AAPT v Cable & Wireless Optus [1999] NSWSC 454 | Case summary

JUDGMENT (Ex tempore, revised 14 May 1999) 1 This is an urgent application by the defendants to set aside two notices to produce and a subpoena, argued yesterday. The plaintiff is the target in a proposed takeover by the second defendant. The bid is a cash bid, subject to conditions which include a 90 per cent minimum acceptance condition and a condition (clause 8.1 (e) of the offer) relating to approval of the acquisition by the Australian Competition and Consumer Commission ('ACCC'). Documents purporting to be a Part A statement and offer were served on the plaintiff on 28 April 1999. I shall refer to the purported Part A statement simply as the Part A statement but I do not intend thereby to prejudge the issue of its compliance with the Corporations law. 2 The documents have not been sent to offeree shareholders. By summons filed on 10 May 1999 the plaintiff seeks various orders which would either enjoin the defendants from sending the Part A statement and offers or require the dispatch of the supplementary disclosure material. There is also a challenge to the lawfulness of the acquisition of target shares made by the second defendant on 16 April 1999, which is not relevant to the issues in the present application. 3 The proceedings having been instituted by summons, there is no pleading to identify precisely the grounds upon which the challenge to the Part A statement and offers is based. The only clue given by the summons is in paragraph 1, by which the plaintiff seeks a declaration that the Part A statement does not comply with clauses 17 and 20 of s 750 of the Corporations Law. At an ex parte hearing on 10 May 1999, counsel for the plaintiff sought ex parte orders on the basis of four complaints about the Part A statement, namely, that it failed adequately to: (a) disclose the anticipated benefits which would arise from a merger; (b) address competition issues arising from the merger; (c) address the intentions of the second defendant if it achieves more than 50 per cent but less than 90 per cent of the target shares as a result of the bid; and (d) disclose certain aspects of the funding arrangements of the bid. 4 The case was out of the ordinary in some respects, as will become evident in these reasons. Upon the plaintiff giving the usual undertaking as to damages, I enjoined the defendants from sending the Part A statement and offers to the plaintiff's shareholders until further order and stood the proceedings over for further hearing on 13 May 1999, on the basis that a final hearing on that day may be appropriate. I granted the plaintiff leave to issue subpoenas addressed to Merrill Lynch International (Australia) Ltd and to the partners of the defendants' firm of solicitors returnable this morning and I ordered that any notice to produce served by either party be called upon at the same time. In view of the urgent circumstances, I granted liberty to apply on two hours' notice. 5 The plaintiff then served the subpoenas and also served a notice to produce on each defendant. The notices to produce are substantially identical. The subpoena directed to the solicitors covers some but not all of the grounds in the notices to produce. There is now no issue about the subpoena to Merrill Lynch, which has been complied with after amendments were negotiated. 6 The notices to produce seek documents (widely defined) which may for convenience be classified into three categories: (i) documents evidencing the statement about the offeror's intention made in paragraph 18 of the Part A statement, 'intention' being defined in the notice to include intentions which are contingent, subject to further consideration or subject to possible review; (ii) documents subsequent to 29 September 1998 evidencing communications with the ACCC relating to the acquisition, or evidencing the defendants' willingness to give undertakings or take steps to facilitate ACCC approval; and (iii) documents relating to a briefing given to analysts by the defendants and their solicitors on 3 May 1999 and certain claims made at the briefing (the plaintiff having put into evidence a copy of the briefing notes). 7 In addition to these three categories of material, the notice to produce also seeks production of drafts of the Part A statement and of reports by either defendant to Cable & Wireless Optus plc or its subsidiaries. The subpoena is confined to part of categories (ii) and (iii) and to drafts of the Part A statement. The position of the first defendant 8 As a threshold issue, the defendants submit that the notice to produce to the first defendant could not be justified even if the notice to produce to the second defendant were appropriate. This is because only the second defendant is the offeror. Indeed, the defendants say that there is no proper basis for joining the first defendant as a defendant in these proceedings, though no application has been made to remove the first defendant from the proceedings. 9 In my opinion, it would be appropriate to serve a notice to produce in proper form on the first defendant, given that it is a defendant in the proceedings. The question is whether it is appropriate to serve on the first defendant a notice to produce which proceeds on the basis that the first defendant has been involved in a substantial way in the preparation of the Part A statement and in the decisions which have led to it. 10 According to the cover page of the Part A statement, the offer is made 'by' the first defendant, 'through its wholly owned subsidiary' the second defendant, although the offer itself identifies only the second defendant as the offeror (clause 1.1). Further, clause 18.1 of the Part A statement states that 'the intentions of the first defendant concerning the businesses, assets and employees of AAPT are the same as the intentions of the second defendant as set out in this paragraph 18'. In effect, the Part A statement makes the first defendant's intentions a relevant matter for disclosure and implies that the first defendant has been substantially involved in preparation of the bid and the Part A statement. This is confirmed by the briefing notes for the meeting with analysts on 3 May 1999, which are headed 'Cable & Wireless Optus Ltd: Acquisition of AAPT Limited'. 