A.G. (Vic) v Walsh's Holdings Ltd

SCHEDULE (a) within 4 business days of the making of the order requiring Western Metals to dispose of the 8,380,000 shares in Aberfoyle those shares shall be offered for sale by Western Metals by sealed bid tender. (b) the offer shall be made by publishing notice of the offer in a daily newspaper circulating nationally and by sending an announcement of the offer to the Australian Stock Exchange; (c) the offer shall invite the submission of sealed bid tenders for all or any proportion of the subject shares, such tenders to be lodged with the Secretary of Western Metals by 5.00 pm (Eastern Standard Time) on the fifth business day after the publication of notice of the offer pursuant to paragraph (b) ("the tender period") and to conform with the following requirements: (i) each bid shall specify a price per share and a maximum number of shares sought at that price; (ii) Western Metals shall be at liberty to accept the bid in respect of such proportion of the maximum number sought as it determines; (d) the terms upon which the shares shall be sold shall be unconditional with settlement to take place within five business days of the making of the contract; (e) no bid shall be accepted from a person who: (i) is known to be or suspected of being an associate of Western Metals within the meaning of sections 11, 12 or 15 of the Law; or (ii) would but for paragraph 16(1)(a) of the Law be known to be or suspected of being an associate of Western Metals; or (iii) is Macquarie Bank Limited or a subsidiary thereof; (f) Western Metals shall not accept any bid until after the tender period for lodging bids referred to in paragraph (c) has expired; (g) subject to paragraph (e), Western Metals shall accept the highest bid or bids for the subject shares (and if there is more than one bid at a particular price, the acceptances shall be prorated among the bidders at that price) and shall notify its acceptance to the successful bidder(s) on the second business day after the tender has closed; (h) a reasonable time prior to opening the bids, Western Metals shall notify Aberfoyle of the time and place where they will be opened and two representatives of Aberfoyle are entitled to be present at the opening of the bids. Note: Settlement and entry of orders are dealt with in Order 36 of the Federal Court Rules

REASONS FOR JUDGMENT Aberfoyle Limited (Aberfoyle) is a public company. It has been admitted to the official list of the Australian Stock Exchange (ASX) and its ordinary shares have been granted quotation on the stock market which the ASX conducts. Western Metals Ltd (Western Metals) proposes to offer to acquire all of the ordinary shares in Aberfoyle. On 5 May 1998 Western Metals served on Aberfoyle a Part A statement relating to the proposed offers together with a copy of one of the proposed offers: the obligation to serve those documents is to be found in s 637(1) of the Corporations Law. Aberfoyle alleges that the Part A statement does not comply with the requirements of the Corporations Law and that the proposed offers contain a condition which is forbidden by s 662(2) of the Corporations Law. Aberfoyle also alleges that Western Metals will contravene s 698(2) of the Corporations Law if it sends the proposed offers to its shareholders because those offers do not provide benefits that have been offered or given to certain of its shareholders within the past four months. Accordingly it asks for declarations and other orders that would have the effect of regularising the position. It is necessary to set out in some detail the facts that give rise to these allegations. In the course of doing so I must resolve a number of contentious issues. This will require me to consider the credibility of witnesses called on behalf of Western Metals. I wish to say at the outset that for the most part I regarded their evidence as helpful and informative. But in certain respects some of the evidence was, I think, not given frankly. Each witness was an intelligent person who was well aware of those areas where his evidence might not assist the cause of Western Metals. When dealing with those areas the witnesses could have been more forthright. Aberfoyle is a mining company. It operates two mines, the Hellyer zinc lead and silver mine in Tasmania and the Gunpowder copper mine in northwest Queensland. The issued capital of Aberfoyle comprises 84,617,798 fully paid ordinary shares of $0.50 each. As at 30 April 1998 the market capitalisation of Aberfoyle was approximately $210 million. Aberfoyle shares are tightly held. Looking at the position as at February 1998 five institutional shareholders held over 50 per cent of the ordinary shares and another four institutions held a further 23 per cent of those shares. The shareholders and the percentage of shares held by them were as follows: Permanent Trustee Co Ltd (perhaps not accurately described as an institution) with 13.2 per cent, Portfolio Partners with 10.6 per cent, Hambros Hopkins with 9.9 per cent, Maple-Brown Abbott with 8.6 per cent, Bankers Trust with 8.1 per cent, Lend Lease with 6.1 per cent, Prudential Portfolio with 5.6 per cent and AMP Society with between 4 and 5 per cent. Western Metals is also a mining company. It carries out its mining operations at two mines in the Leonard Shelf in Western Australia and is currently in the process of completing a third mine. Lead and zinc concentrates are produced at those mines. Immediately before the events that give rise to this proceeding Western Metals had on issue 241,098,731 fully paid ordinary shares of $0.50 each with a market capitalisation of approximately $190 million. In February 1998 Western Metals began to consider the possibility of acquiring Aberfoyle. The reasons for the proposed acquisition include the prospect of acquiring a company whose activities would provide an "excellent strategic fit" with those of Western Metals, the diversification of Western Metals' resources and the development of a second core business unit. However, there was one difficulty with the proposal. Western Metals did not have the funds that would be required to purchase the shares and some means of obtaining those funds would have to be devised. Macquarie Bank Ltd (Macquarie Bank) is a well known Australian bank. In addition to its traditional banking activities it provides financial and corporate advice to many large Australian corporations. It has considerable experience in advising on mergers and acquisitions. Through a wholly owned subsidiary, Macquarie Equities Ltd (MEL), Macquarie Bank also conducts a stockbroking business and it conducts an underwriting business through Macquarie Underwriting Ltd (MUL). (Unless it is necessary to distinguish a particular company in the group I will refer to them collectively as Macquarie Bank.) Some time in February 1998 Western Metals retained Macquarie Bank to provide it with advice and assistance in relation to the proposed acquisition of Aberfoyle. This was regarded as a complex retainer and Macquarie Bank put together a formidable team to deal with it. The members included Tony Ferguson the executive director of Macquarie Corporate Finance (MCF) (this being the advisory division of Macquarie Bank), Jim Craig a director of MCF, a number of associate directors of MCF including Wayne Seabrook and Richard Facioni, and Wayne Kent an executive director of Macquarie Bank and the joint head of MUL. Initially Macquarie Bank advised Western Metals to consider making an offer to acquire Aberfoyle shares in exchange for shares in Western Metals or making an offer that was partly for cash and partly for shares in Western Metals. To raise the cash component Macquarie Bank suggested that Western Metals should issue converting preference shares: that is, shares that on maturity would be exchanged for ordinary shares. Later, in March 1988, Macquarie Bank proposed that there be a cash bid for the Aberfoyle shares to be funded by a combination of borrowings and an allotment of ordinary and converting preference shares. This proposal is set out in a document prepared by Macquarie Bank entitled "Project Agnetha - Preliminary Analysis". Agnetha was the code for Aberfoyle. By mid March 1998 Messrs Seabrook and Facioni had begun to formulate the rights that would attach to the converting preference shares. Their proposal was that these shares should carry the right to receive a dividend of 8.5 per cent and that there should be some protection given to the converting preference shareholders if at the time of conversion the price of the ordinary shares was below par. In that event they suggested that bonus shares should be issued to the converting shareholder so that the shareholder would not suffer a loss on the investment. Messrs Seabrook and Facioni met Alan Rule, the secretary and general manager of Western Metals, on 19 March 1998 to explain their views. Mr Rule and Roderick Webster, the managing director of Western Metals, were the officers of that company who had principal responsibility for dealing with Macquarie Bank. At the meeting either Mr Seabrook or Mr Facioni explained the proposal. It was also suggested that the converting preference shares should be issued at a price being 10 per cent below the fair value of those shares. There was another topic discussed at this meeting. It concerned the identity of those who would be approached to take up an allotment of the ordinary shares and the converting preference shares if the proposed takeover offer was to proceed. Mr Rule recorded this advice in his diary as follows: "capture some ABF S/H". Mr Rule was cross-examined about this advice and gave the following evidence: "Q. You'll agree with me that specific reference was made at that meeting and earlier on subsequent meetings to the targeting of Aberfoyle shareholders as potential subscribers to the converting preference share issue? A. I agree that it was discussed and it was our position that that's what we wanted before we took legal advice. Q. Before you took legal advice you and Macquarie proposed to target Aberfoyle institutional shareholders to have them subscribe to the converting preference share issue. That's correct, is it not? A. Before we got legal advice we proposed to get them to participate in the financing. At that stage we hadn't resolved how the financing was to be put together, whether it was a placement or converting preference shares or a rights issue. Q. No, you hadn't but you had, as at about 19 March, considered that one method of raising the finance would be by way of converting preference share issue? A. Correct. Q. In relation to the converting preference share issue you and Macquarie proposed to target Aberfoyle shareholders to have them subscribe to that issue? A. That proposal was put by Richard Facioni of Macquarie. We hadn't taken legal advice on it at that stage." ... "Q In respect of the equity and quasi-equity options, on 19 March 1998 Mr Seabrook and Mr Facioni advised you that in relation to those aspects of the financing you must try and capture some ABF shareholders? A. Yes, in relation to the equity and quasi-equity. Q. Yes? A. Yes. Q. You accepted that advice, didn't you? A. At the time, yes." Having regard to what transpired a little later it is clear that Macquarie Bank had formed the opinion that the institutional shareholders of Aberfoyle might be attracted to a proposal that they sell their shares in Aberfoyle and subscribe for shares in Western Metals as an alternative investment. This was the substance of the advice given to Mr Rule on 19 March 1998 which is cryptically summarised in his diary. Shortly after this meeting someone within Macquarie Bank, it might have been Mr Seabrook or Mr Facioni, considered that if ordinary shares and converting preference shares were offered to some Aberfoyle shareholders but were not also offered to all shareholders as part of the proposed takeover there might be a contravention of s 698 of the Corporations Law. In so far as is relevant that section provides: "(1) Subject to subsection (5), if a Part A statement is served on a target company, the offeror, or an associate of the offeror, shall not, during the takeover period, give, offer to give or agree to give to a person whose shares may be acquired under the takeover scheme, or to an associate of such a person, any benefit not provided for under the takeover offers or, if the takeover offers are varied in accordance with Division 5 of Part 6.3, under the takeover offers as so varied. (2) Subject to subsection (5), a person who proposes to send takeover offers within the next following 4 months (in this subsection called the "proposed offeror"), or an associate of such a person, shall not give, offer to give or agree to give to a person whose shares may be acquired under the takeover scheme, or to an associate of such a person, any benefit that the proposed offeror is not proposing to provide for under the takeover offers." I have reached the conclusion that the possibility of a breach of s 698 was a matter that was considered by Macquarie Bank for the following reasons. On 24 March 1998 Mr Rule again met with Messrs Seabrook and Facioni. The main topic of conversation was the issue of ordinary and converting preference shares to fund the proposed takeover. So much appears from the note of the meeting taken by Mr Rule. One of the points noted by Mr Rule reads: "s 698 - offer side benefit". Mr Rule did not raise s 698 at the meeting. Mr Rule has no legal qualifications and he accepted that the section was mentioned by either Mr Seabrook or Mr Facioni. Mr Rule said that he had no recollection of the discussion about the section and he could not remember what was the "side benefit" that was the subject of his note. It may be, as Mr Rule says, that he was unable to recall what was said about the section. But it is clear enough that it could only have concerned the suggestion that ordinary shares and converting preference shares be offered to Aberfoyle shareholders. There was no other aspect of the proposed takeover that was under consideration that might be caught by the section. It is also possible that Western Metals banker, BankWest, was concerned that the proposal to offer ordinary shares and converting preference shares to Aberfoyle shareholders might attract the operation of s 698. It will be recalled that Western Metals proposed to borrow some of the funds that would be required to pay for the Aberfoyle shares. BankWest had been approached to provide those funds. Mr Rule said that BankWest had requested him to obtain the advice of solicitors on various aspects of the proposed takeover and to provide a copy of that advice to BankWest. Although it is not altogether clear it is possible that one aspect of the proposal that BankWest said should be considered by the solicitors was the application of s 698. There was a vague suggestion to this effect by Mr Rule. On 1 April 1998 or thereabouts Western Metals retained Freehill Hollingdale & Page (Freehills) to provide it with advice on certain aspects of the proposed takeover. One question that Freehills was asked to address was whether it was possible to offer the securities to be issued by Western Metals to institutional investors that were investors in Aberfoyle without breaching s 698. On 3 April 1998 Freehills provided what it described as a brief summary of its conclusions. In answer to the question concerning s 698 Freehills said this: "[T]hat placement should not involve a breach of s 698 of the Corporations Law if undertaken bona fide in accordance with ordinary practice." A copy of the advice was provided to BankWest and to Macquarie Bank. In the meantime, Macquarie Bank was still formulating the manner in which the proposed takeover should be structured with particular attention being paid to the funding that was required. Two aspects of the funding should be mentioned. The proposed share issue was to be underwritten by MUL. This meant that Macquarie Bank had a greater than usual interest in the price at which the shares were to be offered and the terms upon which the converting preference shares should be issued. On 30 March 1998 Macquarie Bank sent a draft letter to Western Metals setting out the proposed terms of its retainer. The letter summarised the advice given to date in relation to the proposed share issue. The ordinary shares would be priced at a discount of between 5 per cent to 10 per cent to the prevailing market price of Western Metals shares. The suggested issue price of each converting preference share was $1, subject to review, and each share would carry the right to a non-cumulative preference dividend of 8.5 per cent for 5 years. On maturity the converting preference shares would be converted into ordinary shares in accordance with a formula that would give to the converting preference shareholder ordinary shares to the value of $1.11 provided the price of the ordinary shares was not below approximately $0.27 at the date of conversion. In other words, for each $1 invested in a converting preference share when that share was converted the investor would receive