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[1998] FCA 1486
Federal Court of Australia
1998-11-25
Emmett J
Original judgment source is linked above.
FEDERAL COURT OF AUSTRALIA CORPORATIONS LAW - whether statements in Part A statement contain misleading and deceptive representations - role of AMP board in confirming profit forecast - whether board of AMP had reasonable grounds for "confirming" the profit forecast range - whether representations are representations with respect to a future matter - whether length of forecast range adequate - whether Part A statement inadequate because of failure to include combined entity forecast - whether disclosure of AMP's hedging policy is misleading and contains material omissions - whether AMP failed to make adequate disclosure concerning AMP's index weighting, synergy benefits, AMP's acquisition strategy, AMP's intention relating to employee's of GIO, AMP's director and executive remuneration policy, AMP's funding arrangements for the takeover of GIO and shareholding limitations contained in AMP's articles of association - whether statement of consideration for shares is misleading and deceptive - whether expression "market value of an AMP share" is misleading and deceptive because of obscurity and terms of definition - whether proposed offer will give rise to a binding contract because price not fixed with certainty - whether consideration illusory because the amount of consideration is within the discretion of the offeror - whether offer would contravene s 654 of the Corporations Law - whether material which has not been registered with ASIC or submitted to target should be despatched with takeover offers. Corporations Law ss 615, 616, 634, 636, 637, 654, 655, 657, 750, 765, 995, 1022 Australian Securities and Investment Commission Act 1989 (Cth) ss 12BB, 12DA Trade Practices Act 1974 (Cth) s 51A Australian Mutual Provident Society (Demutualisation and Reconstruction) Act 1997 (NSW), s 19
Pancontinental Mining Industries v Goldfields Limited (1995) 16 ACSR 463, followed Re Primac Holdings Limited (1996) 22 ACSR 212, referred ACI v Rossington Holdings Limited (1992) 35 FCR 226, followed Hall v Busst (1960) 104 CLR 206, followed Dobbs v National Bank of Australasia Limited (1935) 53 CLR 643, followed Booker Industries Pty Ltd Wilson v Park (QLD) Pty Ltd (1982) 149 CLR 600, cited Placer Development Limited v The Commonwealth (1969) 121 CLR 353, followed Thorby v Goldberg (1964) 112 CLR 597, followed Lewandowski v Mead Carney-BCA Pty Limited [1973] 2 NSWLR 640, followed Solomon Pacific Resources NL v Acacia Resources Limited (1996) 19 ACSR 238, distinguished
GIO AUSTRALIA HOLDINGS LIMITED v AMP INSURANCE INVESTMENT HOLDINGS PTY LTD & ANOR NG 3172 of 1998 EMMETT J SYDNEY 25 NOVEMBER 1998
INTRODUCTION......................................................................................................... 1 · Statutory Framework................................................................................................... 3 · Pleadings..................................................................................................................... 4 · Background of AMP and GIO..................................................................................... 5 · GIO's Complaints........................................................................................................ 6 · The Evidence............................................................................................................... 7
PREPARATION OF THE AMP PART A STATEMENT.......................................... 8 · Meetings on 24 August 1998....................................................................................... 8 · 25 August to 31 August 1998...................................................................................... 15 · The Proposed Revised Forecast................................................................................... 20
· Return to the Prospectus Forecast................................................................................ 25 · 4 September 1998....................................................................................................... 32
RESOLUTION OF THE ISSUES................................................................................ 35 · Confirmation of Prospectus Forecast Range................................................................. 35
CONCLUSION.............................................................................................................. 85
AND: AMP INSURANCE INVESTMENT HOLDINGS PTY LTD
On 8 September 1998 a document ("the AMP Part A Statement") purporting to be a Part A statement within the meaning of Part 6 of the Corporations Law ("the Law") was delivered to GIO Australia Holdings Limited ("GIO") on behalf of AMP Insurance Investment Holdings Pty Ltd ("AMPII"). AMPII is a wholly owned subsidiary of AMP Limited ("AMP"). By the AMP Part A Statement, AMPII notified GIO that it proposed to make take over offers in respect of all of the issued shares of GIO. Shortly stated, AMPII proposes to offer two AMP ordinary shares for every nine GIO ordinary shares held, or $4.75 for each GIO share held, although, as will become apparent, that is somewhat of a simplification. However, it is significant that shareholders of GIO will be offered the option of cash or a share alternative. By its application to this Court, GIO seeks declarations that: (a) the AMP Part A Statement does not comply with the requirements of Part A of section 750 of the Law; (b) the AMP Part A statement and proposed offer document contravene the Law and the Trade Practices Act; (c) the dispatch of the AMP Part A statement and offer document or either of them would contravene the Law and the Trade Practices Act; (d) AMPII and AMP are not entitled to send to GIO's shareholders with the AMP Part A statement and offer document any other documents referring to the offer which is the subject of the take over documents and which is not registered with the Australian Securities Investment Commission ("ASIC") or served on GIO in accordance with the Law. GIO also seeks orders restraining AMP and AMPII from: (a) sending to any shareholder of GIO the purported take over documents; (b) making the offer referred to in the purported take over documents. AMPII has also filed a cross claim seeking: 1. A declaration that the AMP Part A Statement is valid and complies with the requirements of Part A of section 750. 2. In the alternative, if any provision of the Law has been contravened, an order pursuant to section 743 of the Law declaring the AMP Part A Statement not to be invalid and to have effect as if there had been no such contravention. 3. In the further alternative, if any provision of the Law has been contravened, an order pursuant to section 739 of the Law directing AMPII, when sending its offers, to supply such information as the Court may specify. 4. Orders to accommodate delay occasioned by the bringing of these proceedings. The relief sought by AMPII is essentially responsive to GIO's claims. Accordingly, while evidence has been adduced by AMPII in relation to the cross claim, it is appropriate to deal with any issues which arise under the cross claim after I have made a determination on the contentions advanced by GIO. STATUTORY FRAMEWORK GIO relied on a number of grounds to support its claims. Before outlining those grounds, it is desirable to state briefly the statutory framework within which the questions arise. Section 615(1) of the Law provides relevantly for present purposes that, except as provided by Chapter 6, a person must not acquire shares in a company if, as a consequence of that acquisition a person would become entitled, within the meaning of the Law, to 20% or more of the shares in that company. However, section 616 of the Law provides that section 615 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 take over scheme. If the offers proposed by AMPII were accepted, section 615 would be contravened, unless the acquisition resulting from such acceptances is as a result of the acceptance of offers made under a take over scheme. Section 634 of the Law provides that, for the purposes of Chapter 6, offers to acquire shares are made under a take over scheme if, and only if, relevantly, the requirements of Division 1 of Part 6.3 have been complied with. The requirement presently relevant is that contained in section 637 which provides that the offerer must have, not earlier than 28 days and not later than 14 days before the day on which the offers are sent, served on the target company a "Part A statement" relating to the offers. Under section 603, the expression "Part A statement" means a written statement that complies with the requirements of Part A in section 750 of the Law. Several of those requirements are relevant to these proceedings. Clause 18 of Part A provides, in substance, that in certain cases, the regulations may prescribe matters which are to be included in a Part A statement. The effect of regulation 6.12.01(a) made under the Law is that where the consideration offered includes shares, there is required to be included in a Part A statement the material which would be required by section 1022 of the Law if the Part A statement were a prospectus. It is common ground that those provisions apply in relation to the AMP Part A Statement. Accordingly, additional information which should be included in the AMP Part A Statement includes: "all such information as investors and their professional advisers would reasonably require, and reasonably expect to find in the prospectus, for the purpose of making an informed assessment of the assets and liabilities, financial position, profits and losses, and prospects of the corporation." Clause 17 of Part A provides, in substance, that a Part A statement must disclose all information material to the making of a decision by an offeree whether or not to accept the offers. Clause 20(1) of Part A requires, in substance, that there be set out a statement of the offeror's intentions regarding, inter alia, the future employment of the present employees of the target company. Finally, clause 11(b) of Part A provides that if the consideration for the acquisition of the shares to which a takeover offer relates is to be satisfied in whole or in part by the payment of cash and the offeror is not to provide all or any of the cash from its own funds, then the Part A statement must set out certain particulars relating to the source of the funds. In addition, where there is, in a statement that purports to be a Part A Statement served under section 637, matter that is false in a material particular or materially misleading or there is an omission of a material matter from such a statement, the offeror and certain other persons, such as directors of the offeror, contravene section 704 of the Law. Further, section 995 of the Law relevantly provides that a person must not, in or in connection with any dealing in securities, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
PLEADINGS The proceedings were commenced by an application in which GIO sought declarations and orders as indicated above. At an early stage in the proceedings, GIO filed a document outlining the basis of its claims. Pursuant to directions which I gave, a document ("the Pleading") entitled "GIO'S AMENDED SHORT FORM POINTS OF CLAIM AND AMP'S SHORT FORM RESPONSES" was filed. I indicated to the parties that I would treat the pleading as a statement of the issues for determination as though it were a pleading. That course was adopted because of the need to have the proceedings brought on for hearing as soon as possible, coupled with the need for some constraint to be placed upon the extent of the enquiry which the proceedings would involve. Accordingly, while very detailed written submissions were made by both parties, the submissions were made within the constraints of the Pleading and it is appropriate to decide the proceedings on the basis of the Pleading.
BACKGROUND OF AMP AND GIO The Australian Mutual Providence Society ("the AMP Society") was formed as a mutual society in Sydney in 1849. Outside Australia, the AMP Society operated as a branch in New Zealand for more than a century and as a branch in the United Kingdom from 1908. The AMP Society expanded its presence in the UK in 1989 when it acquired Pearl Group PLC and merged with London Life Association Limited. On 1 January 1998 the AMP Society "demutualised" and its corporate structure was significantly reorganised whereby AMP Society's UK assets management and general insurance operations were transferred to the newly formed AMP Limited. AMP Limited is a holding company structure of which AMP Life (formerly the AMP Society) is now a part. In March 1998, AMP acquired Henderson PLC ("Henderson"), a UK based asset manager. The AMP Part A Statement states that the process of integration of Henderson and AMP Asset Management Holdings Limited ("AMPAM"), a subsidiary of AMP, is under way. On 15 June 1998, AMP was admitted to the official list of Australian Stock Exchange Limited ("ASX"). That was made possible by the demutualisation. In connection with the demutualisation, shares in AMP were allotted to some 1,700,000 shareholders, of whom 200,000 elected to sell the shares allotted to them through a listing facility offered by AMP. That left 1,500,000 shareholders 400,000 of whom opted to purchase further shares. In connection with the demutualisation and admission to the official list of ASX, AMP published a prospectus dated 22 April 1998 ("the Prospectus"). The Prospectus contained much information concerning AMP and its subsidiaries. The prospectus also contained AMP's forecast of its operating profit after income tax but before extraordinary items attributable to shareholders for the year ending 31 December 1998 ("the Prospectus Forecast"). The principal activity of GIO and its subsidiaries is the provision of direct insurance, re-insurance, financial services (including life insurance) and investment funds management. It is the former Government Insurance Office of New South Wales which was founded in 1927. GIO is now a company whose shares are listed for quotation on ASX. Accordingly, GIO is subject to the continuous and periodic reporting obligations imposed by the ASX Listing Rules and by the Law. Shares in GIO were listed for quotation following the offer for sale made by the state of New South Wales by a prospectus dated 22 June 1992 ("the GIO Prospectus"). As at 24 September 1998, GIO had 89,902 shareholders of whom 80,713 were individual or joint individual shareholdings. Of the individual shareholders, survey and statistical analysis suggests that approximately 61% are aged 60 or above, approximately 58% are retired, 56% are self funded retirees and 56% regularly use a broker or financial adviser. GIO executives and employees also hold a significant number of shares in GIO.
GIO'S COMPLAINTS In these proceedings, GIO made a number of separate complaints concerning the AMP Part A Statement under the following heads: (1) Confirmation of the Prospectus Forecast in the AMP Part A Statement. (2) Absence of forecasts for the combined entity of GIO and AMP on the assumption that offers are successful. (3) The effect of fluctuations in the exchange rate between the Australian dollar and the United Kingdom pound on the Prospectus Forecast. (4) Specific non disclosure relating to: (i) index weighting of AMP shares in ASX indices; (ii) synergy benefits; (iii) AMP's acquisition strategy; (iv) AMP's intentions relating to employees of GIO; (v) remuneration of directors and executives of AMP; (vi) funding of the proposed takeover offers by AMPII; (vii) restrictions on acquisition of shares in AMP. (5) Despatch to GIO shareholders of unvetted documents. (6) Deficiencies in describing the consideration to be offered by AMPII to GIO shareholders. It is necessary to deal with each of the complaints separately since each is raised by GIO as a separate and distinct head of complaint and ground for relief. Certain of the complaints depend upon the circumstances surrounding the preparation of the AMP Part A Statement and the inclusion in it of references to the Prospectus Forecast. Accordingly, it will be necessary to examine those circumstances in some detail. THE EVIDENCE GIO's case was basically a documentary one involving a detailed examination of the AMP Part A Statement and a considerable volume of internal AMP documents produced on discovery. However, oral evidence was also given and there was extensive cross examination of several witnesses. The witnesses fell into three categories. The first category comprised witnesses who gave so called expert evidence concerning the information which investors and their professional advisers would reasonably require and reasonably expect to find in a Part A statement. Much of the evidence in this category was also directed to what the witnesses believed ought to be included or need not be included in the AMP Part A Statement. I did not find this category of evidence helpful to any great extent. I am satisfied that all of the relevant witnesses gave their evidence honestly, although their qualifications to give the evidence were, in some cases, barely adequate. The second category comprised expert economists who gave evidence about the likely effect of progressive inclusion of the price of AMP shares in the All Ordinaries Index published by ASX. Much of the evidence was speculative and, for that reason, inconclusive. I shall deal with it when dealing with the topic of index weighting. Finally, the respondents called Mr Geoffrey John Scott, the Group Strategic and Operational Planning Executive of AMP and Mr Paul Bruce Siviour, a director of Ernst & Young Corporate Finance Pty Limited and a partner of Ernst & Young, Chartered Accountants. Mr Siviour worked on the demutualisation and public listing of AMP and was responsible for the review of the financial forecasts included in the Prospectus. He was also involved in reviewing AMP's prospects for the year ending 31 December 1998 for the purposes of the AMP Part A Statement. Determination of the questions which arose concerning confirmation of the Prospectus Forecast depends very substantially on documentary evidence. However, it also involves consideration of evidence given on behalf of AMP and AMPII by Mr Scott and Mr Siviour. Both were intimately involved in the preparation of the AMP Part A Statement. Theirs is the only evidence relating to that process. Their evidence in chief was by way of affidavit and both were cross examined at length by senior counsel for GIO. There were occasions in the course of cross examination when each witness gave the impression that he was not being especially helpful to the cross examiner. There may also have been occasions when evidence was based on an examination of documentary evidence rather than actual recollection. However, I am satisfied that the evidence of both witnesses was given honestly and is reliable as far as it goes.