11 I do not intend at this stage to determine the question of the first defendant's joinder in these proceedings since that point has not been directly raised. However, in my view, it is appropriate in the circumstances for the Court to assess the notices to produce on the basis that in the present context no relevant distinction should be drawn between the notice to produce addressed to the second defendant and the notice to produce addressed to the first defendant. Grounds for changing the notices to produce and subpoena 12 At yesterday's hearing the defendants objected to the notices to produce and subpoena on three related grounds, namely, that: (a) the evidence sought is not relevant to the issues raised in the proceedings; (b) the notices to produce and subpoena are being used by the plaintiff as a substitute for discovery; and; (c) they constitute a fishing expedition. 13 At a further brief hearing of the matter this morning, I granted leave to the defendants to file affidavit evidence which relates to the difficulty which the defendants will experience in complying with the notices to produce. The defendants' counsel submitted this morning that in view of that evidence, the notices to produce, and consequentially the subpoena, are oppressive and vexatious. 14 Let me deal with that issue at once. The additional evidence, the affidavit by Colleen Anne Platford sworn today, contains an estimate that to carry out the work required to comply with the notices to produce would take at least four full days, assuming that senior executives of the defendants are available to review any documents they hold relating to the acquisition. This case represents a takeover bid which values the target company in excess of $1.3 billion. The allegations made at the hearing on 10 May 1999 would, if substantiated, identify deficiencies in the Part A statement of a potentially serious kind. It may be that the allegations are not substantiated or that when submissions at the hearing have been made, it becomes evident that deficiencies have been substantiated by the plaintiff but they are not serious. At this stage, however, I must proceed on the basis that there is potentially a real complaint about the Part A statement and, therefore, a matter which needs to be visited thoroughly to the extent that the urgent circumstances allow. All of that being so, and in view of the conclusions that I shall express concerning the defendants' other contentions about the notices to produce and subpoena, I cannot conclude that it would be oppressive or vexatious to require the defendants to undertake at least four full days of work to produce relevant material for the hearing. 15 To the extent, therefore, that the defendants contend that the notices to produce and subpoena are oppressive or vexatious, my view is that on the evidence that contention is not made out. 16 As to the other three bases of challenge, the defendants rely on the following well-known passage from the judgment of Jordan CJ in Commissioner for Railways v Small (1938) 38 SR (NSW) 564, 574: 'It is true that a party, unlike a stranger, can be required to give discovery; but it is not legitimate to use a writ of subpoena duces tecum as a substitute for an application for discovery of documents, or as an alternative to an application for further and better discovery. Discovery application should be made at the proper time and place. It would greatly impede the trial of actions at nisi prius , and impose an intolerable burden upon the presiding judge, if he were required from time to time to suspend proceedings and wade for himself through masses of documents for the purpose of endeavouring to determine whether any of them are relevant. Especially is this so when the documents may be called for whilst the case is still at the stage when it is difficult or perhaps impossible for the Judge to know what may become relevant and what may not. In the absence of special circumstances, eg Griebart v Morris a party is no more entitled to use a subpoena duces tecum than he is a summons for interrogatories, for the purpose of 'fishing', ie, endeavouring, not to obtain evidence to support his case, but to discover whether he has a case at all: Hennessy v Wright , or to discover the nature of the other side's evidence: Griebart v Morris . Even if the documents are specified, a subpoena to a party will be set aside as abusive if great numbers of documents are called for and it appears that they are not sufficiently relevant: Steel v Savory .' See also National Employers' Mutual General Association v Waind and Hill [1978] 1 NSWLR 372; A Moffitt, 'Procedures at a Common Law Trial Regarding Subpoenas Duces Tecum: Notices to Produce and Documents of Parties and Strangers', H H Glass, Seminars On Evidence (1969) page 3; P W Wood 'Challenging Subpoenas Duces Tecum: Is There a Third Party View?' (1984) 10 Syd LR 380. The submission assumes, correctly in my view, that the principles which govern setting aside a notice to produce are relevantly the same as those governing the setting aside of a subpoena. 