 1997, its holding had increased to 48.90 per cent11. In January 1997 Mr Wood said that a letter from Beaconsfield's solicitors, dated 16 December 1996, drew to his attention12 the possibility that the actual wording of the declaration may have ". . . had the unintended and previously unappreciated consequence of preventing Otter from exercising its rights under section 618 of the Law"13, i.e. that the period nominated in the first modification was a set period and not continuous as contemplated by s.618. Accordingly, if Otter had not acquired its 3 per cent creep entitlement provided for in the first modification in the 6 month period up to 30 November 1996, it would not thereafter be able to recommence using the s.618 creep provisions until the period post 30 March 1997.
27. On 20 December 1996 Otter, by way of a letter from its solicitors Messrs Mallesons Stephen Jacques, sought a further modification of s.618 (T5). The letter pointed to what it described as an "anomalous and . . . unintended" effect arising from the 31 May 1996 declaration, in that acquisitions of Allstate shares by Otter made prior to 30 November 1996 would be included in calculations used to determine Otter's "creep" entitlement for the period following 30 November 1996. It was said that the benefit conferred by the modification, which was intended to stop Otter from being prejudiced by dilutions made by Allstate, would be negated by those acquisitions being ignored for the purposes of the application of the formula under s.618(1)(b) of the Corporations Law.
28. The ASC notified Beaconsfield's solicitors of the application for
modification (T7), and considered a submission from Beaconsfield
opposing the modification (T8). No approach was made by the ASC to
Burdekin, despite Burdekin having notified the ASX that it acquired
a
4.99 per cent shareholding in Allstate on 23 December 1996, and the
fact that the position of Burdekin was specifically drawn
to the ASC's
attention in the letter of 9 January 1997 from Beaconsfield's
solicitors14. On 10 January 1997 the ASC granted the
relief that Otter
sought. That relief is in the following form (T10):
"AUSTRALIAN SECURITIES COMMISSION
CORPORATIONS LAW
SECTION 730 DECLARATION
Pursuant to subsection 730(1) of the Corporations Law ("Law"),
the Australian
Securities Commission declares that Chapter 6 of
the Law applies in relation to the persons named in Schedule A
in the case
referred to in Schedule B as if section 618(2) was
varied by inserting immediately prior to the words 'by
allotment' in paragraph
(a) of the definition of 'VA2' the
words:
'being acquisitions made in reliance on the declaration dated
31 May 1996
made by the Commission to restore the person's
percentage entitlement to 46.321% of the issued capital of the
company, or
acquired by the person'
Schedule A
Otter Gold Mines Limited (ARBN 003 082 773) and its
wholly owned subsidiaries
Schedule B
The acquisition by the persons named in Schedule A
of
ordinary shares in Allstate Explorations NL
(ACN 000 796 403) ("company")
Dated: 10th January 1997."
29. While issued on 10 January, Otter did not inform the ASX of the modification until 15 January 199615. There is no evidence to suggest that the ASC made any public announcement about the modification. We shall refer to this as the second modification.
30. There are a number of reasons notified in paragraph (2) of Beaconsfield's statement of facts and contentions to the Tribunal, which it claims justifies the Tribunal setting aside the decision to grant the second modification. The principle reason is that the modification affected the operation of an efficient, competitive and informed market at a time when the market for Allstate shares was highly competitive: that is the circumstances (i.e. the efficient, competitive and informed market) which the Eggleston principles, codified in s.731, were designed to protect was not adhered to. Amongst the other reasons advanced were that, the modification is contrary to the policy of ss.615 and 618 of the Corporations Law as well as to the ASC's own policy guidelines, Otter's failure to take full advantage of 31 May 1996 relief in the time allowed, Otter's conduct and the ASC's failure to accord procedural fairness to parties adversely affected (i.e. Burdekin).
31. Burdekin claims to have entered into the purchase of Allstate shares in the latter part of November 1996, relying on its assessment of the purchase patterns adopted by Otter with respect to its acquisition of Allstate shares in light of the earlier modification and, knowing of the ASC policy not to grant further modifications, and certainly not to do so without consulting parties whose interests may be adversely affected, as well as by its understanding of the operation of the provisions of ss.615 and 618 of the Corporations Law, i.e. it made its decision based on the information available to the market.