MEETINGS ON 24 AUGUST 1998 Consideration of proposals for takeover offer for shares in GIO began at least as early as June 1998. However, an appropriate commencing point for a narrative of the preparation of the AMP Part A Statement is the meeting of the directors of AMP which took place on 24 August 1998. The meeting took place in two sessions, one of which is recorded as being private. The minutes of the non private session of the meeting record the following as being present: PRESENT I.G.R. Burgess (Chairman), J.W. Utz, C.J. Hewson, R.M. Wylie, S.D.M. Wallis, A.E. Clarke, B.R. Kean, T.R. Crammond, Sir M. Bates, I.A. Renard (Items 3-21), W.K. Roberts (Items 3-21) and G.R. Trumbull OTHERS IN ATTENDANCE B.A. Booker (Company Secretary) P.G. Traill Items 2-21 P.J. Batchelor Items 2-21 R. Greenshields Items 2-19, 21b A. Mohl Items 2-19 D. Hoffman Items 2-9 T. Thompson Item 8 G. Richardson Item 6 I. Baggie (Ernst & Young) Item 6 G. McKenzie (Ernst & Young) Item 6 J. de Zwart Item 6 G. Fitzgerald Item 9 G. Thompson Item 0 J. Ives Item 20 P.R. Simmons Item 21 G. Scott Item 21a G. Terry (Credit Suisse/First Boston) Item 21a P. Lewis (Credit Suisse/First Boston) Item 21a A. Bancroft (Mallesons Stephen Jacques) Item 21a I. Maxton (Deutsche Bank) Item 21b The minutes record, inter alia, the following business:
Private Session 21. Acquisition Update (a) Project Breaker (GIO) George Trumbull advised the board that he believed that GIO was a good acquisition for AMP at the right price. It would provide AMP with the scale it needed to make AMP a leading player in the general insurance market. George Trumbull said that the acquisition of GIO would add shareholder value to AMP but he warned that the transaction, if it proceeded, was likely to be hostile. Peter Corrigan, Managing Director, AMP General Insurance, Phil Simmons, Asian and Australasian Development Executive, and Paul Batchelor, Chief Financial Officer, made a presentation to the Board on the proposed acquisition of GIO. Key areas covered included: - Industry background, - AMP General background, - GIO - General Insurance and its other businesses, - Shareholder value enhancement, - Acquisition offer/proposed transaction; and - Key risks and timing The Board raised a number of issues relating to the acquisition which were responded to by AMP management and/or the external advisers. Key issues discussed included: - The GIO brand and the need to carefully manage, from a public relations perspective, the conversion of business to AMP, - The need to focus on achieving better claims management, tighter underwriting procedures, etc. rather than just raising prices which could result in a loss of business, - Realisation of synergies, - Staffing requirements; and - The likelihood of competing bids. In addition, the Board emphasised the importance of: - Ensuring that shareholder value is delivered through an acquisition such as GIO, - Demonstrating to the market AMP's ability to make an acquisition and achieve what it said it was going to achieve; and - Regular reporting back to the Board regarding progress and the return on capital. Acquisition Offer The Board RESOLVED to approve: - A scrip offer of $3,010 million ($4.88 per share), representing an 18% premium over GIO's share price ($4.12 as at 21/8/98). Assuming an AMP share price of $22.00, the conversion ratio is 2 AMP shares for 9 GIO shares. - A cash alternative of $4.75 per share. The sub committee established by this resolution has the power to resolve an increase in this price. - That a sub-committee of the Board be set up to approve any final details relating to the offer, including any advertising. Sub-committee to consist of: Ian Burgess, Tim Crammond, George Trumbull; and Kerry Roberts; and - All Directors to approve the final Part A Offer by way of circular resolution. It was further agreed that Phil Simmons, Group Development Executive, would distribute to the Board some additional documentation showing what the General Insurance business would look like post acquisition. The function of the Due Diligence Committee is not entirely clear. It does not appear to have been a committee appointed simply to consider the proposed take over offer for GIO. So much appears from the reference to "continuous due diligence programme". On the other hand, there were three additional external members appointed specifically for the proposed GIO transaction. The function of the Committee in relation to the GIO transaction is not specified in the minutes. In particular, there is no indication, for example, that the Committee had any authority to make decisions concerning the terms of the offer or the content of the necessary Part A statement. The minutes also record that the Board noted the monthly operating report for the period ending June 1998. That document contained a detailed analysis of profit forecasts for the year ending 31 December 1998 which were compared with the forecast profit range contained in the Prospectus. The monthly report contained the following: "The range of estimated profits is A$679m to A$965m, with a mid point of A$822m. This is lower than the Prospectus Forecast Range of A$774m to A$977m. Positive operating results for the half year are expected to continue. Investment markets have retreated since the end of June, particularly in the UK and would need to recover to achieve the mid point of the Prospectus Forecast of $875m." The report also contained a table showing that the result, on the assumption that current market levels remained unchanged, would be $774 million. The report went on to say: "The higher estimate investment forecasts require equity market recoveries from current levels before the close of the year in Aus, UK and NZ of 3.5%, 10.8% and 9.1% respectively." The Due Diligence Committee met on the afternoon of 24 August 1998. On opening the meeting, the Chairman noted that the purpose of the Committee was to provide "an ongoing due diligence process concerning the business of AMP". The Chairman also noted that in the light of the current proposal relating to GIO, the due diligence process over the following ten days "would need a clear focus". Minutes of the meeting record that, in the context of the proposed GIO takeover offer: "the due diligence process is designed to ensure that the Part A Statement contain all information that investors would require in making the decision to acquire AMP shares." The minutes also recorded that: "a process must be put in place to enable directors to "sign off" on the contents of the Part A Statement including, in particular, ensuring that it includes information emerging from the due diligence process." The signed version of the minutes also records the following: "Sign Off It was noted that the AMP Limited Board had appointed a Sub-committee to provide final sign-off on the Part A Statement." (Emphasis added) That note is not consistent with the minutes of the meeting of the Board of directors referred to above. The language of the signed minutes is curious because of that fact. Further, draft minutes of the Due Diligence Committee meeting which were approved at a subsequent meeting held on 1 September 1998, provided as follows: "Sign Off It was noted that the AMP Limited Board had appointed a Sub-committee to recommend final sign-off on the Part A Statement." (Emphasis added) The circumstances surrounding the substitution of the word "provide" for the word "recommend" are obscure. The deliberations of the Due Diligence Committee cannot affect the decision made by the directors. However, the minutes of the Due Diligence Committee may reflect the understanding of those who prepared and approved the minutes in the form in which they were signed. The minutes of the meeting of directors stated simply that all directors were to approve the final Part A offer by way of "circular resolution". The minutes of the Due Diligence Committee meeting of 24 August 1998 also include the following: "7. Verification of Part A Statement The verification process to the Part A Statement was discussed. The Part A Statement for [GIO] will need to be verified in the same manner as the recent AMP prospectus was verified. Appropriate business sign-off will be required for all parts of the Part A statement that contain statements about AMP. ……………………………… It was also noted that the verification process in relation to: (i) Prospects; and (ii) intentions; would be likely to contain additional information to that contained in the AMP Prospectus, particularly given the need to make [GIO] specific comments. 8. Currency of Information It was noted that given the lapse of time since the IOM [a reference to the institutional offer memorandum issued in connection with the demutualisation of AMP], the currency of that information will need to be tested. ……………………………… 11. Part A Statement It was noted that whilst the offeror was not AMP Limited members of the AMP Limited Board must review its contents. It was noted that the version of the Part A Statement to be actually circulated to the AMP Limited Board at the end of this week could not include pro forma accounts including [GIO]. Consequently, a black lined Part A Statement, reflecting these pro forma results would need to subsequently be circulated to delegated Board Members once [GIO's] results are published and appropriately incorporated by Ernst & Young (current estimation 4 September). It was noted that it was proposed to include the AMP prospects for the balance of the year only, and that the range adopted in the AMP prospectus was the appropriate range. Any change in sensitivities will need to be evaluated as part of the interviewing of Senior Management and the Business Unit Heads. It was noted that the expectation of a forecast, in addition to a prospectus statement, may arise. It was noted that inclusion of a forecast may be misleading. ……………………………… Ernst & Young were asked to provide an opinion for the DDC on the reasonableness of this approach."
25 AUGUST TO 31 AUGUST 1998 On 25 August 1998, AMP announced its intention to make a takeover offer for all of the issued shares in GIO. The announcement said that AMP was offering: "(a) two AMP ordinary shares for nine GIO ordinary shares; or (b) $4.75 cash for each GIO share." A second meeting of the Due Diligence Committee was held on 26 August 1998. Signed minutes record the following under the heading "Timetable": "2.1 The timetable for the transaction was discussed by members of the Committee. It was noted that the final Part A statement was intended to be available as at the close of business on 3 September and that it would be signed by two directors of the offeror… and lodged on 4 September. 2.2 In response to a question by George Trumbull, it was confirmed that the directors of AMP Limited do not need to sign the document but that they must, however, take responsibility for its contents. It was agreed that George Trumbull would contact the directors of AMP Limited to inform them of this and to enquire if they wanted to have a directors meeting to approve the final Part A statement on 4 September." The agenda for the meeting of 26 August 1998 showed as item 1 "Approval of prior minutes (Attachment 1)". Attachment 1 is a copy of the draft minutes of the meeting of 24 August 1998. In Item 5 the word "provide" has been altered to "recommend". The minutes of 26 August also refer to approval of the minutes of the meeting held on "24 January 1998 (sic)… subject to minor amendments as discussed at the meeting". Thus it is curious that the signed minutes contain the word "provide' rather than the word "recommend". The minutes of the meeting of 26 August 1998 also record that Mr Siviour commented that the form of sign off that Ernst & Young would be providing "will be different from that provided under the IPO". Reference to "IPO" is a reference to the demutualisation prospectus. The minutes also go on to record the following: "8. Forecasts and Prospects 8.1 Paul Siviour noted that no Ernst & Young opinion on the forecasts in the Part A statement would be included in the document. Instead, Ernst & Young would give a report to the Due Diligence Committee along the lines that, given the work done in relation to forecasts in the IOM, Ernst & Young have reviewed the procedures used and that nothing has come to their attention to lead them to think that the forecast range is incorrect. 8.2 Carolyn Hewson commented that the Due Ddiligence Committee, in order to gain comfort on the IPO forecast numbers, would like to know what were the forecast investment market return assumptions used in the IOM and whether or not these had been realised. In response Paul Siviour noted that brokers' estimates were being obtained to test the assumptions used in determining the estimates for 31 December 1998 market returns. 8.3 In response to a question from Carolyn Hewson, Paul Siviour confirmed that there will be an outlook table for investment market returns and that these figures would differ from those contained in the IOM. 8.4 Carolyn Hewson also raised the question whether the Ł/A$ exchange rate assumptions used in the IOM forecasts were being tested. Paul Siviour agreed to obtain brokers' forecasts on Ł/A$ exchange rates for this purpose. He also noted that it would be advisable to include the forecasts from the IOM as an appendix to the Part A Statement for the purposes of reference. Mr Siviour had been told in the early part of July 1998 by Mr Scott that it was not proposed that a new forecast for the year ending 31 December 1998 would be included in the AMP Part A Statement. He explained that it was his understanding from the discussion with Mr Scott that it was the Prospectus Forecast that would be used in the review for the purpose of the AMP Part A Statement. He advanced two reasons. The first was that since a very detailed review of the forecasts had been conducted in connection with the prospectus, Ernst & Young were very familiar with the assumptions. The second was that there was only limited access to information and people within AMP because of the need to maintain confidentiality. Accordingly, it was not possible for Ernst & Young to make the detailed enquiries which would be necessary in relation to new assumptions which would be required to underpin a new forecast. Mr Siviour understood Mr Scott's comment not to be that the Prospectus Forecast range would be the forecast to be put into the AMP Part A Statement but that it would be the starting point for a review for the purposes of the AMP Part A Statement. On 27 August 1998, a document entitled "Review of 1998 Market Forecasts" was prepared by AMPAM. That document expressed the view that "the outlook for financial markets in the current climate remains extremely uncertain". The authors saw "a distinct risk of the US markets falling a further 10 from current levels, putting the S&P 500 index at 950 (current 1093)". The document also contained the following comments: "Having spelt out our concerns, it must be noted that there is by no means a common view about the outlook for equities amongst global security houses. In the UK the limited forecasts for the S&P 500 as at 31 December 1998 ranged from 760 to 1120 with an average of 960. In Australia the range is 970 to 1150, average 1065. Henderson's central projection is 1025." The narrative part of the document ended as follows: "3. Outlook . The unsettled conditions in financial markets may well persist for a while yet. The confidence of global financial investors has been severely shaken and will take some time to recover. Nervousness abounds and most brokers/security houses seem to be indicating downside risk to their market forecasts… . There is a significant risk, however, that the softer global economic conditions and weaker outlook for corporate profits could unsettle the major markets to a greater extent than currently envisaged. Valuations remain high and there seems little capacity to absorb earnings disappointments. . If the S&P 500 were to fall to say 950, consensus forecasts for the FT All Share Index and the All Ordinaries Index would undoubtedly fall. Henderson's own view is that the FT All Share Index would end 1998 at around present levels (2,600) - 8% below the current forecast. In Australia, we could not rule out a level of 2,400 on the All Ordinaries Index - 9.5% below our present forecast and at the bottom of our indicated range." On 28 August 1998, Mr Trumbull sent a memorandum to the directors of AMP attaching a draft Part A statement and a draft of the proposed form of offer. The memorandum relevantly stated as follows: "Whilst the majority of non-financial information in the Part A Statement was taken from the MOM and the IOM it has, in many areas, been substantially updated to reflect the half-yearly results and changes in the business units. It is therefore important that you read the entire document… As approved by the AMPL Board on 24 August, a formal due diligence program along the lines of that adopted in respect of the MOM has been implemented and…. A Due Diligence Report will be prepared and customary due diligence sign-offs will be generated as a result of that program… If you wish to make additional inquiries of management to those being conducted by the Due Diligence Committee, please call me and I will make the appropriate arrangements. The timetable for review of the Offer and Part A Statement is set out below. This timetable enables us to respond quickly to GIO's earnings release on 2 September and to keep the momentum of this transaction moving forward. 1. Any comments on the attached draft should be provided… by the close of business on Monday 31 August. 2. Comments that raise substantive issues will be discussed and resolved at the Due Diligence Committee meeting on 1 September. A revised Part A Statement incorporating comments from directors will be blacklined and circulated to you on Tuesday 1 September together with a draft final form of the Due Diligence Report that will be delivered to the Due Diligence Committee on 3 September. 3. Your in principle sign-off on the contents of the Part A Statement is requested by close of business on Wednesday 2 September. 4. We are anticipating that GIO will release their annual results on 2 September… A blacklined draft of those pages of the Part A Statement that have changed will be provided to you on Thursday 3 September. You will also receive confirmation that the final form of Due Diligence sign-offs has been given to and accepted by the Due Diligence Committee. 5. The Director Certificate signing off on the Due Diligence Report and Part A Statement… needs to be faxed or confirmed by phone on Friday 4 September by 10.00 a.m. There is no legal requirement to convene a meeting of the AMPL Board to approve the Part A Statement. However, if any Director feels a need to have a Board Meeting to discuss the final Part A Statement, such a meeting would be held on 4 September 1998. If any director feels we need to convene a Special Board Meeting, I would appreciate knowing on Monday (31 August) so we can make the necessary arrangements." There was no evidence that any request for a special Board meeting was made or that any such meeting was held. At a meeting of the Due Diligence Working Group, which comprised management of AMP and representatives of Ernst & Young, held on 28 August 1998, Mr Scott reported that the "Prospects" section of the AMP Part A Statement had assumed that there would be no updated forecast from the Prospectus. The Due Diligence Working Group prepared a schedule of material issues for the Due Diligence Committee. One of the issues recorded was "Impact of major stockmarket correction on fee income". The comment in relation to that item was as follow: "Sensitivity of operating earnings to significant fall in investment account balances because of stock market fall should be determined… Potential for disclosure." That indicates that the Due Diligence Committee had its attention clearly drawn to the possible consequences of the fall in share market indices. The 28 August 1998 draft of the AMP Part A Statement attached to Mr Trumbull's memorandum did not contain statements in the terms of the final document. However, it did contain the following statement: "Based on current information available to the Board of AMP, AMP believes that the Prospectus Forecast remains an appropriate forecast range for the year ending 31 December 1998." That statement was qualified in the following respect: "If the UK and Australian equity markets maintained their 26 August 1998 and 27 August 1998 levels respectively through to 31 December 1998, AMP would expect an operating profit after tax and before extraordinary items for 1998 at the bottom of the Prospect [sic] Forecast range. If UK and Australian equity markets were to reflect the same levels as at 31 December 1998 as were experienced as at 31 March 1998 then AMP would expect a 1998 result at the top of the Prospect [sic] Forecast range. Currently equity markets are experiencing volatility and AMP makes no prediction as to their likely levels as at 31 December 1998."