17 In this case it cannot be said, the day before a hearing which may be the final hearing, that it is difficult or impossible for the judge to know what may become relevant and what may not. It is true that in the absence of pleadings and particulars (an inevitable or highly likely consequence of the extreme urgency of takeover litigation) it is not entirely clear how the plaintiff will put its case against the Part A statement. But it is evident from the summons that an attack will be directed to clauses 17 and 20 of s 750, though not necessarily exclusively; and it appears from the plaintiff's submissions on 10 May 1999 that the plaintiff will complain of the inadequacy of the Part A disclosure as to synergies and benefits, intentions, competition issues and aspects of the funding arrangements. The Court also had the benefit of submissions by both parties yesterday in the context of the defendants' present application. 18 It seems to me, therefore, that the Court is able in the present case to make a determination as to relevance and, to that extent, the concerns which underlay Jordan CJ's remarks are not present here. However, I do not infer from this that the principles enunciated by Jordan CJ are inapplicable or are to be modified in a case such as the one before me. They are to be regarded as applicable to urgent takeover legislation as well as to applications under the Compensation to Relatives Act. In particular, it is clear that subpoenas and notices to produce cannot be used to obtain material which is not relevant to the proceedings or used as a substitute for discovery or for 'fishing' in the sense explained by Jordan CJ. The question is whether the notices to produce and subpoena in this case infringe those principles. The plaintiff's challenge to the Part A statement - relevant issues 19 Counsel for the defendant submitted, and I agree, that there are broadly three ways of challenging a Part A statement. First, it may be contended that the document does not comply with a specified requirement of the Corporations Law. That contention is implied by the summons, which seeks a declaration that the Part A statement does not comply with clauses 17 and 20 of s 750. 20 Secondly, it may be said that the Part A statement is misleading. The defendants say that this does not seem to be part of the plaintiff's case in light of the summons and what was said by counsel for the plaintiff at the hearing on 10 May 1999. I disagree with the defendant on this point. 21 In my opinion, it cannot be determined or assumed at this stage that the plaintiff will not contend at the hearing that the Part A statement is misleading because of misstatements with respect to the defendants' intentions or other material information. The summons seeks orders under ss 739 and 1324 of the Corporations Law. An order under s 739 may be made when the Court is satisfied that any provision of Chapter 6 has been contravened. Section 1324 is available in respect of any contravention of the provisions of the Corporations Law. Chapter 6 contains provisions which deal with misleading statements in Part A statements: see especially s 704. Though not found in Chapter 6, s 995(2) relates to misleading or deceptive conduct in relation to the making of takeover offers, amongst other things. One cannot infer merely from the fact that the only relevant declaratory relief which the summons seeks relates to compliance with s 750, that the plaintiff will not at the hearing seek to support the prayers for relief under ss 739 and 1324 by reference to some other provision of Chapter 6 such as s 704, or some other provision of the Corporations Law such as s 995. 22 It is true that if proceedings are commenced by summons and no particulars of claim are given, the defendant in those proceedings may well be placed in difficulty in knowing the case which it is required to answer. That is why, in proceedings conducted at a less frantic pace than typically occurs in takeover litigation, it is often appropriate to give directions for the filing of a statement of claim. In the present case it would, I assume, not be in the interests of either party for the Court to direct the filing of the statement of claim and thereby delay the hearing by several weeks or more. 23 However, while the defendants in the present case are not in the more secure position of a defendant at the hearing of a fully pleaded case, one can readily imagine proceedings commenced by summons in which the defendant would be much less clear about the plaintiff's case than here. The defendants know that there is a challenge to the Part A statement. Though the hearing on 10 May 1999 was ex parte, a solicitor employed by the defendants' solicitor was in the Court and took notes, those notes being in evidence on the defendants' present application. What was said by counsel for the plaintiff on that occasion was principally directed to the application for ex parte injunctive relief and, in any case, could not be taken to limit the plaintiff's submissions at the final hearing. The plaintiff appeared again yesterday and made submissions which further elucidated its case. Therefore, the defendants have been given indications of the plaintiffs case which should assist them to prepare for the hearing. In any event, the plaintiff offered yesterday to provide particulars of the claim. If the defendants take up that offer, the case against them may be further clarified. 24 Given these considerations, I proceed on the basis that the contentions that the Part A statement is misleading with respect to matters arising out of clauses 17 and 20 of s 750 is a contention available to the plaintiff and, therefore, evidence on that issue is relevant evidence. 