ACN 116 149 092 Pty Ltd v Coopers Brewery Ltd

Background 2 This particular proceeding was one of a number instigated by Lion Nathan Australia Pty Ltd and its sympathisers in the context of Lion Nathan Australia's ultimately unsuccessful attempt to take over Coopers. 3 Though not itself a shareholder of Coopers, Lion Nathan Australia had, under Cooper's Articles of Association a third ranking pre-emptive right to Coopers' shares offered for sale. The relevant provisions in the articles, though, were revocable by virtue of Coopers' memorandum if there was a "change in control" of Lion Nathan Australia. A "change in control" was defined to be any acquisition of a relevant interest in 40 per cent of Lion Nathan Australia's shares. The articles further precluded a member from being interested in any business in competition with Coopers or from continuing to be a member if so interested, though it exempted Lion Nathan Australia and its related bodies corporate from this: Art 143. Finally, the articles permitted the transfer of shares by members to a "member's relative" without activating the pre-emptive rights regime that otherwise applied to share transfers: Art 53. 4 In April 1998, Kirin Brewery acquired approximately a 45 per cent interest of the issued share capital of Lion Nathan Ltd. In March 2002, Coopers filed a summons in the Supreme Court of South Australia seeking a declaration that the effect of the acquisition operated as a "change in control" within the meaning of cl 8 of its Memorandum of Association and Article 44 of its articles. On 1 September 2005 Lion Nathan Australia announced its intended takeover bid of Coopers. On 2 September 2005, Perry ACJ determined that there had been a change in control, a decision upheld by the Full Court of the Supreme Court in October 2005. 5 On 6 September 2005, following Perry ACJ's decision (but prior to the appeal), ACN was registered in New South Wales. Its issued share capital consists of two ordinary shares held by a trustee company. The shares in the trustee company are held by Lion Nathan Ltd. On 16 September 2005 ACN entered into an agreement with a Coopers' shareholder, Mr Barry Schrapel, for the sale to it of some 500 Coopers shares. The agreement allowed (i) for Mr Schrapel to retain his voting rights with respect to the company and (ii) for his transfer to be effected under Article 53 of Coopers' Articles. 6 Coopers' directors refused to register the transfer. Armed with the favourable decision of Perry ACJ, on 21 September 2005 they gave notice of an extraordinary general meeting on 20 October 2005 to consider and approve an amendment to Coopers' constitution removing Lion Nathan Australia's pre-emptive and other rights. 7 On 27 September 2005 ACN commenced proceedings in the Victorian Registry of the Federal Court claiming it was entitled to be registered as a transferee of the 500 shares in Coopers from Mr Schrapel on the basis that it was a "members relative" of Mr Schrapel. It sought orders under the Corporations Act 2001 (Cth) that the transfer be registered and the register of members of Coopers be corrected. 8 At the time of commencing these proceedings, the plaintiff sought an interlocutory injunction preventing the proposed EGM from going ahead. That injunction was heard in conjunction with a similar application filed by Lion Nathan Australia in action no VID 1196 of 2005. For reasons not presently relevant, the injunction in VID 1196 of 2005 was granted but was later discharged on 18 November 2005 by Goldberg J. The interlocutory relief in this proceeding was refused. The matter was then transferred to the Adelaide Registry. 9 On 15 November 2005 Lion Nathan filed an application for special leave to appeal to the High Court of Australia from the decision of the Full Court of the Supreme Court of South Australia. 10 In late November, during a case management conference concerning two other Lion Nathan proceedings (SAD 255 of 2005 and SAD 140 of 2005), it was agreed that this proceeding would go to trial in December. The matter had been timetabled for trial in mid-October before Goldberg J. At the conclusion of the hearing in SAD 140 of 2005 counsel for the plaintiff sought an adjournment of the ACN proceedings stating that the matter would not be ready to be heard by December 2005. Ultimately, that adjournment was unopposed and the matter was not then listed for directions until 19 May 2006, during which time the parties were engaging in discussions regarding settlement options. 11 On 14 December 2005, the extraordinary general meeting was held and Coopers' shareholders voted in favour of the proposed resolution to amend the Coopers articles. Those amendments were duly made, so removing Lion Nathan's pre-emptive rights and preventing it from being able to purchase or to be a holder of Coopers shares. 12 On 19 May 2006 ACN sought a further adjournment until after 2 June 2006 the date listed for the special leave application in the High Court. At that time it was submitted by the plaintiff's counsel that if Lion Nathan's application for special leave failed, the commercial inutility of its claim would be permanent. Following the High Court's decision dismissing the special leave application, ACN filed the present motion.

The motion 13 Where leave to discontinue is sought, the Court normally will grant leave provided no injustice will be caused to the respondent/defendant: Covell Matthews & Partners v French Wools Ltd [1977] 1 WLR 876 at 879. As I earlier noted, Coopers does not oppose the grant of leave. It simply contests ACN's claim that no order be made as to costs. 14 The basis of ACN's no costs contention is that, in commencing the proceeding, it has acted reasonably and that its conduct has continued to be reasonable until the further prosecution of the litigation became futile. That futility, it is said, is evidenced by the amendments to Coopers' articles removing Lion Nathan's pre-emptive and exemption rights. In support of this, counsel relies on the observations of McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 143 ALR 1 to the effect that where further prosecution of proceedings becomes futile, the questions for the court are (i) whether one side or the other was almost certain to succeed or (ii) whether there had been some unreasonableness in the behaviour of one of the parties. 15 In contrast, Coopers contends that the facts demonstrate that ACN went into the litigation with knowledge of the real risk that the amendment to the articles would take place should the EGM proceed. As such, the plaintiff cannot now rely on the realisation of that risk (which has had the effect of ending the litigation) to avoid a costs order. 16 Order 22 of the Federal Court Rules, insofar as presently relevant, provides: "2 Discontinuance - Form 29 (1) Subject to subrules 2 and 3 a party making a claim for relief may discontinue a proceeding so far as concerns the whole or any part of any claim for relief, by notice in accordance with Form 29: (a) at any time before the directions hearing appointed in the application - without the leave of the Court or the consent of any other party; (b) where after the directions hearing the proceeding continues on pleadings but the pleadings are not closed - without the leave of the Court or the consent of any other party; (c) where judgment has not been entered - with the consent of all the parties; and (d) at any time - with the leave of the Court. … 3 Costs (1) A party who discontinues pursuant to paragraph 2 (1) (a) or (b) shall be liable to pay the costs of the other party or parties occasioned by the whole or the relevant part of the proceeding. (2) A party who discontinues under paragraph 2 (1) (c) is liable to pay the costs of the other party or parties occasioned by the whole or the relevant part of the proceeding, unless the terms of the consent provide otherwise." 17 Order 62 r 26(1) in turn provides: "(1) Where pursuant to Order 22, rule 2 a party to any proceeding discontinues the proceeding without leave as to the whole or any part of the relief claimed by him against any other party, the discontinuing party shall, unless the Court otherwise orders, pay the costs of the party against whom the discontinued claim is made occasioned by the discontinued claim and incurred before service of notice of the discontinuance."

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