HID Global Corporation v Keycorp Limited

HID Global Corporation v Keycorp Limited - [2009] FCA 87 - FCA 2009 case summary — Zoe

[6]

FACTS 3 HID is a manufacturer of secure identity solutions and contactless smartcard technology for physical access control, having its international headquarters in Irvine, California, in the United States of America. HID is a wholly owned subsidiary of ASSA ABLOY, a Swedish corporation specialising in door opening security technology. 4 Keycorp is a corporation registered in New South Wales. 5 In or about 19 July 2008 William Edward West III ('Mr West'), the Chief Financial Officer of HID, became aware through a third party namely Mr John Dukellis of Dukellis Capital Advisory, that Keycorp was intending to dispose of its business including its smartcard business. HID wished to acquire only that portion of Keycorp's undertaking. However, Mr West was informed that Keycorp had already entered into an exclusivity arrangement with a prospective purchaser for the whole of the business. 6 Shortly thereafter Mr Dukellis informed Mr West that Keycorp was nevertheless prepared to entertain offers for the purchase of its entire business. Since HID was keen to acquire such business in order to secure the smartcard operations, it was prepared to enter negotiations for the whole of Keycorp's undertaking. Accordingly, Mr West instructed Mr Dukellis to enter negotiations. 7 On 1 August 2008 Mr Dukellis reported to HID that he had discussions with Mr Ken Carr, the Chief Executive Officer ('CEO') of Keycorp. Mr Dukellis was informed by email dated 1 August 2008 from Mr Carr that Keycorp did not wish to proceed with any negotiations. However, Mr Dukellis thereafter had a conversation with Mr West in which Mr West was informed that Mr Carr had told Mr Dukellis that the exclusivity arrangement with the prospective purchaser had lapsed due to some failure by the bidding party to perform, and that in consequence Keycorp was free to discuss the sale of only the smartcard business even though Keycorp was continuing its discussions with the original bidder. 8 On 2 August 2008 a letter was sent by email to Mr Robert Bishop, the Chairman of Keycorp, attaching an expression of interest by HID to purchase the smartcard business for the sum of $33,500,000, subject to conditions. 9 On or about 4 August 2008 Mr West travelled to Sydney accompanied by Mr Dukellis and Mr Tim Moxon, HID's Mergers & Acquisitions Director. On 5 August 2008 they attended a lunch at a Sydney restaurant with Mr Ken Carr and Ms Melissa Letford, Keycorp's general counsel ('the lunch meeting'). Mr West has deposed that in such meeting he raised with Mr Carr the subject of the exclusivity arrangement which had been referred to in the email from Keycorp dated 1 August 2008. Mr West alleges he said to Mr Carr: I thought that the exclusivity had lapsed. I don't want to start doing due diligence and developing a bid if Keycorp is still required to give another party exclusivity.

[16]

21 Based upon such evidence Keycorp submits that the Court could not be satisfied that HID has reasonable cause to believe that it has or may have the right to obtain relief in the Court; that even if it were accepted that the alleged representation by Mr Carr was made, there is uncertainty whether any reliance was place upon such statement; and that HID had determined to commence its due diligence operation before the conversation at the lunch meeting, at such time when the existence of the exclusivity arrangement and negotiations between Keycorp and Gemalto was known and the effect of which was uncertain. 22 Keycorp relies upon the fact that any reimbursement of costs and expenses for conducting the due diligence and negotiations was the subject of specific provisions in the letter from HID to Keycorp of 2 August 2008, the draft offer of 19 August 2008, the revised draft offer of 20 August 2008 and the offer of 21 August 2008. In such letters it was made plain that such costs would be reimbursed by Keycorp only if the draft offer by HID was accepted. Accordingly, Keycorp submits that HID pursued a course knowing that it risked incurring its own costs if it were the unsuccessful bidder. 23 Keycorp relies upon its letter of 4 August 2008 to HID which confirmed that it had an exclusivity arrangement with the other potential purchaser and its conduct in repeatedly rejecting the draft offers made by HID was wholly consistent with its stated attitude towards HID's offers. 24 Keycorp submits that HID was aware at all times that it was at risk of being the unsuccessful bidder for the smartcard business as both HID and Keycorp were clearly in the stage of preliminary negotiations. Keycorp submits that despite the early stage of negotiations, HID was attempting to secure exclusivity for itself in the knowledge that an exclusivity arrangement with Gemalto had already been entered into. For the above reasons, it is submitted that the Court should not accept Mr West's statement that the exclusivity arrangements had lapsed.