ordinary shares to the value of $1.11 unless there was a dramatic fall in price of Western Metals shares. The purpose of this was to give to the converting preference shareholder what was referred to as "downside protection". The proposed downside protection was not without its difficulties. Section 190 of the Corporations Law prohibits a company, other than a no liability company, from issuing shares at a discount except in certain circumstances. Thus, prima facie, Western Metals was not in a position to offer downside protection if the price of its ordinary shares fell below $0.50: it will be recalled that this is the par value of each ordinary share. However, it was anticipated that the Corporations Law would soon be amended to overcome this difficulty: see Company Law Review Bill 1997 Schedule 5 Item 10. The rights that were to attach to the converting preference shares made them an attractive investment: the yield of 8.5 per cent compared favourably to current interest rates, there was an effective profit of 10 per cent on conversion and there was downside protection. The fact that the converting preference shares were structured to be an attractive investment is no surprise. The object was to enable Western Metals to raise a large amount of capital and to do so in a short period. There is one other aspect of the advice given by Macquarie Bank that should be mentioned. As I have already noted, from mid March 1998 at the latest it was the view of Macquarie Bank that Western Metals shares should be offered to major shareholders in Aberfoyle. If the reason for this was not explained to Western Metals before 9 April 1998 the explanation was provided on that day at a meeting between representatives of Macquarie Bank and representatives of Western Metals. The meeting that was held on 9 April 1998 was an important meeting. Its purpose was for Macquarie Bank to outline how Western Metals should mount its takeover bid. In attendance were most of the members of the team that had been put together by Macquarie Bank to advise Western Metals including Mr Johnson, Mr Craig, and Mr Kent. Mr Kent had considerable experience in capital raisings and was responsible for formulating the form of equity to be raised by Western Metals including establishing the terms and conditions of the converting preference shares. Those attending on behalf of Western Metals were its chairman, Mr Alan Castleman, Mr Webster, Mr Rule and two solicitors from Freehills. Mr Johnson, Mr Craig and Mr Kent spoke to the meeting. They outlined the tactics for the proposed takeover and how the funding for it should be organised. A summary of what was said appears in a document entitled "Project Agnetha - Tactics & Funding" a copy of which was given to each person who attended the meeting. What now follows is a summary of portions of the advice given to Western Metals. By way of introduction I should mention that I am not disposed to set out the advice in detail because a good deal of it is confidential and should not be disclosed, especially to Aberfoyle, having regard to the fact that Western Metals proposes to proceed with its takeover regardless of the outcome of this case. It will be necessary for me to refer to certain figures but rather than set them out I will refer to them by a symbol. One topic that was discussed was the price that Western Metals should offer to acquire Aberfoyle shares. Macquarie Bank recommended that there be an initial bid at $x per share with the possibility of going to $y. Even if the offer was to be at $y per share it was said to be attractive for a number of reasons only one of which should be mentioned, namely that it would enable Aberfoyle shareholders to "reinvest" cheaply in Western Metals' shares. As will become clear in a moment, the strategy that Macquarie Bank had developed was to induce major Aberfoyle shareholders to sell their Aberfoyle shares by offering to them the right to acquire Western Metals' shares as a substitute investment. The manner in which Aberfoyle shareholders would be approached to acquire shares in Western Metals was explained later during the meeting. It was noted that the Aberfoyle share register was heavily concentrated with 38 per cent of the shares controlled by four institutions, 49 per cent of the shares controlled by six institutions and 72 per cent of the shares controlled by 20 institutions. Western Metals was advised that because institutions dominated the Aberfoyle share register the attitude of those institutions to the bid and to the funding proposal would determine the success of the bid. That the attitude of the institutional shareholders to the bid would determine its success was obvious enough. If the six major shareholders would not accept an offer to sell their shares Western Metals could not obtain control of Aberfoyle. But Macquarie Bank advised that the attitude of the institutional shareholders to the funding proposal would also determine the success of the bid. What Macquarie Bank had in mind in this regard was explained in the following way. Macquarie Bank recommended that Western Metals acquire a stake of up to 19.9 per cent of the shares in Aberfoyle before it made its takeover offer. (By s 615 of the Corporations Law a person is entitled to acquire up to 19.9 per cent of the capital of a company without making an offer to acquire all of the shares. If the person desires to acquire a higher percentage of the shares an offer to acquire all of the shares must be made, subject to certain exceptions). To acquire this 19.9 per cent stake Macquarie Bank named those institutions that should be approached to sell some of their shareholding. Those institutions were Portfolio Partners, Bankers Trust, Maple-Brown Abbott and Hambros Hopkins. Macquarie Bank advised that in its opinion there were compelling reasons for those institutions and for the other institutional shareholders in Aberfoyle to sell their Aberfoyle shares to enable them to subscribe for converting preference shares in Western Metals. The reasons given included the fact that, on certain assumptions, an Aberfoyle shareholder would receive greater dividend from its converting preference shares in Western Metals than it would if it retained its Aberfoyle shares. I assume that the downside protection that would be provided to a converting preference shareholder would also feature as an attraction. In the "Tactics & Funding" paper the proposed advantages were described as part of a "swap story". This is a useful description. The "Tactics & Funding" paper contained a list of institutions that would be approached to subscribe for shares in Western Metals together with certain information about each institution. The list was set out in the following way. There were five headings - Institution, Agnetha Shareholder, William Shareholder, CPS Interest and Potential Demand. (William was the code for Western Metals). Beneath the heading Institution there appeared the name of sixteen institutions the first six being shareholders of Aberfoyle. The others, apart from the eighth institution, AMP, were not Aberfoyle shareholders. When the list was prepared it had wrongly been assumed that AMP was not an Aberfoyle shareholder. Beneath the next three headings there had been placed either a tick or a cross to indicate whether the institution was a shareholder in Aberfoyle, was a shareholder in Western Metals and whether it might be interested in accepting converting preference shares. The final column contained what was believed to be the potential demand by each institution for Western Metals' shares. Macquarie Bank also proposed a timetable for steps to be taken in furtherance of the proposed takeover. The first step was to approach those institutional shareholders of Aberfoyle that could be "trusted" (presumably trusted to maintain confidentiality) to ascertain whether they were in favour of the proposed takeover (meaning would they sell their shares in Aberfoyle) and to ascertain their interest in taking a placement of Western Metals' shares. Then it was proposed to approach Western Metals shareholders to ascertain their view about the proposal. Assuming a favourable response the next step was to approach institutional shareholders in both Aberfoyle and Western Metals to place with them Western Metals' shares on the basis that they would later be approached to sell some of their shares in Aberfoyle to enable Western Metals to acquire a 19.9 per cent stake in the company. It will be remembered that two solicitors from Freehills, Mr B Jolly and Mr J Mannoli, were at the meeting. At some stage they expressed concern about Macquarie Bank's proposal that institutional shareholders in Aberfoyle be asked to "swap" their Aberfoyle shares for shares in Western Metals. Precisely what was said by the solicitors is not clear. None of them was called to give evidence which is surprising since Western Metals has waived legal professional privilege in relation to the advice given by Freehills on the question of s 698. Mr Rule made a note of what was said on his copy of the "Tactics & Funding" paper which reads: "Per FHP need to be careful re legal". In his evidence Mr Rule said that he could not recall precisely what was said by the solicitors but that "they spoke to the meeting about the implications of proceeding with the swap of shares and they made it clear that institutions had to be approached as institutions in a professional capacity not as Aberfoyle shareholders." Mr Rule also said that Mr Jolly had advised the meeting that under no circumstances should any comment be made to an Aberfoyle shareholder that was approached to subscribe for shares in Western Metals that the shareholder would be approached to sell its Aberfoyle shares. The evidence does not suggest that Mr Jolly explained why this prohibition should be imposed although I expect that those at the meeting understood the problem to relate to s 698. I can now leave the meeting of 9 April and turn to the next relevant event that occurred. AMP was selected as the "trusted" institution to be approached to ascertain its attitude to the proposed takeover. A meeting with AMP was arranged for the afternoon of 20 April 1998. For the purposes of the meeting a person from Macquarie Bank, probably Mr Seabrook, prepared a draft presentation chart to be given to AMP. On 16 April Mr Seabrook sent the draft to Mr Rule for his consideration. A copy of the document is no longer available. Mr Rule said that when he read the presentation he saw that it contained references to share swapping, that is to the swapping of Aberfoyle shares for shares in Western Metals. Mr Rule said that he called Mr Jolly and asked him to review the document and they arranged to meet on the morning of 20 April for that purpose. On 17 April 1988 Mr Seabrook sent a facsimile transmission to Mr Webster and Mr Rule that set out a draft agenda for a meeting to be held between Macquarie Bank and Western Metals. One item that Mr Seabrook placed on the agenda was the presentation chart. Mr Seabrook noted that there was in existence or was to be prepared (it is not clear which) a revised draft with "swap story, more aggressive". Having regard to the advice said to have been given by Freehills at the meeting of 9 April, a meeting at which Mr Seabrook was present, it is difficult to understand what Mr Seabrook had in mind by the preparation of a document that still referred to a "swap story". It may be that the draft presentation had been prepared by some person who was not at the meeting of 9 April, but that is unlikely - almost all of the Macquarie Bank team attended the meeting. Another possibility is that notwithstanding the warning given by Freehills it was believed that a presentation that promoted the "swap story" to a "trusted" institution would not have any adverse legal consequences because the fact of such a presentation having occurred would not be discovered. Whatever may be the explanation it is clear that Macquarie Bank was still firmly of the view that it was important to press the "swap story" so that Western Metals could obtain an initial 19.9 per cent stake in Aberfoyle and thereafter a controlling interest. In other words, Macquarie Bank believed that unless the institutional shareholders in Aberfoyle could be persuaded to sell their Aberfoyle shares in exchange for shares in Western Metals the proposed takeover might not succeed. The draft agenda that was sent to Mr Webster and Mr Rule had attached to it a timetable. That timetable proposed that approaches be made to institutions on 23 April in Melbourne and on 24 April in Sydney to offer those institutions shares in Western Metals. Each institution to be approached was named and was identified as either an Aberfoyle shareholder or a Western Metals shareholder. The institutions that were to be approached on 23 April were Portfolio Partners and Hambros, each an Aberfoyle shareholder, and County and Colonial each a Western Metals shareholder. The institutions to be approached on 24 April were Bankers Trust, AMP, MBA, each an Aberfoyle shareholder, Rothschild, First State, CBA and Mercy Mutual, each a western Metals shareholder, and MIML and GIO which were not shareholders in either company. (The names of these last two institutions were separated from the others by a few lines). The timetable also proposed that an approach be made to Portfolio Partners and Bankers Trust to ascertain whether they would sell to Western Metals shares totalling 19.9 per cent of the capital of Aberfoyle. Mr Rule met Mr Jolly on the morning of 20 April 1998 as had been arranged. Mr Jolly went over the draft presentation to be given to AMP and it was agreed that all references to "swapping" in the draft should be deleted. Mr Jolly also advised Mr Rule that there should be no discussion about "swapping" at the meeting with AMP. Immediately thereafter Mr Rule instructed either Mr Seabrook or some other officer of Macquarie Bank to make the changes to the presentation that Mr Jolly had suggested. The version of the presentation in the form that it took when provided to AMP is in evidence. The document describes the proposed acquisition, gives an overview of Western Metals by reference to its share price over a two year period, its corporate history and its mining operations. It sets out what are said to be the benefits that will accrue to Western Metals as a result of an acquisition of Aberfoyle. The presentation concludes with a summary of the reasons why it was believed that the takeover would be successful. In that summary Aberfoyle is described as a single asset company with an exposure to only copper and Western Metals is described, after the takeover, as a company that has diversified its risk with two long life assets and with exposure to zinc, copper and lead, that is a diversified base metals company. An institution that was given this presentation might be forgiven for thinking that it would be wise for it to swap its shares in Aberfoyle (if it had any) for shares in Western Metals (if those shares were available). But of course the presentation made no mention of swapping. The meeting with AMP that took place during the afternoon of 20 April was apparently successful in the sense that nothing appears to have been said that might dissuade Western Metals from pressing on with the proposed takeover. But this is to a large measure speculation on my part. No one who attended the meeting was called to give evidence. The next step in the history of this transaction is the meeting with the institutions on 23 and 24 April but before turning to discuss those meetings it is necessary for me to say something about the selection of the institutions that were approached on those two days. Western Metals contends that in choosing the institutions no regard was paid to the fact that any of them held shares in Aberfoyle. Its case is that the institutions were selected by Macquarie Bank in accordance with Macquarie Bank's usual practice of selecting institutions to be approached to subscribe for a large parcel of shares. The evidence that is relied upon to show that the usual practice of Macquarie Bank was followed in this regard is that of Mr Kent. He said that he was the person responsible for identifying the potential investors. He explained his selection criteria to be: satisfaction of the "excluded offeree" provisions contained in the Corporations Law; significant existing shareholders in Western Metals; the extent to which a potential investor was considered a "client" of MEL; the level to which an investor had an interest for converting a preference shares; interest in resource companies; institutions to be located in Melbourne and Sydney. He said that in deciding who should be approached he was conscious of the following factors: the need to ensure that there was no breach of s 698; his usual practice in drawing a list of persons whom he would approach; he would follow his usual practice; if he excluded investors that also happened to be Aberfoyle shareholders the resulting list would include a number of large institutional investors whom it was not customary for