Australian Securities & Investments Commission v Yandal Gold

REASONS FOR JUDGMENT 1 In Australian Securities and Investments Commission v Yandal Gold Pty Ltd (1999) 32 ACSR 317; (1999) 17 ACLC 1126 I concluded that there had been breaches of s 615 of the Corporations Law and made declarations and orders ("the trial orders") in relation to a takeover offer made by the first respondent ("Yandal Gold") for all of the shares on issue in Great Central Mines Ltd ("Great Central"), a company listed on the Australian Stock Exchange ("the ASX"). 2 The trial orders included orders (which I will refer to as the "avoidance orders") that shareholders who had accepted Yandal Gold's takeover offer be entitled to withdraw their acceptance of the offer and that shareholders whose shares had been compulsorily acquired by Yandal Gold under s 701(5) of the Corporations Law be entitled to give notice of avoidance of the acquisition. Under the avoidance orders the shareholders who withdrew their acceptances or avoided the compulsory acquisition were required to return the consideration they had received. The other orders provided for shareholders who did not withdraw their acceptances or avoid the compulsory acquisition to share in the distribution, on a pro rata basis, of an additional sum of $28.5 million ("the distribution amount") which I ordered be paid by the third respondent ("Edensor") to the applicant ("ASIC") for payment of that sum to the shareholders. 3 By orders made by consent on 2 July 1999 the trial orders made on 16 June 1999 were stayed pending appeal. An appeal and a subsequent special leave application to the High Court and an appeal to the Full Court of the Federal Court were not finally resolved until recently when the trial orders were upheld: see Edensor Nominees Pty Ltd v Australian Securities and Investment Commission (2002) 190 ALR 516. Since the making of the trial orders the respondents other than Edensor ("the Newmont respondents"), have been the subject of takeovers which have resulted in those respondents becoming subsidiaries in the Newmont group of mining companies. 4 By a Notice of Motion dated 21 October 2002 the Newmont respondents moved the Court for consent orders to vary the trial orders by deleting the avoidance orders. The Newmont respondents relied upon O 35 r 7(2)(f) of the Federal Court Rules 1979 (Cth), which provides that the Court, where it is not exercising its appellate or related jurisdiction: "may if it thinks fit vary or set aside a judgment or order after the order has been entered where: … (f) the party in whose favour the order was made consents." 5 The Newmont respondents claim that the party in whose favour the avoidance orders were made is ASIC and, as ASIC consents to the deletion of those orders, the Court has jurisdiction "if it thinks fit" to delete the orders under O 35 r 7(2)(f). Edensor, which was not a party in whose favour any of the trial orders were made, also consents to deletion of the avoidance orders. As there was no contradictor in respect of the motion I made orders on 1 November 2002 which provided for the appointment of solicitors and counsel to represent Great Central shareholders at the expense of the Newmont respondents. 6 By 1 November 2002 the distribution amount, which included interest, totalled $33,318,520.01. On 1 November 2002 I varied the trial orders to enable that amount to be distributed on a pro rata basis to all of the shareholders who were entitled to receive it under the trial orders. In the result those shareholders, who had received $1.50 for each share in Great Central as a result of their acceptance of the takeover offer, or of the compulsory acquisition, received an additional $0.18 per share. The stay in respect of the avoidance orders has been continued until the determination of the motion of the Newmont respondents. 7 When the motion of the Newmont respondents came on for hearing, senior counsel appearing for Mr Ben Luscombe, the representative of the Great Central shareholders, applied for leave to appear on the motion as amicus curiae. As none of the parties opposed that course the leave was granted. 8 The avoidance orders were as follows: "4. (a) Within one month of the sending of the notice in sub-para (d)(i) each offeree ("the offeree") who has accepted the takeover offer sent by Yandal Gold Pty Ltd on or about 9 February 1999, for the shares held by that offeree in Great Central Mines Ltd, be entitled to withdraw the offeree's acceptance of the offer by giving notice to Yandal Gold Pty Ltd that acceptance of the offer is withdrawn and returning to Yandal Gold Pty Ltd the consideration received by the offeree from Yandal Gold Pty Ltd. (a) Within one month of the sending of the notice in sub-para (d)(ii) each person ("the acquiree") whose shares have been acquired by Yandal Gold Pty Ltd pursuant to s 703(2) of the Corporations Law be entitled to avoid the acquisition by giving notice of avoidance to Yandal Gold Pty Ltd and returning to Yandal Gold Pty Ltd the