THE PROPOSED REVISED FORECAST A further meeting of the Due Diligence Committee took place on 1 September 1998. The minutes recorded that the minutes of the meetings held on 24, 26 and 27 August were approved "subject to minor amendments". The minutes also relevantly record the following: "13 Disclosure on Prospects 13.1 Geoff Scott tabled and spoke to a memo entitled "Forecast Update". 13.2 Geoff Scott noted that the forecast process consisted of two steps - firstly each business was requested to provide updated forecasts, which were reviewed by Geoff and Ernst & Young, and secondly an investment outlook review was conducted, based on the views of AMPAM, Hendersons and external consensus views. 13.3 It was noted that the major driver of variation in forecasts was investment market returns. Greg Terry expressed the view that the Committee should approve the methodology to be used to determine the forecast range but that, given current market volatility, the actual numbers should be based on the latest possible estimates on the morning of 4 September before the document is lodged. It was agreed that the Committee would adopt this approach. 13.4 Geoff Scott tabled section 3.4 - Prospects from the draft Part A Statement. He spoke to the recent changes marked up on that section. 13.5 It was agreed to leave the high end forecast range as it presently stands but to revise the low end of the forecast range based on consensus forecast market returns provided by a range of external analysts as at the morning of 4 August [sic, scilicet September] to this end it was agreed that Geoff Scott will run various scenarios prepared on the basis of different forecast index levels and that the Board sub-committee, comprising Tim Crammond, Ian Burgess, George Trumbull and Kerry Roberts will apply the agreed methodology to select the actual range on Friday morning. ………………………….. 13.8 Paul Siviour noted that Ernst & Young have compiled a paper on all of the public information on GIO prospects and that a sensible forecast cannot be derived from this information." The document referred to in Item 13.1 as "Forecast Update" was prepared by Mr Scott with the assistance of his staff and it was prepared for presentation to the Committee. The document contained a table entitled "Latest Estimates: Total Profit". The document included figures said to be "latest estimate" for the year ending 31 December 1998 which was compared with the range contained in the Prospectus. The document referred to a lower figure of $693 million and a higher figure of $978 million. The document also showed the estimate for total profit, on the assumption that there was no improvement in the stock markets from 31 August 1998, as $616 million. Mr Scott's revised range in that document was above the latest estimate in the monthly operating report which had been presented to the directors on 24 August 1998. That was despite the fact that stock markets had fallen significantly between 24 August and 1 September as graphs contained within the "Forecast Update" document demonstrated and as was confirmed by Mr Scott in oral evidence. The draft of the AMP Part A Statement which was tabled at the meeting of the Due Diligence Committee on 1 September 1998 had been altered from the draft of 28 August 1998 which had been circulated to the directors. Again, it did not include the statements complained of by GIO. In lieu of the statements included in the 28 August draft, the draft of 1 September 1998 contained the following: "Due to the current volatility in investment markets, AMP believes that a wider forecast range is now appropriate. The low estimate has been reduced from $774 million to $693 million ("Revised Forecast"). This is further discussed in this section under the heading "Outlook for 1998 - Investment Income on Shareholder Capital". The draft also contained the following further material under the heading "Outlook for 1998": "The outlook for 1998 investment income on shareholder capital is dependent on the performance of the financial markets, particularly the UK equity market. As at the close of trading on 31 August 1998, the UK equity market as measured by the FT All Shares Index had fallen approximately 11% since its level as at 30 June 1998. As at the close of trading on 31 August 1998 the Australian equity market as measured by the All Ordinaries Index had fallen approximately 7% since its level as at 30 June 1998. The low end of the Revised Forecast range reflects a stabilisation of equity markets in Australia and New Zealand at around 31 August 1998 levels and a recovery of approximately 50% of the loss since 30 June 1998 in the UK equity market by 31 December 1998. The high end of the range assumes that the Australian and UK equity markets will recover to their end of March 1998 levels by 31 December 1998. As stated above, the Revised Forecast range is significantly impacted by investment return assumptions. The Board provides the Revised Forecast range to give due attention to the volatility that surrounds investment returns." Thus, the draft of 1 September 1998 represents a significant departure from the position which had been adopted in relation to forecasts thitherto. That change in approach, as indicated above, was reflected in Item 13.5 of the minutes of the meeting of that day. The lower end of the range is the figure which Mr Scott included in his forecast update document presented at the meeting. Also on 1 September 1998, Mr Trumbull sent a memorandum to the directors of AMP referring to the extreme volatility in the Australian share market and indicating that, since approval of the offer by the Board, the value to GIO shareholders of the share alternative had varied between approximately $4.60 and approximately $4.78 as against the value, at the date of approval, of $4.88. Mr Trumbull informed the directors that it was therefore proposed to vary the offer to the following: ". 2 AMP shares for 9 GIO shares, or if 2 AMP shares for 9 GIO shares results in a value of less than $4.88 to the accepting GIO shareholder, then that quantity of AMP shares necessary to equal that value…; or . $4.75." Thus, the directors were clearly kept informed of the impact of the changes in the stock market on the proposed offers. On 2 September 1998, Mr Trumbull sent two memoranda to the directors of AMP. The first indicated that GIO had released final year audited results that day. They were said to be consistent with the basis on which the acquisition recommendation had been made to the Board to proceed. A draft of the final form of the Due Diligence Report and forms of sign off were attached to the memorandum. Directors were informed that they would receive confirmation that the Due Diligence Committee had signed the report before final approval for the issue of the AMP Part A Statement would be sought. The memorandum also indicated that it was proposed to fax to directors the marked up pages of the AMP Part A Statement, reflecting changes made following the results announcement of GIO, and other comments that have come in through the verification process. The second memorandum of 2 September 1998 attached a version of the AMP Part A Statement which was said to be "blacklined showing changes to the version you considered over the weekend". The changes were relevantly "broadly summarised" in the memorandum as follows: 1. Material issues raised by each of you in your review of the Part A Statement were discussed at the Due Diligence Committee today. The Due Diligence Committee made recommendations accordingly as to: (i) what, if any, additional disclosure was required in relation to identified issues; and (ii) the appropriate content of that disclosure. Those changes have now been made. The Board Sub-Committee after discussion with the Due Diligence Committee also determined that widening the forecast range specified in the AMP Prospectus is appropriate because of the volatility of the markets. Obviously, if you would like to discuss any of those issues further, you should feel free to call me. The prospects section of the Part A Statement has been revised in light (in particular) of the fall in the stock market over the last 24 to 48 hours. The impact of that fall was the subject of a detailed discussion at the Due Diligence Committee Meeting. You should review Part A Statement prospects section with that in mind." Directors were requested to confirm their "in principle sign-off" by 9 a.m. on 3 September. It is important that, by that memorandum, the directors of AMP were informed of the agreement at the Due Diligence Committee meeting of 1 September 1998 to revise the low end of the proposed forecast range. The 2 September 1998 draft of the AMP Part A Statement is significant because it appears to have been the last version provided to the directors before registration. There was no complete copy of the draft in evidence. A partial draft labelled "Verification Copy Only To Be Returned" contained the section dealing with "prospects". The draft contained none of the statements complained of by GIO. Rather, the draft contained passages similar to those which were contained in the draft of 1 September 1998 and which had been placed before the Due Diligence Committee. The draft included the following passage: "Due to the decline in global stockmarkets immediately prior to the date of this Part A statement, the Board of AMP believes that a wider forecast range is now appropriate ("Revised Forecast"). The low end of the forecast range of operating profit after income tax attributable to shareholders (before the extraordinary loss) has been reduced from $774 million to $693 million. This is further discussed in this section under the heading "Outlook for 1998 - Investment Income on Shareholder Capital"". Under the heading "Outlook for 1998" the following appeared: "The outlook for 1998 investment income on shareholder capital is dependent on the performance of the financial markets, particularly the UK equity market. As at the close of trading on 31 August 1998, the UK equity market as measured by the FT All Shares Index had fallen approximately 11% since its level as at the end of June 1998 and approximately 12% since its level as at the end of March 1998. As at the close of trading on 31 August 1998 the Australian equity market as measured by the All Ordinaries Index had fallen approximately 7% since its level as at the end of June 1998 and approximately 10% since its level as at the end of March 1998. The low end of the Revised Forecast range reflects a stabilisation of equity markets in Australia and New Zealand at around 31 August 1998 levels and a recovery of approximately 50% of the loss since 30 June 1998 in the UK equity market by 31 December 1998. The high end of the range assumes that the Australian and UK equity markets will recover to their end of March 1998 levels by 31 December 1998. As stated above, the Revised Forecast range is significantly impacted by investment return assumptions. The Board provides the Revised Forecast range to give due attention to the volatility that surrounds investment returns. As requested by Mr Trumbull's second memorandum to directors of 2 September, directors provided "in principle sign-offs" in relation to the proposed Part A Statement over the course of 2 and 3 September 1998. However, it is by no means clear which draft of the AMP Part A Statement was the last draft seen by directors before completing "sign-off". One director, Mr B.R. Kean, expressly referred to the draft of 1 September 1998.
RETURN TO THE PROSPECTUS FORECAST On the morning of 3 September 1998, Mr Trumbull sent a further memorandum to directors which stated that a final version of the AMP Part A Statement and offer had been prepared and would be considered by the Due Diligence Committee that afternoon. The memorandum did not attach drafts of the documents which were to be considered by the Due Diligence Committee. It said that the changes that had been made primarily reflect: "1. Incorporation of GIO's audited results; 2. Points arising out of the verification process; and 3. Points of clarification." The memorandum also adverted to the possibility that it would be necessary to make changes to the "Prospects of Combined Entity Section" and other sections and indicated that if changes were to be made to those parts of the existing draft, black lined pages would be faxed to directors. Directors were informed that they would receive confirmation that the Due Diligence Committee had signed its report whereupon directors would be requested to fax an attached Directors Certificate. The memorandum also stated the following: "In the event that any minor last minute issues arise, we would propose to seek confirmation from the Due Diligence Committee and Board Sub-Committee of inclusion of changes." A meeting of the Due Diligence Committee was held at 3 p.m. on 3 September 1998. Apparently no final minutes have yet been prepared although draft minutes were in evidence. The draft minutes record five directors of AMP as being present, being Mr Crammond, Mrs Hewson, Mr Roberts, Mr Renard and Mr Trumbull. In addition, Mr Siviour and other consultants were recorded as being present and Mr Scott was also recorded as being in attendance. The draft minutes relevantly contain the following: 5. Investigating Accountants Report on Prospects Review 5.1 Paul Siviour tabled and spoke to the final report dated 3 September 1998 on the results of the high-level review of the financial prospects of AMP for 1998 conducted by the Investigating Accountant. 5.2 Paul noted the significant work done on producing the forecasts in the Prospectus in the period up to 22 April 1998 and that the current reports had tested the conclusions of that work with the benefit of actual results since and interviews with key executives. 5.3 Geoff Scott reported that CSFB's current forecasts for investment market returns as at 31 December 1998 were consistent with those of AMPAM and Hendersons. It was noted that AMP was awaiting DMG's most recent forecasts. All these experts are predicting returns which would still be consistent with the Prospectus, despite recent market volatility. 5.4 Ian Renard commented that, given all external indicators were consistent with the forecasts in the Prospectus, in his opinion it would be preferable not to alter the forecast range from that contained in the Prospectus. 5.5 Paul Saviour commented that if stock markets remain at current levels to 31 December 1998 (assuming all other factors remain constant) then the Group's expected result will fall below the Prospectus forecast range. In response, George Trumbull noted that the consensus view from all sources is that investment markets will pick up over the remainder of the year and that even if they did not other factors, such as bond yields and property prices, would probably move to balance the fall in equities to some extent. 5.6 It was agreed, after discussion, that the forecast range contained in the Prospectus be included in the Prospects section of the Part A Statement unless there is, in the opinion of the special Board sub-committee, a major downturn in the US market overnight. 5.7 It was further agreed to include in the Prospects section of the Part A Statement words to the effect that there is presently greater economic uncertainty than at the time of the issue of the prospectus, due in part to recent events in Russia and significant falls in the Dow Jones Industrial Average Index and that in preparing the forecast range in the Part A statement AMP has assumed some recovery in world equity markets (particularly in the UK). 6. Report on Viability of Producing a Combined Forecast 6.1 Paul Siviour tabled and spoke to a document entitled "Summary of Information Available on GIO" which identifies the prospective financial information in the public domain in relation to GIO and concludes that Ernst & Young cannot prepare a report on a financial forecast for GIO because there is insufficient information available to permit them to form an opinion within AUS 804. 6.2 The report was noted. Mr Scott swore an affidavit in which he recounted some of the discussion reflected in that draft minute. Mr Scott said that Mr Siviour tabled a report as referred to in paragraph 5.1 in the draft minutes. The final version of that report appears to be dated 15 September 1998. No version dated 3 September 1998 as referred to in the draft minutes has been produced. Mr Scott said that he then said words to the following effect: "We have now received CSFB's market outlook. Their forecast for investment markets as at 31 December are consistent with AMPAM's and Henderson's. Despite the market volatility, the projected returns would still be consistent with the prospectus range. We have not yet received Deutsche's most recent forecast. "CSFB" is a reference to Credit Suisse First Boston Australia Limited and "Deutsche" is a reference to Deutsche Bank. Mr Scott said that, following a discussion between other members of the Due Diligence Committee, Mr Ian Renard said words to the following effect: "I haven't seen anything that convinces me that we should change the prospectus forecast. The external indicators are consistent with the prospectus forecast. The volatility of the market is such that changing the prospectus range doesn't provide better information." It is important to bear in mind that Mr Renard had only been appointed a director of AMP on 24 August 1998 and, accordingly, had no responsibility in respect of the Prospectus Forecast. He, therefore, had no particular interest in defending the Prospectus Forecast. Mr Scott recalled that Mr Siviour said words to the following effect: "If stock markets remain at their current levels to 31 December, and all other factors remain constant, the Group's expected result will fall below the prospectus forecast range." A contemporaneous note made at the meeting records Mr Siviour as saying: "If markets don't change and everything else stays the same then $170M under low estimate." While that figure does not appear in the minutes, Mr Siviour accepted in oral evidence that he may well have quantified the extent to which AMP profits would fall below the low end of the Prospectus Range as $170 million. Mr Siviour accepted in cross examination that he and his staff had done the calculations and knew that the profit would be $170 million below the Forecast Range if markets stayed where they were. Mr Scott said in his affidavit that Mr Trumbull then said words to the following effect: "The consensus view is that investment markets will pick up over the remainder of the year. Even if they do not, in periods like this, there are better yields on bonds and property. Bond yields and property prices would probably move to balance the fall in equities to some extent." Mrs Hewson said words to the following effect: "Markets are in a period of greater uncertainty." Either at that point or subsequently, Mrs Hewson said: "I don't agree with the view that the prospectus forecast range should be retained." Mr Scott said that one of the members of the Due Diligence Committee then said words to the following effect: "The Part A Statement should disclose that there is presently greater economic uncertainty than at the time of the issue of the prospectus. We should refer to the recent events in Russia and the falls in the Dow Jones Industrial Average Index." A discussion then followed in which members of the Due Diligence Committee made comments to the following effect: "I think that the forecast range contained in the prospectus should be retained in the Part A Statement. Confirmation of the prospectus range should be subject to further review if there is a major down turn in the US market overnight." Another member of the Committee, possibly Mr Trumbull, then said: "The Board Due Diligence Committee will meet tomorrow morning. Ian Burgess will attend by phone and we will send papers out this afternoon. The Board Due Diligence Committee should review whether there is any major change in the US market overnight." A member of the Committee then said words to the following effect: "The Part A should make clear that, in preparing the forecast range in the Part A Statement, AMP has assumed some recovery in World equity markets, particularly in the United Kingdom." Clearly enough, Mr Scott used the draft minutes as a basis for prompting his recollection to enable him to make the affidavit. Nevertheless, I am satisfied that Mr Scott's evidence as to the discussion at the meeting is reliable. Mr Siviour also gave evidence concerning the meeting. He said that neither Mr Trumbull or anyone else at the meeting took a strong position against departing from the Prospectus Forecast range. However, he also had no recollection of anyone saying that AMP should not be putting a forecast in the AMP Part A Statement that was different from the one being used internally for its decision making purposes. The Board had been given the forecast contained in the monthly report tabled at its meeting on 24 August 1998. Other directors had also seen Mr Scott's "Forecast Update". Mr Siviour said that no reasons other than those referred to by Messrs Trumbull and Renard were given to justify retention of the Prospectus Forecast and departure from the proposal of the Due Diligence Committee of 1 September 1998. The evidence concerning Mr Siviour's report is curious. Mr Siviour's recollection was that the document which was tabled on 3 September had a set of forecast comparisons that exactly reflected the range propounded by Mr Scott. It appears that some form of request was made by the Due Diligence Committee for Mr Siviour's report to be revised. Mr Jim Ives, the AMP Group Compliance Manager, sent two facsimile transmissions on 16 September 1998. In one, to Mr Crammond, he said: "Attached are the draft minutes of the final DDC meeting, together with the executive summaries of two reports which were tabled by Ernst & Young (and sent back for refinement). (Emphasis added) In a separate transmission to Mrs Hewson, Mr Renard, Mr Roberts, Mr Trumbull, Mr Siviour and others, Mr Ives said: "Also attached are two reports tabled at the meeting by Ernst & Young, which have been amended as directed by the Committee." (Emphasis added) Following the meeting of the Due Diligence Committee of 3 September 1998, Mr Trumbull despatched a second memorandum to the directors of AMP. After referring to his earlier note, he reported "on the following developments": "1. The Due Diligence Committee signed the final Due Diligence report. 2. After considerable discussion the Due Diligence Committee decided that it was appropriate to retain the forecast range as published in the AMP listing prospectus. The Board Sub-Committee will monitor events leading up to lodgment of the Part A Statement to confirm that this issue does not need to be revisited. 3. The Due Diligence Committee authorised Gary Traill to approve changes to the Part A Statement. In the unlikely event that any changes are material, Gary will discuss them with the Due Diligence Committee before authorising. 4. We will provide you with a copy of the Part A Statement and other documents as lodged with ASIC at the same time as we serve it on GIO (next Tuesday). Consequently, there is no need for you to retain old drafts of the Part A Statement unless you wish to. If you do wish to dispose of drafts, given the sensitive nature of the contents, shredding would be the preferred alternative. 5. Would you please sign and return the attached certificate… by 10 a.m. tomorrow morning." The memorandum was dispatched by facsimile transmission at about 6.20 p.m. There is nothing in the memorandum to suggest that the directors of AMP, before signing and returning the form of director's certificate which were attached, were to be provided with either the final version of the AMP Part A Statement or any reasons as to why it was appropriate to retain the Prospectus Forecast range. Rather, paragraph 4 of the memorandum suggests that directors were not furnished with the final version until after it was served on GIO. That did not occur until 8 September 1998. A final Due Diligence Report was signed by Mr Crammond, Mrs Hewson, and Messrs Trumbull, Roberts, Batchelor, Traill, Renard, Bancroft, Golding, Terry and Siviour. The report bears the date 3 September 1998. It states that the members of the committee were those who signed it. It refers to the AMP Part A Statement which is Annexure A. That version of the AMP Part A Statement, which is dated 3 September 1998, contained the same words as are set out above from the draft of 2 September 1998. On the evening of 3 September 1998, Mr Scott sent a memorandum to Messrs Crammond, Roberts, Trumbull and Batchelor, who were members of the Board Sub-Committee, and to the Chairman of AMP, Mr Burgess. The memorandum attached further advice from CSFB and Deutsche Bank concerning prospects for the markets as at 31 December 1998. The memorandum also attached a document entitled, "Latest Estimates: Total Profit". The documents compared the Prospectus Forecast with "Latest Estimates'. The latest estimates included a high figure of $970 million and three different scenarios for the low figure, being $679 million, $557 million and $434 million. The three different scenarios were based on different assumptions as to the ASX All Ordinaries Index and the United Kingdom FT All Share Index. Mr Scott said that the calculations were provided to assess volatility and sensitivity, not for the purpose of setting a forecast range. All three low figures were significantly below the low figure in the Prospectus Forecast range. In addition, the single high figure was also below the high figure in the Prospectus Forecast range. The figures were also below the range adopted by the Due Diligence Committee on 1 September 1998 in adopting Mr Scott's "latest estimate".