him to approach; the list would then not be a list in accordance with his usual practice; if these institutions were excluded it would have reduced the chances of a successful underwriting. Mr Kent then said that following his usual practice just described he prepared a draft list of the institutions to be approached and gave that list to Mr Rule on about 21 or 22 April 1998. I infer from this that the list had been prepared a day or so earlier. There are at least two matters that lead me to doubt that Mr Kent did follow any usual practice when he prepared his list of institutions. One of the witnesses who was called to give evidence on behalf of Western Metals was Mr P Curry, the head of institutional sales at MEL. He described his function at MEL as one that included responsibility for the management of MEL's institutional relationships in Sydney. Before becoming head of institutional sales Mr Curry worked for MEL as an institutional sales person, that is he bought and sold securities for institutional clients of MEL. Mr Curry was asked about the size of the institutional market for the placement of listed securities. He said that there were 15 to 20 "decent" institutions in Melbourne, 40 institutions in Sydney, but only 20 per cent of them were what Mr Curry described as the "AMP, BT-type institution" (by which he meant a large institution) and 2 institutions in Brisbane. There were 15 institutions on Mr Kent's list and at least 6 of them were known to be Aberfoyle shareholders. Having regard to the evidence that there were a number of other large institutions that could have been approached to subscribe for shares in Western Metals it is difficult to accept Mr Kent's statement that if Aberfoyle shareholders had been excluded from the list that would have reduced the chance of a successful placement. Indeed, in a non-responsive answer to a question put to him in cross-examination Mr Kent said, "We didn't need to go to the Agnetha [Aberfoyle] shareholders to raise the money." Mr Curry would no doubt agree with this. The second matter that leads me to doubt the evidence of Mr Kent is the timetable with the list of institutions that had been prepared by Mr Seabrook on or shortly before 17 April 1988 some days before Mr Kent had prepared his list. The only institutions that Mr Seabrook suggested should be approached on 23 April in Melbourne and on 24 April in Sydney were those that held shares in Aberfoyle or Western Metals apart from the two I have mentioned. It was not suggested that Mr Seabrook's list of institutions was prepared in accordance with any usual practice adopted by Macquarie Bank. On the contrary it seems clear from the face of the list that the selection of institutions was made on the basis that the institutions were shareholders of one or other of Aberfoyle or Western Metals. Moreover, of the 14 institutions that appear in Mr Seabrook's list, all but 3 of them appear on Mr Kent's list. One omission is explained by a notation on Mr Seabrook's list - the notation reads, "MUL say no??" I should also point out that most of the institutions on Mr Seabrook's list had already been identified to Western Metals during the course of the meeting on 9 April as the institutions to be approached to take a placement of Western Metals' shares. They are set out by name in the "Funding & Tactics" paper. Of course it is possible that the substantial overlap of institutions mentioned in the three lists is a mere coincidence. For my part, I do not believe that this was a matter of coincidence. I am of the firm view that the list prepared by Mr Kent was an adoption of the list prepared by Mr Seabrook or an adoption of the list that appeared in the "Funding & Tactics" paper and was not a list that had been prepared by him independently of those other lists. There is one other matter that I will deal with before turning to the meetings with the institutions. By or during the week commencing 20 April 1998 (the evidence does not disclose when) Western Metals, on the advice of Macquarie Bank, had formulated a definite proposal for the issue of ordinary shares and converting preference shares. The proposal was that Western Metals would raise $174 million by the issue of 72 million ordinary shares at an issue price of $0.75 per share and 120 million converting preference shares at an issue price of $1 per share. The ordinary shares were to be placed in two tranches, 24 million to be issued as soon as possible and 48 million to be issued 7 business days after the takeover offers had become unconditional. The converting preference shares were also to be placed in two tranches the first tranche of 60 million converting preference shares to be placed at the same time as the second tranche of the ordinary shares and the second tranche of up to 60 million converting preference shares (dependent on the amount that was required to fund the bid) to be issued 7 days after Western Metals gave notice that it would issue those shares. As had previously been proposed the converting preference shares were to pay a dividend at the rate of 8.5 per cent per annum with conversion to take place on 30 November 2001. Subject to certain limitations a shareholder could convert its shares on 30 November or 31 May of each year before the final conversion date. Also as had previously been proposed the conversion rate would entitle the shareholder to obtain ordinary shares to the value of $1.11 for each converting preference share provided the price of the ordinary shares did not fall below $0.27 subject to the company being entitled to issue ordinary shares at a discount. If Western Metals could not issue shares at a discount the downside protection would exist only to the extent that the ordinary shares fell to $0.55 approximately. Mr Kent said that on about 22 April he was asked by Mr Webster to fix the price at which the shares were to be issued. If he was asked to fix that price it must have been sometime before 22 April 1998. By that time an information memorandum had been prepared for distribution to the institutions at the meetings to be held on 23 and 24 April and the details of the price of the shares was contained in that document. In any event, it seems that the issue price had already been determined by 1 April 1998 because there is a note of the prices in Mr Rule's diary of that day. Perhaps Mr Kent meant that he was asked to confirm the issue price, but this is not what he said in evidence. At all events it is clear that what was proposed was that the ordinary shares be issued at approximately 10 per cent below the market price of those shares so that they would be attractively priced and also to reflect the belief that was held that the ordinary shares would trade at a lower price once the proposed issue became public. It was also agreed that the converting preference shares should be issued at a price that was approximately 10 per cent below the estimated value of those shares. Let me now turn to the meetings with the institutions. They took place as planned on 23 and 24 April. A number of representatives from Macquarie Bank attended the meetings as did Mr Webster. Only one person who was in attendance was called to give evidence. That person was Mr Kent and as it turned out he was not present at every meeting. Two documents were provided by Macquarie Bank to those representing the institutions. One was an expanded version of the presentation document given to AMP earlier in the week. The other was a more detailed information memorandum that among other things explained the nature of and the rights that attached to the shares to be issued. The presentation document contained all of the information that was in the document given to AMP together and additional information. The information memorandum contained much more detailed information about Western Metals and its business activities, about Aberfoyle and its business activities and about the benefits to be gained by Western Metals from the proposed takeover. It also contained details of the converting preference shares. In fact the information memorandum took the form of a prospectus which is hardly surprising given the purpose of the meetings. One aspect of the information memorandum is worth noting. It states that Western Metals was seeking to place shares with long term investors and was not seeking to offer shares so that they could be offered for resale. What was discussed with the institutions and, in particular, with the institutional shareholders in Aberfoyle is a matter of some importance. According to Mr Kent it was more than the placement of Western Metals' shares. Mr Kent accepted that part of the discussion concerned the acquisition by Western Metals of an initial stake of Aberfoyle shares. When pressed, Mr Kent conceded that the institutions were told that Western Metals wished to acquire a stake of up to 20 per cent of the capital of Aberfoyle. It appeared to me that Mr Kent was not forthcoming when asked what was said at these meetings. He claimed a lack of recollection which I do not accept. Some indication of what transpired can be gathered from the notes taken by Mr Rule when the outcome of the meetings was reported to him at the end of each day of meetings. It is apparent from those notes that in the case of institutions that held shares in Aberfoyle there was a discussion about their shareholdings. For example, in many cases the notes record information provided by the institution concerning the size of its shareholding in Aberfoyle sometimes by reference to the number of shares held, sometimes by reference to the percentage of shares held and sometimes by a statement whether the shareholding was large or small. There is one note made by Mr Rule that I regard as an important indication of what took place at some of these meetings. The note concerns the meeting with Bankers Trust in Sydney on 24 April 1998. The note reads, "BT-positive $y". I have recorded the amount as a symbol rather than setting out the actual amount that appears in Mr Rule's note. The amount is the same as the $y mentioned earlier in my reasons as the maximum price that Macquarie Bank had recommended should be offered for the Aberfoyle shares. Mr Rule said that he wrote "BT-purchase $y" because he had been told that the Bankers Trust representative had said that Western Metals should not offer to pay more than $y for the shares in Aberfoyle. I do not accept this evidence. It is most unlikely that Bankers Trust had sufficient information to form any opinion about what would be an appropriate price for Western Metals to pay for the Aberfoyle shares. Having regard to the fact that the proposal by Western Metals to acquire up to 20 per cent of Aberfoyle's shares was discussed at these meetings I am convinced that the amount written down by Mr Rule is the price at which he was told Bankers Trust would sell its shares in Aberfoyle. Further, I think that it is more likely than not that when the representatives of Macquarie Bank discussed the acquisition of a pre-bid stake with those institutions that held Aberfoyle shares that discussion took place in the context of a discussion about the placement of shares in Western Metals. It may not have been suggested that the institutions "swap" their shares. But the idea of a swap would have been made apparent in my opinion. In any event that impression would have been gained from the presentation document that was provided to the institutions. Both 27 and 28 April 1998 proved to be busy days for Macquarie Bank. First there was the need to acquire the 19.9 per cent stake in Aberfoyle. This task was given to Mr Curry. His instruction was to acquire the shares on 27 April 1998. He was also told that the acquisition was to be in two parts, the purchase of shares for cash and the taking of options to acquire shares with the option to be exercisable only if Western Metals made a takeover offer for Aberfoyle at $2.70 per share. Mr Curry said that after he was instructed that he should acquire the shares he decided which shareholders he would approach and that he was not given any instructions as to whom to approach. Mr Curry prepared a list of the institutions to be approached in the order in which he proposed to contact them. The first two institutions on his list were Portfolio Partners and Bankers Trust. In the "Tactics & Funding" paper Macquarie Bank had identified four institutions to be approached to acquire the pre-bid stake but said that only two of them should be approached in the first instance. Portfolio Partners and Bankers Trust were among the four institutions mentioned. In the timetable prepared by Mr Seabrook and sent to Mr Webster and Mr Rule on 17 April he proposed that two institutions be approached to obtain the 19.9 per cent stake. The institutions were Portfolio Partners and Bankers Trust. I regret to say that I do not accept the evidence of Mr Curry that he did not receive any instruction as to which institutions to approach to acquire the 19.9 per cent parcel of Aberfoyle shares. For some weeks Portfolio Partners and Bankers Trust had been identified by Macquarie Bank as the institutions to be approached for this purpose. I do not accept that it is a mere coincidence that Mr Curry decided to approach the same institutions as others had decided before him. Further, it is inherently improbable that Mr Curry would not have been instructed whom he should approach having regard to these circumstances. Western Metals wished to acquire its 19.9 per cent stake in rapid time. This had been discussed on 23 April 1998 at a meeting between Macquarie Bank representatives and Mr Rule at which Mr Curry was present. The plan was to approach the institutions in the morning (presumably the morning of 27 April) with a view to putting the parcel together by 12.30 pm so that the shares could be crossed during lunch time that day (a matter which I will return to later in these reasons) with the takeover offer to be announced at around 2 pm. This discussion is recorded by Mr Rule in his diary. Given the speed with which the transaction was to take place and the fact that Portfolio Partners and Bankers Trust had already been identified as likely sellers of shares I cannot accept that they would not have been mentioned to Mr Curry. If further confirmation of this conclusion is required it is to be found in what occurred on 27 April. By about midday Mr Curry had spoken to six institutions including Portfolio Partners and Bankers Trust to ascertain whether they would sell a sufficient number of shares to enable Western Metals to acquire 19.9 per cent of Aberfoyle. Mr Curry then spoke to Mr Rule to report the outcome of his discussions. Mr Rule made a note of that conversation. In the note Mr Rule made a list of the six institutions and noted which of them had indicated a willingness to sell or grant options over their shares. The institutions, other than Portfolio Partners and Bankers Trust, are bracketed with the word "new" adjacent to the bracket. This indicates to me that the four bracketed institutions, that is the newly approached institutions, were approached because Portfolio Partners and Bankers Trust would not agree to dispose of a sufficient quantity of shares to make up the 19.9 per cent stake. Indeed those institutions indicated that they were only prepared to sell or grant options over a total of 7 to 8 per cent of the capital of Aberfoyle. The word "new" in my opinion refers to the fact that it had only recently been decided to approach the four institutions. I should pause to explain why it is that I have taken time to determine on what basis certain institutions were approached to subscribe for shares in Western Metals. For reasons that will become apparent later Western Metals has sought to establish that the institutions that were shareholders in Aberfoyle were approached to take shares in Western Metals not because they were shareholders in Aberfoyle but as a result of having been selected in the usual way in which Macquarie Bank would select institutions to be approached to subscribe for shares that were on offer by a client. In other words Western Metals' case is that Macquarie Bank, and for that matter Western Metals, was indifferent to the fact that the institutions that were approached to take the Western Metals shares held Aberfoyle shares. The evidence of Mr Curry concerning the manner in which he identified those Aberfoyle shareholders which would be asked to sell or grant options over Aberfoyle shares was also designed to show that Macquarie Bank acted in this transaction in all respects as it would in any other similar transaction. For the reasons given I do not accept that the selection of institutions that would be offered Western Metals' shares and would be asked to sell Aberfoyle shares was in accordance with any standard or usual practice. The legal consequences that flow from this conclusion will be mentioned later. I can now return to Mr Curry's efforts to obtain the 19.9 per cent stake. According to Mr Rule he instructed Mr Curry to acquire 15 per cent of the capital "on market" and 4.9 per cent by