Metals Exploration Ltd v Samic Ltd

High Court of Australia|1993-08-17|Before: McHugh JJ, Debelle J

High Court of Australia Mason C.J. Deane, Toohey, Gaudron and McHugh JJ. Metals Exploration Ltd v Samic Ltd [1994] HCA 38

ORDER Appeal allowed. Set aside orders 1, 2, 3, 4, 5, 6, 7, 8 and 14 made by the Full Court of the Supreme Court of South Australia on 17 August 1993. Remit the matter to the Full Court of the Supreme Court of South Australia for reconsideration of the appropriate order to be made under s. 739, and of the appropriate order for costs in that Court. The respondent to pay the costs of the appellant of the appeal in this Court.

This appeal raises an important question concerning the operation of the takeover provisions of the Corporations Law ("the Law"). The appellant, Metals Exploration Ltd. ("M.E.X."), and the respondent, Samic Ltd. ("Samic"), a cash-box company, are both companies listed on the Australian Stock Exchange Ltd. ("the A.S.X."). On 13 April 1993, M.E.X. owned 11.58 per cent of the fully paid ordinary shares in Samic. On 14 April, M.E.X. purchased 1,292,000 shares from Harvest Corporation Pty Ltd and 28,000 shares from Mr. S. T. Hartley who had a substantial interest in Harvest Corporation. The price was 45 cents per share. The shares were purchased by means of a "crossing" made by a firm of stockbrokers, Day Cutten Ltd., who acted for the vendors as well as M.E.X. on the purchase and for M.E.X. in connexion with the takeover. The purchases took M.E.X.'s holding in Samic to 19.88 per cent of its capital, just under the maximum permitted by s. 615 of the Law without complying with the takeover provisions.

On the following day, 15 April, M.E.X., through Day Cutten Ltd., made an announcement on the floor of the Stock Exchange at Adelaide that it offered to acquire all the fully paid ordinary shares of Samic at a cash price of 45 cents per share or such higher price at which the shares were traded on the Stock Exchange. The form of that announcement is set out in a letter dated 15 April 1993 from Day Cutten Ltd. to the Manager Companies, A.S.X., Adelaide. The announcement consisted of seven numbered paragraphs and concluded by providing certain information evidently prescribed by the Business Rules of the A.S.X. Paragraphs 1 and 3-7 inclusive dealt with matters relevant to the statutory provisions relating to the making of a takeover announcement. Paragraph 2 was in these terms:

During the period commencing on the day this announcement is made and ending immediately before the commencement of the period during which the offers constituted by this announcement remain open, M.E.X. will acquire at a cash price of 45 cents per Samic Share (or such higher price as is provided by section 677 of the Corporations Law), every Samic Share offered to Day Cutten in the ordinary course of trading at official meetings of Australian Stock Exchange Limited.

On the same day, 15 April, M.E.X. served on Samic, the A.S.X. and the Australian Securities Commission ("the A.S.C."), a Pt C statement as required by s. 679 of the Law. On the same day, M.E.X. purchased a further 1,337,400 shares by means of a "crossing" through the same stockbrokers. These purchases were made on the footing that they came within par. 2 of the announcement.

On 28 April, Samic obtained an ex parte injunction restraining M.E.X. from acquiring further shares in Samic. The primary judge (Debelle J.), after a trial in the Supreme Court of South Australia, gave judgment for Samic declaring that the Pt C statement did not comply with s. 750. His Honour regarded the departures from the requirements of that section as serious and refused to excuse non-compliance under s. 743. He restrained M.E.X. from acquiring pursuant to the announcement any shares in Samic in addition to those acquired by it prior to 28 April on the terms of the Pt C statement of 15 April. His Honour granted liberty to M.E.X. to lodge and serve a new Pt C statement and refused a claim by Samic that M.E.X. be required to divest itself of the shares it held in Samic in excess of 19.90 per cent. Debelle J. also declared that a document entitled "Amended Change in Interests of Substantial Shareholder under Sub-section 710(1)" served on the Adelaide Stock Exchange by M.E.X. was incorrect in so far as it claimed that M.E.X. and associated companies were entitled to 52.78 per cent of the voting shares in Samic. That aspect of the case is no longer in issue and forms no part of this appeal. Debelle J. also granted a stay of the order granting liberty to M.E.X. to serve a new Pt C statement pending determination of the appeal and made another order restraining Samic until further order from entering into certain commitments and from dealing with any asset or assets exceeding in the aggregate $250,000 and from engaging in any activity outside the ordinary course of business.