consideration received by the acquiree from Yandal Gold Pty Ltd. (b) Within one month of the sending of the notice in sub-para (d)(ii) each person whose shares have been compulsorily acquired by Yandal Gold Pty Ltd under s 701(5) of the Corporations Law ("the compulsory acquiree") shall be entitled to avoid the acquisition by giving notice of avoidance and returning to Great Central Mines Ltd the consideration received by the compulsory acquiree. (c) Within 14 days, or such further period as the Court orders, Yandal Gold Pty Ltd send a notice, in a form approved by the Australian Securities and Investments Commission: (i) to each offeree of the offeree's entitlement to withdraw the offeree's acceptance of the takeover offer pursuant to these orders and explaining the basis of and reason for that entitlement and the rights of the offeree under these orders; (ii) to each acquiree and compulsory acquiree of their entitlement to avoid, pursuant to these orders, the acquisition of their shares by Yandal Gold Pty Ltd explaining the basis of and reason for that entitlement and the rights of the acquiree or compulsory acquiree (as the case may be) under these orders; (e) In the event that: (i) an offeree withdraws acceptance of the said takeover offer in accordance with these orders; (ii) an acquiree or a compulsory acquiree avoids an acquisition in accordance with these orders Yandal Gold Pty Ltd shall, within 21 days after receipt of the notice of withdrawal or of the notice of avoidance (as the case may be) and of the consideration, or such further period as the Court orders, take such steps (at its own expense) as are within its power to retransfer the shares to the offeree, the acquiree, the compulsory acquiree (as the case may be) and cause the offeree's the acquiree's or the compulsory acquiree's name to be re-entered on the register of Great Central Mines Ltd as the registered holder of the shares the subject of the withdrawal of acceptance or avoidance. 5. Within 7 days, or such further period as the Court orders, Yandal Gold Pty Ltd send to each person to whom it sent a notice under s 703(1) or s 701(2) of the Corporations Law a further notice, in a form approved by the Australian Securities and Investments Commission, informing that person: (a) of that person's rights under these orders; (b) that these orders do not affect the entitlement of that person to require Yandal Gold Pty Ltd to acquire the person's shares under s 703(2) of the Corporations Law." 9 Prior to the grant of the stay of the avoidance orders on 2 July 1999 it appears that two shareholders had given notice of withdrawal of their acceptances and returned the consideration they had received, and approximately ten shareholders had given notice of avoidance of the compulsory acquisition. It was unnecessary for those shareholders to return any consideration because, at that stage, they had not received any consideration. After the stay orders were made the consideration sent by the two shareholders was returned to them and all shareholders whose shares had been compulsorily acquired, including the ten shareholders, were paid the consideration due and payable to them. 10 Prior to the takeover there were approximately 3,000 shareholders in Great Central. If the trial orders are not varied by the deletion of the avoidance orders an opportunity would have to be afforded to those shareholders to consider the current position and determine whether they wished to exercise the option available to them under the avoidance orders which, if exercised, would require those shareholders to return the consideration of $1.68 they had received in respect of each of their Great Central shares. Normally, there would be no difficulty with that course being followed although, according to ASIC, it is likely that a prospectus would be required in respect of the option available to the shareholders. It is unnecessary to determine whether ASIC's contention is correct as there can be little doubt that the complexity of the current situation is such that shareholders would have to be fully and properly informed of all the circumstances and information relevant to their decision. 11 However, the Newmont respondents claim that it is now apparent that the shares in Great Central are worthless. Consequently, so it is argued, there could be no rational basis upon which any of the shareholders in Great Central could elect to avoid the takeover offers or the compulsory acquisition as to do so would result in them having to repay $1.68 for each Great Central share in order to become a registered holder of a share that is worthless. The Newmont respondents contend that the remedial purposes sought to be achieved by the avoidance orders are no longer achievable and for those orders to still remain operative would create a mischief, which was not only inconsistent with the intent and purpose of the remedial orders but would also result in confusing and misleading shareholders in a manner that may cause them to act to their detriment. Accordingly, the Newmont respondents claim that the appropriate course in the circumstances is for the Court to exercise its discretion under O 35 r 7(2)(f) to delete the avoidance orders from the trial orders made by the Court. ASIC and Edensor support the contentions of the Newmont respondents. 