options. As I have mentioned, it was anticipated that the shares would be acquired during the morning of 27 April. As things turned out this proved to be an impossible task and at some stage, probably on 27 April, Mr Curry was instructed that Western Metals would lower its sights and be content to acquire a stake of 15 per cent of the capital of Aberfoyle. Even so it was not until early in the afternoon of 28 April that this was achieved. And it was only achieved because Macquarie Investment Management Ltd, another subsidiary of Macquarie Bank, agreed to grant an option over 1 million shares and Portfolio Partners agreed to sell more shares than it had indicated it would sell on the previous day. There is no doubt Portfolio Partners did this to enable Western Metals to acquire its required stake so that the takeover offer could proceed. It is necessary to explain the manner in which Western Metals acquired shares in Aberfoyle on 28 April. On that day it purchased 6.3 million shares from Portfolio Partners, 1,580,000 shares from Hong Kong & Shanghai Banking Corporation (HSBC) and 500,000 shares from Hambros. It also acquired options to purchase a further 6 million shares. Mr Curry negotiated the purchase of the shares from HSBC and Hambros. He said that his negotiations with representatives from these institutions was along the following lines. Mr Curry explained that he was acting on behalf of Western Metals and had a mandate to purchase up to 19.9 per cent of the capital of Aberfoyle at $2.85 per share but required a minimum of 15 per cent of the shares. He also explained that Western Metals was acquiring the shares in anticipation of making a takeover offer for the company. If offered a parcel of shares Mr Curry responded in substance: "OK, but you're not done until the transaction is crossed on market and I get up to 15 per cent of the capital of Aberfoyle. I still haven't got my 15 per cent". In the case of each institution that agreed to sell shares Mr Curry was told that the stock was "firm". In his discussion with representatives of Portfolio Partners Mr Curry was originally told that Portfolio Partners would sell 2 per cent of the capital of Aberfoyle and would grant an option over a further 2 per cent of the capital. This was not sufficient to make up the 15 per cent stake that was required. Accordingly Mr Curry asked Mr Evans to speak with his contact at Portfolio Partners to see whether Portfolio Partners would offer to sell a greater number of shares. Mr Evans spoke with a representative of Portfolio Partners and asked for additional shares on the basis that "the deal is subject to a crossing on-market". He was told that Portfolio Partners would sell 6.3 million Aberfoyle shares on that basis. Shortly after midday on 28 April Mr Evans told Mr Curry of the arrangement made with Portfolio Partners. Subject to receiving confirmation that options had been granted in respect of 6 million shares Mr Curry had now obtained a 15 per cent stake subject to the shares that were to be purchased being "crossed on market". On 1 November 1990 the ASX closed its trading floors and since then trading in shares has taken place on an electronic facility known as Stock Exchange Automatic Trading System (SEATS). This is a computerised system which is linked to each broker who is a member of ASX. Trading takes place on SEATS when there is a matching of a buy order and a sell order entered by brokers at the same price. The rules of the ASX define a crossing to include a transaction in securities where one broker acts on behalf of both the buyer and the seller of securities. The rules also set out how crossings may be transacted on SEATS. One requirement is that if a crossing is to be effected at a price higher than the existing market price then prevailing for the shares to be sold all shares for sale on the screen must be purchased to clear the screen to enable the crossing to take place. At about 1.25 pm on 28 April Mr Curry spoke to Michael Coombe the head of sales trading at MEL and instructed him to cross 8,380,000 Aberfoyle shares at $2.85 and to buy the shares that were on offer on the market to effect that crossing. In the result Mr Coombe was required to purchase 63,846 Aberfoyle shares that were on offer on the screen at prices below $2.85. He then effected the crossing. Shortly thereafter Western Metals publicly announced its intention to make a $2.85 per share cash offer for all the shares in Aberfoyle. The discussion about the acquisition of the 15 per cent stake has led me away from the chronology of events that occurred on 27 April to which I must now return. As a result of the presentations to the institutions that took place on 23 and 24 April, 11 institutions, including Portfolio Partners, HSBC, AMP and RAAM each of whom was an Aberfoyle shareholder, indicated a willingness to subscribe for either ordinary shares or converting preference shares in Western Metals. On 27 April MUL wrote to each of these institutions advising that it intended to enter into an agreement to fully underwrite the issue and offering each institution a sub-underwriting of a specified number of shares. The shares offered to each institution that held Aberfoyle shares are set out in the following table:

Institution Ordinary Shares Preference Shares

Tranche 1 Tranche 2 Tranche 1 Tranche 2 Portfolio Partners 7,000,000 7,000,000 12,500,000 12,500,000 HSBC 2,500,000 2,500,000 2,000,000 2,000,000 AMP 6,500,000 9,000,000 1,500,000 1,500,000 RAAM 1,500,000 1,500,000

The offer was conditional upon MUL entering into an underwriting agreement with Western Metals. The terms of each offer included an obligation to lodge or cause to be lodged with MUL duly completed applications and application moneys in cleared funds for all of the sub-underwritten shares to be issued to the institution and a provision that the liability of the institution under the contract arising from acceptance of the offer would cease when the institution lodged its share applications and paid for all of the sub-underwritten shares for which it was obliged to subscribe. Attached to the letter was a document entitled "Sub-Underwriting Acceptance Form" which the institution was asked to complete and return to MUL. The acceptance form reads, in part,: "We hereby agree to subscribe to the following number of Western Metals fully paid ordinary shares at A$0.75 each and converting preference shares at A$1 each. Our agreement is in accordance with the terms and conditions as set out in your letter dated 27 April 1998." There follows a table setting out a number of sub-underwritten shares and the amount payable in respect of those shares. Each institution returned its duly completed acceptance form to MUL on either 27 or 28 April 1998. MUL and Western Metals entered into an underwriting agreement on 28 April 1998. By that agreement (cl 2.1) MUL was appointed "to underwrite the placement" of 72 million fully paid ordinary shares of $0.50 each and up to 120 million fully paid non cumulative converting preference shares of $0.50 each. Certain other provisions of the underwriting agreement should be noticed. Clause 2.2 provides: "Without limiting the liability of the Underwriter under clause 2.1, the Underwriter may at any time in its absolute discretion appoint sub-underwriters to sub-underwrite the Placement and nominate any subscribers for Underwritten Shares." Clause 3.1 provides: "The Company unconditionally and irrevocably appoints the Underwriter as its sole and exclusive agent to: (a) make and issue invitations and offers to subscribe for Underwritten Shares; (b) receive and accept Applications, and (c) nominate allottees of Underwritten Shares." Clause 12.1 provides: "The Underwriter may, by notice to the Company, terminate its Underwriting Obligations, if: (a) any of the events set out in Schedule 3 occurs before the Unconditional Date, and (b) except in relation to the events in clauses 1, 15, 17 and 18 of Schedule 3, the Underwriter determines reasonably and in good faith (taking into account the Underwriter's interests as underwriter of the Placement and otherwise under this Agreement) that the occurrence of that event has, or would be likely to have, a material adverse effect on the Placement." A question that arises in this case, which it is convenient to determine now, is whether the offers that were made to the institutions on 27 April and which became unconditional when MUL entered into the underwriting agreement, were offers made by MUL or whether they were offers made by Western Metals which when accepted resulted in an agreement between the institution and Western Metals requiring the institutions to subscribe for the shares set out in their respective acceptance forms. One way in which the answer to this question can be determined is to enquire whether, in making the offers, MUL was acting in pursuance of the authority conferred by cl 3.1 of the underwriting agreement. If it was, plainly enough then the offers were made by Western Metals and, when they were accepted, resulted in an agreement between each accepting institution and Western Metals. Western Metals contends that the offers were not made pursuant to cl 3.1 for the reason that they were offers to enter into sub-underwriting agreements as permitted by cl 2.2. This could only be so if the agreements that were made when the offers were accepted can be characterised as sub-underwriting agreements. In a broad sense there are three types of arrangements commonly referred to as underwriting: (compare L. Loss & J. Seligman, "Securities Regulation" (3rd) vol 1 ch 2 where five underwriting arrangements are described). The first is an arrangement by which before shares are offered to the public in the event that the public does not take up those shares the underwriter will take up the unsubscribed portion of the issue: see In Re Licensed Victuallers Mutual Trading Association; ex parte Audain (1889) 42 Ch D 1, where a Court of Appeal, of which Lindley LJ was a member, found it necessary to bring in evidence to explain the meaning of the term; see also Australian Investment Trust Ltd v Strand and Pitt St Properties Ltd (1931) 31 SR(NSW) 266 on appeal [1932] AC 735. This type of underwriting is called in the United States "strict" or "old fashioned" or "standby" underwriting: T. L. Hazen, "The Law of Securities Regulation" (2nd) vol 1 at 58. In the United States the most common type of underwriting is firm commitment underwriting. Here the issuer sells the entire allotment usually to a group of underwriters represented by a lead underwriter or manager. The group in turn will contract other underwriters to act as wholesalers of the securities to be offered: see Hazen at 59, Loss & Seligman at 324 ff; Palmer's Company Law (25th) at para 5.216. However this method of underwriting is not underwriting in the classic sense; that is, in the sense that the underwriter acts as an "insuring house": see Loss & Seligman at 324. For examples of firm commitment underwriting agreements see L. Israels & G. Duff, "When Corporations Go Public" and [1971] The Business Lawyer at 648. The third type of underwriting arrangement is referred to as "best efforts" underwriting. Here the underwriter does not assume any risk if the issue is undersubscribed nor does the underwriter give a firm commitment to take securities. With best efforts underwriting the underwriter undertakes to use its best endeavours to sell the securities for the issuer as an agent: Hazen at 60; Loss & Seligman at 341-2. As Loss & Seligman say, this is not really underwriting, it is simply merchandising. I will assume, without deciding, that when the word "underwriting" is used in certain contexts, as for example in s 66(2) of the Corporations Law, it includes not only "strict" or "old fashioned" underwriting but "firm commitment" underwriting as well. I am quite satisfied that it would not usually include best efforts underwriting. An underwriting must involve some element of risk taking by the underwriter and best efforts underwriting does not put the underwriter at risk at all. The sub-underwriting arrangements between MUL and the institutions are not "strict" or "old fashioned" underwriting arrangements because the institutions are not "insuring" the risk of MUL, they are taking on a parcel of shares "firm". Can these arrangements be described as "firm commitment" underwriting? In my opinion they cannot be so described. The reason is that the institutions were offered and no doubt took the shares as an investment and not for the purposes of distribution. In "firm commitment" underwriting the underwriter takes securities for distribution and not as an investment: see e.g. s 2(11) of the Securities Act 1933 (US) which defines "underwriter" to mean "any person who has purchased from an issuer with a view to, or offers to sell for an issuer in connection with, the distribution of any securities, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking". Thus the agreements between MUL and the institutions are not sub-underwriting arrangements and therefore are not agreements which MUL was entitled to make pursuant to cl 2.2 of the underwriting agreement. As the offers that were made to the institutions on 27 April were not offers to enter into sub-underwriting agreements, they can only be characterized as offers inviting the institutions to subscribe for shares in Western Metals. On whose behalf were those offers made? It is possible that MUL intended to make those offers not as agent on behalf of Western Metals but on its own account. The terms of the letters that were sent to the institutions and even the terms of the acceptance forms, referring as they do to an offer to enter into a sub-underwriting, are evidence from which it could be concluded that MUL was acting as principal. But I do not believe that this is the correct conclusion. MUL was "irrevocably" appointed as the "exclusive agent" to make offers or invite subscriptions for the underwritten shares. Western Metals itself was not entitled to make those offers nor was it entitled to appoint anyone else to do so. Thus it seems to me that what was contemplated by the underwriting agreement was that whenever MUL made an offer or issued an invitation to subscribe for the underwritten shares it would do so as agent for Western Metals. Indeed it may be implicit in the underwriting agreement that MUL could not make an offer or issue an invitation for a subscription for the underwritten shares on its own account except to the extent that any such offer or invitation would result in a sub-underwriting pursuant to cl 2.2: although I do not wish to be taken as holding that a "firm commitment" underwriting is permitted by that clause. For a new class of securities to be quoted by the ASX one of the conditions imposed by the ASX is that there must be at least 100,000 securities with 50 holders: (see ASX listing rules ch 2 r 2.2) and by the underwriting agreement MUL was required to use its best endeavours to obtain quotation for the shares to be issued. Hence on 28 April 1998 invitations to subscribe for the placement were sent to a number of other potential investors not being shareholders in Aberfoyle or Western Metals. The position that had been reached as at 28 April 1998 was that acceptances had been received from institutions to subscribe for all of the ordinary shares and 75 per cent of the converting preference shares that were on offer. Within a short time thereafter acceptances were received to subscribe for the remaining allotment of converting preference shares save for about 3 million shares which have not as yet been offered for sale. Against this background I can now turn to the complaints made by Aberfoyle that Western Metals proposed takeover offers are in contravention of various of the requirements and prohibitions imposed by the Corporations Law. I propose to consider these complaints in the following sequence; first, whether the Part A statement is deficient as alleged, second, whether the proposed takeover offers are subject to a defeating condition that is rendered void by s 662(2) of the Corporations Law and finally whether Western Metals has contravened s 698(2) of the Corporations Law by offering to give or by giving a benefit to certain Aberfoyle shareholders that it was not proposing to provide for under the takeover offers. Section 750 of the Corporations Law sets out the requirements with which a Part A statement must comply. In the case of a cash or partly cash offer one requirement is that the Part A statement must set out how the cash is to be provided. That requirement is found in clause 11 which provides: "If the consideration for the acquisition of the shares to which the takeover offers relate ... is to be satisfied in whole or in part by the payment of cash, the statement shall set out: (a) if the offeror is to provide some or all of the cash from the offeror's own funds - particulars sufficient to identify the cash amounts held by the offeror for or in respect of payment of the consideration; and (b) if the offeror is not to provide all of the cash, or is not to