Samic appealed to the Full Court of the Supreme Court against the refusal to order divestiture and the order restraining it from entering into certain transactions. M.E.X. cross-appealed to the Full Court against the declaration that the Pt C statement did not comply with s. 750 and against the stay of the order granting liberty to serve a new Pt C statement. The Full Court (King C.J. and Olsson J., Cox J. dissenting) allowed Samic's appeal, ordered that all shares acquired by M.E.X. in Samic on and after 15 April 1993 be vested in the A.S.C. and made certain consequential orders [1] . The Full Court also directed the A.S.C. to hold the shares and use its best endeavours to dispose of the shares with a view to obtaining the best available price within six months of the date of the order or such longer time as may be ordered by a Master, subject to a restraint against selling to M.E.X. or Brierley Investments Ltd. or any of their associates or to Guinness Peat Group plc except if one of those three named companies becomes entitled to not less than 50 per cent of the shares in Samic pursuant to a valid takeover offer or a valid announcement. Samic's appeal against the injunction granted against it was dismissed. M.E.X.'s cross-appeal was dismissed as was its appeal against the stay order and injunction.

The Full Court was unanimous in concluding that the Pt C statement did not comply with s. 750 and that no ground of excuse for non-compliance was made out. King C.J. held that the defects in the Pt C statement meant that there was no valid takeover announcement. On this view, s. 620(2) did not protect M.E.X.'s acquisition of shares in Samic beyond the 20 per cent limit. Section 620(2) provides that "where a takeover announcement is made", if shares are bought in the ordinary course of trading, s. 615, which imposes the 20 per cent limit, does not apply. Cox J. agreed with King C.J.'s approach. Olsson J. expressed no view upon the point.

King C.J. went on to hold that the consequence of the approach which he took was that the power to order divestiture arising under s. 737 as well as that arising under s. 739 was available. His Honour, after noting that the power conferred by s. 737 was wider than that conferred by s. 739, considered that "both the public interest in securing compliance with the policy of the Corporations Law [s. 737] and the interests of persons affected by the takeover [s. 739], require divestiture of the shares which M.E.X. was not entitled to acquire" [2] . However, Cox J. declined to depart from the primary judge's exercise of discretion to refuse divestiture. His Honour considered that it was reasonable to conclude, as the primary judge found, that the vendors of the large parcels of Samic shares that M.E.X. bought on 14 and 15 April had decided to sell their shares before the takeover announcement was made, so that those sales were unaffected by the misleading contents of the Pt C statement. His Honour also considered that a divestiture order would operate as a disproportionate penalty to M.E.X. and as a substantial and undeserved windfall to its opponents.

On the other hand, Olsson J. went further. His Honour held that not only was the contravention of s. 750 deliberate but also that the acquisition by M.E.X. of Samic shares on 15 April was not "in the ordinary course of trading on the stock market of [the] stock exchange" for the purposes of s. 620(2). In his Honour's view, an order for divestiture would serve the purpose of ensuring that M.E.X. did not gain an unfair advantage by means of its contravention of the Corporations Law.

Olsson J.'s conclusion that the acquisition of Samic shares on 15 April was not in the ordinary course of trading on the stock market was explicitly rejected by King C.J., with whom Cox J. agreed on this point, on the ground that it was not available to Samic. King C.J. said [3] :

In my opinion, however, this point is not open to Samic on this appeal. It was not pleaded and was put forward at trial only in counsel's final address. This occurred apparently because the relevant facts became known to counsel only during the trial when the sharebroker's file was finally produced in response to a subpoena. Nevertheless counsel did not press the point by requiring the recall of relevant witnesses for cross-examination on the point. The learned judge noted in his reasons for judgment that the "submission was not pursued". It appears that it was not made a live issue so as to alert M.E.X.'s counsel to the need to combat it, if necessary by calling evidence. In this Court, no argument was presented to support Olsson J.'s conclusion on this point. 1. ibid., at p. 306.

M.E.X. appeals to this Court on three principal grounds: (a) that the Full Court was wrong in holding that non-compliance with s. 750 by inadequate disclosure in the Pt C statement rendered the acquisition of shares, which would have otherwise fallen within the exception created by s. 620(2), in contravention of s. 615; (b) that the Full Court erred in holding that the discretions under s. 737 were available to be exercised; and (c) that the majority in the Full Court erred in exercising the discretions under ss. 737 and 739 in such a way as to punish M.E.X. rather than to remedy the failure of the Pt C statement to comply with s. 750.

The central provision in Ch. 6 of the Law, which sets out the regime governing the acquisition of shares, is s. 615. That section provides, so far as it is presently material, that a person shall not acquire shares in a company if any person who: (i) is not entitled to any voting shares in the company; or (ii) is entitled to less than the prescribed percentage of the voting shares in the company would, immediately after the acquisition, be entitled to more than the prescribed percentage of the voting shares in the company.

There are certain exceptions to that prohibition. It does not apply in relation to an acquisition of shares as a result of the acceptance of an offer to acquire those shares made under a takeover scheme (s. 616). The expression "takeover scheme" is defined by s. 603. A takeover scheme is one whereby a company intending to acquire shares in a target company proposes to make an offer to shareholders in the target company to acquire their shares. Such an offer cannot be made unless the offeror gives notice of its intention to do so to the target company in the form of a Pt A statement complying with s. 750 and allows the prescribed time to elapse. A takeover scheme is to be distinguished from a takeover announcement.