25 Thirdly, says counsel for the defendant, a Part A statement may be challenged by contending that undisclosed material information renders the Part A statement misleading or causes it to fail to comply with clause 17 of s 750. It follows from what I have said that this contention is available to the plaintiff, at least having regard to the matters referred to in clauses 17 and 20 of s 750 and, therefore, evidence on that issue is relevant evidence in the proceedings. 26 I propose now to consider the requirements of clauses 17 and 20 of s 750 and then to determine whether the evidence sought in the notices to produce and subpoena is evidence relevant to the issue of compliance with those clauses. It must be remembered, however, that in view of the conclusions I have already reached, an additional significant question needs to be asked, namely, whether the documents sought are relevant to the issue of misleadingness of the Part A statement with respect to the matters required to be disclosed by clauses 17 and 20. The requirements of clauses 17 and 20 of s 750 27 Section 750 sets out in 21 clauses the content requirements with which a Part A statement is to comply. The following clauses are relied upon in paragraph 5 of the plaintiff's submissions: '17. 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.' '20.(1) The statement shall set out particulars of the offeror's intentions regarding: (a) the continuation of the business of the target company; (b) any major changes to be made to the business of the target company, including any redeployment of the fixed assets of the target company; and (c) the future employment of the present employees of the target company. 20.(2) Without limiting the generality of subclause (1), if the offeror has not made a decision on a matter referred to in paragraph (1)(a), (b) or (c) but is considering a possible course of action, or 2 or more possible courses of action, in relation to the matter, the statement shall set out that fact and specify the course of action or courses of action concerned and the reason why the offeror has not made a decision on the matter.' 28 It is appropriate first to make some general remarks about the requirement of clause 17 and then to consider whether the information sought in the notices to produce and subpoena is relevant to contentions which might be made at the hearing with respect to compliance with that clause. Having considered those matters, I shall then address clause 20 in a similar way. Clause 17 29 The fundamental importance of clause 17 has been elucidated in several cases, most recently in Aberfoyle Ltd v Western Metals Ltd [1998] 28 ACSR 187 at 209. Finkelstein J said: '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; 11 ACSR 84. 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 Ltd v Humes Ltd (1986) 13 ACLR 501 at 503.' 30 In that case it was alleged that clause 17 was contravened because, amongst other things, the Part A statement failed to disclose the rationale for the acquisition, the benefits for the offeror and its shareholders arising from the acquisition, and the assumptions upon which the share price was based. It appears that there will be broadly similar contentions at the hearing of the present case, at least as regards the benefits and rationale of the acquisition. Dealing with these matters, Finkelstein J said: '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, clause 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 clause 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.' 31 This is consonant with the common sense approach urged by Bryson J in Metal Manufacturers Ltd v Marsh Electrical Pty Ltd (1998) 29 ACSR 245 at 250: 'Materiality to the making of a decision is a subject which does not have definite boundaries. A great many subjects can be woven into more or less defensible arguments that they are material to a decision referred to in Corporations Law 17. It is not consonant with the purpose and policy of the legislation that a very extensive view of materiality should be adopted, or that everything which is not wholly extraneous should be treated as material. Clause 17 is not a proposition from the Logic Schools but is one of the provisions of legislation which regulates takeovers in the contemplation that they are not forbidden or unreasonably impeded and that they actually will take place in an efficient, competitive and informed market and under controls in which that market will function. Other clauses in s 750 Pt A describe in detail the information to be given on stated subjects, and compliance with one of those clauses would ordinarily be sufficient, and the 'other information' on a subject with which one of those clauses dealt would be information which, on an objective view, truly has a relation to the functioning of an efficient competitive and informed market.' 32 In Pancontinental Mining v Goldfields Limited (1995) 16 ACSR 463 Tamberlin J usefully summarised the case law on the materiality in eleven guidelines, one of which was: 'Materiality of information, where there is a complex proposal, involves difficult questions of commercial judgment and matters of degree as to future conduct about which there can be honest and reasonable differences of opinion. It is necessary to bear in mind that the statement should illuminate the issues rather than confuse them by canvassing all the pros and cons of every possibility. The objective is to present a document which can be understood by members of the public and which does not confuse. This includes a consideration degree of selectivity designed to confine the information to that which is really useful. See Fraser v NRMA Holdings Ltd (1995) 15 ACSR 590 at 603 (FFC). An avalanche of trivial detail is to be avoided. See TSC Industries Inc v Northway Inc (supra) at 448.' 33 Hely J agreed with and applied this guideline in Savage Resources v Pasminco Investments (1998) 30 ACSR 1 at 8. 