provide any of it, from the offeror's own funds: (i) particulars sufficient to identify the other person who is, or each of the other persons who are, to provide, whether directly or indirectly, some or all of the cash from that person's or those persons' own funds; and (ii) particulars of the arrangements by which that cash will be provided by that other person or those other persons." The Part A statement explains that Western Metals will fund the bid using: . cash at bank . the proceeds of a fully underwritten placement of ordinary shares and converting preference shares; and . a Facility provided by BankWest and BOS International." Particulars are given of the cash at bank and the facility to be provided by the two banks. No complaint is made about those particulars and they need not be mentioned any further. In relation to the underwritten placement details are provided of the number of shares to be issued and the tranches in which those shares will be issued. There is a description of the underwriting agreement, the nature of the obligations of the underwriter under that agreement and a description of the events which will entitle the underwriter to terminate the underwriting agreement. Again, no complaint is made about the sufficiency of that information. What is said is that on the facts of this case what must be set out in the Part A statement to secure compliance with cl 11 is the following information: (a) if any of the institutions that had agreed to subscribe for shares had paid their subscription money to Western Metals as at the date of the service of the Part A statement, particulars of the amounts held; and (b) if any of the institutions that had agreed to subscribe for shares had not paid their subscription money as at the date of the service of the Part A statement, the names of those institutions and the particulars of the arrangements pursuant to which those institutions are required to pay their subscription money. This argument depends upon acceptance of the proposition that an offeror is not providing any part of the cash consideration for the shares on offer from its "own funds" if those funds are not in hand at the date of the service of the Part A statement. Also implicit in the argument is the contention that where an offeror is to provide the cash consideration for the shares out of its capital nevertheless that capital is not part of the offeror's "own funds" unless the capital has been raised by the time the Part A statement is served. In accordance with ordinary usage a company's "own funds" would include the company's paid up capital. It would also include money that has been borrowed by a company (see Sandell v Porter (1966) 115 CLR 666 at 670) provided the money is not held on trust for another. If the reference in cl 11 to "own funds" is intended solely to be a reference to the ultimate source of funds out of which the cash consideration for the shares is to be paid then it would be a rare case where the source would be otherwise than the "own funds" of the offeror. If the offeror does not intend to borrow funds or raise capital to pay the cash consideration it will usually be required to convert a readily realisable asset (such as shares) into cash. More usually the offeror will borrow the amount required or raise the amount by the issue of shares. Rarely will the price be paid by a third person in a way where the amount concerned does not become part of the offeror's "own funds" before it is paid. For many years the accepted approach to cl 11 has been that it requires the disclosure of all sources of funding even though the funds, when received by the offeror, would constitute the offeror's own funds. It is not necessary for me to cite all the cases which have proceeded on this basis. If this assumption was not correct the result would be that cl 11 would not require any disclosure about the source of funds unless the cash was on hand in which case cl 11(a) would require disclosure of that cash. The approach is based on the view that when an offeror intends to borrow money to meet the cash consideration for the acquisition of shares the money to be borrowed is not part of the offeror's "own funds". The reason for this view must be that borrowed money does not become part of the offeror's "own funds" until the money has been received and cl 11 requires there to be an identification of the offeror's "own funds" at a particular point in time, that point being when the Part A statement is served. In my view this approach is correct and it follows from the language of cl 11(a) where the offeror's "own funds" are the funds "held by the offeror". That could only be a reference to funds held at the time of service of the Part A statement. Thus, when cl 11(b) speaks about the provision of cash otherwise from the offeror's "own funds" it must be speaking about cash that is not held by the offeror at the time of the service of the Part A statement. Accordingly, even if an offeror will receive cash that will ultimately form part of its "own funds" out of which the offeror will pay for the shares on offer that cash is not relevantly the offeror's "own funds" because it does not form part of those funds at a relevant point in time. For this purpose it makes no difference whether the funds to come in are loan monies or capital. Thus it was incumbent upon Western Metals to set out separately particulars that would identify the capital received from those institutions that had subscribed for and had been allotted shares in Western Metals and particulars of those institutions that were still to pay their subscription money and details of the agreements pursuant to which that money was payable in order to comply with cl 11. It was also argued that compliance with cl 11 requires Western Metals to set out what is to be the source of the funds that will be provided by the institutions that have agreed to subscribe for shares. To take the case of MUL it was said that having regard to the amount of its paid up capital (which is of the order of $4 million), it may be necessary for it to borrow money to meet its obligations under the underwriting agreement and accordingly details of those borrowings must be disclosed. There are two answers to this contention. In the first place the language of cl 11 does not require this type of disclosure. See North Sydney Brick & Tile Co Ltd v Darvall (1986) 5 NSWLR 662 at 679 where Kearney J said in relation to a similar argument: "I do not consider that in order to satisfy the requirements of clause 3(b) [the forerunner of clause 11] it is necessary to pursue the details of arrangements made by the financier providing funds to the offeror with the ultimate lending institution. The 'arrangements' are directed to identifying the flow of funds to be received by the offeror. Information is to relate to the terms of the offer and the capacity of the offeror to perform the obligations assumed in consequence of making the offer." In the second place, if the offeror is aware of facts that might lead a reasonable person to suspect that the person who is to provide the funds does not have the capacity to meet his obligations under the arrangements made with the offeror then it is cl 17 of s 750 that would impose an obligation on the offeror to disclose those facts in the Part A statement. Clause 17 reads: "The statement shall set out any other information material to the making of a decision by an offeree whether or not to accept an offer, being information that is known to the offeror and has not previously been disclosed to the holders of shares in the target company." The next allegation is that Western Metals was in breach of cl 17 in that the Part A statement should have but did not disclose: (a) the rationale for the acquisition and the benefits for Western Metals and its shareholders arising from the acquisition; (b) the economic assumptions upon which the offer price of $2.85 was based including the assumptions as to prices for copper and zinc and the US$ and A$ exchange rate; (c) the earnings and cash flow projections for Aberfoyle that had been prepared by Western Metals; (d) more detailed information concerning the two technical reports that had been commissioned and prepared from publicly available information for the purpose of obtaining the facility from BankWest and BOS International. A one half page summary of those reports appears in the Part A statement. It is to the effect that certain public statements made by Aberfoyle about its mining activities are soundly based. The object of a Part A statement is to give shareholders such information as will enable them to make an informed assessment of the offer and decide whether to accept it or reject it: Samic Ltd v Metals Exploration Ltd (1993) 60 SASR 300 at 303. To make such an assessment the shareholder will need information relevant to the present value of the shares on offer, and in some cases details about the asset backing of those shares, the expected future profitability of the company and other like information: see Unity APA v Humes Ltd (1986) 13 ACLR 501 at 503. In the case of a listed public company, such as Aberfoyle, the listing rules impose an obligation on that company upon it becoming aware of any information that would have a material effect on the price or the value of its shares, to disclose that information to the ASX thereby making it publicly available. In the ordinary course, the price at which shares in a listed company are traded on the stock exchange reflects the market assessment of the value of those shares, being an assessment that is ordinarily based on all information that would affect the value of those shares. However, the obligation of disclosure is not without limitation. Confidential information need not be disclosed nor must any information be disclosed if its disclosure would breach the law. But subject to these limited exceptions, the prices at which shares are traded is a reflection of the assessment of the value of these shares by an informed market. It would not ordinarily be the case that an offeror will possess information which if disclosed would lead the market to review its value of the shares the subject of a takeover offer. However, there may be cases where the offeror does possess such information; that is information that has not been publicly disclosed. In that event cl 17 would require the offeror to disclose that information More often than not an offeror will have undertaken an evaluation of the worth of the shares the subject of a bid and the price that the offeror is prepared to pay to acquire those shares. In the evaluation of what the offeror is prepared to pay an assessment of the value of the shares would be but one component and in many cases it will not be the only material component in that evaluation. Many other matters will be taken into account. However, cl 17 does not require an offeror to disclose its evaluation of the shares or the economic assumptions upon which that evaluation has been based. Speaking strictly cl 17 is concerned with the disclosure of facts and circumstances of which the offeror is aware and not with the disclosure of matters of opinion about which minds may differ, assessments that are based on variable assumptions or predictions or the assumptions or predictions upon which those assessments are based. Speaking generally, I would not regard the disclosure of such opinions, assessments etc. to be of much assistance to a shareholder. The accuracy or reliability of the opinions, assessments etc. would often be the subject of challenge and debate. Rarely will shareholders have the ability or the capacity to evaluate competing opinions, assessments etc. or the criticisms that might be made of them. Thus, the disclosure of such "information" would not usually assist a shareholder in making an informed decision whether to sell his shares. I do not mean to suggest that in no case would it be of assistance to a shareholder to be provided with this type of information - if it be information at all. But that would not be a common case and it is not the case here. Apart from this general discussion there are one or two points to be made about the specific information that is alleged should have been included in the Part A statement. I reject completely the suggestion that the Part A statement should set out the rationale for the acquisition and the benefits that would accrue to Western Metals and its shareholders. This is a cash bid. The shareholders of Aberfoyle must decide whether to accept or reject a cash offer. It is of no consequence to them how the bid, if it is successful, will impact on Western Metals or its shareholders. I also reject the suggestion that the authors of technical reports should have been named. What was required to be disclosed was the substance of the reports prepared by these experts. That has happened. No doubt it will be assumed that the experts were retained because they had the appropriate expertise to prepare their reports. Naming them will not assist the shareholders in Aberfoyle in any way. If the reports are to be criticised, that criticism can effectively be made even though the identity of the experts is not known. Next, Aberfoyle says that the takeover offers contain an impermissible defeating condition. A defeating condition in a takeover offer is defined in s 603 to mean: "(a) a condition that will, in circumstances referred to in the condition, result in the rescission of, or entitles the offeror to rescind, a contract that results from an acceptance of the offer; or (b) a condition that prevents a binding contract from resulting from an acceptance of the offer unless or until the condition is fulfilled." Section 662(2) of the Corporations Law provides: "An offeror shall not make a takeover offer subject to a defeating condition (however expressed) the fulfilment of which depends on; (a ) an opinion, belief or other state of mind of the offeror or of an associate of the offeror; or (b) whether or not a particular event happens, being an event that is within the sole control of the offeror or of an associate of the offeror; and, if, a takeover offer is made subject to a condition in contravention of this subsection, the condition is void." These sections were introduced into the law regulating the takeover of companies by the Companies and Securities (Miscellaneous Amendments) Act 1985 to prevent an offeror imposing conditions that had the potential effect of giving an offeror an option over the shares of accepting shareholders: see e.g. the conditions in Garden City Shopping Centre Ltd v Woolworths Ltd (1982) 7 ACLR 803. The allegation is that cl 7.1(b) of the proposed offers is a defeating condition of the type proscribed by s 662(2). Clause 7.1(b) provides: "Subject to clause 7.2 [the terms of which are not relevant] this offer and any contract that results from your acceptance of it are each conditional on: (a)..... (b) the underwriter not terminating the underwriting agreement." It is also necessary to mention the provisions which permit the underwriter to terminate the underwriting agreement. Clause 12.1 of the Underwriting Agreement allows MUL to terminate its underwriting obligations if (a) any event that is mentioned in schedule 3 of the agreement occurs; and (b) except in relation to certain of those events, where the underwriter determines reasonably and in good faith (taking into account the underwriter's interests as underwriter of placement and otherwise under the agreement) that the occurrence of that event has or would be likely to have a material adverse effect on the placement. Schedule 3 then sets out 18 events and for the purpose of understanding the argument I only need to summarise a few of them: Default by Western Metals in respect to the underwriting agreement (cl 3) Failure by Western Metals to comply with its constituent documents or any statutes, listing rule etc.