12 Mr Luscombe, who disputes the contentions of the Newmont respondents, claims that ASIC is not a party "in whose favour" the relevant orders were made with the consequence that the Court does not have jurisdiction to set aside or vary those orders under O 35 r 7(2)(f). Mr Luscombe also claims that the Court should not exercise its discretion to delete the avoidance orders as those orders conferred a legal right on Great Central shareholders with which the Court should not interfere. In particular, it was submitted that at the time the trial orders were made it was clear that the shares of Great Central were worth substantially less than the $1.50 that had been offered for them, with the consequence that "nothing appears to have changed since June 1999 except for an assertion that it is now even less economically sensible for shareholders to exercise the right to withdraw". Mr Luscombe filed evidence to the effect that only a small number of Great Central shareholders had been in contact with him but the majority of those who had contacted him expressed a desire to retain the right to elect conferred by the avoidance orders, but required further information before deciding whether to exercise that right. 13 The Newmont respondents adduced a substantial body of evidence, which was not challenged, to establish the changed circumstances upon which they relied. The evidence was to the effect that the value of Great Central, as assessed by independent valuers, had fallen from a mid point of $332.2 million prior to the trial more than three years ago, to a mid-point of negative $597.7 million in August 2002. The fall in value of Great Central, which according to the evidence was not brought about by the conduct of Great Central's business since the takeover, means that shares that were said to have a value under the take-over offer of $1.50 per share now have a value of a negative $1.79 - $2.08 per share. 14 The fall in value of Great Central was said to have occurred for three main reasons. The first was a write down in the value of Great Central's mining assets. The second was a decrease in the value of Great Central's hedge book. The third was an increase in Australian dollar terms in the liability of borrowings under unsecured notes in United States dollars. 15 While there may be some legitimate concerns about the original valuation of Great Central, the evidence presently before the Court establishes that shares in Great Central do not have any value, other than the value they may have as a minority shareholding that would prevent Great Central from being a wholly owned subsidiary within the Newmont group of companies. 16 The Newmont respondents relied on other factors, in addition to the financial detriment that Great Central shareholders would suffer were they to avoid the takeover offers or the compulsory acquisition. Those factors were: · as shares in Great Central are no longer traded on the ASX there is no current market or market price for those shares; · as only a very small number of shareholders might seriously consider exercising their rights under the avoidance orders it is likely that the current trading suspension in respect of Great Central will result in de-listing as Great Central will not be able to satisfy ASX listing requirements; · since June 1999 the statutory scheme for compulsory acquisition has changed so that under the present scheme, which is contained in Pt 6A.2 of the Corporations Act 2001 (Cth) ("the Corporations Act"), a 90 per cent beneficial owner is entitled to compulsorily acquire the minority holdings at "fair value", which the Newmont respondents claim will be nil; · there is likely to be significant delay and significant additional costs associated with the implementation of the avoidance orders, and the delay and costs would be greater if a prospectus is required. 17 ASIC supported the application of the Newmont respondents, claiming that there was a real risk that former shareholders who exercised an entitlement under the avoidance orders to withdraw their acceptances, or avoid the compulsory acquisition, may do so as a result of confusion, inadvertence or mistake. In particular, ASIC expressed the view that if the compulsory takeover provisions were triggered after the withdrawal or avoidance rights were exercised, shareholders who exercised those rights would be likely to suffer significant loss as the fair value of those shares is likely to be assessed at "a nominal amount". 