The present case is concerned with the provisions relating to a takeover announcement which is the subject of the second exception to the prohibition contained in s. 615. That prohibition does not apply in relation to an acquisition of shares in a listed company as a result of the acceptance of an offer to acquire those shares made under a takeover announcement (s. 617). The expression "takeover announcement" is defined by s. 603 to mean:

an announcement that relates to shares in a listed company and is made in accordance with Division 1 of Part 6.4. Section 674 in Div. 1 of Pt 6.4 regulates the making of a takeover announcement. Sub-section (1) provides: Subject to this Division, a person, or 2 or more persons together, may make offers to acquire shares in a class of shares in a listed company by causing an appropriate dealer to make on behalf of that person or those persons at a relevant official meeting an announcement to the effect that, during the period of one month beginning on the first trading day of the company's home stock exchange after the end of 14 days after the day of the announcement, the dealer offers, on behalf of that person or those persons, to acquire, at a cash price per share specified in the announcement, all shares in that class in respect of which offers made by the announcement are accepted in accordance with section 675. Offers made by a takeover announcement by a dealer in accordance with s. 674(1) may be accepted at a relevant official meeting of a stock exchange (s. 675). Offers so made remain open for one month (s. 678), subject to other provisions of the Law.

The Law makes provision for the continuation of trading in the ordinary course of business on the stock exchange of shares in a target company while a takeover scheme or takeover announcement is in operation. Section 620(1) makes provision for such trading in the case of a scheme while s. 620(2) makes provision in the case of an announcement. Section 620(2) provides:

Where a takeover announcement is made in respect of a class of shares in a company, section 615 does not prohibit the acquisition during the takeover period by the offeror of shares in that class at an official meeting of a stock exchange in the ordinary course of trading on the stock market of that stock exchange. The expression "takeover period" is defined to mean, in relation to a takeover announcement (s. 603): the period:

The expression "offer period" is defined to mean (s. 603): the period during which offers made under a takeover scheme or under a takeover announcement remain open and, in relation to an offer that has been accepted, the period during which the offer would have remained open if it had not been accepted. Paragraph 2 of M.E.X.'s announcement expresses M.E.X.'s intention to take advantage of s. 620(2) but only during that part of the takeover period that precedes the offer period.

By reason of the provisions of s. 674(1), the period during which offers made under a takeover announcement remain open is "the period of one month beginning on the first trading day of the company's home stock exchange after the end of 14 days after the day of the announcement". Hence there is a difference between the offer period and the takeover period. The latter begins immediately upon the making of the announcement.

For the purposes of this Chapter, offers to acquire shares in a listed company are made under a takeover announcement if, and only if:

(a) the offers are made in accordance with this Division; and

(b) the requirements of this Division that apply to the person on whose behalf the offers are made are complied with.

The language of s. 673(a) is the same as that used in the definition of "takeover announcement".

The obligation to serve a Pt C statement is imposed by s. 679(1). That sub-section provides that an offeror who makes offers by a takeover announcement in accordance with s. 674(1) shall, on the day on which the announcement is made, serve on the target company a Pt C statement relating to the offers, serve a copy of the statement on the target company's home stock exchange, lodge a copy of the statement and, before the end of fourteen days after the day on which the announcement is made, send a copy of the statement to each holder of shares in the class to which the announcement relates. Section 750, Pt C prescribes the contents of the Pt C statement.

Does the validity of a takeover announcement depend upon the compliance of the Pt C statement with the requirements of s. 750?

Although the heading of Pt 6.4 is " Takeover Announcements ", the provisions of the Part refer variously to "takeover announcement" [4] and "announcement" [5] . Samic submits that the difference in usage is to be explained by the circumstance that an announcement does not become a takeover announcement until the Pt C statement has been served on the target company pursuant to s. 679. The submission does not provide an adequate basis for explaining the difference in usage. For example, s. 675 which deals with acceptance of offers made by a takeover announcement, refers to "announcement" not "takeover announcement" as one might have expected.

ss. 673, 677, 681; see also in Pt 6.1, s. 613; in Pt 6.2, s. 620; and in Pt 6.10, ss. 739, 740, 750. 2. ss. 674, 675, 676, 678, 679, 680.

The definition of "takeover announcement" is in terms of "an announcement made in accordance with" Div. 1 of Pt 6.4. The terms of that definition naturally refer to s. 674 and perhaps to s. 676 which regulate the manner of making and the contents of such an announcement. It is possible that the references to an announcement in Div. 1 of Pt 6.4 are to be explained by reference to the fact that the announcement or the offers which it makes might be varied [6] . But there is no reason to pursue this question.

The statutory provisions appear to proceed upon the footing that the offers to acquire shares are constituted by the making of an announcement which complies with s. 674. Thus, the heading to Div. 1 of Pt 6.4 is "Offers constituted by announcement", an idea which is reflected in the language of ss. 674(1) and 678 which refers to "offers made by an announcement in accordance with subsection 674(1)". Again, s. 679(1) speaks of an offeror who makes offers by an announcement "in accordance with subsection 674(1)". The same language appears in s. 680 and similar language is to be found in s. 681. On the other hand, there are references to "offers made under a takeover announcement" [7] . It is difficult to account for these variations in expression. It does not seem to us that they reflect different conceptions which assist the analysis of the question now under consideration.