34 In Cultus Petroleum NL v OMV Australia Pty Ltd [1999] NSWSC 435 (5 May 1999) Santow J set out some principles to be applied in determining what is and is not material for the purposes of clause 17. To a degree, these principles update Tamberlin J's guidelines in light of later cases. One matter which his Honour specially considered was the relevance of the fact that the bid is for cash. He said (at page 18): 'The fact that a bid is a cash bid makes less relevant how valuable the acquisition will be to the offeror, since the accepting shareholder is not concerned with the future value of the offeror's shares. Thus disclosure of the offeror's future plans in relation to the target need not be disclosed under Corporations Law 17; compare Pancontinental Mining Limited (supra) and Solomon Pacific Resources NL v Acacia Resources Ltd (No.1) (1996) 19 ACSR 238. Whether disclosure is required in a cash bid of some special value to the offeror of the target, based on information concerning the offeror not publicly available, is a question not yet resolved; see the discussion in Renard and Santamaria Takeovers and Reconstructions in Australia (Butterworths) at 8044.' 35 Here the defendants say that none of the documents sought in the notices to produce and subpoena is relevant to determine whether clause 17 is complied with. 36 As to the documents relating to the disclosure of the offeror's intentions in the Part A statement (clause 18) which are sought in paragraph 1 of the notices to produce, in my opinion it is unnecessary and even unwise to consider whether the documents sought would be relevant to compliance with clause 17 as opposed to clause 20. As I understand counsel for the plaintiff, the plaintiff does not submit that clause 17 would require disclosure about the intentions of the offeror additional to what is required by clause 20. The legislature has itself determined, by prescribing disclosure of the matters set out in clause 20, that those matters are to be provided to offeree shareholders regardless of whether the bid is for cash or scrip or is conditional or unconditional - indeed, regardless of whether the information would or would not otherwise be regarded as material information. In my opinion, clause 17 does not impose an overriding requirement of materiality upon the other disclosure requirements in s 750 such as clause 20. That view emerges from the remarks of Bryson J in the Metal Manufacturers Ltd case, quoted above. 37 As to documents relating to competition issues, which are sought in paragraphs 3 and 4 of the notices to produce, the defendants say that information about the state of any application to or negotiations with the ACCC, or about any undertaking which may be given or steps which may be taken to secure approval, is not relevant to decisions by offeree shareholders even though the offers are conditional upon (in effect) ACCC 'non-disapproval'. The defendants rely on the fact that this is a cash bid. 38 The significance of the fact that the bid is for cash rather than scrip requires careful consideration. There is no doubt that this fact limits the range of what is material. In the Aberfoyle case, in the passages set out, Finkelstein J rejected a submission that disclosure of benefits to accrue to the offeror was material disclosure for offeree shareholders in a cash bid. 39 The fundamental principle was clearly articulated by Santow J in Cultus Petroleum NL at page 16: 'A matter is material in this context if it might reasonably affect, or tend to affect the decision of the ordinary investor whether or not to accept the offer in the particular circumstances of the bid; Cackett v Keswick [1902] 2 Ch 456 at 464. Therefore, if a fact were omitted which, if known, would have either tended to deter offerees from accepting the bid ( Re Rossfield Group Operations Pty Ltd (supra) at 376; (1980) 5 ACLR 237 at 241; CLC 40-710 at 33,149; Carr Boyd Minerals Ltd v Queen Margaret Gold Mines NL (1987) 7 ACLC 1029 at 1038, and in Augold NL v Yaramin Pty Ltd (1987) 5 ACLR 295 at 299) or would be likely to encourage offerees to accept the bid, that fact is material. Thus a matter is material if it 'is necessary to enable an offeree to make an informed assessment of the offer; Australian Consolidated Investments v Rossington Holdings Pty Ltd (1992) 35 FCR 226.' 40 Is it material for offeree shareholders in a cash bid which is conditional on regulatory non-disapproval to know the state of play in negotiations with the regulator? In the present application, the plaintiff relies on evidence about the choices available to the offeree shareholders. In his affidavit of 10 May 1999, Mr Wayne Lonergan, a chartered accountant specialising in valuations and associated financial advice, says: 'When faced with a cash bid with a minimum acceptance condition, shareholders have a number of different options open to them: (a) they can accept the offer for all their shares; (b) they can accept the offer for part of their holding; (c) they can decide not to accept the offer; (d) they can sell their shares on the ASX; (e) they can wait in order to determine whether or not a competing bid emerges, the offeror increases its bid or the conditions are satisfied or waived.' 41 As I see it, the question whether offeree shareholders are entitled to receive information about competition matters is relevant to that part of their overall decision which relates to paragraph (e) in Mr Lonergan's list. If the additional information assists them to wait and see whether the condition is fulfilled or another bidder emerges, it may be argued to be material information within clause 17. In Gantry Acquisition Corp v Parker & Parsley Petroleum Australia Pty Limited (1994) 51 FCR 554, Sheppard J cited King CJ's judgment in Samic Limited v Metals Exploration Limited (1993) 60 SASR 300 to the effect that information, which could affect the offeree shareholder's assessment of whether the offeror was likely to improve its bid, would be material information for disclosure in a Pt C statement, and his Honour said it would be just as relevant for a Part A statement. 