(cl 4) Alteration by Western Metals of its capital structure (except in connection with the placement of ordinary shares and converting preference shares) (cl 5) Alteration of the articles or memorandum of association of Western Metals (except in connection with the placement of ordinary shares and converting preference shares) (cl 6) If Western Metals breaches any of its covenants with its bond holders (cl 14). If Western Metals announces that it is not proceeding with the bid and as a consequence there will be no issue of the underwritten shares (cl 15) It is not in dispute that cl 7.1(b) is a defeating condition. The question is whether it is an impermissible defeating condition. The clause is said to offend against s 662(2) in three respects. First the fulfilment of the condition depends upon the occurrence of an event that is within the sole control of MUL, an associate of Western Metals, namely its ability to terminate the underwriting agreement. Second, the fulfilment of the condition depends upon the opinion, belief or state of mind of MUL, an associate of Western Metal. Third, the fulfilment of the condition depends upon the occurrence of an event in the sole control of Western Metals, namely the events in Schedule 3 set out above each of which requires an act by Western Metals. The first and second bases for contending that s 662(2) has application to cl 7.1(b) depends upon it being established that MUL is an associate of Western Metals. By a combination of ss 10 and 15 of the Corporations Law a reference to an association such as is found in s 662(2) must be a reference to an association in respect of the matter to which the reference relates. So, the fact that one person may be an associate of another for one purpose does not mean that the person will be an associate for all purposes. Before MUL can be an associate of Western Metals for the purposes of s 662(2) it must relevantly be shown that MUL is acting in concert or proposes to act in concert with Western Metals in relation to the defeating condition or that MUL is proposing to become associated with Western Metals in some other way in relation to the defeating condition: see s 15(1) However, there is no evidence that MUL is or proposes to become an associate of Western Metals in respect to the operation clause 7.1(b) although it may be an associate of Western Metals for other purposes. The third basis for contending that s 662(2) has application to cl 7.1(b) depends upon a construction of the subsection that I cannot accept. When s 662(2) speaks of the happening of an event that is within the sole control of the offeror or an associate of the offeror it is referring to an event that can only be brought about by the offeror or the associate of the offeror (as the case requires) and no one else. If the fulfilment of the defeating condition depends upon the happening of a number of events and not all of them are within the sole control of the offeror or its associate the section can have no application. Before Western Metals can exercise the power conferred by cl 7.1(b) at least two events must occur. The first is the occurrence one or other of the events set out in Schedule 3. None of those events are within the control of MUL. The second is that MUL decides to terminate the underwriting agreement. In some cases the decision to terminate can only be made if MUL determines reasonably and in good faith that the occurrence of a relevant event has or would be likely to have a material adverse effect on the placement. In other cases no such requirement is imposed. The first event may be within the sole control of Western Metals but the second event is within the sole control of MUL. Both events must be in the sole control of Western Metals before the argument can succeed. I now propose to deal with what appears to be the principal attack that is made by Aberfoyle on the proposed takeover offers and that is the allegation that Western Metals or MUL has contravened s 698(2) of the Corporations Law. This subsection forbids an offeror or an associate of an offeror from giving, offering to give or agreeing to give a benefit to a person whose shares might be acquired under a takeover offer that is not proposed to be offered to all other shareholders under the takeover offer. Before turning to the facts that give rise to this attack two preliminary matters require determination. The first of them is whether there can be a contravention of s 698 without proof of mens rea, that is whether it is necessary to prove some motive, intention, knowledge or other state of mind often referred to as a guilty mind. A person who contravenes s 698 is guilty of an offence punishable by a fine not exceeding $500 (see s 1311(5) and the definition of "penalty unit" in s 9) and so it is said by Western Metals that the presumption is that a guilty mind must be shown. However, there are many offences where it is not necessary to prove the existence of mens rea. In some cases the doing of the prohibited act will result in a conviction unless the accused can show that he reasonably believed in a state of facts which if true would render the act innocent: motor traffic offences such as those considered in Proudman v Dayman (1941) 67 CLR 536 are examples. In other cases the doing of the prohibited act will result in a conviction whether or not the accused shows that he was free of fault. Common examples of strict liability offences include legislation dealing with the sale of adulterated food, legislation dealing with the safety of workers and legislation controlling weights and measures: see Halsbury's Laws of England (4th) vol 11(1) para 18. Whether mens rea is required before there can be a contravention of s 698 is a question of construction. There are guidelines laid down to assist in this process. Some of them were mentioned by Lord Scarman in Gammon Ltd v AG (Hong Kong) [1985] 1 AC 1 at 14: there is a presumption that mens rea is required before a person can be held guilty of a criminal offence; the presumption is particularly strong when the offence is truly criminal in character; the presumption applies to statutory offences and can only be displaced by clear words or by necessary intendment; the presumption will be more easily displaced if the statute deals with an issue of social concern or public safety; even then mens rea must be shown unless strict liability will be effective to promote the objects of the statute. In He Kaw Teh v R (1985) 157 CLR 523 at 567 Brennan J said that it was too narrow an approach to require the statute to be concerned with a social issue or an issue of public safety before the presumption could be displaced. Regard must be had to the subject matter and character of the legislation to find the answer to the question. Legislation controlling the takeover of companies was first enacted in this country following the 1969 report on Disclosure of Substantial Shareholdings and Takeovers by the Company Law Advisory Committee chaired by R M Eggleston. The report recommended the regulation of takeovers principally to ensure fair treatment of shareholders. The main task undertaken by the committee was to devise a set of principles that would ensure an equality of opportunity to all shareholders. When the legislation was enacted by way of amendment to the (not so) uniform Companies Acts of 1961 (in Victoria see the Companies Act 1971) it included many of the provisions that are now to be found in Ch 6 of the Corporations Law including s 180M which is the antecedent of s 698. A number of the new provisions proscribed certain conduct and specified a penalty to be imposed if the section was breached: see e.g. s 180H which was concerned with false and misleading matters in a Part A statement where the penalty for a contravention was a fine of up to $2000 or imprisonment for one year or both. No specific penalty was provided for a contravention of s 180M so that the general penalty provision in the Companies Act 1971 applied. There the penalty was a fine of up to $500 or imprisonment for three months or both: see s 180W. Here we are dealing with an offence that is concerned with protecting a particular section of the public, namely shareholders holding shares in a company liable to takeover. The principal object of s 698, along with many other provisions found in Ch 6, is to ensure that all shareholders will be treated equally when their company is taken over. A strong shareholder may not need the protection of the statute but a weak shareholder plainly does. The market place for dealing in securities can be ruthless and many people, even the very wealthy, can suffer great losses. It would be contrary to the evident purpose of this piece of legislation to allow an illegitimate benefit that is innocently conferred to have no adverse legal consequence. Indeed it would be an untenable construction that would require the validity of a benefit conferred on some shareholders and not on others to be determined by reference to the state of mind of the offeror. This would hardly guarantee equality of treatment. I do not accept that this legislation produces such an unreasonable result. Section 698 is there to prevent discrimination. The section will only be effective if it prohibits that discrimination absolutely although I accept, without deciding, that a Proudman v Dayman defence may be available in the event of a criminal prosecution. I find support for my views in the following aspects of the legislation bearing in mind the principles of construction suggested by the cases: the offence is not truly of a "criminal character", indeed many people will be surprised to know that a contravention of the section is an offence; the penalty imposed for a contravention is slight especially when compared with other penalties that are imposed for a contravention of other provisions of the Corporations Law; the object of this part of the Corporations Law will be promoted if offerors are required to take measures to prevent a contravention and such measures can be taken with little difficulty. It is also worthwhile noting that by s 180S of the Companies Act 1971 the court had power to grant relief from non-compliance with the new provisions if non-compliance was due to inadvertence, mistake or circumstances beyond the offeror's control: see now s 743 of the Corporations Law. That power could not be exercised in the case of a contravention of s 180M if mens rea was an element of the contravention. The second preliminary matter is whether it is correct to say, as Western Metals does, that the question whether there is a benefit provided to one shareholder and not to others must be determined by comparing the consideration paid or payable to those shareholders. That is, so the argument goes, s 698(2) requires a comparison between what is provided under a takeover scheme and what has been provided to shareholders before there was a takeover scheme. According to this argument if the consideration that is provided is the same in each case no benefit can ever arise. The short answer to this submission is that it finds no support from the language of s 698(2). What is contemplated by the subsection is not only a comparison between the benefits that have been provided to shareholders both before and under a takeover scheme but also a comparison between the offers that have been made to shareholders before there is a takeover scheme and what is proposed to be provided in the offers under the takeover scheme. That does not invite attention to the consideration that has passed or will pass but to the terms and conditions of the offers. If this is not the proper construction of the subsection it would invite serious abuse of the principles lying behind it. I should also mention that cases such as A.G. (Vic) v Walsh's Holdings Ltd [1973] VR 137 (see below) have proceeded on the assumption that the construction of the subsection is that which I prefer. Two alleged benefits have been identified. The first is the acquisition of shares from Portfolio Partners, HSBC and Hambros for cash under unconditional contracts. This is to be compared with the proposed acquisition of shares under the proposed takeover offers where the agreement to acquire those shares will be conditional on many events including the acquisition of a minimum number of shares (90 per cent), MUL not terminating the underwriting agreement, there being no material change in the business, financial or trading position of the Aberfoyle Group, the All Resources Index of ASX on three consecutive trading days not falling by more than 15 per cent, the All Ordinaries Index of ASX on three consecutive days not falling by more than 10 per cent and Western Metals' shareholders approving the issue of converting preference shares as well as other conditions. The second alleged benefit is the offer to place ordinary and converting preference shares with those Aberfoyle shareholders that attended the presentations on 23 and 24 April and the agreement to place ordinary and converting and preference shares with those institutions; the agreements being made on 27 or 28 April 1998. In connection with the question whether purchasing shares under an unconditional contract confers a benefit on a shareholder relative to a shareholder whose shares will be acquired under a conditional contract there is authority that has considered the matter. It is concerned with s 180M that was introduced by the Companies Act 1971. Section 180M provided: "(1) While a takeover-offer under a takeover scheme remains open - (a) the offeror (b) ... (c) ... (d) ... shall not, except in pursuance of a variation made in accordance with s 180L, give, offer to give or agree to give to a person whose shares may be acquired under the takeover scheme any benefit (whether by payment of cash or otherwise) not provided for in the particulars of the takeover scheme as set out in the Part A statement given in respect of the takeover scheme under s 180C. (2) ... (3) Nothing in this section prevents the acquisition of shares in a company at an official meeting of a Stock Exchange in the ordinary course of trading on the Stock Exchange." There were a number of reasons for the introduction of this provision. The first was the obvious need to ensure that there should be an equality of opportunity for all shareholders. Shareholders with a greater bargaining power should not be advantaged over shareholders with little or no bargaining power. The second reason was to guard against fraud. For example, on occasion director shareholders were offered a higher price for their shares to obtain the advantage that would come about when it was announced that directors were willing to sell their shares but the fact that the director shareholders were paid a higher price than was being offered to the other shareholders was not made public. The provision was considered by the Supreme Court of Victoria in Walsh's case. In that case it was argued, among other matters, that an acquisition of shares for cash before a takeover when compared with an acquisition of shares under a conditional contract under a takeover scheme conferred a benefit that was proscribed by s 180M. Gowans J held that the cash contracts did confer a benefit not provided under the takeover offers because under the cash contract there was a right to immediate payment for the shares sold, the cash contracts were absolute and not revocable, the cash contracts were not conditional upon the offeror acquiring a specific quota of shares. His Honour also found that benefits were conferred by reason of other circumstances, but none of them are relevant here. There is one aspect of what was decided by Gowans J that can now no longer be regarded as good law. In Sagasco Armadeus Pty Ltd v Magellan Petroleum Australia Ltd (1993) 177 CLR 508 the High Court held (McHugh J dissenting) that "mere earlier payment (for shares) would not ... constitute a benefit for the purposes of s 698(2).": see 177 CLR at 518. Walsh's case was mentioned in argument before the High Court and although not referred to in the Court's reasons it must be considered in part to have been overruled. However, nothing that was said in Sagasco casts doubt on any other aspect of the decision in Walsh's case. Further, I am of the view that Walsh's case is correctly decided except to the extent that Sagasco has held that the early payment for shares is not a benefit under s 698(2). Accordingly, although I am not bound by that decision, I propose to follow it in this case. It follows that by purchasing shares under an unconditional contract Western Metals has provided a benefit to some Aberfoyle shareholders which it did not propose to provide to other shareholders under the takeover scheme. Indeed it would be a very unsatisfactory result if I was required to reach a different conclusion. Equality of treatment demands that where an offeror desires to make a conditional offer to purchase shares from the majority of the shareholders of the target company he should not be permitted to treat unconditionally with other shareholders. A very real commercial advantage (perhaps measurable in money) is to be gained by a person who has a committed purchaser when compared with a person who enters into a conditional contract and whose ability to sell his shares is contingent on a range of events none of which he has any ability to control. It would require turning a blind eye to the realities of the market place to hold that such a person is not disadvantaged (that is not benefited) in the same way as a person who has entered into an irrevocable bargain. To avoid the conclusion that the conferral of the benefit amounts to a contravention of s 698(2) Western Metals relies upon the exception in s 698(5) where it is provided that nothing in s 698 prohibits: "(a) ... (b) The acquisition of shares in a company at an official meeting of a stock exchange in the ordinary course of trading on the stock market of that stock exchange." To fall within the exception Western Metals must establish two things: (a) that it acquired the relevant shares at an official meeting of a stock exchange and (b) that acquisition was in the ordinary course of trading on the stock market of that exchange. There is no dispute that ASX is a stock exchange (see the definition of "stock