See the definition of offer period: ss. 603, 673, 681(3).

The definition of takeover announcement in terms of an announcement made in accordance with Div. 1 of Pt 6.4, along with the provision in s. 673(a) that offers to acquire shares under a takeover announcement are made only if "the offers are made in accordance with this Division", that is, Div. 1 of Pt 6.4, supports M.E.X.'s argument that an announcement is valid if it complies with s. 674 and perhaps s. 676. That proposition is reinforced by the more frequent references already mentioned to "an announcement in accordance with sub-s. 674(1)". Those references suggest that an announcement that complies with that sub-section answers the definition of a takeover announcement.

Samic seeks to counter this approach by arguing that the language of s. 673 is apt to require compliance with s. 679 as well, thereby making compliance with that provision, which calls for service of a Pt C statement satisfying s. 750, essential to the making of a takeover announcement. The weakness in this argument is that s. 673(b) does not make compliance with s. 679 and the requirements of s. 750 with respect to a Pt C statement essential to the making of a takeover announcement. Instead, s. 673(b) makes that compliance essential to the making of offers under a takeover announcement. Section 673(b) provides that an offer is made under a takeover announcement only if "the requirements of this Division that apply to the person on whose behalf the offers are made are complied with". The provisions of s. 679(1) precisely answer the description in s. 673(b). Section 679(1) begins with the words:

An offeror who makes offers by an announcement in accordance with subsection 674(1) shall:

and there follow the requirements for service and lodgment of the Pt C statement. In this situation, there is no justification for reading s. 673(a) in such a way as to pick up s. 679.

Samic then argues that the opening words of s. 674(1), "[s]ubject to this Division", import compliance with the requirements of the entire Division including s. 679(1). The words in question are apt to pick up ss. 676 and 681, the two sections dealing with the terms of the offer. Section 676 regulates the price of the offer and s. 681 permits variation of the offer. The words are not appropriate to pick up a requirement to take action consequent upon the making of an announcement, the more so in light of the distinction made by s. 673(a) and (b).

Samic contends that s. 620(2) cannot protect the acquisition of shares during the takeover period at an official meeting of a stock exchange in the ordinary course of trading unless the acquisition is preceded by, or contemporaneous with, the service of a Pt C statement. As a matter of language, the Law does not support this construction. On the face of the Law, although an offeror must lodge a Pt C statement on the same day as the takeover announcement is made, there is no requirement that the Pt C statement be lodged at the same time as the announcement is made. That was also the position under the relevant provisions of the Companies (Acquisition of Shares) (New South Wales) Code which were forerunners of the provisions now under consideration. Under that legislation, there was a prohibition corresponding to the present s. 615 (s. 11(1)). There was a qualification corresponding to s. 620 to the effect that the prohibition did not preclude the acquisition of shares in the ordinary course of trading on the stock exchange during the period commencing when a takeover announcement is made and ending at the expiration of the offer period (s. 13(3)). There was also a requirement that the offeror serve a Pt C statement on the target company "[o]n the day on which the announcement is made" (s. 17(10)).

In ICAL Ltd. v County Natwest Securities Australia Ltd. [8] , Bryson J. pointed out that there was:

a possibility that there may be an interval of time on the day of the announcement between making the announcement and serving the Pt C statement, and that interval is within the period commencing when the takeover announcement is made referred to in para. 13(3)(b) as the period during which s. 11 does not prohibit the acquisition of shares.

There is no explicit address in the legislation to the possibility, which of course is very real, that there might be changes in material facts in the course of the day on which the announcement is made, and in particular during the period between the making of the announcement and the service of the Pt C statement on the target company.

Bryson J. went on to say [9] : In the relevant provisions of the Code the only reference to the time at which the Pt C statement must be served refers to the day of the announcement. In the ordinary and natural meaning of words this means that it may be served at any time on that day, before or after the announcement, without there being any non-compliance with the Code. Notwithstanding his Honour's clear exposition of the effect of the relevant provisions of the Companies (Acquisition of Shares) (New South Wales) Code, the corresponding provisions of the Law do not purport to resolve the problem which his Honour exposed. 1. (1988) 13 A.C.L.R. 129, at pp. 152-153; 6 A.C.L.C. 467, at p. 490. 2. ibid., at p. 153; p. 490.

