Kiwi Property Holdings Ltd v Shortland Properties Ltd [2002] NZCA 51; [2002] 2 NZLR 645 (7 February 2002)

Last Updated: 16 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA79/01

	BETWEEN	KIWI PROPERTY HOLDINGS LIMITED
		Appellant

	AND	SHORTLAND PROPERTIES LIMITED
		Respondent

Hearing:	7 February 2002
Coram:	Gault J Keith J Blanchard J
Appearances:	M N Dunning for Appellant P B Churchman and D J Friar for Respondent
Judgment:	7 February 2002

JUDGMENT OF THE COURT DELIVERED BY BLANCHARD J

[1] This is an appeal from a decision of Glazebrook J in the High Court at Auckland on 13 March 2001. Her Honour’s judgment is now reported at (2001) 9 NZCLC 262,514. Through an agent, Kiwi Property Holdings Limited (Kiwi) gave notice to Shortland Properties Limited (Shortland) on 26 July 1999 in accordance with s4 of the Companies Amendment Act 1963 (the Act) of a takeover scheme involving the making of offers for the acquisition of all the issued ordinary shares in Shortland. Attached to the notice was a statement containing particulars of the terms of the offer to be made under the scheme. The statement was in the form of an offer to be sent to the shareholders of Shortland.
[2] Section 4 of the Act prohibited the making of a takeover offer to an offeree unless the offeror had, not earlier than 28 days and not later than 14 days before the takeover offer was made, served or caused to be served on the offeree company a notice in writing of the takeover scheme together with a statement containing particulars of the terms of the offers to be made under the scheme and complying with other requirements of the Act.
[3] Section 5 of the Act provided:

5 Obligations of offeree company

(1) Forthwith upon receipt of the notice and statement given to it by or on behalf of the offeror, the offeree company shall—

(a) If its shares are quoted on a stock exchange, inform the stock exchange that the notice has been received:

(b) If its shares are not so quoted, do all that is reasonably practicable to ensure that all members of the offeree company are informed of the receipt of the notice.

(2) After receipt of the notice and statement given to it by or on behalf of the offeror, the offeree company shall either—

(a) Within 14 days after the receipt of the said notice and statement, send to the offeror, for transmission to the offerees, a statement in writing that complies with the requirements of the Schedule 2 to this Act; or

(b) Within 14 days after take-over offers are first made to offerees, send to every offeree a statement in writing that complies with the requirements of the said Schedule 2.

(3) Any statement given by the offeree company pursuant to subsection (2) of this section may contain, in addition to the information required by the Schedule 2 to this Act, such information as the directors of the offeree company think fit.

[4] A revised notice was issued by Kiwi on 20 August 1999. However, Kiwi did not proceed further. In particular, it did not send any offers to the shareholders of Shortland. No doubt this was because a third party, Capital Properties Limited (Capital), had entered the scene. Capital gave notice of a takeover scheme in respect of Shortland on 26 August 1999 and made a takeover offer on 23 September 1999 which proved successful.
[5] Shortland claims to have incurred certain expenses in relation to Kiwi’s takeover scheme and has brought a proceeding against Kiwi claiming recovery of those expenses as a debt due to it in terms of s11(2) of the Act:

11 Reimbursement of offeree company and directors

(1) Notwithstanding anything in the articles or the constitution of the offeree company, the directors of that company shall be entitled to have refunded to them by that company any expenses properly incurred by them on behalf of and in the interests of the members or shareholders of that company in relation to the take-over scheme.

(2) The offeree company may recover from the offeror, as a debt due to the offeree company, any expenses properly incurred by the offeree company, in relation to the take-over scheme, whether as a result of refunds made under subsection (1) of this section or otherwise.

[6] The High Court has not yet considered any question of the quantum of the claim. Glazebrook J has, however, concluded that in the statutory context of s11(2) an “offeror” includes someone who has given notice of a takeover scheme but has not followed that up with an offer to offeree shareholders.
[7] Mr Dunning, for Kiwi, has endeavoured to persuade us today that both as a matter of the policy of the Act and as a matter of the construction of s11, read in the light of the definitions to be found in s2, particularly the definition of “offeror”, the Judge was in error. We do not agree and can briefly give our reasons for taking the same view as Glazebrook J.
[8] First, as to the policy of the Act, Mr Dunning submitted that it was passed to ensure that shareholders were given adequate information to assess takeover offers received by an offeree company, primarily by providing for pauses and publicity in the takeover process and discouraging takeover bids which were characterised by speed and secrecy. There is no indication, counsel said, of any intention on the part of Parliament to introduce a general indemnification of an offeree company’s expenses in all circumstances. He contended that a limitation of the operation of s11(2) in the way contended for would not be inconsistent with the fundamental purposes of the legislation.
[9] Central to the appellant’s argument is the definition of “offeror”, which under s2 “unless the context otherwise requires” is said to mean “a person who makes a take-over offer, whether in concert or jointly with any other person or not”. Kiwi’s position is that it never became an offeror because it never actually made a “takeover offer”. All it did was give notice of a takeover scheme.
[10] The further relevant definitions are:

“Offeree” company means a company whose shares, or any of them, are proposed to be acquired under a take-over scheme:

“Take-over offer” means an offer in writing for the acquisition of shares under a take-over scheme:

“Take-over scheme” means a scheme involving the making of offers for the acquisition of any shares in a company which, together with shares, if any, to which the offeror is already beneficially entitled, carry the right to exercise or control the exercise of more than one-fifth of the voting power at any meeting of the offeree company.

[11] Like Glazebrook J, we can see no good reason why Parliament, having decided that it was appropriate that an offeree company should be able to recover its expenses properly incurred in relation to a takeover scheme, would then make the ability to recover such expenses conditional upon the actual making of an offer pursuant to a notified scheme. This seems to be an unlikely distinction, all the more so because, once a notice of takeover scheme has been given under s4, the offeree company is obliged to take one of the steps specified in s5(1) and, for good commercial reasons, is very likely to wish to avail itself of the opportunity afforded to it under s5(2) of sending to the “offeror” for transmission to the offerees (the shareholders) a statement in writing complying with the requirements of Schedule 2. Such a statement must include a statement indicating whether or not the directors of the offeree company recommend acceptance of the takeover offers to be made. And even if the offeree company did not choose to send a statement for transmission to the offerees in that way, it was obliged under s5(2)(b) within 14 days – a fairly limited period – after takeover offers were first made to the offerees to send a Schedule 2 statement to every offeree. In many instances it would be impracticable to defer preparation of this statement, and any outside consultation necessary to assist the directors in making a recommendation, until the 14 day period in para (b) had commenced as a result of the making of the takeover offers. Parliament must surely have contemplated that during the 14 day period in para (a) of s5(1) an offeree company might well incur substantial expenses in anticipation that the party which had given notice under s4 would proceed to make the offers as soon as it was able to do so.
[12] Notwithstanding the improbability of Mr Dunning’s policy argument relating to s11, he was, of course, able to point to the use in subs(2) of the term “offeror”. Recovery is from an offeror only. If the s2 meaning of the definition of “offeror” is to apply, that is, unless the context otherwise requires, Kiwi is able to say that it was never an offeror.
[13] We are satisfied, however, that the Judge was right to reject such an argument. To begin with, it is to be expected that “offeror” and “offeree company” would have corresponding meanings. An offeree company is one whose shares are “proposed to be acquired under a takeover scheme”. A “takeover scheme” means a scheme “involving the making of offers”. Such a scheme comes into existence once it has been formulated or, at the very least, from the point at which a notice concerning it has been delivered to the offeree company.
[14] More importantly, the obligations and rights of an offeree company are said by s5 to apply “forthwith” upon receipt of the notice and statement given to the offeree company “by or on behalf of the offeror”. But if Kiwi’s contention were correct, there would be no offeror at that point in time. Mr Dunning’s response was that the use of the term “offeror” in what he had to concede was an extended way in s5 resulted from the carrying forward of the use of the same definition in s4 which was looking at the matter “historically” i.e looking back from the point when a takeover offer had actually been made. Counsel said that the assumption in s4 was that an offer had been made, requiring a pre-condition in the past (notice to the company) to have been satisfied for the offer to be valid.
[15] We do not find this argument persuasive. It seems to us that in ss4 and 5 the legislature is describing as an “offeror” someone who has not yet made an offer. Indeed, in s4 that expression might encompass someone who has formulated a takeover scheme but not yet given notice of it in writing to the offeree company. Certainly in s5 “offeror” has to include someone in the position of Kiwi who has given notice of a takeover scheme but has not yet proceeded to send out takeover offers.
[16] Against this background, we take the view that in s11 “offeror” is being used in the same way and is intended to include a party which has given notice to an offeree company under s4. Once the action of the “offeror” under s4 of sending a notice of a takeover scheme has made the target company, an offeree company, the sender of the notice has become an offeror for the purposes of s11. This construction has the merit of avoiding the unjustifiable distinction which would occur if an expenses claim could not be made unless takeover offers followed.
[17] For these reasons the appeal is dismissed. The appellant must pay the respondent’s costs in the sum of $3,500 together with reasonable disbursements which are to be fixed if necessary by the Registrar.

Solicitors:
Russell McVeagh, Auckland for Appellant
KPMG Legal, Wellington for Respondent