exchange" and "Exchange" in s 9). Nor is there any dispute that SEATS is a stock market: see the definition of "stock market" in s 9 which provides that a facility by means of which offers to sell, purchase or exchange securities are regularly made or accepted is a stock market. I have previously described SEATS as such a facility. In connection with the question whether the relevant shares were acquired on the stock market there was no consensus between the parties. Aberfoyle says that the shares had been acquired by Western Metals some time before they were crossed on market whereas Western Metals contends that they were acquired when they were crossed on market via SEATS. The way Aberfoyle puts its case is as follows. For s 698(5) to apply the relevant shares must be "acquired" at an official meeting of the ASX. The word "acquired" has the meaning given to it in s 51 (subject to the qualification, if it be one, found in s 604) namely that a person will acquire shares if, relevantly, that person acquires a "relevant interest" in those shares. A relevant interest in shares exists where a person has a power to dispose of those shares (see s 31(2)) and the power to dispose of shares includes a power to exercise control over the disposal of those shares (see s 30(3)). Then Aberfoyle says that Western Metals acquired a relevant interest in the relevant shares in one of two ways. First it says that there was a binding agreement between the selling institutions and Western Metals, subject to crossing, to the effect that the institutions would sell their shares to Western Metals. The agreements were said to have been effected through Mr Curry and Mr Evans. If there was no binding agreement it is said that Western Metals acquired a "relevant interest" in those shares when it entered into a "relevant agreement" with the institutions in respect of those shares and the consequence of entering in a relevant agreement is that it acquired a relevant interest in the shares. To understand this argument it is necessary to set out s 34 and the definition of "relevant agreement". Section 34 provides: "Where a person: (a) has entered into a relevant agreement with another person with respect of an issued share in which the other person has a relevant interest; (b) has a right enforceable against another person in relation to an issued share in which the other person has a relevant interest, whether the right is enforceable presently or in the future and whether or not on the fulfilment of a condition; of (c) has an option granted by another person, or has granted to another person an option, with respect to an issued share in which the other person has a relevant interest; and, on performance of the relevant agreement, enforcement of the right, or exercise of the option, as the case may be, the first-mentioned person would have a relevant interest in the share, the first-mentioned person shall be deemed for the purposes of this Division to have that relevant interest in the share. "Relevant agreement" is defined in s 9 to mean: "An agreement, arrangement or understanding: (a) where formal informal or partly formal and partly informal; (b) whether written or oral or partly written and partly oral; and (c) whether or not having legal or equitable force and whether or not based on legal or equitable rights;" On the evidence I am unable to conclude that the institutions had entered into a binding agreement to sell their shares to Western Metals prior to those shares being crossed on market. In the conversations that took place between Mr Curry and the representatives of the institutions it was made clear by Mr Curry that he was soliciting offers to sell shares and was not seeking to enter into an agreement to purchase them. The offers that he was soliciting would only be accepted if Mr Curry was able to put together a parcel of shares initially totalling 19.9 per cent of the capital of Aberfoyle and later totalling 15 per cent of the capital. In his discussions Mr Curry also made it clear to the institutions that there would be no binding agreement until the shares had been crossed on market. Although the institutions indicated that their respective offers were "firm" it is clear enough from the evidence that according to the ordinary usages of the market this meant no more than that the offers would remain open for acceptance for a short period, probably for a day or perhaps even less than a day. Further, it seems to be clear that each institution that had offered to sell its shares "firm" was free to withdraw that offer at any time before a crossing was effected. Thus there could be no concluded agreement to purchase those shares before they were crossed on market. Whether the shares had been acquired under a relevant agreement is a more difficult question. In Green v Crusader Oil NL (1985) 10 ACLR 120 at 125 it was said that for shares to be "acquired" meant that the title to those shares must be obtained. This was said to be the usual meaning of the word "acquired". But the usual meaning of the word surely cannot have application to a case where the legislation contemplates the acquisition of a relevant interest by an informal arrangement or understanding that has no legal or equitable force. It is likely that the word "acquire" when used in sections such as s 698(5) means no more than "obtain" those shares. Even so I doubt whether Western Metals did obtain the power to control the disposal of the relevant shares. The only "arrangement" or "understanding" that was reached was that the shares offered for sale by the institutions would remain on offer for a short period. This is not an "arrangement" or "understanding" on the performance of which Western Metals would acquire a relevant interest in the shares so it appears to me. Fortunately it will not be necessary for me to reach any concluded view on this aspect of the case for I have come to the firm conclusion that Western Metals did not acquire the relevant shares in the ordinary course of trading on SEATS. A number of cases have considered what is meant by the ordinary course of trading on a stock market when that stock market was a trading floor. Gowans J considered the matter in Walsh's case. His Honour said [1973] VR at 144: "In its setting this latter section [a reference to s 180M of the Companies Act 1961], connected as it is with the acquisition of shares, the phrase 'in the ordinary course of trading on the Stock Exchange', particularly having regard to the words 'trading', 'Stock Exchange' and 'ordinary course', carries overtones of an anonymous competitive bargaining in an open forum according to the common and the usual course of that activity and without unusual features in the bargaining suggestive of collateral objectives ... Any particular dealing made apart from these characteristics either by reason of features affecting the true character of the transaction or by reason of some departure from the normal forms in which the activity is carried out. It is not to be thought that a transaction bearing special features which make it properly to be categorised as a move in a takeover of a kind that is forbidden by the Act is to be saved from the prohibition by putting it under the cloak of procedures in a Stock Exchange. Nevertheless a transaction which has no special features could conceivably be saved from the prohibition notwithstanding some departure of minor significance from the ordinary form of such procedures." See also Cuming-Smith & Co Ltd v Westralian Farmers Co-operative Ltd (1978) 3 ACLR 906 at 928-30 and ICAL Ltd v County Natwest Securities (Aust) Ltd (1988) 13 ACLR 129 at 156-157. Here the parties had negotiated a sale of the shares well away from any stock market or stock exchange. The offer was to remain open for a short period to enable Western Metals to put together the number of shares that it required before it would purchase the shares on offer. So far as the institutions were concerned their offers could only be accepted by Western Metals. They did not authorise MUL to sell the shares to any other party. If this transaction had been concluded on a trading floor of a stock exchange then consistently with the authorities to which I have referred the transaction would not have been in the ordinary course of trading on that trading floor. Is the position different now that the trading floor has been replaced by SEATS? I think not. The essential anonymity of buying and selling shares on a "first come first served" basis that existed when there was a trading floor still exists with SEATS. Shares must be purchased in the order in which they are offered for sale on the screen by any person wishing to purchase those shares at a price that is the same as or higher than the price offered. Shares are sold to the first purchaser who is willing to pay the price on offer. There are no prearranged dealings on SEATS except when transacted in a manner such as occurred in this case. Moreover it would be a curious result if, by reason of the adoption of modern technology, a transaction that would not be exempt from the operation of s 698 becomes exempt when that technology does not bring about any substantive change to the nature of the trading activities that are conducted on a stock market. In my view Western Metals did not acquire the shares from Portfolio Partners, HSBC and Hambros in the ordinary course of trading on SEATS notwithstanding that those shares were crossed. Thus is cannot avoid the result that there has been a breach of s 698(2). Now I will turn to the second alleged benefit namely the offer to place ordinary shares and converting preference shares with institutions that were shareholders in Aberfoyle. These were the offers discussed with the institutions on 23 and 24 April 1998, made in writing on 27 April 1998 and offers that will be given effect when Western Metals allots shares to each institution that entered into an agreement to subscribe for the shares. The first question that arises is whether those offers were made to Aberfoyle shareholders. The reason the question arises is that the Aberfoyle share register was not put into evidence and this led Western Metals to argue that it has not been established, in accordance with the requisite standard of proof, that the offers were to Aberfoyle shareholders. There is an air of unreality about this submission. For months in the discussions between Macquarie Bank and Western Metals the institutions were regarded as Aberfoyle shareholders. Many documents produced by Macquarie Bank and provided to Western Metals referred to them as Aberfoyle shareholders. There had been many discussions based on the fact that the institutions held substantial shares in the company. Further, discussions took place with these institutions with a view to purchasing some of their shares in Aberfoyle and, in due course, some of them agreed to sell their shares. There is in evidence a copy of a notice of substantial shareholding served by Western Metals on Aberfoyle in accordance with s 709(1) of the Corporations Law. That document asserts that the shares in Aberfoyle that were acquired by Western Metals on 28 April 1998 (including the shares in respect of which options were granted) had been acquired from the institutions as the registered holders of these shares. It is evidence from which it can be inferred that the institutions were the holders of Aberfoyle shares. This seems to me to be sufficient to dispose of the argument. Nevertheless even if it was possible to conclude that the institutions did not hold any Aberfoyle shares it is clear that each institution controlled the Aberfoyle shares in the sense that the institution had the power to dispose of those shares as and when it thought fit although the shares may have been held by a managed fund or a superannuation fund on whose behalf the institution was acting. So for all practical purposes these institutions should be treated as being the holders of the shares which they controlled. Next it was said that the offers to subscribe for Western Metals' shares were not made to any Aberfoyle shareholder in its capacity as an Aberfoyle shareholder, nor are any shares in Western Metals to be allotted to an Aberfoyle shareholder in its capacity as an Aberfoyle shareholder. If this premise is correct it follows, so it is argued, that s 698(2) has not been contravened. There are two possible views about the scope of s 698. One view is that the section prohibits giving etc. any benefit to a person during the relevant period if that person is a shareholder in the target company. This is the literal meaning of the section and a construction which would give it that effect was accepted by Marks J in Albert v Votraint No 320 Pty Ltd (1987) 13 ACLR 336 at 342. On one reading the decisions of the Court of Appeal and the High Court in Sagasco Amadeus Pty Ltd v Magellan Petroleum Australia Ltd (1993) 177 CLR 508 provide support for this construction. The facts in that case may be briefly stated. Magellan PetroleumAustralia Ltd (Magellan) was a publicly listed company. Its controlling shareholder was Magellan Petroleum Corporation (Magellan US). Three corporations held shares in both Magellan and Magellan US. Before making a takeover offer for Magellan, Sagasco Amadeus Pty Ltd (Sagasco) entered into two interdependent agreements with the three corporations to acquire a number of shares in both Magellan and Magellan US at a price which was above the market price of those shares. On an application for an interlocutory injunction to restrain the dispatch of takeover offers by Sagasco it was held that, contrary to s 698(2), Sagasco had provided a benefit to the three Magellan shareholders which it was not proposing to provide to other shareholders of Magellan. The benefit was the premium paid for the Magellan US shares. Accordingly, the injunction was granted. Neither the Court of Appeal (its decision is reported in Magellan Petroleum Australia Ltd v Sagasco Amadeus Pty Ltd (1992) 9 ACSR 162) nor the High Court suggested that the outcome of the case was dependent upon whether the benefit that was given to the Magellan shareholders was conferred upon them in their capacity as shareholders of Magellan. Indeed in the Court of Appeal it had been suggested that the premium paid for the Magellan US shares was in truth part of the price paid for the Magellan shares, but the Court of Appeal said that there was no evidence for this allegation and accordingly it was ignored. The second view of s 698 is that before the section can be contravened it must be established that offering etc. a benefit to a shareholder in the target company must be to that shareholder in his capacity as a shareholder. It is by no means clear to me precisely what is meant in this context by offering etc. a benefit to a person in a particular capacity but, leaving that problem aside for the moment, the view is supported by a number of authorities the most important being Gantry Acquisition Corp v Parker & Parsley Petroleum Australia Pty Ltd (1994) 51 FCR 554, a decision of the Full Court. There the appellant had proposed to make a takeover offer for all of the shares in Bridge Oil Ltd (Bridge Oil). Before making the offer it had entered into an agreement with five executives of Bridge Oil pursuant to the terms of which, if the offer was successful, those executives would become executives of the appellant on certain conditions which included an obligation to purchase shares in the appellant on favourable terms. It was argued that the offer of an employment opportunity together with the rights that attached to that offer being an offer not made to other shareholders of Bridge Oil resulted in a contravention of s 698. Shepherd J, (with whom Beazley J agreed, Burchett J not deciding,) rejected this argument. In the course of his reasons for judgment Shepherd J said this, at 563: "The section [i.e. s 698] contemplates a situation in which benefits conferred on some shareholders are not conferred or not to be conferred on all of them. In my opinion, the contemplation is that the benefit referred to in s 698 is a benefit provided to shareholders in their capacity as owners of shares in the company. That is not so in this case. The benefit which the members of the Executive Group are intended to have will be conferred on them in their capacity as employees, not shareholders. Accordingly, I do not consider that any breach of s 698 of the Law has been established. The decision in Sagasco is distinguishable from the present case for this reason." Not without a good deal of hesitation I must say that this passage in his Honour's reasons presents two immediate difficulties. The first is that the basis for distinguishing Sagasco is not explained. Secondly, his Honour does not explain what was meant by the notion of providing a benefit to a shareholder in his capacity as the owner of those shares. However, because I am bound by the decision I must determine what the passage means and then apply it. It will be recalled that in Sagasco the two agreements that had been made with the three corporations were interdependent, that