In order to support the construction for which it contends, Samic points to the policy considerations set out in s. 731, especially that the acquisition of shares in companies should take place "in an efficient, competitive and informed market", and that, in conformity with s. 731(d), all shareholders should have an equal opportunity to participate in any benefits accruing to shareholders. These considerations are important when a shareholder is seeking to move beyond the statutory threshold of 20 per cent fixed by s. 615. The suggestion is that, unless Samic's construction is accepted, trading will be permitted by s. 620(2) at a time when there is not an informed market. That may be acknowledged. But Samic's construction does not overcome the absence of an informed market. Generally speaking, there will be an uninformed market until the contents of the Pt C statement served on the target company and the stock exchange become known. The offeror is not obliged to serve on shareholders a copy of the Pt C statement before the end of fourteen days after the day on which the announcement is made (s. 679(1)(b)). In the meantime, anyone who sells on the market does so without having received Pt C and Pt D statements, though in some instances the seller may have the benefit of publicity attending the service of a copy of the Pt C statement on the target company or the stock exchange.

Neither the construction advocated by Samic nor that advocated by M.E.X. will avoid anomalies. If the M.E.X. argument be accepted, then the offeror will be enabled to travel beyond the 20 per cent limit by acquiring shares on the market on the day of the announcement before a Pt C statement is served. Indeed, subject to the exercise of powers under s. 739, the offeror will be able to acquire shares throughout the takeover period, without serving such a statement at all. And a competitor of the offeror who is minded to make a competing offer will be inhibited from making such a bid until the Pt C statement becomes available. In that respect, the offeror enjoys an advantage over any potential rival.

On the other hand, if the Samic argument be accepted, the application of s. 686(2) can cause difficulties. The prohibition which it imposes against disposal of shares during the takeover period by an offeror who has made a takeover announcement is relaxed if another person has caused a takeover announcement to be made. It would seem curious if the first offeror could not sell shares immediately the competing bidder had made its offer but had to wait until the rival's Pt C statement was served. More importantly, s. 739 presents a formidable obstacle to acceptance of the Samic argument. Relevantly, the section confers power to make an order where (a) "a takeover announcement has been made" and "(c) the Court is satisfied that a provision of this Chapter has been contravened". Paragraph (c) clearly contemplates a contravention of the obligation to serve a Pt C statement, yet that contravention is not inconsistent with an announcement in accordance with s. 674 being a takeover announcement.

In the ultimate analysis, the question falls to be decided by reference to the statutory language used, particularly in s. 620(2). The reference there to "acquisition during the takeover period" in the light of the definition of that expression indicates that the offeror is at liberty to acquire shares from the moment when an announcement is made in accordance with s. 674 and that such an announcement is a takeover announcement for the purposes of the sub-section, notwithstanding that the Pt C statement is not served until later. The difference between the definition of the "takeover period" and the "offer period" is of some significance. The former, commencing when the announcement was made, is relevant to s. 620(2); the latter, commencing 14 days after the day announcement is relevant to s. 617. Likewise, the difference between pars (a) and (b) of s. 673 is important, as are the definition of "takeover announcement" and the references to an announcement made in accordance with s. 674(1).

And it is also important to recognize that s. 620 is an independent exception to the prohibition contained in s. 615. The exception is based on acceptance of the importance of the availability of the free market on which a shareholder can, if so advised, sell shares without waiting for the delivery of Pt C and Pt D statements. The availability of the free market would be seriously prejudiced if the principal buyer was excluded from it. Once it is acknowledged that s. 620 is an independent exception to the prohibition in s. 615 and that it is so based, the policy objections to the M.E.X. construction cease to have persuasive force.

It follows that the failure to serve a Pt C statement did not prevent the announcement made in accordance with s. 674 from being a takeover announcement. There was no breach of s. 615, because s. 620(2) exempted from that prohibition the acquisition of shares by M.E.X. in the ordinary course of trading. The only consequence is that there was a contravention of s. 679 and that s. 673(b) was not satisfied.

Section 737 confers power upon the court, on the application of the target company in circumstances where a person has acquired shares in the target company in contravention of s. 615, to make such orders as it thinks just. Those orders may include a remedial order and an order directing a person to do or refrain from doing a specified act. Section 613 defines a "remedial order" so as to include (a) an order directing the disposal of shares or an interest in shares; and (b) an order vesting in the A.S.C. shares or an interest in shares.

We have already referred to s. 739. That section enables the court to make such orders as it thinks desirable or necessary to protect the interests of a person affected by a takeover scheme or announcement. The orders which may be made include an order directing a person to do an act or thing that the person was required by the Chapter to do and has failed to do, a remedial order and an order directing a person to do or refrain from doing a specified act.

The exercise of the divestiture powers by the Full Court of the Supreme Court

King C.J. and Cox J. concluded, wrongly in our view, that the acquisition of shares by M.E.X. on 15 April was in breach of the prohibition contained in s. 615. This conclusion had two consequences. First, it was one of three reasons why King C.J. considered that the primary judge's exercise of discretion miscarried. That reason must be discarded. Secondly, the erroneous conclusion that there was a breach of s. 615 led King C.J. to the view that the powers under s. 737 as well as those under s. 739 were available to be exercised, a view which cannot be supported once it is accepted that no such contravention took place.