42 It is not necessary for me to decide in the present application whether those observations might go too far, in view of the commonsense approach to disclosure advocated by Bryson J in the Metal Manufacturers case , nor to determine what degree of additional disclosure would be entailed if those observations were to be applied. In my opinion, it would not be material for offeree shareholders to know the state of play in negotiations with the ACCC or the planning which the offeror has embarked upon with respect to undertakings which it may offer to the ACCC or other steps which it may exercise to secure the ACCC's acquisition. Information of that kind would tend to encourage speculative and unsubstantiated conclusions by offeree shareholders, which might well be inherently misleading but would not, in my view, be material information for the purposes of clause 17. Matters of negotiation and planning are inherently unstable. Counsel for the defendants properly observed that there is an important distinction between information of this kind and information that a final decision has been made by the regulatory authority. Though in a different context, Santow J's observations in Cultus are readily adaptable here. 'It may thus be going too far to state, not only is there no obligation to disclose, but there is a positive obligation not to disclose in a Part A statement 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. The duty not to disclose such material must depend firstly upon whether it is mere speculation, or instead a prediction properly substantiated in a way which avoids that material being misleading. Thus, for example, forecasts which are subject to there being 'no major deterioration' in the market or the weather ( Re Primac Holdings Ltd (1996-97) 22 ACSR 212) would not represent a proper substantiation if that were all there were, and would be potentially misleading.' 43 It follows, in my view, that paragraphs 3 and 4 of the notices to produce do not seek relevant evidence as far as the case relates to clause 17. No other basis has been put forward which would render these documents relevant. My conclusion is that paragraphs 3 and 4 of the notices to produce, and also paragraph 1 of the subpoena, should be struck out. I do not think it is appropriate to allow an amendment to those documents which would confine them to material which is relevant, because an instrument requiring production of material truly relevant to issues concerning the ACCC would be a different kind of instrument and not merely an amendment to the present instruments. 44 As to the paragraphs of the notices to produce relating to the briefing notes (paragraphs 5 to 10 of the notices to produce and paragraphs 2 to 5 of the subpoena), in my opinion the production of these documents is relevant, if at all, only to disclose the intentions of the offeror for the purposes of clause 20 of s 750 and to the question whether the disclosures contained in paragraph 18 of the Part A statement are misleading. Additionally, some of those paragraphs are drafted so widely as to raise the issues addressed by Sir Frederick Jordan in the passage from Small's case set out above. I shall return to these matters later. 45 As to the paragraph of the notices to produce and subpoena requiring drafts of the Part A statement (paragraph 11 of the notices to produce and paragraph 6 of the subpoena), my opinion is that, whether they are open to attack on the ground of irrelevance, they clearly suffer from the deficiencies identified by Sir Frederick Jordan in Small's case and I shall elaborate on this point later. I take the same view with respect to the requirements in the notices to produce concerning reports to the United Kingdom company and its subsidiaries (paragraph 2 of the notices to produce). Clause 20 of s 750 46 The relevant parts of clause 20 deal with disclosure of the offeror's intentions regarding continuation of the business of the target company, any major changes to be made to that business, and the future employment of present employees of the target. The plaintiff's challenge to the adequacy of the disclosure relates to the word 'intention', and I have heard submissions with respect to the scope of that word. The notices to produce proceed upon the theory that 'intentions', for the purposes of clause 20, include contingent intentions and intentions which are subject to further consideration and further review . That theory derives some support for the decision in ICAL Limited v County Natwest Securities Australia Limited (1988) 39 NSWLR 214, 239 where Bryson J said, with respect to an earlier version of the takeover legislation: 'The evidence of Mr Zegna in my view establishes in substance that, testing matters by the test cited from Cunliffe v Goodman, there is an intention to sell significant assets of the plaintiff, no less so because the intention is not complete, unreserved and final and there is room for further consideration of the choice of the particular assets, and the time of sale. There is not a number of alternatives which ought to be disclosed; the actual intention ought to have been disclosed. There was not a simple failure to disclose anything at all in the Pt C Statement; the Pt statement suffers from general obscurity but whatever it does disclose need not be analysed with complete rigour just because it is plain that it does not disclose the intention which I have found existed. In my finding the disposition of many assets of ICAL, including Tulk, at times sufficiently near in the future for the proceeds to have relevance for the arrangement for financing the take-over, was likely, with sufficient likelihood for the disclosure to be material to shareholders of ICAL receiving the Pt C Statements. Even if contingent and subject to further consideration or possible review, these intentions were intentions of the second defendant regarding the continuation of the plaintiff's business and with respect to major changes to be made to the business of the plaintiff.' 