4 SEPTEMBER 1998 On the morning of 4 September 1998, Mr Siviour sent a facsimile transmission to Messrs Simmons, Bancroft, Terry and Scott. The facsimile referred to overnight market movements and purported to set out a "High level summary of the critical investment market estimates". The facsimile summarised the estimates of each of: · AMPAM and Henderson, · CSFB, and · Deutsche Bank for the Australian and United Kingdom stock markets. The facsimile also summarised revised views of AMPAM and Henderson on the assumption that the S&P 500 Index falls to 950 as at 31 December 1998. It also summarised the closing levels of the markets overnight. The facsimile then went on to say: "At a high level the estimated AMP 1998 result based on each estimate above (and with all other things being equal to current estimates) is as set out below: (a) [AMPAM and Henderson] upper end of the Prospect Forecast range. (b) [AMPAM and Henderson revised views assuming S&P 500 falls to 950] approximately $100 million below the bottom of the Prospectus Forecast range. (c) [CSFB] approximately $900 million to $930 million. (d) [Deutsche Bank] approximately $100 million below the bottom of the Prospectus Forecast range. (e) [Overnight Closing] If the 3 September closing position was to remain through to 31 December 1998 approximately $200 million below the bottom of the Prospectus Forecast range. In my view the downside in points (b) and (d) particularly need to be considered along with the impact of the current position of the markets remaining in place to 31 December 1998." Mr Siviour rejected the proposition that the reason for sending the facsimile was that he wanted the Due Diligence Committee to reconsider its decision of 3 September 1998 not to revise the Prospectus Forecast range. Mr Siviour also rejected the proposition that he sent the facsimile because he personally held the view that the retention of the Prospectus Forecast range was unreasonable.
The facsimile clearly contains contrasting information. On the one hand, the overnight closing and the Deutsche Bank estimate indicate the possibility that the profit for the year would be significantly below the Prospectus Forecast range. On the other hand, on the basis of the AMPAM and Henderson views and the CSFB estimates, the profit would be towards the top of the Prospectus Forecast range. Mr Siviour's final comment emphasised the need to have regard to the pessimistic views of Deutsche Bank and the current state of the markets. On the morning of 4 September, a meeting took place which was attended by Messrs Crammond, Roberts, Trumbull, Batchelor and Scott, Mr Greg Terry of CSFB and possibly Mr Traill. AMP's Chairman, Mr Burgess, participated by telephone. At one stage, Mr Scott said that it was a meeting of the Board Due Diligence Committee. Clearly enough, however, the meeting which occurred was not a meeting of the Due Diligence Committee. At the meeting of the Board of AMP of 24 August 1998, a sub committee had been appointed to approve any final details relating to the GIO offer. The sub-committee was to consist of Messrs Burgess, Crammond, Trumbull and Roberts. Article 77.1(a) of the Articles of Association of AMP authorised the Board to delegate any of their powers or discretions, other than those which by law must be dealt with by the directors as a board, to a committee. I consider that the meeting which took place on the morning of 4 September 1998 can properly be characterised as a meeting of the sub committee appointed on 24 August 1998. No formal minutes of the meeting appear to have been taken. Mr Scott said in his affidavit that, at the meeting, there was discussion to the effect that the information available and the overnight movement in the US market did not support a change to the Prospectus Forecast range. There was reference to the fact that the AMP Part A Statement should include specific reference to market volatility and to the fact that the sensitivity analysis contained in the Prospectus would be repeated in an appendix to the AMP Part A Statement. Mr Scott said that at the conclusion of the meeting, Mr Trumbull or Mr Burgess said words to the effect: "Gentlemen are we all in agreement that we should retain the prospectus forecast range in the Part A Statement." None of those present disagreed. While Mr Scott's description of the meeting as a meeting of the "Board Due Diligence Committee" was inaccurate, I consider that his description of the discussion should be accepted as reliable. Mr Scott rejected the proposition put to him that all of the newer information available on 4 September 1998 indicated that it was necessary to revise the lower end of the forecast range. He disagreed that the data he received between 1 and 4 September 1998 more strongly supported a conclusion of downwards revision of the forecast range. Mr Scott agreed, however, that the facsimile from Mr Siviour and the estimate from Deutsche Bank were two new pieces of information. However, Mr Terry also provided CSFB's view which confirmed the earlier CSFB view and which was consistent with the AMPAM and Henderson view. On 4 September 1998, there was a meeting of the directors of AMPII. The minutes record that the meeting was attended by Mr Traill and Mr Batchelor and that it was resolved that the AMP Part A Statement and the offer be approved and adopted. No other directors of AMPII attended. The other directors of AMPII are Mr Trumbull and Mr Trevor Thompson. There is no indication in the minutes that the Board of AMPII considered any of the forecast issues which had been considered on 1 September, 3 September and 4 September 1998 as summarised above. Final directors' certificates appear to have been received subsequently from all but one of the directors of AMP. The printed form of each certificate was as follows: "I have read and considered the Part A Statement relating to the acquisition of shares in GIO Australia Holdings Limited. I approve the issuing of the Part A Statement." The certificate signed by Mr Keane was amended in handwriting to read as follows: "I have read and considered the draft Part A Statement dated 2/9/98 relating to the acquisition of shares in GIO Australia Holdings Limited." Precisely when the certificates were received is unclear in most cases. Further, the certificates do not identify the version of the Part A Statement to which they refer. Mr Scott signed a "Verification Sign-off Certificate" in which, among other things, he confirmed that the statement of opinion contained in section 3.4 and Appendix VI of the Part A Statement were fair and based on reasonable grounds. He added in handwriting at the bottom of that certificate the following: "Subject to review by Due Diligence Sub-Committee on the forecast range. Review to be completed on 4/9/98." Mr Scott said that when he signed the verification certificate, it was in the expectation that the Prospectus Forecast range should be retained subject to a meeting on the morning of 4 September 1998. He rejected the proposition that when he signed the verification certificate it was in the context of the resolution of the Due Diligence Committee of 1 September adopting the revised forecast range. RESOLUTION OF THE ISSUES CONFIRMATION OF PROSPECTUS FORECAST RANGE The complaint in the Pleading under this heading is based on statements contained in Section 3 of the AMP Part A Statement entitled "Details of GIO and the effect of the offers". The statements are contained part 3.4 of that section which is entitled "Prospects". A copy of part 3.4 is set out in Schedule 1 to these reasons. Within part 3.4 are sections entitled: · 3.4.2 AMP's Prospects, · 3.4.3 GIO's Prospects, · 3.4.4 Prospects of a Combined AMP and GIO. Section 3.4.2 contains a forecast of AMP's operating profit for the year ending 31 December 1998. The forecast is taken from the Prospectus and is referred to as the "Prospectus Forecast". The Prospectus Forecast gives a range from a low of $774 million to a high of $977 million. Section 3.4.2 also says: "The Prospectus Forecast is based on forecasts of AMP's operating margin from its four main areas of business, its corporate office and the investment income on corporate office shareholder capital and shareholder capital invested in AMP's areas of business. The Prospectus Forecast is based on a number of assumptions, the most material of which are set out in the prospects section of AMP's Prospectus, which is reproduced as Appendix VI to this Part A statement." Appendix VI to the AMP Part A Statement is entitled "AMP's Financial Forecast Extracted from the Prospectus". A copy of Appendix VI is set out in Schedule 2 to these reasons. The forecast range of $977 million to $774 million is set out in a table headed "Board's Forecast - AMP Limited Consolidated" and is repeated in a table headed "Investment Return Assumptions and Sensitivity Analysis". One of the assumptions identified as "material assumptions underlying the forecast range" is as follows: "there is no material change in exchange rates from those existing at 31 December 1997 and that the value of the Australian dollar will on average be equivalent to Ł0.414 and NZ$1.15"; Appendix VI also contains a sensitivity analysis, extracted from the Prospectus, relating to investment returns. The analysis is introduced by the following statement: "The table [below] analyses the sensitivity of the Forecast Range to alternative forecast investment return assumptions … The high end of the Forecast Range assumes that the Australian and UK equity markets maintain their end of March 1998 levels for the remainder of the year." The sensitivity analysis includes as a factor having a significant bearing on returns from UK financial services, the "Ł/A$ FX rate". The statements which GIO complained about in the Pleading are as follows: "The Board of AMP believes that the Prospectus Forecast range is still an appropriate range for inclusion in this Part A Statement." ("the First Statement") "In confirming the Prospectus Forecast range, the Board of AMP has assumed there will be some recovery in global equity markets prior to 31 December 1998." ("the Second Statement") GIO alleged that those statements contain express or implied representations which are misleading or deceptive or are likely to mislead or deceive in contravention of sections 704 and 995 of the Law. The representations alleged in the Pleading are as follows: (a) Immediately prior to submitting the Part A Statement for registration with the ASIC, the Board of the AMP confirmed, on the information then available to it, that the AMP's full year results for the year ending 31 December 1998 are likely to be within the range disclosed in the demutualisation "Prospectus"; (b) At the date of the deemed registration of the Part A Statement, the Board of AMP forecast that the AMP's full year results for the year ending 31 December 1998 are likely to be within the range disclosed in the demutualisation "Prospectus". (c) At the date of the deemed registration of the Part A Statement, the Board of AMP had reasonable grounds for: (i) confirming that AMP's full year results for the year ending 31 December 1998 are likely to be within the range disclosed in the demutualisation "Prospectus"; (ii) forecasting that AMP's full year results for the year ending 31 December 1998 are likely to be within the range disclosed in the demutualisation "Prospectus". (d) The Board of the AMP had, at the time it confirmed that "Prospectus Forecast", reasonable grounds for assuming that there would be "some recovery in global equity markets prior to 31 December 1998. In written submissions, GIO contended that the two statements, together with a further statement which was not mentioned in the Pleading, amounted to a representation as follows: "As at the dates of registration and service on GIO of the Part A Statement the range of $774 million to $977 million had been adopted by the Board of AMP as its current best estimate of AMP's operating profit for the year ended 31 December 1998."
GIO contended that the three statements ("the Relevant Statements") contain several specific representations. The specific representation alleged corresponds, more or less, with the representations alleged in the Pleading except for an additional representation based on the further statement to which I have just referred. That further statement is also found in the "Prospects" part of the AMP Part A Statement and is in the following terms: "The Board provides the Prospectus Forecast range to give due attention to the volatility that surrounds investment returns." ("the Third Statement") The specific representations which GIO alleged in its written submissions were that, as at the dates of registration and service of the Part A Statement: (a) the Board of AMP had: (i) formed the belief, and (ii) confirmed, on the information then available to it, that AMP's full year results for the year ending 31 December 1998 were likely to be within the range of $774 million to $977 million and, in so doing, had itself assumed that there would be some recovery in global equity markets prior to 31 December 1998; (b) there were reasonable grounds for believing that AMP's full year results for the year ending 31 December 1998 were likely to be within that range; (c) the range was provided to take account of market volatility; and (d) there were reasonable grounds for the assumption that there would be "some recovery" in global equity markets. The representation that "the range was provided to take account of market volatility" has no counterpart in the Pleading. AMP and AMPII contended that, for that reason, I should not have regard to that representation as a separate allegation. While I will not deal with the alleged representation as a separate issue, the Third Statement, on which it is based, has a bearing on the meaning which should be attributed to the other statements. GIO's complaints concerning the "confirmation" of the Prospectus Forecast can be divided into two categories, although there is considerable interaction between the two. The first category relates to the representations which GIO contended are to be found in the Relevant Statements relating to the role of the Board of AMP in the formulation of the AMP Part A Statement and to the existence of reasonable grounds for "confirming" the Prospectus Forecast. Secondly, GIO complained that it is not clear just what was being said about the prospects of AMP by the Relevant Statements. The complaint relates to the method of presentation of the forecast and involved an assertion that confusion arises from the "flawed methodological approach" adopted by AMP. The confusion arises because it is not clear what assumptions underpin the confirmation. That was said to render the AMP Part A Statement misleading or deceptive. Alternatively, it was said that, for that reason, the AMP Part A Statement fails to give adequate information concerning the prospects of AMP. In addition, GIO complained that, even if the confirmation of the Prospectus Forecast itself is not misleading, the Prospectus Forecast is inadequate in so far as it relates only to a period of approximately four months.