His Honour concluded that the primary judge's exercise of discretion was vitiated by two other errors. One was his failure to acknowledge that a holding by M.E.X. of 28.29 per cent of the share capital of Samic would discourage other prospective bidders. The other was the primary judge's finding that the defects in the Pt C statement were innocent. King C.J. thought that the defects could only be explained by a total and reckless indifference to the need of the Samic shareholders for adequate information. Hence, the primary judge overlooked the degree of culpability involved.

King C.J. then proceeded to re-exercise the discretion. In so doing, his Honour stressed the importance of the public interest in ensuring compliance with the Law, particularly when contravention proceeded from reckless indifference to the statutory policy of ensuring an informed market and to the interest of those affected by the proposal in having adequate information, and when that reckless indifference stemmed from self-interest. His Honour then concluded that he should make an order which would prevent M.E.X. from gaining any advantage from its contravening announcement, that being a consideration even more pertinent to the s. 737 discretion.

His Honour considered also that the interests of Samic shareholders supported divestiture. The increase in M.E.X.'s shareholding interest in Samic from 19.88 per cent to 28.29 per cent would be "a substantial disincentive to anyone else who might otherwise contemplate a bid". Moreover, the knowledge of Samic shareholders that M.E.X. had acquired 28.29 per cent and the diminished prospect that there would not be an alternative offer, increased the pressure on them to sell. His Honour was not prepared to accept that the Pt C statement had no influence on the sale of the shares to M.E.X., the purchases on 15 April having been made under cover of the invalid announcement and Pt C statement.

Olsson J. considered that the primary judge's exercise of discretion was vitiated by his failure to recognize that the purchases on 15 April were not made in the ordinary course of trading on the stock market. Olsson J.'s view on this point cannot be supported. However, it was a consideration which influenced his conclusion that divestiture should be ordered. That conclusion also rested on his Honour's view that it was an important public interest consideration that the statutory policy be upheld, thereby denying M.E.X. an unfair advantage which it had gained by serving, deliberately in his Honour's opinion, a Pt C statement which did not comply with s. 750.

Because the majority in the Full Court were mistaken in their view that there was a contravention of s. 615, their exercise of discretion miscarried. Unfortunately, their Honours, in dealing with the discretionary factors, did not precisely differentiate between the factors which were relevant to s. 737 and those which were relevant to s. 739. In the result, it is not possible to ascertain with certainty what the majority would have concluded had they considered the matter on the footing that there was no contravention of s. 615 on 15 April and s. 737 was not a power available to be exercised.

Although the Full Court's exercise of discretion miscarried, that does not mean that the primary judge's determination should be restored, if the other grounds relied upon by the majority for reviewing his exercise of discretion can be supported. In this respect, King C.J. and Olsson J. were right in thinking that the primary judge was in error in arriving at an inadequate assessment of the culpability of M.E.X. in providing misleading information in its Pt C statement. That conclusion leads us to the prima facie view that the matter should be remitted to the Full Court for reconsideration of the appropriate orders to be made under s. 739.

Before deciding whether this course should be followed, it is necessary to examine M.E.X.'s final submission that the Full Court made its orders in order to punish M.E.X. rather than to remedy the defect arising from its failure to comply with the requirements of s. 750.

M.E.X. is correct in contending that, in making orders under s. 739, the Court is limited to the making of such orders as it thinks necessary or desirable to protect the interests of a person affected by the takeover scheme or announcement. That power does not extend to the making of an order by way of punishment of a party who contravenes the relevant provisions of the Law. Nonetheless, so long as the overriding object of the proposed order is to protect the interests of a person so affected, it is legitimate to take account of the seriousness of the contravention and the consequences which flow from it in deciding what form of order shall be made.

M.E.X. argues that, in the case of a contravention of s. 750, the only order needed to protect the interests of persons so affected is an order requiring the service of a Pt C statement which conforms to the statutory requirements. The answer to the argument is that, if by culpable conduct the offeror has secured an advantage which the offeror would not have obtained had it complied with the statutory prescription designed to achieve an efficient and informed market, then it is permissible to make such order as will protect the interests of persons affected and ensure that the policy of the Law in bringing about an informed market is implemented and, at the same time, deprive the offeror of any advantage which it would not have obtained had it complied with the Law.

Once that is accepted, it must follow that, in cases in which contravention of s. 750 has led to the acquisition of shares to the detriment of shareholders in the target company as, for example, by deterring competing offers, then an order for divestiture will be permissible if it is considered desirable for the protection of shareholders in the target company. And we do not see why the making of an order for divestiture should be limited to cases in which shares have been acquired by way of acceptance of offers pursuant to the takeover announcement. An offeror, under cover of a takeover announcement, might make a market purchase pursuant to s. 620(2), having failed to serve a Pt C statement or having served a non-complying Pt C statement, thereby deterring other bidders and exerting pressure on shareholders to sell. In such situations, it may be appropriate to make an order for divestiture in lieu of setting aside the transactions for purchase of shares.

In the result we would allow the appeal, set aside the orders for divestiture and remit the matter to the Full Court for reconsideration in the light of this judgment.

The background facts and the relevant provisions of the Corporations Law are set out in the judgment of Mason C.J., Gaudron and McHugh JJ.