18 The initial question is whether ASIC is a party in whose favour the trial orders were made. The orders comprised three declarations concerning the contraventions that I had concluded had occurred and consequential orders, including remedial orders: · under s 737 of the Corporations Law on the basis that the Court considered those orders to be "just"; and · under s 739 on the basis that the Court considered the orders to be "necessary or desirable to protect the interests of a person affected by the takeover scheme". 19 It is unnecessary for present purposes for me to revisit the reasons for making those orders, other than to observe that the declarations and orders related to the resolution of the one matter and were intended to operate as an integrated set of orders, rather than as severable orders dealing with distinct or separate subject matters. It is in that context that consideration is to be given as to whether the trial orders, including the orders sought to be varied, were made in favour of ASIC. 20 ASIC sought and obtained the trial orders in its own right and not in a representative capacity. In seeking and obtaining the orders ASIC was performing the functions and exercising the powers conferred upon it under the Australian Security and Investments Commission Act 1989 (Cth) ("ASIC Act"). The orders were sought by ASIC in the public interest in pursuance of the objects and the aims set out in s 1 of the ASIC Act. As a regulator charged with responsibility, inter alia, to administer the Corporations Law, when ASIC sought and obtained declarations and orders in pursuance of that function those declarations and orders are properly to be regarded as orders made in ASIC's favour. The fact that ASIC may not receive a financial benefit from those orders does not have the consequence that the orders are not made in its favour. In that regard I do not accept that the words "in whose favour the order was made" are to be treated as synonymous with "for whose benefit the order was made". 21 The anomaly in the position contended for by Mr Luscombe was apparent in his counsel's concession that the declarations were orders made in favour of ASIC but the avoidance orders were not. The avoidance orders were consequential orders flowing from the declaratory relief granted in respect of contraventions of the Corporations Law. The orders, including the "remedial orders" (see s 613(1) of the Corporations Law), were "just and protective of interests of shareholders" in Great Central having regard to the "realities of the situation": see Edensor Nominees Pty Ltd v Australian Securities and Investments Commission (2002) 190 ALR 516 at 536-537. 22 The construction that I would place upon O 35 r 7(2)(f) gives effect to the purpose of the rule as it would ensure that the Court's discretion to vary orders by consent is able to be exercised in order to rectify the unintended operation of certain orders in a manner that is consistent with the inherent jurisdiction of the Court to set aside a judgment by consent of the parties, provided that the setting aside of the judgment would cause no particular injury to a third party. In that regard, in Permanent Trustee Co. (Canberra) Ltd v Stocks & Holdings (Canberra) Pty Ltd (1976) 28 FLR 195 at 201 Brennan J observed: "The better view appears to be that the court has jurisdiction to set aside a regular judgment if the parties to the judgment consent to the court doing so. But it further appears that the court should decline to make the order if a third party would suffer particular injury by the making of the order." 23 Mr Luscombe also relied upon O 37 r 4(1) which provides that, where in any proceeding a person who is not a party obtains an order, or an order is made in favour of a person who is not a party, the person may enforce the order as if that person were a party. It was submitted that that rule supports the construction that the Rules intend that orders made "in favour of a party" are intended to mean "for the benefit of a party". In my view the submission ought to be rejected. Order 37 r 4(1) deals with the subject matter of enforcement, rather than variation, of orders. There may be instances, such as representative proceedings, where it may be said that an order is made for the benefit of a person who is not a party. While such an order may, properly, be described as an order made in favour of that person, it does not follow that the order was not also made in favour of a party or that an order that does not benefit a person in a specific financial or material manner is not an order made in favour of that person. 24 For the above reasons I have concluded that the trial orders, including the avoidance orders, were made in favour of ASIC and that the Court has jurisdiction under O 35 r 7(2)(f) to vary those orders. 25 The Newmont respondents and ASIC also relied upon s 744(10) of the Corporations Law as an additional source of the Court's jurisdiction or power to vary the trial orders. Section 744(10), which has since been repealed, provided: "The Court may rescind, vary or discharge an order made by it under a relevant provision or suspend the operation of such an order." 