47 The scope of s 750 clause 20 was considered more recently in the Savage Resources case. There Hely J said: 'Where disclose is required of intentions, or of a possible course of action under consideration, the disclosure must be specific and clear, and not obscured by the use of vague or indeterminate or ambiguous language. In Gantry (supra) at ACLC p 633; FCR p 560 Sheppard J said: 'In reaching my conclusion I have taken into account the fact that it is particulars which cl 20 requires. I bear in mind also that cl 20(2) uses the word 'specify'. Accordingly, an offeror must do the best it can to be particular and specific about its intentions. Nevertheless the document is dealing with a commercial situation. It is being delivered in the context in which the offeror does not have control of the target company. In those circumstances it is not only reasonable, it is also necessary, for it to express itself in a guarded way. If it does not do this, it runs the risk that statements it makes may, because of their very particularity, be found to have been misleading.' The offeror's intentions have to be disclosed in regard to all possible eventualities. It is not sufficient to disclose what the offeror proposes to do if the offeror is able to ensure that its nominees constitute a majority of the target's board. The offeror should also disclose its intentions in the event that its offer becomes unconditional and insufficient acceptances are received to provide the offeror with board control. Stirling Resources NL v Capital Energy NL (1996) 19 ACSR 701; 14 ACLC 1005 at 1010; Renard & Santamaria, Takeovers and Reconstructions in Australia , p 824.' 48 In the present case, paragraph 18 of the Part A statement purports to satisfy clause 20 by making disclosure which draws a distinction between final decisions and intentions to explore or consider. The notices to produce seek documents evidencing the considerations which have been brought to bear for the purpose of making the disclosure contained in paragraph 18. The relevance of seeking disclosure is, at least in part, that the disclosure may establish that what is said in paragraph 18 of the Part A statement is in some way misleading, having regard to what the evidence in fact shows. It, therefore, seems to me that there is potentially relevant information to be sought with respect to paragraph 18 of the Part A statement and that, by and large, paragraph 1 of the notices to produce seeks that relevant information. 49 I have a concern which arises out of the definition of 'intentions' in the Part A statement, which applies in order to identify the documents which are to be produced pursuant to paragraph 1 of the notices to produce. While Bryson J's judgment in the ICAL case recognises that contingent intentions and intentions subject to further consideration or review may be matters required to be disclosed by clause 20, in my opinion that proposition may not be universally true. A commonsense level of disclosure is to be achieved, as shown by Hely J's judgment in the Savage Resources case and his Honour's own remarks in the Metal Manufacturers case. The concept of intention which arises out of those cases implies, to my mind, that paragraph 1 of the notice to produce and especially, the definition of 'intention', may be expressed too widely. Since, however, my opinion is that the documents sought by paragraph 1 of the notices are, to a substantial degree, relevant to compliance with clause 20 and to the question of misleadingness of the disclosure of intentions, the proper course of action is for the Court to make an order having the effect of limiting the evidence required by paragraph 1 of the notices to documents relevant to the disclosure required by clause 20 of s 750 of the Corporations Law. 50 As to paragraphs 5 to 10 of notices and paragraphs 2 to 5 of the subpoenas, the briefing notes for the meeting with analysts on 3 May 1999 are broadly expressed but a significant number of the propositions contained in the notes relate, or may relate, to intentions of the kinds referred to in clause 20(1)(a) and (b), and even (c). A demand for further evidence relating to the briefing notes, if properly limited to the issues of compliance with clause 20 and misleadingness of disclosure about intentions, would therefore be permissible. To ensure that the further evidence is properly limited to those issues, the paragraphs of the notices and subpoena which relate to the briefing notes should be subject to a limiting order equivalent to the order which I propose for paragraph 1 of the notices. In my opinion, however, paragraphs 9 and 10 are so broadly expressed as to constitute a fishing expedition and should be struck out, for reasons which I shall explain later. Other grounds for challenge: the 'substitute for discovery' and 'fishing grounds' 51 As I have indicated, these grounds remain part of the established law with respect to challenges to subpoenas and notices to produce, even in the context of litigation such as the present. There is a vivid comment on the way in which litigants in takeovers and similar matters may seek to abuse the subpoena procedure in the judgment of Young J in Hooker Investments Pty Ltd v Baring Bros Halkerston & Partners Securities Ltd (1986) 10 ACLR 462 at 468-469. 