The primary issue in the appeal is whether, as the respondent ("Samic") contends and the members of the Full Court of the Supreme Court of South Australia held, the case fell within both s. 737 and s. 739 of the Corporations Law. The appellant ("M.E.X.") submits that the case fell within s. 739 alone. The significance of the issue lies in the fact that a court's discretion as to remedy under s. 737 arguably enables the making of a divestiture order for exemplary or punitive purposes whereas s. 739 merely authorizes the making of orders which the court "thinks necessary or desirable to protect the interests of a person affected by the takeover scheme or takeover announcement".

Section 737 is applicable only in a case where "a person has acquired shares in a company in contravention of section 615" of the Corporations Law. It follows that the primary issue in the appeal resolves itself into the question whether M.E.X. acquired the relevant shares in Samic in contravention of that section. It can be said at once that we have reached the conclusion that it did. Our reasons for that conclusion are set out below. They closely correspond with the reasons given by King C.J. (with whom Cox J. agreed on that aspect of the case) in the Full Court of the Supreme Court [10] .

It is common ground that the acquisition by M.E.X. of the relevant shares in Samic fell within s. 615(1)(a). That being so, the acquisition was "in contravention of section 615" unless it came within s. 615's opening words: "Except as provided by this Chapter" (i.e. Ch. 6). M.E.X. contends that the acquisition came within that exception for the reason that it was exempted from s. 615's prohibition by s. 620(2) (which is in Ch. 6). That contention depends upon a submission that the case was one where, for the purposes of s. 620(2), "a takeover announcement" had been made in respect of "a class of shares" of which the relevant shares formed part. Whether that was so ultimately depends upon whether the announcement - which was made under s. 674(1) - fell within the definition of "takeover announcement" contained in s. 603, that is to say, whether it was "an announcement made in accordance with Division 1 of Part 6.4" (emphasis added).

Section 679(1)(a), which is in Div. 1 of Pt 6.4, provides that "[a]n offeror who makes offers by an announcement in accordance with subsection 674(1) in relation to shares in a company shall", on the day on which the announcement is made, serve a Pt C statement on the target company, a copy of the statement on the target company's home stock exchange and lodge a copy of the statement with the Australian Securities Commission. Section 679(1)(b) requires the offeror, "before the end of 14 days after the day on which the announcement is made", to send a copy of the statement to each holder of shares in the class to which the announcement relates. The references in that sub-section to a "Part C Statement" must be understood, in accordance with the defined meaning of that phrase [11] , as being to "a written statement that complies with the requirements of Part C in section 750" of the Corporations Law. Examination of Pt C discloses that service of the original and copy Pt C statement in accordance with s. 679(1) constitutes the designated method of communicating to the target company, the target company's home stock exchange, the Australian Securities Commission and interested shareholders the contents of the announcement under s. 674(1) and of the offers made under it together with other related information. The question arises whether discharge of the various obligations relating to the service of the original or copy Pt C statement constitutes an integral part of the making of an announcement "in accordance with Division 1 of Part 6.4". In our view, it does.

An announcement by a dealer as agent under s. 674(1) is made when published by the dealer at a relevant official meeting of a stock exchange. However, such an announcement does not satisfy the condition that it be "made in accordance with Division 1 of Part 6.4" unless the mandatory requirements which that Division imposes in relation to the making of such an announcement are satisfied. Those requirements include the communication of the contents of the announcement and offers made under it and other related information by service of the original and copy Pt C statement in compliance with s. 679. That interpretation of the phrase "takeover announcement", as defined by s. 603 and used in s. 620(2), is supported by the general structure of Div. 1 of Pt 6.4. In particular, s. 674 makes clear that "offers" made by an announcement under that sub-section are not susceptible of acceptance until the first trading day of the target company's home stock exchange "after the end of 14 days after the day of the announcement" [12] , that is to say, until after the expiry of the period within which the contents of the announcement and of offers made under it and related information must be communicated by service of the original or copy Pt C statement pursuant to s. 679. In that regard, it is relevant to note that those who drafted the Corporations Law were clearly conscious of the distinction between the phrase "an announcement in accordance with subsection 674(1)" which is used in some of the provisions of Ch. 6 [13] and the defined phrase "takeover announcement" which is used in s. 620(2) and other provisions of that Chapter [14] and which designates an announcement which is "made in accordance with Division 1", the provisions of which include s. 679(1)(a) and (b).

Corporations Law, s. 674(1). 2. See ss. 675(1), (2), 676(1), 678, 680. 3. See ss. 673, 676(2), 677, 681, 682, 739, 740.

It is now common ground that, in the present case, no written statement complying with the requirements of Pt C in s. 750 was served as required by s. 679(1). The effect of that is that the requirements of s. 679(1) were not satisfied in relation to M.E.X.'s announcement under s. 674(1). It follows from what has been said above that the requirement in the definition of takeover announcement in s. 603 that the "announcement" be "made in accordance with Division 1 of Part 6.4" was not satisfied and that there was no "takeover announcement" for the purposes of s. 620(2). That means that s. 620(2) was inapplicable and that the acquisition by M.E.X. of the relevant shares in Samic was in contravention of s. 615.