32. Mr Archibald claimed that there was no real prejudice accruing to Beaconsfield, Burdekin, or any other minority shareholders, because Otter's participation in the market had led to an increase in the value of the shares. In any event it was difficult to see prejudice to Beaconsfield, because it was constrained by the s.618 principles from participating in the marketplace (at least for 6 months, from 2 August 1996) - without making a full takeover offer. In the case of Burdekin, as Mr Vitale appreciated16, it was taking a "particular gamble" (trans, p.89) in the Allstate stock having assessed the risks - including an assessment of the possibility of a second modification. The risk taken by Burdekin must be viewed against a background of an appreciation of the law, the ASC policy, the position of the parties in the market and the possibility of there being a second modification in circumstances where it could not be said that Burdekin was a naive or an ignorant participant. Mr Archibald further submitted that it was necessary to consider the steps in order to achieve compliance with the ASC Policy 57, namelyÐ . permit Otter to undertake restorative acquisition (i.e. to 46.321 per cent of Allstate), and . avoid prejudice to the "creep" entitlement, both during and after the period allowed for the restorative acquisitions.
33. Mr Archibald conceded that, while the above may have represented Otter's intention, that intention was not expressed in the words used in the first modification. He submitted that, if Mr Johannson's interpretation (set out in paragraph 14 herein) was accepted, then, because restorative acquisitions made up to 18 October 1996 only were to be taken into account in calculating creep entitlements - even with the first and second modifications - Otter would be worse off than if no modification had been made. Mr Archibald also submitted that the Eggleston principles do not arise for consideration when the ordinary application of the provisions of s.618 take effect. However, he agreed that they arise for consideration in circumstances where a modification is made. He submitted that the second modification was not a case of changing the rules after the game had been played (as suggested by Mr Pannam), but rather was a necessary corollary having regard to the facts and circumstances surrounding the first modification.
34. It is clear that Otter and Beaconsfield are opposing parties for control of Allstate, and have been since Beaconsfield made the takeover offer in April 1996. Otter currently has the ascendant position vis-(-vis the number of shares held in Allstate, and any increase in its shareholding will further cement that position. Beaconsfield is, however, also a serious contender to gain control. Into that heated environment Burdekin seized an opportunity to be an influential player between Otter and Beaconsfield. Its entry into the market was unashamedly to take advantage of what it perceived to be a window of opportunity as it is entitled to do. The Tribunal accepts the manoeuvrings have probably raised the price of Allstate shares. The price may fall if either Beaconsfield or Otter gain a greater than 50 per cent control of Allstate. Until that happens, the position of the parties is delicately poised, any alteration in one affects the others, and has the potential to affect the balance of the market of the shares in Allstate. That affect may have a short term result causing the shares to rise in value as the play intensifies (as occurred in the second half of November 1996 and subsequently), or the long term affect of causing the share price to fall if, or when, one or other gains control of Allstate. In considering the matter at present we should not be limited to taking into account only the short term effects which may arise as the result of the second modification occurring (i.e. which allowed Otter to remain in the market with the likely result that the share price was maintained). Against the background outlined, any modification to the law to endorse, or enhance, the ability of any one of Otter, Beaconsfield or Burdekin needs to be carefully assessed. It is against that background, and having regard to the principle set out in s.731 Corporations Law of promoting an "efficient, competitive and informed market", that the Tribunal should undertake its review of the decision to issue the second modification. Further, since the need for the second modification arose out of what was perceived to be a difficulty that Otter was experiencing with the first modification, it is not possible to look at the second modification without reference to the first.