is the performance of each agreement was conditional upon the performance of the other. The effect of such an arrangement will often be to act as an inducement or to influence the parties to perform both agreements. More importantly, so far as s 698 was concerned, it was likely to be the case that the three corporations that had sold their Magellan shares under a conditional contract would be induced or influenced to complete that contract in order to obtain the benefits offered under the other contract. In this way it might be said that the benefits provided under the contract for the purchase of the Magellan US shares was not a benefit provided to the three corporations in their capacity as shareholders in Magellan US alone because it was connected with and had the potential of influencing or inducing the decision to perform the contract for the sale of the shares in Magellan. In my view this was the reason that lead Shepherd J to distinguish Sagasco from the facts under consideration in Gantry. This was also the reason that led Shepherd J to distinguish between a benefit that is provided to a shareholder in his capacity as a shareholder from a benefit this is provided to that shareholder in some other capacity. I regard the decision of Sackville J in Ampolex Ltd v Mobil Exploration & Producing Australia Pty Ltd (1996) 65 FCR 503 as authority to the same effect: see also Boral Energy Resources Ltd v TU Australia (Queensland) Pty Ltd (unreported, Santow J, Supreme Court of New South Wales, 6 May 1998). There is good reason for confining the operation of s 698 to the provision of benefits that are connected with or have the potential to influence or induce a decision to sell shares in the target company. If the section is not confined in that way then there will be a very real risk of a contravention of s 698 as a consequence of dealings between companies that have no possible relationship to the acquisition of shares in one of them. Take as an example a typical joint venture agreement between companies where one of them wishes to bid for the other. Must the joint venture be held in abeyance until the outcome of the bid is known? Many other examples can be brought to mind where a literal construction of the section would produce not only hardship but injustice. Conformably with modern principles of statutory construction such a result must be avoided. The submission that the offers of shares in Western Metals were made to Aberfoyle shareholders not in their capacity as shareholders of Aberfoyle but in their capacity as investors or sub-underwriters is one that I have rejected. However, even if I had come to a different conclusion on the facts, the real question that must be answered is this: Could the offers to place ordinary shares and converting preference shares in Western Metals with institutional shareholders of Aberfoyle influence or induce those institutions to sell their Aberfoyle shares? If the answer to this question is in the affirmative then there will be a contravention of s 698(2). In this connection, I have no doubt that the offers had that potential principally for the reasons explained on a number of occasions by Macquarie Bank to its client. The potential advantages of disposing of one asset and acquiring another would no doubt have been apparent to the institutions not the least as a consequence of the presentations that were made on 20 April 1998 in the case of AMP and on 23 and 24 April in the case of the other institutions. In arriving at this conclusion it is not irrelevant to note that Portfolio Partners and HSBC did sell a significant number of shares in Aberfoyle to Western Metals and did agree to take up a large parcel of Western Metals shares. Portfolio Partners in particular sold a very large holding of Aberfoyle shares and sought and obtained an even larger parcel of Western Metals' shares; it received by far the largest number of shares offered to any institution. On conversion of its converting preference shares Portfolio Partners will hold as large a stake in Western Metals as it did in Aberfoyle. It is hard to believe that this sale and this acquisition are not connected in a commercial sense. In fact, from the view point of an Aberfoyle shareholder, there is a direct connection between the sale of Aberfoyle shares and the purchase of shares in Western Metals so as to make this case indistinguishable from Sagasco. Those institutions that have agreed to take up the second tranche of the ordinary shares and each tranche of the converting preference shares have done so on a conditional basis. The second tranche of the ordinary shares and the first tranche of the converting preference shares will only be issued if the takeover offers become unconditional. The second tranche of the converting preference shares will only be issued if and to the extent that Western Metals requires the capital to pay for Aberfoyle shares. It is almost inevitable that those institutions that have subscribed for the issue will sell their Aberfoyle shares. They will do so to secure the success of the takeover and to maximise the number of Western Metals' shares they will obtain. The next argument that I must deal with is whether the offer etc. of shares in Western Metals did constitute a benefit within the meaning of s 698 when those shares were offered to the institutions at what is said to be the true (exchange) value of those shares. I have summarised the evidence dealing with the determination of the price of the shares earlier in these reasons. It is I think an inescapable conclusion that the shares were priced at what was regarded to be a reasonable price. It is common enough for ordinary shares to be placed at a discount to the then prevailing market price. That is the manner by which a large amount of capital can be raised in a short period. According to the evidence the discount to value that established the price of the converting preference shares is also a reasonable discount having regard to a variety of factors none of which need be mentioned. However, the fact that the shares were offered at their exchange value does not mean that the institutions were not offered a benefit. For the purposes of s 698 "benefit" is defined to mean "any benefit whether by way of payment of cash or otherwise": see the definition in s 9. This is a very broad definition. It would include within it any advantage that might accrue from the offer. Each of the following advantages would fall within the meaning of benefit in my opinion: the ability to acquire shares without the payment of brokerage; the ability to acquire a large parcel of shares at one time; the ability to acquire a large parcel of shares without the need of having to purchase those shares on market thereby avoiding the risk of forcing up the price of those shares before the whole parcel can be purchased; the ability to obtain an attractive investment (the converting preference shares carry a yield of 8.5 per cent, are convertible to produce a profit of 10 per cent and have downside protection); the ability to acquire shares not otherwise available on the open market. The offers that were made to the institutions carried with them each of these advantages. Each of them would be a very real commercial advantage to an institution or to an ordinary investor. Each advantage is a benefit within the meaning of s 698. Thus Western Metals contravened s 698(2) when MUL made the offers to the institutions on its behalf. Notwithstanding an already lengthy judgment there is still one final complaint that is made by Aberfoyle with which I must deal. This time it does not concern the proposed takeover offer. It is concerned with the affairs of Western Metals and has Aberfoyle making its complaint in its capacity as a shareholder of Western Metals. On 5 May 1998 Western Metals gave notice of an extraordinary general meeting of its members to be held on 29 May 1998. The meeting was convened to consider three resolutions: the first was an alteration of the articles of association of Western Metals to permit the issue of the converting preference shares; the second was to increase the authorised capital of Western Metals to permit the issue of the converting preference shares; the third resolution was to ratify the issue of 24 million fully paid ordinary shares being the first tranche of the ordinary shares that had by then been allotted to the institutional investors. Accompanying the notice of extraordinary general meeting was an explanatory statement to shareholders. It is a lengthy document of some 19 pages. Aberfoyle, which only became a member of Western Metals on 8 May 1998, complains that the explanatory statement is deficient in two respects. The first is that it does not inform shareholders that the ASX had granted a waiver to Western Metals from compliance with s 7.27 of the ASX listing rules. That rule provides, subject to certain immaterial exceptions: "An entity must not use its share premium account in any way without approval of the holders of ordinary securities by special resolution, unless all holders of ordinary securities benefit in proportion to the total amount of the issue price paid on shares they hold." The waiver was necessary to authorise the use of the share premium reserve of Western Metals in the issue of the converting preference shares. The second alleged deficiency is that the explanatory statement fails to include important information on the consequences for ordinary shareholders of the issue of the converting preference shares. The matters that should have been included are said to be: (a) The amount that will stand to the credit of the share premium account following the issue of ordinary shares and converting preference shares and the potential shortfall in the share premium account if Western Metals is required to issue converting shares up to a maximum of four ordinary shares. (b) The level of price of Western Metals ordinary shares at which Western Metals will have insufficient share premium account to issue additional ordinary shares upon the conversion of the converting preference shares. (c) The consequences if Western Metals share price falls below its par value and Western Metals is required upon the conversion of converting preference shares to issue shares at a discount. (d) The dilutionary effect that the conversion of the converting preference shares may have ordinary shareholders. (e) That shareholders will be authorising the directors of Western Metals to use all of the share premium account for the benefit of the converting preference shareholders and to the detriment of ordinary shareholders. Since the commencement of this action Western Metals has cured two of the alleged deficiencies. On 28 May 1998 it sent a notice to all shareholders indicating that it was proposed to adjourn the meeting until 5 June 1998. In the notice Western Metals informed its shareholders that Western Metals had obtained a waiver from the ASX of listing rule 7.27 and informed them that the waiver would allow the share premium account to be used to pay up shares issued on the conversion of the converting preference shares. It also advised its shareholders that the share premium account had a balance of $38.3 million and, after the issue of ordinary and converting preference shares to fund the Aberfoyle bid, that account would increase to approximately $105.3 million (assuming the bid was successful). Thus, to a significant extent, the complaint made by Aberfoyle has been addressed. It is not necessary for me to spend much time dealing with the remainder of the complaints. At the hearing these complaints were barely mentioned and in the parties respective written submissions they received only slightly more attention. I will take as a convenient statement of the law concerning the obligation on directors to provide information to members a passage from H. J. Ford, "Principles of Corporations Law"(8th) para 7.460: "Directors in stating in the notice a proposed item of business must give information in fair detail as to what is actually proposed to be done at the meeting in a manner that is not misleading. There should be a broad statement of the purpose of the resolution so that shareholders can make reasonably informed judgments whether to attend. The Court recognises that there may be commercial conflicts in directors' minds when deciding what information to furnish. Their duty is to provide the information which they think the members should have, plus that information which it would be obvious to the average commercial man in the street that they should have." (Citations omitted) When the information memorandum is considered as a whole and in conjunction with the additional information that has been provided to shareholders it is clear that the shareholders have sufficient information to enable them to make a properly informed judgment on the matters submitted to them for their consideration. It is true that not every piece of information which might conceivably affect their voting has been supplied. But there is no obligation to do so. More to the point is the fact that much of what is asked for depends upon speculation about the future price of Western Metals shares and speculation about the number of converting preference shares that will be issued. Shareholders will not be assisted by that type of speculation. Having reached the conclusion that the Part A statement fails to comply with the requirements of s 750 and that there has been a contravention of s 698(2) it remains to consider what relief should be granted apart from making declarations that reflect these findings. By s 743(1) the Court is given power to declare that any document will not be invalid notwithstanding a contravention of the Corporations Law. Section 743(3) sets out the circumstances to which the Court may have regard in deciding whether to make such an order. The deficiencies in the Part A statement are not so serious as to warrant the consequence that it should be treated as in ineffective document. The information that it should have contained is only of marginal interest to shareholders and that information can be provided to them by some other means. If Western Metals undertakes to write to shareholders providing them with the information that should have been included in the Part A statement I will grant a declaration under s 743(1) that the Part A statement is to have effect as if there had not been a contravention of s 750. The contravention of s 698(2) presents far greater difficulties. It has come about because Western Metals did not accord equality of treatment to all Aberfoyle shareholders: equality of treatment being what Chapter 6 of the Corporations Law demands. It has resulted in Western Metals obtaining an advantage (the acquisition of a large percentage of the capital of Aberfoyle) that it should not have obtained. It is not a contravention that, in the circumstances of this case, ought to be excused under s 743(1) (the section would go so far as to permit the contravention to be excused) even if the contravention had resulted from inadvertence, mistake or matters beyond the control of Western Metals. In any event, for reasons which are by now apparent, I do not regard the contravention as having arisen as a result of any such circumstances although it may have been the result, in part at least, of legal advice. In my view, the proper order to make is one that will deprive Western Metals of the benefit it has obtained from the contravention: see Gjergja v Cooper [1987] VR 167 at 217; Metals Exploration Ltd v Samic (1994) 181 CLR 109 at 181. This can be achieved in one of two ways. An order can be made that Western Metals be restrained from proceeding with its takeover offer for a period of 4 months from 28 April 1998 the day on which it purchased shares in the capital of Aberfoyle. In addition this is one day after the date of the offending offers. The other possible order is to require Western Metals to dispose of the shares it purchased from Portfolio Partners, Hambros and HSBC. Such an order might cause the company to suffer significant financial loss depending upon the price that can be obtained from a sale of the shares. In the first instance I propose to give Western Metals the opportunity of deciding which of these orders it regards as the least prejudicial to its interests. I will make whichever order it selects. If Western Metals is unwilling to make a choice between the orders that are on offer then I will make what I regard as the appropriate order. I direct that Aberfoyle bring in short minutes of proposed orders to give effect to these reasons. The minutes should be submitted by 4.15 pm on 22 June 1998.

I certify that this and the preceding fifty-six (56) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Associate: Dated: 19 June 1998 Counsel for the Applicant: JH Karkar QC RD Strong

Solicitor for the Applicant: Arthur Robinson & Hedderwicks

Counsel for the Respondent: N Young QC J Beach A Bell

Solicitor for the Respondent: Freehill Hollingdale & Page

Date of Hearing: 27, 28, 29 May, 1-4 June 1998