It should be mentioned that there was, in the course of argument, considerable discussion about the policy to be discerned in the provisions of Ch. 6 of the Corporations Law. To the extent that one can discern a relevant policy, it is that share trading pursuant to a "takeover announcement" should be informed. That policy supports a conclusion that s. 620(2)'s exemption from s. 615 should be confined to cases where the requirements of service of a Pt C statement are satisfied. In that regard, we see no force in M.E.X.'s argument that the reference in s. 620(2) to "acquisition during the takeover period" indicates that the offeror is free to acquire shares from the moment when the initial announcement is made by the dealer under s. 674(1), that is to say, even before the original Pt C statement is served upon the target company. In terms, s. 620(2) only applies "[w]here a takeover announcement is made", that is to say, after "an announcement is made in accordance with Division 1 of Part 6.4" [15] . Once the conclusion is reached that an announcement is not "made in accordance with Division 1" and therefore is not a "takeover announcement" unless and until the Division's requirements of service of the Pt C statement have been satisfied, it necessarily follows that the section has no operation prior to the fulfilment of those requirements. That conclusion about the effect of the definition of "takeover announcement" also avoids the anomaly which Bryson J. identified in ICAL Ltd. v County Natwest Securities Australia Ltd. [16] in the earlier legislation. The reference to "takeover period" instead of "offer period" in s. 620(2) is explained by the fact that, in a case where the requirements of service are satisfied before the expiry of the maximum period of fourteen days, the announcement will become a "takeover announcement" as soon as those requirements are so satisfied, that is to say, before the commencement of the offer period. That means that if the offeror wishes to make immediate on market acquisitions which would otherwise be in breach of s. 615, it must plan its announcement in accordance with s. 674(1) so that it is in a position to contemporaneously comply with s. 679(1).

Corporations Law, s. 603, definition of "takeover announcement". 2. (1988) 13 A.C.L.R. 129, at pp. 152-153; 6 A.C.L.C. 467, at p. 490.

It can be argued that s. 675(1) supports the view that a "takeover announcement" is made for the purpose of s. 620(2) as soon as there is an announcement in accordance with s. 674(1). That argument does not, in our view, sustain close examination. It is true that s. 675(1) does prescribe the manner in which offers "that are made by an announcement in accordance with subsection 674(1) may be accepted". Clearly, however, offers so made are not open to acceptance until the time prescribed by s. 674(1) has expired, that is to say, until after the time has expired in which offers made by an announcement in accordance with s. 674(1) will have become offers under a "takeover announcement" by compliance with the requirements of s. 679(1).

It follows that the members of the Full Court were correct in disposing of the case on the basis that the provisions of s. 737 of the Corporations Law were applicable and empowered the making of:

such order or orders as [the court] thinks just, including but without limiting the generality of the foregoing:

(b) for the purpose of securing compliance with any other order made under this section, an order directing a person to do or refrain from doing a specified act.

In our view, the remedial powers conferred by s. 737(1) extended to the making of a divestiture order for the punitive or exemplary reason of not allowing M.E.X. to retain any benefit from its acquisitions made in breach of s. 615.

The members of the Full Court considered that M.E.X.'s failure to comply with the requirements of Div. 1 was either not "unwitting" in that it resulted from an express decision "to give the bare minimum of information possible" [17] or was explained by "a total and reckless indifference on the part of those preparing and authorizing" the defective Pt C statement [18] . King C.J. and Olsson J. were of the view that a divestiture order should be made with respect to the relevant shares. Cox J. considered that, in all the circumstances of the case, a divestiture order should not be made. The difference between their Honours in that regard resulted from a difference in their perception of the relative weight to be given to competing factors in the making of what was essentially a discretionary decision. In circumstances where it has not been shown that the decision reached by the majority to order divestiture was vitiated by any error of principle or mistake or misapprehension of fact, there is no basis upon which this Court could properly intervene to over-turn it.

(1993) 60 S.A.S.R., at p. 314, per Olsson J. 2. ibid., at p. 307, per King C.J. (Cox J. concurring).

It is true that Olsson J. based his conclusion that the provisions of s. 620(2) were not applicable to avoid the existence of a contravention of s. 615 on a ground which it is now conceded was unavailable to Samic, namely, that the relevant shares were not acquired by M.E.X. "in the ordinary course of trading on the stock market". As has been seen, however, Olsson J.'s conclusion that s. 620(2) was inapplicable was correct on the ground relied upon by King C.J. and Cox J., namely, that there being no "announcement made in accordance with Division 1", there was no "takeover announcement" for the purposes of that sub-section. Perusal of his Honour's judgment discloses that his view that a divestiture order should be made would clearly not have been affected by a substitution of that ground for the ground upon which he relied.

At a glance

Court

Decision date

Before

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Judgment (82 paragraphs)

Parties