[17]

Is there reasonable cause to believe? 25 In ascertaining whether there is reasonable cause to believe that the necessary elements exist for a cause of action, the Court must determine that there is at least a reasonable cause 'to believe that each of the elements of the relevant cause of action might be established': see Middleton J in Dartberg Pty Limited v Wealthcare Financial Planning Pty Ltd and Another (2007) 164 FCR 450 at [44]. 26 Such test is objective. There is no requirement that every element of the potential cause of action in fact exists but rather that there may be entitlement to relief: see Hooper Hooper and Others v Kirella Pty Ltd; Transfield Pty Ltd v Airservices Australia (1999) 96 FCR 1 at [39]; Malouf v Malouf [1999] FCA 710 at [16]; Quanta Software International Pty Ltd v Computer Management Services Pty Ltd (2000) 175 ALR 536 at [24]; Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 391; St George Bank Ltd v Rabo Australia Ltd and Another (2004) 211 ALR 147 at [26]; Leighton Contractors Pty Ltd v Page Kirkland Management Pty Ltd [2006] FCA 288 at [5]. 27 The foreshadowed cause of action under the Trade Practices Act is largely predicated upon the alleged conversation which took place during the lunch meeting in which Mr Carr is said to have stated that exclusivity in relation to the potential purchaser no longer existed. 28 The Court has taken into consideration the fact that such conversation is challenged and that such statement is inconsistent with the documentation and with Keycorp's refusal to accept any of the offers for the purchase by HID of Keycorp's smartcard business. However, there is some evidence to suggest that Keycorp may have been willing to negotiate with HID. The draft letter, having indicated that negotiations were 'well down the path' with the other party which had exclusivity, then invited HID to undertake a week of due diligence. The draft letter stated: We would be willing to offer you a one week due diligence period (which could start almost immediately). Within a further 5 business days, you must confirm your price, the amount of the hold back and the period of such hold back. That price must be final, with the only variation being in the nature of ordinary working capital adjustments as at Closing. Given the stage of our existing negotiations, we would only consider an offer that included a non refundable deposit of 10% of the proposed purchase price, to ensure that we are not disadvantaged over and above our present strategy.

[24]

43 In Alphapharm, Lindgren J at [50] said that it was not adequate that a party 'hopes to be comforted in taking the decision which it already has sufficient information to enable it to take'. 44 If an exclusivity agreement in writing between Keycorp and Gemalto exists, it may contain details concerning the date or events causing its expiry. Accordingly, the existence of any such agreement would be a significant matter to HID in its determination of whether it should commence the foreshadowed litigation. Further, any correspondence between Keycorp and Gemalto which might indicate that Keycorp treats the exclusivity agreement to be at an end could also be of significance for such purpose. Any written memorandum or record, for example of a telephone conversation, between Keycorp and Gemalto relating to the termination of such exclusivity agreement in the relevant period, namely between 4 August 2008 and 25 August 2008, would serve the same purpose. 45 The Court does not regard the claim for preliminary discovery as being one designed to strengthen or enhance the decision to commence proceedings. No such decision has yet been made, although HID has grounds for believing that it may be entitled to make a claim under the Trade Practices Act and possibly under promissory estoppel. The documents are sought for the purpose of providing sufficient information to enable a decision whether to make a claim. In this respect, any documents of the kind referred to in subparagraph 1(d) of the Application could be relevant. 46 The Court is satisfied that HID does not have sufficient information to institute proceedings. The present circumstances are accordingly different to those considered by Lindgren J in Alphafarm. 47 For the above reasons, the Court grants the application for preliminary discovery, in respect of the documents referred to in paragraphs 1(a), (b), (c) and (d) of the application. I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cowdroy.

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