35. The Tribunal appreciates the position of Otter: it did not achieve what it intended by the first modification although, accepting the 30th of November 1996 date as being the operative date, it achieved what it formally requested in the draft of the first modification it submitted to the ASC. The Tribunal accepts the uncontradicted evidence of Mr Wood that he was assured by the ASC officer prior to the grant of the first modification that, if problems arose in implementing the intentions behind the first modification, they could be corrected at a later time. The power to amend the Corporations Law is, as we noted earlier in these Reasons, a necessarily broad power. However, it should be used sparingly. The Corporations Law represents the stated rules which are designed to achieve compliance with the principles outlined in s.731, namely an "efficient, competitive and informed market". A change in the law amounts to a change in the information upon which the market operates. It is not satisfactory that the first modification, in relation to which unrelated parties may alter their position, should be left open to future change on the basis that some uncertainty exists.
36. The Tribunal does not accept that Otter was necessarily worse off as the result of the modification. Indeed, if it complied with the terms of the modification, again assuming 30 November 1996 to be the operative date, it could have recovered its pre-dilution position, plus gained a 3 per cent creep entitlement, to give it a total of 49.321 per cent share in Allstate. It would not then have been further able to use the creep entitlement provisions of s.618 until the expiration of the 6 month period provided in the section. Its position in the short term was clearly better than if the first modification had not occurred at all. Its position in the long term would depend upon the speed with which it made the purchases allowed for in the first modification.
37. Any increase in Otter's shareholding in Allstate has the potential to affect Beaconsfield adversely. The ASC appreciated this, and that is why they wrote seeking a submission from Beaconsfield in relation to the second modification (T7). There are a number of matters adverted to in the response filed on behalf of Beaconsfield to the ASC (T8). No single one of those matters is determinative. However, the Tribunal perceives a general unfairness arising as the result of the issuance of the second modification, in that it gives Otter a second opportunity, i.e. beyond that which was conveyed to the market in the wording of the first modification, and on which the market had been operating for a period in excess of 6 months. No such opportunity is given to Beaconsfield as the result of the ordinary application of the provisions of s.618. The wording used in the first modification is on its face plain. It does not manifest any injustice to Otter, but rather gives it an advantage not otherwise provided for in the application of the Corporations Law. There is nothing on the face of the first modification which appears to be unjust or, as we have pointed out, otherwise than in accord with the draft that Otter submitted to the ASC in its request for the first modification.
38. The fact that Otter did not take up the opportunity given by the first modification within the time provided, but seeks to do so subsequently, extends its opportunity to participate in the marketplace in a manner detrimental to Beaconsfield.
39. The Tribunal is also satisfied that the position of Burdekin has been adversely affected by the ASC's decision to grant the second modification, and that Burdekin was not consulted prior to the making of the decision. The general proposition was put to the Tribunal that it would be impossible for the ASC to consult every shareholder in circumstances where a modification may be said to affect that shareholder or those shareholders. The Tribunal has no trouble in accepting this proposition. It was submitted that, while Burdekin's share was 4.99 per cent as distinct from 5 per cent, and therefore it was not necessary for the ASC to technically contact Burdekin prior to reaching a decision to issue the second modification. Section 708(1) of the Corporations Law provides a person has a "substantial shareholding" in a body corporate if the person is entitled to not less than the prescribed percentage of the voting shares. The prescribed percentage is 5 per cent (see s.708(5)). Section 731 does not refer to a "substantial shareholding" or "substantial shareholder", but rather to a person who would acquire a "substantial interest" - a term which is not defined. An unduly technical approach, however, would ignore the broad policy considerations of ensuring that people with a substantial interest should be kept informed of changes that are likely to affect that interest. The events surrounding the takeover, the issuance of the option programme, the rights issue in November 1996, and comment in the press17, must be taken to have alerted the ASC of the "play" surrounding Allstate shares, such that it should be taken to have been aware of who the major players are and to, accordingly, have contacted them for comment prior to the reaching of a decision in order to accord them natural justice. Such an approach would accord with the ASC policy with respect to extending procedural fairness to parties whose interest may be adversely affected by any such modification (see Policy Statement 92 (T17)). In Burdekin's case this did not happen. The Tribunal is satisfied that Burdekin was not afforded the opportunity of making a submission to the ASC about the proposed second modification in circumstances where it was appropriate that it should be given that opportunity.