The Role of the Board of AMP GIO contended that, in so far as the Relevant Statements contain representations relating to the conduct or state of mind of the Board of AMP, the representations were false because the Board of AMP: (i) had not formed the belief that AMP's full year results are likely to be within the range; (ii) had not "confirmed" that AMP's full year results are likely to be within the range; (iii) had not made the assumption that there would be some recovery in global equity markets. GIO contended that there was no evidence that the sub-committee of the Board set up to approve final details relating to the offer ever met. GIO also contended that there was no evidence that the directors of AMP as a Board either: (a) approved the final form of the Part A Statement; or (b) approved any version of the Part A Statement by circular resolution as contemplated at the meeting of the Board on 24 August 1998. The Respondents contended on the other hand that, on the correct construction of events which happened, the Board of AMP had formed the belief, and had confirmed, that full year results were likely to be within the Prospectus Forecast range, but that if that is not the fact, it is immaterial. The First Statement may be construed, by itself, as no more than a statement that the Board of AMP believes that it is appropriate to include the Prospectus Forecast in the AMP Part A Statement. In other words, the fact that the Prospectus contained that forecast would be a material matter for disclosure. However, the Second Statement indicates that the First Statement was intended to do something more than that. The Second Statement appears to be a characterisation of what was being done with the Prospectus Forecast. That is to say, the AMP Part A Statement itself is saying something about what the Board of AMP has done, namely, that it has "confirmed" the Prospectus Forecast. The Relevant Statements must be understood in the context of the following further statement in the AMP Part A Statement: "The board does not represent that AMP Limited's consolidated results for the 1998 year.. will be within the Prospectus Forecast range. This is because the underlying assumptions, and therefore the Prospectus Forecast range are, by their very nature, subject to significant uncertainties and contingencies…" That, in terms, is a disclaimer by the Board. Yet the Board makes no representation in the AMP Part A Statement. It is AMPII which makes any representation contained in the AMP Part A Statement. GIO alleged in the Pleading that the Relevant Statements contain express or implied representations "by the Board of the AMP". That proposition can not be supported since the AMP Part A Statement is not a document of the Board of AMP, although the directors of AMP may have certain responsibilities in relation to its contents. The AMP Part A Statement is a document of AMPII. It is not capable, therefore, of constituting a representation by the Board of the AMP. In its written submission, GIO contended that the Relevant Statements amount to representations but did not repeat the contention that they were representations by the Board of AMP. The representor, of course, could only be AMPII. The Second Statement should, in my opinion, be construed as a statement about the conduct of the Board of AMP and not a representation about the Prospectus Forecast. In other words, the reference to the Prospectus Forecast in the AMP Part A Statement does not constitute a forecast by AMPII, the issuer of the AMP Part A Statement. The Relevant Statements, as a matter of plain English, are statements about the conduct and state of mind of the Board of AMP. They are statements about the belief of the board of AMP and about what the Board of AMP has done. The Third Statement, while it may not in these proceedings be treated as giving rise to a separate representation, is relevant to the proper construction of the other two statements. In saying that the Board "provides the Prospectus Forecast range", the AMP Part A Statement is saying something further about the conduct of the Board of AMP. In other words, it bears on the meaning of the reference to the Board of AMP "confirming" the range and reinforces the representation that the Prospectus Forecast range comes from the Board of AMP as at the time of the Part A Statement. Thus, there is a representation that the Prospectus Forecast range is something promulgated by the Board of AMP as at the date of the Part A Statement subject, of course, to the qualifications and assumptions referred to in the AMP Part A Statement. By the Relevant Statements, AMPII represents that the Board of AMP has "confirmed" the Prospectus Forecast range. It is significant that the AMP Part A Statement attributes conduct or belief to the Board of AMP as opposed to the management of AMP or AMP as a corporate entity. GIO drew attention to other parts of the AMP Part A Statement where a distinction is drawn between the intentions of AMP on the one hand and the belief of the Board of AMP on the other. The AMP Part A Statement contains details of the experience of the twelve members of the Board of AMP. A significant number of AMP Board members have extensive corporate and financial experience and expertise at the highest level. I consider that the reference in the Relevant Statements to "the Board of AMP", as opposed to "AMP", was deliberate and intended to convey to a reader of the AMP Part A Statement the fact that, collectively, those persons to whose corporate experience attention is drawn in the AMP Part A Statement had come to a particular and considered view, as a board of directors, about AMP's prospects. The significance of that attribution of conduct or belief to the Board of AMP is heightened and reinforced by the subject matter to which the conduct or beliefs relate, namely the prospects of AMP. The directors of AMP are the only individuals, apart from AMP management, who would be expected to have reliable knowledge concerning the prospects of AMP. That is a matter which, by section 1022 of the Law, needs to be disclosed in a Part A statement concerning an offer of shares in AMP as consideration. GIO's complaint about the AMP Part A Statement is not a criticism of the Board of AMP or of its members per se. Rather, it is a criticism of those responsible for promulgation of the AMP Part A Statement in the form in which it was registered and delivered to GIO. At its meeting of 24 August 1998, the Board of AMP had provided for a mechanism which could have fairly permitted the attribution of beliefs or conduct and action to the Board. GIO contended, however, that that mechanism was not adopted and, as a consequence of which, the AMP Part A Statement contains statements concerning the conduct or beliefs of the Board of AMP which are false. There is, in my opinion, considerable doubt as to whether any of the directors, other than Mr Roberts and Mr Trumbull, read and considered the final version of the AMP Part A Statement before they signed their final sign-off certificates. Mr Keane's certificate confirms that the latest version which he saw was the draft of 2 September 1998 which incorporated the "Revised Forecast" showing the low end of the forecast range as $693 million. In accordance with the concluding request in Mr Trumbull's memorandum of 2 September 1998, most of the directors had given "in principle sign-off" on the contents of the draft of 2 September 1998. There was no satisfactory evidence that all of the directors saw and "signed off" in respect of the final version of the AMP Part A Statement. There was only one relevant meeting of the Board of AMP, namely the meeting on 24 August 1998 when the proposed take over offer was approved. The minutes of that meeting contain no reference to the Board giving any consideration, in that context, to AMP's likely results for the year. GIO contended that, since certain individual directors of AMP had neither read nor considered the final version of the AMP Part A Statement and had neither read nor considered the Relevant Statements, the Board of AMP, as a Board, played no role in the approval of the AMP Part A Statement or its contents. Rather, it was said, certain of the directors gave their approval to the issuing of the AMP Part A Statement after having read and considered a draft which did not contain the Prospectus Forecast but contained the revised forecast. There is, of course, no requirement under the Corporations Law that a Part A Statement be approved by the directors by any particular mechanism. The AMP Part A Statement was approved by the Board of the offeror, AMPII, on 4 September 1998. The respondents contended that, notwithstanding that the meeting of the AMP Board of 24 August 1998 contemplated that directors would approve the final AMP Part A Statement by way of circular resolution, the Board of AMP were entitled ultimately to adopt a different approach if they saw fit. That may be correct. However, the difficulty with that contention is that the evidence did not support a conclusion that the Board actually did so. The 28 August version of the AMP Part A Statement, which was received by all of the directors for review, contained the following statement: "Based on current information available to the Board of AMP, AMP believes that the Prospectus Forecast remains an appropriate forecast range for the year ended 31 December 1998." On the other hand, that version did not include the references to volatility in investment returns or to assumption as to recovery in global equity markets. The directors received a revised version of the AMP Part A Statement on 2 September 1998. That version included an amendment to the Prospectus Forecast range and the directors were informed of the then view of the Due Diligence Committee that a widening of the forecast range was appropriate. The first memorandum from Mr Trumbull to the directors of 3 September 1998 indicated that a revised draft would be considered by the Due Diligence Committee later that afternoon. Five directors of AMP, Mr Crammond, Mrs Hewson, Mr Roberts, Mr Renard and Mr Trumbull, directly participated in the decision of the Due Diligence Committee to retain the Prospectus Forecast range. Prior to the final decision made at the meeting on 4 September 1998, Mr Trumbull sent the memorandum to the directors indicating that the Due Diligence Committee had decided that it was "appropriate to retain the forecast range as published in the AMP Listing Prospectus". There is no evidence that any AMP director dissented from that course or expressed a contrary view that confirmation of the Prospectus Forecast range would not be appropriate in the circumstances. However, even if an inference can be drawn that that memorandum was received by all directors, the memorandum does not disclose the precise nature of the proposed "confirmation". The respondents contended that the decision to retain the Prospectus Forecast was confirmed by all the directors who were members of the Board Sub Committee, which had power to "approve any final details relating to the offer" including the consideration. The respondents contended that, in those circumstances, GIO's contention that the AMP Board did not in fact confirm the prospectus Forecast range is either wrong or immaterial. However, the power of approval of the AMP Part A Statement was not delegated to the Board Sub Committee, which was merely authorised to approve the final details relating to the offer. Even if the Board Sub Committee met on 4 September 1998 and approved the final version of the AMP Part A Statement, that fact did not derogate from the necessity for "all directors to approve the final Part A offer by way of circular resolution" as contemplated by the resolution recorded in the minutes of 24 August 1998. More importantly, the Board Sub-Committee was not authorised to "confirm" a forecast on behalf of or in the name of the Board, as an organ of AMP. Nor was the Due Diligence Committee authorised to "confirm" a forecast. Its function must be regarded as being limited to providing material on the basis of which the Board might be able to make a forecast but no more. I consider that the Relevant Statements contain a representation that the Board of AMP had the relevant belief concerning the Prospectus Forecast range and had "confirmed" that range as appropriate. I consider that that representation relates to a formal determination of the Board of AMP, as an organ of AMP. The fact that a number of individual directors had formed the relevant belief and had confirmed the range as being appropriate does not support the conclusion that the Board of AMP, as such organ, had done so. These proceedings have been on foot since 25 September 1998. The allegations by GIO that the AMP Part A Statement contained false or misleading statements concerning the belief or action or conduct of the Board of AMP as at the date of the Part A Statement were formally made in the proceedings no later than 29 September 1998. AMP is itself a respondent. In those circumstances, the directors of AMP are more likely than not to have become aware of the allegations which are made in the proceedings. Yet there has been no suggestion that any of the directors of AMP has sought to distance himself or herself from the statements contained in the AMP Part A Statement. While there is no evidence of any formal ratification of the "confirmation" by the Board, there does not appear, as a practical matter, to have been any subsequent dissent from the Board. It may be that those directors who did not participate directly in the formulation of the AMP Part A Statement were content to leave it to their colleagues to undertake and complete that task. It may be that they were all prepared to "confirm" the Prospectus Forecast. However, the directors are not parties and none of them was called to give evidence to say so. In any event, the evidence supports an inference that some of the directors may not, as at the time when the AMP Part A Statement was registered, have been aware of the presence of the Relevant Statements in the final version of the AMP Part A Statement. I consider that the representations contained in the Relevant Statements are misleading in so far as they indicate a formal "confirmation" of the Prospectus Forecast by the Board as an organ of AMP. The Board has simply not turned its collective mind to that question. Since there is no separate forecast in the AMP Part A Statement, but only reference to what the Board of AMP has done, it is all the more important for GIO shareholders to know whether the Board of AMP did confirm the Prospectus Forecast in a meaningful way.
Reasonableness of the Prospectus Forecast GIO contended that the AMP Part A Statement also contains representations that there were reasonable grounds for belief that AMP's full year results are likely to be within the range. There is certainly no express representation in those terms. It is necessary, therefore, to consider whether there is any implicit representation to that effect to be found in the Relevant Statements. The question is whether the First Statement, when read in conjunction with the Second Statement, contains a representation that, subject to the qualifications expressed in the AMP Part A Statement, there are reasonable grounds for believing that AMP's full year results are likely to be within the range. If the Board of AMP made a representation that it believed that AMP's full year results were likely to be within the forecast range, that representation would have no significance unless it carried with it, at least impliedly, a statement that the belief was rational. In other words, there would be no point in the Board making a statement about the belief of the Board of AMP unless that statement carried with it the implication that the belief was based on reasonable grounds. No prospective investor would be expected to be interested in a belief of the Board of AMP formed otherwise than on reasonable grounds. Further, there would be no point in making a forecast based on assumptions which had no rational basis. However, representations made in the AMP Part A Statement are not representations by the Board of AMP. Rather, the representations are statements about the belief or conduct of the Board of AMP. Because of the corporate and financial experience and expertise of those individuals who comprise the board of AMP, GIO shareholders may be prepared to rely on representations concerning the belief of the Board since they would assume that the Board would not form a belief except on reasonable grounds. Such reliance would depend not upon implicit representation but upon the assumption to which I have just referred. For those reasons, I am disposed to consider that the Relevant Statements do not carry the representation that there are reasonable grounds for believing that AMP's full year results are likely to be within the Prospectus Forecast range or that there were reasonable grounds for the assumption that there would be some recovery in global equity markets. That would give greater importance to the representation that the forecast had been "confirmed" by the Board. In any event, even if such a representation is implicit in the Relevant Statements, I do not consider that it was misleading to make such a representation. I consider that the material which was before the directors and senior executives of AMP on the morning of 4 September 1998 constituted a reasonable basis for concluding that the profits of AMP for the year ending 31 December 1998 are likely to be within the Prospectus Forecast range. Mr Siviour's memorandum of 4 September 1998 summarised the most recent information which was available. Mr Siviour certainly indicated his view that the estimate of Deutsche Bank needed to be considered along with the impact of the current position of the markets. However, AMP's internal assessment, through AMPAM and Henderson, and CSFB's assessment indicated that the equity markets were likely to recover to a level which would give to AMP a profit for the year well within the range. Mr Scott had generated forecasts which indicated that the profit could well be below the low end of the range. On the other hand, the positive assessments of AMPAM/Henderson and of CSFB, confirmed by Mr Terry on the morning of 4 September 1998, constituted, in my opinion, reasonable grounds for a belief that it was likely that the profit of AMP for the year ending 31 December 1998 would fall within the Prospectus Forecast range. Reliance was placed by GIO on the provisions of section 765 of the Corporations Law and section 51A of the Trade Practices Act 1974 (Cth), in so far as Part V of the Trade Practices Act has application to the circumstances. In so far as Part V has no application, GIO relied on section 12DA of the Australian Securities and Investment Commission Act 1989 (Cth) ("the ASIC Act"). In so far as section 12DA is concerned, section 12BB of the ASIC Act has an equivalent operation to section 765 and section 51A. Section 765 relevantly provides as follows: "(1) When a person makes a representation with respect to any future matter… and the person does not have reasonable grounds for making the representation, the representation shall be taken to be misleading. (2) For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a person with respect to any future matter, the person shall, unless the person adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation." Questions would therefore arise as to whether the representations relied on by GIO can be properly characterised as representations "with respect to any future matter". However, it is important to bear in mind in this context that the representations are representations by AMPII. They are not representations by the Board of AMP. In so far as representations are made concerning the conduct or state of mind of the Board of AMP, those representations are not representations with respect to future matter. I do not consider that a statement as to the belief of the Board or as to "confirmation" by the Board is a statement with respect to a future matter, notwithstanding that the belief itself relates to a future matter or that the confirmation relates to an earlier statement with respect to a future matter. Accordingly, in relation to those representations, section 765 has no application. Even if the representations in question can properly be characterised as representations with respect to a future matter, the question of whether or not the maker of the statements had reasonable grounds for making the representation does not require an examination of anything other than the statement itself. That is to say, if a representation that the Board of AMP believes that AMP's full year results are likely to be within the Prospectus Forecast range is a statement with respect to a future matter, because it relates to the future, it is not a representation as to what might happen in the future. As a statement, it can only be a statement of belief. Whether the maker of that statement had reasonable grounds for representing that that was the Board's belief is a different question from whether the Board had reasonable grounds for having the belief. In the present context, the question is whether AMPII had reasonable grounds for making the representation that the Board of AMP had "confirmed" the Prospectus Forecast. It is only as to that question that any possible reversal of onus would arise. As indicated above, I have concluded that that representation was misleading. The Assumptions in the Confirmation of the Prospectus Forecast GIO's complaints concerning the assumptions made for the purpose of confirming the Prospectus Forecast in the AMP Part A Statement were formulated as follows: (a) No basis is provided for the assumption made that there will be "some recovery in global equity markets prior to 31 December 1998". (b) Accordingly, the reliability of the entire forecast is both problematic and misleading. (c) Inadequate disclosure is made as to the extent to which: (i) actual results or events have departed from the forecast; (ii) the assumptions underpinning the earlier forecast are no longer valid. (d) Having regard to the demographic spread of GIO shareholders, the manner in which the prospects of AMP are treated in the AMP Part A Statement is likely to mislead or deceive GIO shareholders. GIO also contended that confusion in the manner of presentation of AMP's prospects generally and the Prospectus Forecast in particular arises from the "flawed methodological approach" adopted by AMP. A contrast was drawn between the methodology adopted in the preparation of the Prospectus Forecast on the one hand and the treatment of that forecast in the AMP Part A Statement as indicated above. According to Messrs Siviour and Scott, the Prospectus Forecast in the Prospectus was based on AMP's internal corporate forecasts. The forecast took into account movements up or down in investment markets and all of the assumptions which were made at the time of the forecast were set out. The purpose of including a range rather than a specific figure was to accommodate volatility both upwards and downwards. However, despite an early proposal to await AMP's complete re-forecasting based on the results to 30 June 1998, the AMP Part A Statement did not start with the half year's results nor with any revised corporate forecasts. While the AMP Part A Statement said that the range was provided to reflect volatility in investment markets, it was retrospective in the sense that the range did not accommodate the possibility that markets may remain stable or may fall further. What is not spelt out is that the Prospectus Forecast was made some four months previously and that two significant assumptions had proved to be wrong as at that date, namely the assumptions as to exchange rates and the level of the equity markets. The AMP Part A Statement contains a statement that the assumptions underlying the Prospectus Forecast are subject to significant uncertainties and contingencies and says that the principal risk in that regard is: "…the performance of global financial markets which… are not reliably predictable." The reader is referred to Appendix VI. However, the reader is not told which of the assumptions in Appendix VI underpin the "confirmation" of the Prospectus Forecast. The Prospectus Forecast can only be justified on the basis of an assumption that there will be "some" recovery in global equity markets. Appendix VI to the AMP Part A Statement refers to the sensitivity of the Prospectus Forecast to changes in the level of Australian and UK equity markets. Thus, the high end of the range assumed that markets maintain their end of March 1998 levels for the remainder of the year. They have not maintained those levels and, accordingly, recovery in equity markets is one of the underlying assumptions which must be made before the Prospectus Forecast could be "confirmed". If markets do not recover, the profit of AMP for the full year will fall below the range. There would be no point in confirming a forecast based on an assumption which was irrational or was not based on any reasonable expectation that it would be made good. Since I have concluded that there were reasonable grounds for the belief that it was likely that the Prospectus Forecast would be achieved, it follows that there were reasonable grounds for the belief that there would be recovery in equity markets. On the other hand, what is not made clear in the AMP Part A Statement is the extent of the recovery which is necessary to result in the profit falling within the range. In other words, the particular assumption which underlies the forecast range is not spelt out. Nor is the likelihood of that assumption being made good addressed in the AMP Part A Statement. ASIC Practice Note 67 expresses the view that a prospectus must disclose the basis of any forecast so that investors can properly assess the forecast. The Practice Note continues: "An investor must be able to make an informed assessment of the reliability of a forecast. Therefore, they must be able to assess: (a) the validity of the assumptions on which the forecast is based; (b) the likelihood of the assumptions actually occurring; and (c) the effect of the forecast if the assumptions vary." In order to make the assumption upon which the "confirmation" of the Prospectus Forecast was based meaningful, I consider that it should be quantified. It would then be open to prospective investors to form their own judgments as to whether that level of recovery is realistic. GIO shareholders may not be entitled to expect AMP to predict the level of recovery which might occur in equity markets. However, once they are told the quantum of the recovery in equity markets which is necessary for the AMP profit to fall within the range, they would then be in a position to make a judgment for themselves. The other assumption set out in Appendix VI which did not remain valid was that there be no material change in exchange rates from those existing as at 31 December 1997 and that the average of the exchange rate between the Australian dollar and the UK pound would be $1 to Ł0.415. While AMP's latest estimates were based on a revised assumption as to that exchange rate, mention of that fact in the AMP Part A Statement is made only in relation to hedging. The effect of the fluctuation in the exchange rates is dealt with below under the heading"Foreign Exchange Hedging". I consider that there has been a failure to comply satisfactorily with section 1022 of the Law. Unless AMPII furnishes an adequate statement about the prospects of AMP which speaks as at the date of the AMP Part A Statement, that document is deficient in failing to provide, unambiguously, information as to AMP's prospects. The doubt as to the assumption on which the Prospectus Forecast has been "confirmed" means that AMPII has not furnished adequate information as to the prospects of AMP. Mr Scott's "latest forecast" document contains material which indicated the level of the stock market indices which would produce a profit within the Prospectus Forecast range. In my opinion, that sort of material ought to have been included in the AMP Part A Statement. Without it, "confirmation" of the Prospectus Forecast on the assumption that there will be a "recovery in global markets" tells the GIO shareholders very little.