26 As the trial orders were made under ss 737 and 739 which were relevant provisions (see s 744(1)), s 744(10) operated in respect of those orders. However, whether the repeal of s 744(10) resulted in the sub-section no longer applying to the trial orders is a question of some difficulty. The Newmont respondents and ASIC made submissions, including written submissions, contending that under the transitional provisions in the repealing legislation, and in the Corporations Act, s 744(10) continued to operate in respect of orders made prior to its repeal. Mr Luscombe presented written submissions contending that s 744(10) no longer operated after its repeal. As I have concluded that the Court has the jurisdiction and power to make the orders sought under O 35 r 7(2)(f) it is not necessary to determine whether s 744(10) affords an additional source of jurisdiction and power. 27 On the question of the Court's discretion I accept that usually the Court would act on the basis that Great Central shareholders should be able to decide whether it is in their interests to exercise the rights conferred upon them under the avoidance orders. Further, the Court would usually decline to delete the avoidance orders if the shareholders of Great Central would lose rights by reason of the deletion of those orders. 28 However, there are a number of unusual features in the present case. The evidence establishes that the shares do not appear to have any value, are no longer traded on the ASX and are likely to be de-listed. Under the statutory scheme operating at the date of the trial orders, I conferred an entitlement on Great Central shareholders to avoid the compulsory acquisition of their shares by Yandal Gold that had taken place under the Corporations Law as a result of an unlawful takeover scheme. However, there is now in place a new statutory scheme, which is likely to enable the compulsory acquisition of minority holdings comprising 10 per cent or less of the shares in Great Central. Newmont Mining Corporation ("Newmont") which on 20 February 2002 acquired 90 per cent of Normandy Mining Ltd, now Newmont Australia Limited, (which directly or indirectly holds all of the shares in Great Central) would be entitled to exercise the compulsory acquisition rights under Pt 6A.2 of the Corporations Act. As those rights were required to be exercised within 6 months of Newmont becoming a 90 per cent holder (see s 664AA(b)) they can only be exercised if a modification is granted by ASIC under s 669(1)(b). 29 Any compulsory acquisition is to be assessed at a fair value. Section 667C of the Corporations Act requires that the determination of fair value be based on the value of the company as a whole and provides that no premium is to be allowed or discount applied to any classes of shares after that value has been allocated to the classes of shares. As explained above, the value of the company as a whole appears to be nil. While there is a distinct possibility that Newmont might be willing to pay money to ensure that minority shareholders do not prevent it from having the benefit of 100 per cent ownership of Great Central, the more likely outcome would be for Newmont to apply for a modification under s 669(1)(b) and then compulsorily acquire the minority shareholdings under Pt 6A.2. Those shareholdings will comprise the shares of any shareholders who exercised their rights under the avoidance orders. 30 Although Newmont is presently out of time to compulsorily acquire the shares, the fact that there are currently no minority shareholdings to compulsorily acquire is likely to afford a sound basis for ASIC to modify the relevant time requirements to enable compulsory acquisition. Apart from awaiting these reasons for judgment no other good reason was suggested by ASIC as to why a modification to enable compulsory acquisition might be refused. In that regard it is significant that the right to compulsorily acquire the shares arises under legislation enacted since the contraventions I found had occurred and the proposed acquisition will be by a corporation that was not involved in those contraventions. In those circumstances I do not regard the exercise of a right of compulsory acquisition by Newmont to be inconsistent with the avoidance orders. 31 While there are difficulties in anticipating what is likely to occur in this matter, I am satisfied that the most likely outcome of the exercise by Great Central shareholders of their rights under the avoidance orders will be the repayment by those shareholders of $1.68 for each share, their reinstatement as Great Central shareholders, the grant of the necessary modification by ASIC to enable compulsory acquisition and then compulsory acquisition for fair value which will be no more than a nominal amount. 