40. For the above reasons, the Tribunal has determined to set aside the decision under review. Ordinarily in accordance with the provisions of s.43(6) of the AAT Act, the effect of the Tribunal setting aside the decision would negate it from the date it was made, i.e. 10 January 1997. In this case the consequences of reaching that decision are readily apparent. The ordinary application of s.43(6) would result in shares acquired by Otter as the result of the second modification breaching the Corporations Law18. Otter urged the Tribunal to exercise the discretion contained in s.43(6) to set aside the decision as from the date of the Tribunal's determination or, at least, from the date of the stay granted on 28 January 1997. On the other hand, Beaconsfield submitted that, if the Tribunal was to do this, Otter would have achieved all it wished to achieve since it had been buying shares at least until the stay19. The Corporations Law provides that Otter may apply to the Court to have the purchases made verified under the provisions of s.1322 of the Corporations Law, where it would be open to the other parties to oppose any such application. The Tribunal is conscious that the parties (to date excluding Burdekin) have had other litigation concerning the 1996 takeover in the Supreme Court of New South Wales. There is also, of course, this action before the Tribunal, which has already once been to the Federal Court. There is also another action between Otter and Beaconsfield for the review of an unrelated decision of the ASC (again not involving Burdekin) before this Tribunal for determination. If the terms of s.43(6) of the AAT Act are not varied, then there will almost certainly be the need for further litigation. If possible, it is in the parties best interest not to have further litigation as the result of a decision of this Tribunal. The Tribunal also appreciates that market repercussions will arise as the result of a decision to set aside the decision under review. However, unlike the matter of Otter and ASC and Anor (Decision N¡ 11,677, handed down 7 March 1997) the Tribunal has been able to address the application in a relatively short time from the time the original decision was made. Those undesirable aspects, however, do not, in the opinion of the Tribunal, outweigh the greater undesirability of allowing Otter to retain its position in Allstate as the result of its representations to the ASC for the second modification, which the Tribunal has determined ought not to have been accepted. Accordingly, the balance falls in not exercising the discretion under the provisions of s.43(6).
41. The decision under review is set aside and the matter is remitted to the respondent with a direction that the modification applied for by Otter, and granted on 10 January 1997, ought not to have been made. 1 Report entitled ÒAnomalies in the Takeover Provisions of the Corporations Law (March 1994), p.13 etÊseq 2 At the time the first modification was granted paragraphs 51(i) to 51(p) dealt with the policy the ASC adopted in its approach to s.618. An update of that policy occurred on 2ÊDecemberÊ1996 and, at the time of the second modification paragraphs PS57.66 and PS57.79 set out the applicable policy. For present purposes, however, the update made no change. 3 PS57.66 4 Through two wholly owned subsidiaries Otter Exploration NL, which held 5,692,194 shares or 32.34 perÊcent and Otminex Pty Ltd which held 2,464,806 shares or 13.97 per cent 5 Exhibit FPJ2, paragraphs 15 et seq 6 Ibid, paragraph 28 7 Ibid, paragraph 26 8 Exhibit A to MrÊVitaleÕs witness statement - exh SPJ1. The Tribunal notes in paragraph 21 of that statement MrÊVitale says that the price rose to $4.11 in the same period 9 Ibid paragraph 26 10 Ibid, paragraph 28 11 Ibid, paragraph 30 12 See MrÊWoodÕs second statement of 25ÊFebruaryÊ1997, FPJ3, para 6 13 MrÊVitaleÕs witness statement, exhibit SPK1, paragraph 32 14 T8, page 43, paragraph 6 15 Exhibit RNJ9 to MrÊJohannsonÕs witness statement 16 See paragraph 17 of exhibit SPJ1 17 See MrÊVitaleÕs witness statement (exh SPJ1), paragraph 25 18 MrÊArchibald accepted that the second modification could not have retrospective effect for shares purchased post-30ÊNovemberÊ1996 to 10ÊJanuaryÊ1997 (trans, p.91). 19 It was alleged that in fact Otter purchased even after the stay was granted. It is not appropriate for the Tribunal to investigate this issue which, while of concern, is a matter for the ASC.
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