Length of Forecast By doing no more than confirming the Prospectus Forecast, the AMP Part A Statement provides a forecast only to 31 December 1998, a period of approximately four months. GIO also contended that, even if the Prospectus Forecast was free from other defects alleged, it was given for an inadequate period and could not be regarded as discharging AMP's obligations to provide information as to its prospects in accordance with the requirements of clause 17 of Part A of section 750and section 1022 of the Law. Examination of recent comparable Part A statements reveals that some of them include forecasts for at least 12 months. GIO contended that prospectuses issued by insurance companies in recent years indicate that there is nothing exceptional about the insurance industry which would preclude the provision of an earnings forecast for more than four months. Further, the accounting models prepared by AMP management prior to the AMP Board meeting of 24 August 1998 analysed the impact of the acquisition of GIO on AMP's profit and loss statement by reference to earnings forecasts up to and including the year 2001. Notwithstanding that the models involved forecasts for a four year period, no consideration appears to have been given to providing a forecast in the AMP Part A Statement for a period beyond the end of the current financial year of AMP. GIO contended that the importance of such information would be heightened because of the following: · AMP's limited record as a publicly listed company. · The circumstances of AMP's listing where most of its shares were issued in satisfaction of the rights of members of the AMP Society. · Doubts in the market place as to the value at which AMP shares have traded since listing. · The need for shareholders to make a decision whether to accept or reject the offer. Mr Siviour accepted that the forecasts beyond December 1998 could have been provided but that no consideration was ever given to providing a forecast beyond the end of the current financial year. He agreed that the "working assumption" was that an updated or expanded forecast of what was contained in the Prospectus would not be included in the AMP Part A Statement. The market practice in the insurance industry, in so far as there is a practice, tends to suggest that lengthy financial forecasts are not the norm. The evidence suggests to me that it was uncommon for a forecast to be given beyond the end of the financial year current at the time of the forecast. Forecasts therefore ranged from three months to ten months. There is a strong argument, therefore, that that is what investors could reasonably expect. GIO itself, when its shares were first offered to the public by the State of New South Wales, provided a forecast of only eight days. Limited forecasts for insurance companies can be justified by the combination of two factors. The first is that under Australian Accounting Standard AASB 1023, insurance companies are required to value their investments on a "mark to market" basis on the last day of the financial period. Any difference between the opening market value and closing market value is then to be taken to the profit and loss account as return on investments. Secondly, the specific volatility in world markets in the twelve months prior to September 1998 emphasised the difficulty of forecasting the level of markets even in the short term. Having regard to the complexity of the assumptions and qualifications which would need to be included in any forecast, I consider that it would be reasonable to limit a forecast to the end of the current financial period so long as that is not immediately imminent. A forecast which does not coincide with a financial year would be fraught with additional uncertainty. The options open to AMP, therefore, were either a forecast to the end of the current financial year or a forecast which would have required an assessment to be made of equity market levels as at 31 December 1999 and later. I consider that the volatility which the markets had exhibited in the 12 months to September 1998 justified AMP's reluctance to make any longer forecast. In so far as the confirmation of the Prospectus Forecast amounts to a forecast with effect from the date of the Part A Statement, I consider that that is adequate compliance with Part A of section 750and section 1022 of the Law.
FORECASTS FOR THE COMBINED ENTITY GIO's complaints under this head in the pleading may be summarised as follows: (1) The Part A Statement provides no financial forecasts on the assumption that the takeover is successful. In other words, there is no forecast relating to the "combined entity". (2) The Part A Statement made three specific statements about a combined entity but does not set out the assumptions on which any of them is based. The three statements relate to: (a) Annual savings of approximately $70 million which may be achieved by eliminating duplication in the operational businesses at head office functions of AMP and GIO. (b) Restructuring costs of approximately $65 million expected to be incurred in achieving those cost savings. (c) Positive earnings per share for AMP in the second year. (3) The failure to quantify the extent to which earnings per share are expected to be positive is said to be a material omission. GIO contended that the omission from the Part A Statement of a forecast for the combined entity, where that information was available to and acted upon by the Board of AMP, was an omission of information "material to the making of a decision by an offeree whether or not to accept". In the Part A Statement, AMPII gives three reasons for inability to provide a combined entity forecast as follows: · "Because GIO has not publicly released a financial forecast"; · "Because of uncertainty as to GIO's prospects following its recent announcements to the ASX about its results for fiscal year 1998"; and · "The uncertainty of GIO's underwriting margins for its inwards re-insurance business". GIO contended that those reasons were not credible. First, AMP, being engaged in the same industry as GIO, ought to know a great deal about GIO which would be unknown to the general investing public. Secondly, uncertainty of prospects following GIO's announcement of its loss for the fiscal year 1998 should not be regarded as a relevant factor because an internal memorandum of AMP indicated that AMP had anticipated and factored into its combined entity valuation of 23 July 1998 the very losses which GIO announced in September. Finally, the AMP Part A Statement indicates that AMP had formulated intentions in relation to GIO which include the likely disposal of GIO's re-insurance business following successful completion of the offers. I do not consider that those considerations lead to a conclusion that the reasons advanced by AMPII should not be taken at face value. Section 1022 requires disclosure of information which would enable an informed assessment of "prospects". In Pancontinental Mining Industries v Goldfields Limited (1995) 16 ACSR 463 Tamberlin J said: "My conclusion on this aspect of the statement is that a DCF analysis in the present case is not required, but that an earnings forecast for a two year period at least is a material matter which should be included in the Part A statement in the present case....This is not to say that such information is essential under s 750 in every case as a matter of law. What is material in a takeover scheme is a matter for judgment and assessment in the light of all the evidence, facts and circumstances in each particular takeover context and this will necessarily differ from case to case. Differing circumstances can include, for example, matters such as relevant public information available, material already disclosed by the offeror, the activities of the target company and the location of those activities; and the probable knowledge or awareness of the shareholders in the target company as to particular subject matters." Those observations do not indicate that a financial forecast should always be provided. Clearly enough, whether it is required will depend upon all of the relevant circumstances. Evidence was called on behalf of both GIO and the respondents as to whether investors and their professional advisers would reasonably require and reasonably expect to find combined entity forecasts in the Part A Statement. I did not find helpful evidence as to what such witnesses considered should be provided in this case. Forecasting, by its very nature, is prone to error. On the other hand, so long as a forecast is accompanied by appropriate caveats and details of underlying assumptions, a forecast will nevertheless be of greater assistance than no forecast at all. If an offeror has a reasonable basis for giving a combined entity forecast, such a forecast ought to be given. That last proposition is not seriously in dispute and was confirmed, in effect, by Mr William Beerworth, who gave expert evidence at the instigation of the respondents. The real question is whether AMPII had a reasonable basis for publishing a combined entity forecast. A detailed forecast for the combined entity was put before the Board of AMP at its meeting of 24 August 1998. That forecast was considered sufficiently reliable by the Board for it to be used as the basis for the decision to approve the takeover offer. A presentation was made to the Board at that meeting (exhibit 13A). The accounting model used to prepare the presentation included detailed combined equity projections up to and including the year 2001. The "base case scenario" contained in the presentation to the Board showed estimated earnings per share and return on equity figures for each of the years 1999, 2000 and 2001 for the combined entity. Mr Scott considered that the projections were based on the best available information and that the calculation of earnings was capable of being relied on. He also considered that the figures for estimated earnings per share were reasonably based and able to be relied on by the Board for the purposes of making its investment decision. He was satisfied that each element in the base case analysis was carefully prepared, was based on public and private information available to AMP and was relied on by AMP's senior management and its Board of Directors for the purposes of making the decision to make the takeover offers. The investment decision made by the Board of AMP was one of considerable significance involving, as it did, commitment of something in the order of $3 billion of shareholders' funds. There is nothing in the evidence to suggest that the directors of AMP were acting otherwise than in accordance with the onerous duties which they owe to AMP in deciding to proceed with the takeover offers. In other words, there is no reason to conclude that the information upon which the decision was based was not of sufficient reliability for that purpose. That, however, is not the end of the matter. I am not persuaded by the evidence before me that the combined entity forecasts, coupled with appropriate qualifications and statement underlying assumptions, would be misleading. In other words, so long as the appropriate qualifications and underlying assumptions were stated, I do not consider that publication of a combined entity forecast based on the information available to the AMP board would have been misleading or deceptive or likely to mislead or deceive GIO shareholders. The AMP board was prepared to countenance disclosure of some information concerning the combined entity. Thus, the Part A Statement makes the following statements: (a) "The board of AMP currently believe that annual pre-tax savings of approximately $70 million may be achieved by eliminating duplication in the operational businesses and head office functions of AMP and GIO"; (b) "In achieving these costs savings, AMP expects to incur restructuring costs of $65 million";and (c) "In its press release of 25 August 1998, AMP stated that it expects the acquisition of GIO to be earnings per share positive for the company in the second year". Those observations indicate that the Board had sufficient faith in the information before it to disclose that aspect of the projections and forecasts to be derived from the accounting model of the combined entity. In other words, the AMP Board had sufficient confidence in the reliability of that information that it was prepared to make some prediction about the combined entity. The respondents placed some reliance on ASIC Practice Note 67. The Practice Note expresses the view that directors should not include a forecast without a reasonable basis, even if they have used estimates of future performance for internal planning purposes. A forecast that does not have a reasonable basis would be immaterial to investors and investors would not reasonably require or reasonably expect to find in a prospectus a forecast which did not have a reasonable basis. The mere fact that information has been relied on by management for the purposes of making an investment decision does not render the information sufficiently reliable for it to be disclosed to prospective investors. AMP had received a report from Ernst & Young (page 1470) which included the following statement: "As a result of the above we do not have available to us sufficient information to provide a report on a financial forecast for GIO for the year ending 31 December 1998 that would permit us to deliver an opinion within the meaning AUS804 'The Audit of Prospective Financial Information'. We therefore agree with the sentiment expressed in the Part A Statement that the Board of AMP is not able to provide a meaningful and reliable financial forecast with respect to GIO or pro forma financial forecast for the combined entity." That report was the basis for the reason expressed in the AMP Part A Statement for not providing a combined entity forecast. The AMP Part A Statement contains the following: "The Board of AMP has determined that it is not able to provide meaningful and reliable forecast financial information with respect to GIO or pro forma forecast financial information for the combined entity in this Part A Statement." The fact that Ernst & Young did not consider that they had available to them sufficient information to provide a report on the financial forecast for GIO would not be decisive as to whether AMPII should provide a combined entity forecast in the AMP Part A Statement. Mr Scott said that the Due Diligence Committee considered Mr Siviour's report as to whether combined entity forecasts should be included. He rejected the proposition that senior executives decided early in August they would not include a combined entity forecast and then sought Mr Siviour's opinion about the difficulty, if restricted to publicly available information, in providing such a forecast. Mr Scott also rejected the suggestion that AMP had decided not to include a combined entity forecast and sought an opinion from Mr Siviour as justification for that decision. Mr Siviour also rejected the proposition that at the outset there was a decision made that no combined entity forecast would be provided and that Ernst & Young were subsequently asked to provide an opinion to justify that position. Mr Siviour carried out a review of publicly available information concerning GIO. A document entitled "Summary of Information available on GIO" prepared by Mr Siviour was available to the Due Diligence Committee. That information did not include a financial forecast of any description. No analysts' report published relating to GIO between February 1998 and 14 August 1998 provided any detailed profit and loss forecasts or any breakdown of prospective financial information for separate business units. Analysts' reports issued between February 1998 and August 1998 projected GIO's profitability for the year ended 30 June 1998 at ranges between $159 million and $181 million yet on 14 August 1998, GIO announced a loss of $27 million for the year. That announcement was unexpected by the investment community, including sophisticated research analysts. Analysts' projections of profits at ranges between $193 million and $211 million for the year ending 30 June 1999 might therefore be regarded as suspect. The respondents rejected GIO's contention that the accounting model indicated that AMP had a reasonable basis for making a forecast of earnings for the combined entity. Mr Scott said that the accounting model was varied from time to time by changing the assumptions on which it was prepared as AMP management evaluated various acquisition structures, financing and synergy scenarios. The model incorporated projections of AMP's profits for the year ending 31 December 1999 derived from preliminary strategic plan projections which did not represent approved management budgets or forecasts and which had not been reviewed nor approved by the Board of AMP. The figure for GIO's projected profits in the model was derived from analysts' estimates of GIO's likely financial results for the year ending 31 December 1998 and was reduced following the announcement of GIO's loss for the year ended 30 June 1998. While Mr Scott acknowledged that the assumptions underlying the model were realistic for the purposes of management and board decision making, he considered that the assumptions involved significant uncertainties. When asked whether anything had occurred to suggest that the trend for GIO profits included in the model was unrealistic, Mr Scott pointed to the announcement of GIO's unexpected loss. He said that there are significant uncertainties in the information available for decision making purposes for management. He referred to variability in investment earnings, claims experience and other factors affecting insurance companies. Even if management of AMP has anticipated losses by GIO, that does not render any more reliable, the speculation which must, of necessity, be involved in estimating GIO's profits for the future. Whether an offeror should publish a combined entity forecast in circumstances where section 1022 would be applicable is a matter of judgment. The purpose of disclosing information is to enable prospective investors to make a judgment about the prospects of the company whose shares they are being invited to take. GIO contended that a prejudgment had been made that a combined entity forecast would not be provided and that steps were then undertaken to justify such a stance. Even if such a prejudgment had been made, if it was made in the proper exercise of a judgment as to the reliability of the materials available, it ought not to be criticised. That is to say, in so far as the decision to publish a combined entity forecast, based on the information available to senior management and the Board of AMP, is a matter of judgment, there is a range within which reasonable minds may differ but within which range both publication and non-publication can be justified. There was no evidence to indicate that AMP sought to withhold information which might dissuade GIO shareholders from accepting the offer or from accepting the AMP share alternative. In so far as the information available to the Board of AMP was such as to induce it to approve the takeover offer, it might be thought that it would also be such as would induce shareholders of GIO to elect to accept the AMP share alternative consideration. If those responsible for the finalisation of the form of the AMP Part A Statement, whether or not it was the Board as a board, exercised judgment as to whether or not they were satisfied that the public information concerning GIO was sufficiently reliable to justify including a forecast of the profits for the combined entity, I am not persuaded by the evidence that that judgment was made wrongly. As Tamberlin J observed in Pancontinental Mining Limited v Goldfields Limited (at 475) what is material in the takeover scheme is a matter for judgment and assessment in the light of all the evidence, facts and circumstances in each particular takeover context which will necessarily differ from case to case. The volatility of the equity markets was a justifiable and significant consideration for confirming the view that the published information was not sufficiently reliable. I do not consider that there was a failure to comply with Part A of section 750 by reason only of the omission of a combined entity forecast. GIO contended, in addition, that the AMP Part A Statement was deficient in failing to disclose adequately the assumptions and calculations which led to the limited forecast concerning pre tax savings, restructuring costs and earnings per share. I do not consider that there is any inadequacy in relation to the first two matters. From one point of view, the disclosure of savings and the cost of achieving those savings is of no materiality except as a calculation made in determining projections or forecasts for the combined entity in the future. I do not consider that the furnishing of the assumptions or calculations which underlay the estimate of pre tax savings of approximately $70 million per annum and the restructuring costs of $65 million needed to be incurred to achieve those savings would assist GIO shareholders in deciding whether or not to accept the offers to be made by AMPII. The statement of expectation concerning earnings per share is in a slightly different category. However, it is important to have regard to the whole of the relevant statement and its context in the AMP Part A Statement. First, there is a reference to the effect of a press release which had been made by AMP. The AMP Part A Statement goes on to indicate the basis upon which AMP formed its expectation concerning earnings per share and refers to what would have been, on a pro forma basis, the earnings per share of the combined entity for the year ended 31 December 1997. It then says that, on an historical pro forma basis, the acquisition of GIO would be earnings per share positive. The AMP Part A Statement contains pro forma restated consolidated financial information for AMP and GIO groups. AMPII then goes on to say that the objective of AMP in entering into the transaction is so that over a long term it should generate sufficient earnings consistent with the historical pro forma analysis to achieve increases in the earnings per share of the combined entity. The following statement then appears: "In the second year following the acquisition, without the impact of these restructuring costs, the Board of AMP believes the contribution of GIO to be earnings per share positive based on the historical pro forma analysis outlined above."