32 In the past minority shareholders, by what was colloquially referred to as "greenmailing", may have been able to hold out for a higher price by reason only of their minority holding. However, that ability was put forward as one of the reasons for Pt 6A.2, which in its present form would prevent "greenmailing": see Pauls Limited v Dwyer (2001) 19 ACLC 856 at 962-964; Capricorn Diamonds Investments Pty Ltd v Catto (2002) 41 ACSR 376 at 383-385 and 395-396. In the circumstances I do not regard the loss of the opportunity to "greenmail" that will result from the avoidance orders being deleted, as a compelling factor against the Court exercising its discretion to delete those orders. 33 In the above circumstances I am not satisfied that the deletion of the avoidance orders would result in particular injury to any Great Central shareholders or to any other person. Indeed, the Court's refusal to delete those orders might lead some shareholders to conclude that the shares have a value they do not have. 34 Senior counsel for Mr Luscombe contended that the Court should give considerable weight to the desire of a number of shareholders, some of whom hold significant holdings, to retain the right to determine whether to exercise the election conferred upon them under the avoidance orders. It was contended that those persons are unable to make an informed decision on the material presently available and would wish to obtain their own commercial advice in due course when that material is supplemented by additional material. However, the Court is required to determine the present application on its merits on the basis of the evidence before it. That evidence is not challenged and senior counsel representing Mr Luscombe has not been able to point to any area where it is inadequate or deficient. Further, senior counsel for Mr Luscombe was unable to put forward any reasonable hypothesis which would result in Great Central shares regaining their value to an amount that might make it rational for a shareholder to disgorge a $1.68 per share to be reinstated as a Great Central shareholder. In those circumstances the contention that the shareholders need further information to enable them to make their decision is not supported by the evidence. 35 Senior counsel for Mr Luscombe also relied upon the decision of the High Court in Gambotto v WCP Limited (1995) 182 CLR 432 ("Gambotto") at 445-446 to contend that the Court should not make orders which expropriate the rights of minority shareholders because the minority holding is detrimental to the majority shareholders, rather than detrimental to Great Central as a company, to its undertaking or to the conduct of its affairs. However, Gambotto was concerned with the question of proper purpose and oppression in circumstances where the majority shareholders were exercising their power to amend the company's constitution to enable the majority shareholders to expropriate the minority's shareholding. The present case is concerned with the quite different question of whether the Court should vary remedial orders which, having regard to the realities of the situation, have ceased to serve any remedial purpose and will no longer operate in a way that is just and protective of the interests of shareholders. Thus, the analogy sought to be drawn between the present case and Gambotto is misplaced. 36 There is a further reason why the analogy is misplaced. When the remedial orders were made they were made subject to a power to vary those orders under s 744(10) of the Corporations Law. Thus, it was an implicit, if not explicit, part of the statutory scheme at the time that, if remedial orders ceased to serve the purpose for which they were made, they could be varied. That is precisely what has occurred in the present case. While it is correct that s 744(10) has been repealed and there may be a real issue as to whether it has continued to operate under the transitional statutory schemes, there is no reason why the Court, if it has a discretion to vary the avoidance orders under O 35 r 7(2)(f), should not have regard to the fact that when the orders were made they could be varied if they no longer served the purpose for which they were made. 37 Initially, I was concerned that the deletion of the avoidance orders might have the effect of nullifying rights that had accrued, particularly in respect of the shareholders who had exercised their rights under the avoidance orders prior to the stay of those orders. However, as explained above, those rights now appear to have no value and, in any event, were subject to the Court exercising its jurisdiction to vary the avoidance orders. In my view it is not to the point that the jurisdiction or power that is now being exercised to vary the orders is that conferred by O 35 r 7(2)(f), rather than s 744(10). 38 Finally, I also regard it as significant that ASIC, acting as the regulator in the public interest, has strongly supported the variation sought by the Newmont respondents. Having now had an opportunity to consider all of the evidence and the submissions of the parties and of Mr Luscombe, I have concluded that ASIC's reasons for consenting to the orders are sound and that there is no valid or good reason for the Court to decline to exercise its discretion to vary the trial orders in the manner consented to by ASIC.