52 While the mischief which Sir Frederick Jordan's principles seek to avoid is clear, I am not persuaded that this mischief is present with respect to every paragraph of the notices to produce and subpoena. In my opinion, it cannot be said that the material required in paragraph 1 of the notices to produce, if properly related to disclosure of intentions under clause 20 of s 750, should be regarded as an inappropriate substitute for discovery or as a fishing expedition. The material in paragraph 1 refers specifically to sub-paragraphs of the Part A statement and seeks evidence with respect to matters to which the Part A statement expressly refers. The briefing notes which are in evidence supply a reasonable ground for further investigation as to the accuracy of the propositions about intentions in the Part A statement. Although the briefing notes are expressed in quite general terms, they suggest that the offeror's intentions may have reached a more mature state than the Part A statement discloses. If that is so, not only is the material sought in paragraph 1 of the notices relevant to contravention of clause 20 in the sense discussed above, but it may also be relevant to a submission that the Part A statement is in that respect misleading. The ground for apprehension which the briefing notes create may evaporate when the further evidence is obtained. It nevertheless seems to me to be appropriate, and not a fishing expedition, for the notices to seek further evidence of the intentions to which paragraph 18 of the Part A statement refers. 53 That disposes of paragraph 1 of the notices to produce. As I have already indicated, in my opinion paragraph 2 of the notices to produce (relating to reports to the UK parent) is defective because it constitutes 'fishing' in the sense described by Sir Frederick Jordan. There is no statement in paragraph 2 confining its scope to intentions of the kind to which paragraph 1 refers, nor to relate the reports which are sought to any other relevant ground of challenge. The plaintiff appears to be seeking the evidence referred to in paragraph 2 in order to determine, relevantly, whether it has a case rather than to provide evidence for the plaintiff's case as stated. 54 I make the same observations with respect to paragraph 11 of the notices to produce, which is also found in paragraph 6 of the subpoena. It seems to me simply too broad to seek production of all drafts of the Part A statement and to do so is properly classified as 'fishing' in Sir Frederick Jordan's sense. A draft of the Part A statement would not be probative of any material fact or intention unless there was much more material surrounding the document. There is no such evidence here. 55 That leaves me to comment upon paragraphs 5 to 10 of the notice to produce, part of which is found in paragraphs 2 to 5 of the subpoena. As previously explained, my opinion is that evidence with respect to the briefing of 3 May 1999 and preparations for that purpose is relevant to the issues of compliance with clause 20 of s 750 and misleadingness with respect to intentions. Given that relevance, it cannot be said that to seek disclosure of documents, to the extent that they relate to the defendants' intentions, would constitute a fishing expedition or be a substitute for discovery. However, it appears that the notices require evidence going beyond disclosure of material justifiable by reference to clause 20 of s 750. One cannot review and amend the paragraphs under consideration with surgical precision. It seems to me accurate enough to say that paragraphs 5, 6, 7 and 8 of the notices to produce are properly drawn as material relevant to the question of the intentions, not constituting a fishing expedition, but that paragraphs 9 and 10 are far too wide to be justified in that way. In the subpoena paragraphs 2 to 5 are supportable in the same manner as paragraphs 5-8 of the notices. Conclusions 56 It follows in my opinion that: (i) paragraph 1 of the notices to produce survives the defendants' challenge but an order should be made limiting its scope so that the production of evidence under that paragraph is confined to evidence relevant to the disclosure of intentions required by the clause 20 of s 750; (ii) paragraphs 2 and 11 of the notices to produce and paragraph 6 of the subpoena should be struck out on the ground that they would constitute 'fishing'; (iii) paragraphs 3 and 4 should be struck out on the ground that they do not seek the production of documents relevant to any issue likely to be raised in these proceedings; (iv) paragraphs 5, 6, 7 and 8 of the notices to produce and paragraphs 2, 3, 4 and 5 of the subpoena survive the challenge provided they are subject to the same qualification as paragraph 1 of the notices, limiting the scope of production to matters required to be disclosed by clause 20 of s 750; (v) paragraphs 9 and 10 of the notices to produce are couched in terms which are too wide and constitute fishing and should, therefore, be struck out. 57 I am inclined to order that the costs of the application be costs of the proceedings, but I will allow the parties to address me on that question. I shall stand the matter down in today's list to enable the parties to bring in short minutes of orders which will reflect my conclusions. * * * * * * * * * * * * *

AAPT v Cable & Wireless Optus

At a glance

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Before

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Judgment (8 paragraphs)

Parties

Cases Cited (5)

Cited By (2)