` Thus, shareholders of GIO are left in no doubt as to the basis upon which the statement about earnings per share being positive is made. The AMP Part A Statement makes clear that the observations in relation to synergy benefits and earnings per share are based on AMP's judgment with respect to GIO and not on any specific piece of information concerning GIO. It then says: "It should be noted that the above observations are not based on the preparation of a financial forecast that would meet the criteria of reliability that would permit AMP to release such information publicly." I have already said that I do not consider the evidence justifies a conclusion that those responsible, whether the Board of AMP or others, made an erroneous judgment in concluding that AMP had no information which was reliable enough to provide a forecast for the combined entity. In the circumstances, I do not consider that the criticism of the AMP Part A Statement relating to earnings per share and synergy benefits has substance. FOREIGN EXCHANGE HEDGING The AMP Part A Statement contains the following statement: "Exchange rate fluctuations during 1998 are not expected to materially impact the reported result due to AMP's hedging policy and current hedging arrangements. This results from AMP's hedging policy to hedge a median of 50% within a band of 30% to 70% of both of the expected UK earnings for a rolling three year period and the gross value of AMP's UK business, back into Australian dollars." GIO contended that the disclosure in the AMP Part A Statement of AMP's hedging policy and current hedging arrangements is misleading and contains material omissions. The contention was that the description of the policy does not disclose how the policy is carried into effect and what assets are thereby hedged. In addition, GIO contended that, as at the date of the AMP Part A Statement, AMP knew that substantial losses had been incurred and expected that further losses would be incurred in the period to 31 December 1998 after taking account of the hedging policy. In those circumstances, it was said that the AMP Part A Statement is misleading or is likely to mislead. Various references were made in internal AMP documents to the consequences of fluctuations in the exchange rate between the Australian dollar and the United Kingdom pound since the date of the Prospectus Forecast. Appendix VI also contains an analysis of the sensitivity of the Prospectus Forecast to changes in the exchange rate between the Australian and United Kingdom currencies. The AMP Part A Statement stated that those sensitivities are "materially correct" subject to the "amendment" that "the full implementation of the hedging policy in respect of UK earnings and assets was put in place following the date of the prospectus" with the result that the "impact on the prospectus forecast range of a 5% increase in the average pounds/A$ exchange rate is estimated to be A$(4) million compared to the prospectus forecast sensitivity of A$(13) million". However, there is no indication in the AMP Part A Statement of the consequences of the fluctuation in that exchange rate which had occurred between the date of the Prospectus and the date of the AMP Part A Statement. GIO contended that various internal AMP documents disclosed that a net loss from hedging operations during 1998 in the vicinity of $72 million, or in the range $65 million to $74 million depending on the assumptions which are made, was expected. Other documents suggest that the loss may be in the range $24 million to $45 million, depending on the assumptions which are made, after translation gains are taken into account. GIO contended that both were material and should have been disclosed. In a report by Ernst & Young to AMP dated 15 September 1998, a figure of $72 million is included as a forecast of foreign exchange losses, after hedging. However, Mr Siviour rejected the proposition that the forecast figure of $72 million represented the net impact on AMP's profit and loss account. He said that the figure of $72 million did not take into account translation gains which accrued to AMP as a result of exchange rate fluctuations. Mr Siviour said that the translation gains would have an impact of approximately $48 million on AMP's forecast earnings. While he accepted that losses of $72 million would be material, he believed that the $48 million translation gains affected the materiality of the hedge loss and reduced the net impact of the foreign exchange and hedging adjustment to a figure of approximately $24 million after tax. He said that he did not regard that figure as material. Mr Scott, when asked questions to a similar effect, also said that hedge costs could not be looked at in isolation and that translation gains had to be set off against hedge costs to arrive at an appropriate figure for exchange effects. He said that it was the overall exchange effect which had to be considered in order to determine materiality. He was of the view that the effect would not be material. Quite apart from the Ernst & Young report, the monthly report tabled at the AMP Board meeting on 24 August 1998 (exhibit 11A page 9) indicated that the overall foreign exchange loss for the year would be in the vicinity of $35 million to $45 million. GIO contended that those figures were material and should have been disclosed. The overall effect of the evidence on this question was confused and unclear. The materiality of an item in the range $35 million to $45 million in a projected profit in the range $774 million to $977 million is equivocal. The AASB standard indicates that an item in excess of 10% is material while an item below 5% is immaterial. An item in the range 5% to 10% may or may not be material depending on the circumstances. In the light of the evidence of Messrs Scott and Siviour, I am not persuaded, on the balance of probabilities, that the likely effect of exchange rate fluctuations during 1998 on the profit of AMP for the year ending 31 December 1998 is of such materiality as to require any further disclosure than is contained in the AMP Part A Statement. The alternative contention on behalf of GIO was that, having regard to the selective nature of AMP's hedging policy, the particular assets which are the subject of hedging arrangements should be disclosed. The Ernst & Young report said that the Prospectus Forecast "assumed that the assets and earnings were perfectly hedged and therefore the actual gains and losses would offset the hedge gains and losses". However, internal AMP documents indicated that, whereas certain assets and the income from those assets were hedged as to 100%, other assets were hedged to a significantly lesser extent. The passage set out above as to the overall effect of the hedging policy is strictly correct. GIO contended, however, that the proportion of particular assets hedged and details of the particular assets hedged are relevant to assumptions underlying AMP's profit forecast. In the light of the conclusion which I have reached concerning immateriality of the consequences of projected exchange rate fluctuation, I do not consider it material for prospective investors in AMP to be furnished with particulars of the assets which are hedged and the assets which are unhedged and how the hedge is achieved. GIO also contended that the passage set out above is misleading in so far as it suggests that AMP's hedging policy and current hedging arrangements have the result that exchange rate fluctuations will not impact materially on AMP's results. To suggest that AMP's hedging arrangements might avoid losses is wrong, as I understand the position. That is because, on the material available to AMP in September 1998, AMP's hedging policy and current hedging arrangements were, as a matter of best estimate, expected to produce a not insignificant full year loss. To that extent, the passage is misleading. In so far as it was considered that the effect of foreign exchange fluctuations on AMP's position was sufficiently material to warrant mention in the AMP Part A Statement, it was misleading to indicate that the hedging arrangements have had a beneficial effect. They may serve to limit adverse consequences of fluctuations in some circumstances. However, in the present circumstances of AMP, the arrangements have had a deleterious effect, although at this stage not a material effect. SPECIFIC NON DISCLOSURE ISSUES GIO also complained about several specific matters in respect of which it was said that the AMP Part A Statement failed to provide appropriate information. I shall deal with each separately. Index Weighting The Part A Statement contains the following: "The price of AMP shares on the ASX and NZSE will change frequently in response to AMP's financial performance and many other facts, including changes in economic and investment market conditions. On 1 August 1998, AMP was weighted to the extent of 25% in the relevant indices of the ASX. This weighting will be increased to 50% as at 1 October 1998 and 100% with effect from 1 January 1999. It is possible that, until AMP achieves a 100% weighting, this may impact on demand for AMP shares." The final sentence of that passage appears to have been changed at the last moment after the "in principle sign-offs" by directors. In the draft of 3 September 1998, the final sentence was as follows: "It is possible that, until AMP achieves a 100% weighting, AMP shares may trade at values higher than could otherwise be expected." GIO contended that the deleted sentence reflected more accurately the likely effect of achieving 100% weighting. Weighting relates to the All Ordinaries Index published by ASX. Following the listing of shares in AMP for quotation by ASX, ASX determined that AMP shares should be taken into account in the determination of the All Ordinaries Index. However, because of the magnitude of the capitalisation of AMP, ASX determined to introduce AMP's share price into the index by stages. GIO contended that a likely effect of that progressive weighting process of AMP shares in the index is to cause an increase in share price of AMP shares prior to inclusion followed by a drop in share price shortly after each increase in the weighting. Both GIO and the respondents adduced expert evidence from economic analysts as to the possible consequences on AMP's share price of the progressive weighting. None of the evidence was dogmatic and the opinions were expressed with some diffidence. Professor Gray concluded: "It is more probable than not that the share price of AMP is affected by a liquidity premium which arises from its proposed inclusion in the All Ordinaries Index." Professor Swan expressed the following opinion: "In the light of limited evidence and the US experience relating to S&P 500 Index inclusion it is difficult to refute the views of GIO and many brokers that demand by institutional investors will have temporarily boosted the demand for AMP shares until a period after complete inclusion of AMP in the All Ordinaries Index on January 1 1999." Professor Aitken, however, said: "There is no empirical basis for the arguments put forward by GIO… that AMP's share prices inflated and will remain so until it finally achieves 100% weighting in the All Ordinaries Index." Professor Aitken acknowledged that he may have misconstrued certain of the materials which he examined in reaching that opinion. I consider, on balance, that it is more probable than not that progressive increase in the weighting given to AMP's share price for the purposes of the indices has some inflationary effect on the share price. However, it is impossible to quantify that effect and it is quite unclear at what point that effect might be apparent. That is to say, it is by no means certain that the price at the present time is affected by the prospect of progressive weighting. In any event, I consider that the statement in the Part A Statement referred to above fairly discloses that possibility. A reference to the possibility that the increase in weighting "may impact on the demand for AMP shares" signifies clearly enough the possibility that there may be an increase in demand. It certainly does not suggest the possibility of a decrease in demand. Any increase in demand would only have an upward effect on price, if any effect at all. In the circumstances, I do not consider that there is anything misleading or that there is any relevant omission in relation to the passage in question. Other Synergy Benefits GIO contended that the AMP Part A Statement discussion of synergy benefits to be realised through a takeover of GIO is deficient and omits material matters. The synergy benefits accruing to the combined entity are discussed in section 3.4.4 at pages 70 to 71 of the AMP Part A statement, set out in Schedule 2. The basis upon which AMP assessed those synergy benefits is also set out in the AMP Part A Statement at page 72 in Schedule 2. The working papers relating to the presentation made to the Board on 24 August 1998 disclose that AMP had extensive information about synergistic benefits which might be generated as a result of the proposed takeover. That information was not disclosed to GIO shareholders. Mr Scott confirmed that the synergy information presented to the Board was based on detailed work which had been done by his team, including a final synergy model. He also agreed that the work was as careful and reliable as his team could make it. In Re Primac Holdings Limited (1996) 22 ACSR 212, Dowsett J (at 224) said: "As to the assertion that IAMAQ is not in a position to quantify the likely benefits from, "the operational synergies and opportunities to eliminate duplication and improved efficiencies which may occur following the acquisition", it is difficult to believe that no work has been done in this respect. One would have expected a commercial undertaking such as IAMAQ to have identified with some precision the likely advantages and disadvantages inherent in the proposed acquisition. These matters are a significant part of those advantages. It seems most unlikely that the directors of IAMAQ have decided to acquire Primac on the basis that they will discover the advantages of so doing after the acquisition. It may be that IAMAQ is not presently able to give a detailed quantification of such benefits, but it would be appropriate to give the Primac shareholders the benefit of such knowledge as has been derived to date. Section 1022AA requires as much." (Emphasis supplied). However, the fact that AMP has material upon which it is prepared to base its decision to invest in GIO does not necessarily lead to the conclusion that that information is appropriate for disclosure. As I have indicated above, it is a matter of judgment. I am not persuaded that the need for such information is such that it outweighs the disadvantages of disclosure of information which, to a considerable degree, must be based on speculation in so far as it relates to the operations of GIO. Acquisition Strategy GIO contended that the AMP Part A Statement omits material matters relating to the detailed direction and timing of the AMP's key acquisition strategy or the basic nature of any acquisition proposed. AMP's acquisition strategy is set out in the AMP Part A Statement as follows: "Deploy surplus capital for expansion AMP has a large amount of surplus capital and also has the capacity to borrow significant amounts of funds. It is investigating opportunities to increase the return on its surplus capital by making one or more large scale international acquisitions. AMP intends to consolidate its presence in Australia and New Zealand, build its presence in the UK and to seek to enter the market in the United States and Europe. AMP also plans to develop its business in selected Asian countries through strategic partnerships. AMP may also use some of its surplus capital to support and expand its existing business. AMP will consider other methods of transferring to shareholders the benefit of the surplus capital if, within an acceptable time frame, AMP is unable to deploy this surplus capital in accordance with its strategy." (section 2.1.1 at page 16) "Risks Associated with AMP's Acquisition Strategy AMP currently has a substantial amount of capital that is surplus to the requirements of its operating businesses. AMP may invest this surplus capital in one or more major acquisitions in the financial services industry. Any such acquisition would be in addition to the acquisition of GIO. The successful implementation of AMP's acquisition strategy depends on a range of factors including its ability to: identify appropriate opportunities, complete acquisitions, achieve a rate of return on any acquisition which is higher than returns from alternative investments, and identify structures which minimise any initial earnings dilution. There may also be substantial challenges in integrating, and adding value to, the businesses AMP acquires (such as Henderson and GIO). To fund its acquisition strategy, AMP may elect to borrow funds or issue new capital, in addition to using the surplus capital. If AMP issues new capital, this may dilute the interest of AMP Shareholders at that time." (section 3.5 at page 76) To set out in detail all proposals which may be put to AMP's management from time to time, irrespective of the remoteness of potential implementation, could well be misleading in the extreme and would not be required by section 750 or section 1022. No investment adviser could reasonably require AMP or any other offeror to indicate the identity of any particular target to which it has given consideration. There was no evidence to suggest that AMP had formed any fixed view as to how it was going to utilise any surplus capital. I consider that the complaint is ill founded. Intention Relating to Employees Clause 20(1) of section 750 requires that there be set out a statement of the offeror's intentions regarding, inter alia, the future employment of the present employees of the target company. GIO contended that the AMP Part A Statement is inadequate in its treatment of that issue. GIO contended that the question is especially significant in the light of the fact that a significant number of GIO employees hold shares in GIO. Clause 20(2) of Part A of section 750 requires that, if the offeror has not made a decision on a matter but is considering a possible course of action, or two or more possible courses of action, in relation to that matter, there is a requirement to set out that fact and specify the course of action or courses of action concerned in the reason why the offeror has not made a decision on the matter. The AMP Part A Statement deals with AMP's intentions as to the future of GIO's employees, as follows: "Employees In relation to the continuation of the employment of GIO's employees (other than as specifically mentioned elsewhere in this section) AMPII, in undertaking its review of the business, assets and operations of GIO, will review the position generally of GIO's employees and, in particular, look to the staffing requirements for the combined businesses. Selection of individuals for new or revised positions will be based on an assessment of the requirements of the position, taking account of all relevant factors. However, no decision is intended to be made on redeployment or redundancy of individual employees until the review is conducted. No decision on appointments other than that of Mr Peter Corrigan (see "General Insurance" above) have been made. However, AMPII anticipates that staff of the combined entities employed in corporate head office functions, financial services back office roles and some parts of information technology are most likely to have duplicated functions, duties and responsibilities and as such are likely to no longer be required following the successful acquisition of GIO. AMPII anticipates that it would seek to retain the majority of GIO's call centre and sales force. In combining the businesses of AMP and GIO, AMPII will consult with relevant unions and bargaining agents as appropriate. AMP and GIO employees will be kept fully informed about the process of combining the businesses of AMP and GIO." The AMP Part A Statement also contains a specific statement as to the future employment of GIO employees engaged in product disposition as follows: "GIO's employed sales force of Business Insurance Representatives will become an important part of the combined general insurance operations. GIO's Financial Planning Representatives are also a valued asset and will become a part of AMP Financial Services' distribution channels." The reference to synergy benefits in the AMP Part A Statement indicates that it is not possible for AMPII to be more specific concerning individual employees. The AMP Part A Statement contains the following statement: 10.4 It is not possible for AMPII to be more specific as to the roles of individual employees until it has had the opportunity to conduct its strategic review of GIO. The reference on page 71 of the Part A statement to AMP's assessment of synergy benefits is consistent with this: "If the offer is successful AMP will carry out a detailed review of GIO's businesses to support or determine AMP's intentions. AMP will not be able to accurately assess the resultant synergy benefits, related restructure costs or the timing of these synergies and restructure costs until that process is complete." GIO contended that the statement concerning the saving of approximately $70 million through the elimination of duplication in the operational businesses and head office functions of GIO and AMP is suggestive of an actual intention. However, I am not satisfied that the evidence establishes that AMP had any intention which has not been disclosed. Accordingly, this head of complaint must fail. Director and Executive Remuneration GIO contended that the AMP Part A Statement inadequately discloses information about director and senior executive remuneration and remuneration policy. In particular, GIO contended that the information contained in the AMP Part A Statement concerning director and executive remuneration should be at least as full as that now required by section 300A(1)(c) of the Law to be disclosed in AMP's annual report to its existing shareholders. Section 300A provides as follows: "(1) The directors' report for a financial year for a company must also include: (a) discussion of broad policy for determining the nature and amount of emoluments of board members and senior executives of the company; and (b) discussion of the relationship between such policy and the company's performance; and (c) details of the nature and amount of each element of the emolument of each director and each of the 5 named officers of the company receiving the highest emolument. (2) This section applies only to a company that is: (a) incorporated in Australia; and (b) included in an official list of the Exchange. (3) This section applies despite anything in the company's constitution." GIO contended that no information is given as to AMP's policy for determining the nature and amount of the emoluments of Board members and senior executives, nor as to the relationship between that policy and AMP's performance. However, there are detailed disclosures of employee entitlements, directors' remuneration and remuneration of key executives to be found in AMP's consolidated restated financial statement in the AMP Part A Statement. That statement, set out in Appendix 1 of the AMP Part A Statement, clearly sets out the total remuneration of AMP's directors and key executives for the six months ended 30 June 1998. That disclosure corresponds to the form of disclosure in Part A statements issued by other offerors. Section 300A of the Law was introduced on 1 July 1998 and only applies to accounting periods ending after that time. The introduction into the Law of a mandatory disclosure provision for future accounting periods does not imply that that information would be material for disclosure under section 750 of the Corporations Law. The test of what information is material to the making of a decision by an offeree whether or not to accept an offer has no necessary connection with the requirements of the Law for disclosure to existing shareholders. I consider that the complaint is without foundation. Funding GIO also contended that the disclosure of funding arrangements for the takeover in the AMP Part A Statement is inadequate because no details are provided as to the terms, enforceability or underlying arrangements of the "undertaking" allegedly given by AMP to AMPII to put AMPII in funds to meet its obligations to GIO shareholders who elect to receive cash consideration. Clause 11(b) of Part A of section 750 would require AMPII to set out:
(i) particulars sufficient to identify the other person who is, or each of the other persons who are, to provide, whether directly or indirectly, some or all of the cash from that person's or those persons' own funds; and
(ii) particulars of the arrangements by which that cash will be provided by that other person or those other persons.
The object of clause 11 is to ensure that offerees obtain sufficient information so that they may make an informed judgment as to whether the necessary cash is or will be available to carry through the offer - ACI v Rossington Holdings Limited (1992) 35 FCR 226 at 227. That is clearly appropriate where the offeror is a newly incorporated company which is unlikely to have any substantial assets of its own. That is the position with AMPII. GIO contended that if there is no legally binding arrangement, the AMP Part A Statement should make that clear so that GIO shareholders are aware of the risks which may arise as a result of AMPII not having sufficient cash funds to make good its obligations under the offers if accepted. GIO further contended that there is no disclosure as to which group of companies might be involved in the giving of loans to AMPII. By letter dated 4 September 1998, AMP irrevocably agreed to undertake to make available or cause any of its related bodies corporate to make available to AMPII on demand or request from time to time the total cash required to fund the cash consideration for the offers. Such funding was to be provided by way of inter company borrowings and/or equity contributions as determined by AMP. The identity of the group companies involved in making the loans or equity contributions to AMPII, or the amounts or the loan terms (either as to length of time or rate of interest), are not material and therefore do not require disclosure. All that is material for GIO shareholders is sufficient particulars to enable them to make an informed decision as to whether the necessary cash is or will be available to AMPII to carry through the offer. I am satisfied that that information is fairly and properly disclosed in the AMP Part A Statement. No case was made out that AMPII had no capacity to compel funds to be advanced. I do not consider that this complaint is established. Shareholding Limitations The AMP Part A Statement contains the following comment concerning shareholder limitations in the articles of association of AMP:
"These provisions could impede any merger, consolidation, takeover or other business combination involving AMP Limited or discourage a potential acquirer from making a takeover offer or otherwise attempting to gain control of AMP." GIO contended that that statement is misleading and deceptive or likely to be so because the fact is that AMP is, for a five year period, "takeover proof". Shareholder limitation in AMP has two sources. Under section 19 of the Australian Mutual Provident Society (Demutualisation and Reconstruction) Act 1997 (NSW), a person may not be entitled to more than 5% of the shares of AMP during the one year period after listing. Under clause 25.2 of AMP's articles of association, a person may not be entitled to more than 5% of the shares of AMP during the five year period following listing. GIO contended that the 5% limit on shareholding means that the market for AMP shares will be significantly limited and that the AMP Part A Statement does not explain the significance of that fact from the point of view of a putative AMP shareholder. In other words, it is not explained that the consequence of accepting shares in AMP is that such a new AMP shareholder will not be the recipient of any takeover offers for AMP in the next five years. I consider that the limitation on holding shares in AMP is adequately disclosed by the AMP Part A Statement. There is no basis for assuming that GIO shareholders will accept the AMP share consideration for their shares in the expectation that a takeover offer will be received for their AMP shares. If that is a consideration, there is ample disclosure of the restriction on acquiring shares in AMP. A GIO shareholder who is sufficiently concerned abut such a matter would understand the significance of the limitation in that context. SHARE PRICE FORMULA GIO contended that the way in which the alternative AMP share consideration is dealt with in the AMP Part A Statement is misleading and exhibits material omissions. The same complaint was made in respect of the proposed form of offer served on GIO with the AMP Part A Statement. The consideration set out in the form of offer is as follows:
(a) if the Market Value of an AMP share is: (i) $21.96 or greater, the number produced by dividing the number of your GIO shares by nine and multiplying the result by two (that is, 2 AMP shares for every 9 GIO shares); or (ii) less than $21.96, the number produced by multiplying $4.88 by the number of your GIO shares and dividing the result by the Market Value of an AMP share; or
(c) a combination of the considerations specified in paragraphs (a) and (b) above for different parts of a holding as specified by the holder." GIO's complaints related to the practical operation of the definition of "Market Value of an AMP share", together with the impossibility of a shareholder knowing, at the time the offer is accepted, how many shares in AMP will be received if the share consideration is opted for. The statement of the consideration is on page 4 of the AMP Part A Statement. However, the only explanation of the expression "Market Value of an AMP share" is contained in the "Glossary" section at the end of the AMP Part A Statement beginning at page 99. In the case of the form of offer, the consideration is stated on page 2 and the definition is found in the "Interpretation" clause on page 16, although on the first page of the form of offer the following appears:
"Certain expressions used in this Offer are defined in clause 15." Both the Glossary and the Interpretation clause contain the following:
"Market Value of an AMP share means the weighted average price per AMP share sold on ASX (excluding sales designated as 'specials' under the Business Rules of ASX and any other sale which AMPII, in its absolute discretion, decides to exclude) during the ten trading days before (but excluding) the date that:
(a) the Offers become or are declared to be free from all of the conditions set out in clause 6.1; or
whichever is the earlier." GIO contended that the use of the expression "Market Value of an AMP share" is materially misleading or deceptive because of its obscurity and the terms of its definition. In addition, GIO contended that the absolute discretion conferred upon AMPII to exclude sales from the formula contained in the definition has the effect of depriving the "Offer" of the legal character of an offer, acceptance of which is capable of giving rise to a binding contract. Alternatively, GIO contended that the effect was to allow the offer to be varied otherwise than as permitted by Division 5 of Part 6.3 of the Law in contravention of section 654 of the Law. Misleading Formula The first complaint is that the use of the expression in question is misleading because of the failure of the AMP Part A Statement to draw the attention of the reader to the critical definition contained in the Glossary. It was said that the expression, without the definition, would be understood as a reference to market value of an AMP share on a particular day, meaning, presumably, the quoted price on ASX. The AMP Part A Statement is primarily notification to the target although a copy is, of course, required to accompany each offer. A target company, GIO in this case, could be expected to examine a Part A statement carefully and it is unlikely in the extreme that those advising a target company would fail to discover the Glossary. Pages 2 and 3 of the AMP Part A Statement consist of a table of contents entitled "Index". The reference to the Glossary appears on page 3 in bold type. I do not consider that the AMP Part A Statement is misleading in this respect. The critical document, so far as shareholders of GIO are concerned, is the offer document itself. As I have indicated, that contains a clear reference to the Interpretation clause at the beginning of the document. While it may be unrealistic to expect each shareholder to examine the whole of the AMP Part A Statement, shareholders can reasonably be expected to read the offer document. The term "Market Value" appears with upper case initial letters when it is used. That is some indication that the expression is being used in a defined sense. Further, it may well be difficult to know what the expression "market value" without capitals meant if there is no definition of some sort in the offer document. I do not consider that the separation of the definition from the statement of the consideration is a justified cause for complaint. GIO also contended that the definition is misleading in referring to the exclusion of sales designated as "Specials" under the Business Rules of ASX. GIO contended that, under the ASX Business Rules, no transaction is formally described as "Special". It was said that if "special crossings" under the ASX Business Rules were intended to be excluded, that should be clearly identified and the complex concept of "special crossings" explained. The definition of "special crossing" in rule 2.1 of the Business Rules of ASX provides that, for the purposes of the Law, the special crossing made in accordance with rule 2.8 is described as "Special" when reported to ASX. Rule 2.8 of the ASX Business rules deals with special crossings generally. Any shareholder who was concerned about exclusion of sales designated as "Specials" would have no difficulty in understanding what was intended. I consider that there is no substance in this complaint. No Offer GIO also contended that the absolute and unfettered discretion conferred on AMPII to exclude sales of AMP shares means that AMPII's "offer" is incapable of giving rise to a binding contract on acceptance. The contention was that there could be no binding contract: (a) because an essential term is not fixed with certainty;
(b) alternatively, because the amount of a consideration rests in the discretion of the promisor and the consideration is therefore illusory.
Before there can be a binding contract for sale, there must be a concluded agreement with respect to the three essential elements, being the parties, the subject matter and the price. However, when it is said that the price must be fixed with certainty, it is not meant that it must be fixed at a specified price. It will be sufficient if the sale is expressed to be for a price or value to be fixed by a named or described person - per Fullagar J in Hall v Busst (1960) 104 CLR 206 at 222. Further, parties may contract with the intention of affecting their legal relations, but yet make the acquisition of rights under the contract dependent upon the arbitrament or discretionary judgment of an ascertained or ascertainable person - Dobbs v The National Bank of Australasia Limited (1935) 53 CLR 643 at 652. Subject to the question of whether or not the consideration is illusory, however, there is no reason why the designated person could not be one of the parties or under the control of one of the parties. It may be that, on proper analysis, any such agreement must be treated as conditional until such time as the designated person makes the necessary determination (see Booker Industries Pty Ltd v Wilson Park (QLD) Pty Ltd (1982) 149 CLR 600 at 605). That could have some consequences under section 662 of the Law, which provides that an offer may not be made subject to a condition the fulfilment of which depends upon an event within the sole control of the offeror. That, however, has not been raised as an issue in these proceedings. Any contract which arises by reason of acceptance of the alternative consideration of shares in AMP will not strictly be a contract for sale since there will be no price payable. The contract would be one whereby each party promises to vest in the other a parcel of AMP shares or GIO shares, as the case may be, in exchange for the other parcel. Nevertheless, the principles as to certainty are equally applicable in relation to such a contract. Wherever words which, by themselves, constitute a promise are accompanied by words showing that the promisor is to have a discretion or option as to whether he would carry out that which purports to be the promise, the result is that there is no contract on which an action can be brought at all. Promissory expressions reserving an option as to the performance do not create a contract - per Kitto J in Placer Development Limited v The Commonwealth (1969) 121 CLR 353 at 356. A promise to pay an unspecified amount of money is not enforceable where it expressly appears that the amount to be paid is to rest in the discretion of the promisor and the deficiency is not remedied by a subsequent provision that the promisor will, in his discretion, fix the amount of the payment. Such promises may not be appropriately treated as vague and uncertain promises, because their meaning is only too clear, but should be treated as illusory promises - per Taylor and Owen JJ ibid at 359-360. Thus, a promise to pay what, in all the circumstances, the promisor in its discretion this fit, is wholly unenforceable. However, an agreement is not void for uncertainty because it leaves one party or group of parties a latitude of choice as to the manner in which agreed stipulations shall be carried into effect, nor does it for that reason fall short of being a concluded contract (per Kitto J in Thorby v Goldberg (1964) 112 CLR 597 at 605 - McTiernan J (at 601) and Windeyer J (at 616) agreed with Kitto J). On one view, the definition of "Market Value of an AMP share" could be construed so as to entitle AMP to exclude all sales during the relevant period. The respondents contended that, while AMPII may choose among a range of possible weighted average market prices for AMP shares, the lowest price in the range is fixed because the provisions should be construed as allowing AMPII to exclude all but the single lowest sale price during the relevant period. The respondents relied on the proposition that where promised consideration under a contract falls within a range, the contract will be construed so as to impose an obligation to pay the minimum end of the range. It is implicit in such a promise that there is an obligation to pay the minimum. In so far as there is a discretion reserved to one party, the discretion is a discretion to offer something more than the minimum expressed - Lewandowski v Mead Carney - BCA Pty Limited [1973] 2 NSWLR 640 at 642-3. That is a basis for construing the discretion such that AMPII would not be entitled to exclude all sales during the period. There may be a basis for construing the provision as subject to some restraint of reasonableness on the part of AMPII. That is to say, notwithstanding the reference to absolute discretion, a decision to exclude must have some rational, as distinct from purely arbitrary, basis. It is significant that the discretion relates to exclusion of sales. The formula assumes that an average will be taken. An average signifies a population of more than zero and, indeed, a population of more than one. That indicates, in my opinion, that the words in parenthesis should not be construed as entitling AMPII to exclude all sales during the period. If the Market Value of an AMP share is $21.96 or greater, there is no uncertainty as to the consideration to be received by GIO shareholders. It is clear that, in that event, the shareholder will receive two AMP shares for every nine GIO shares, subject to an appropriate mechanism for disposing of fractions of shares. It is only if the Market Value of an AMP share is less than $21.96 that the effect of the exercise of the discretion might create uncertainty. If AMPII excluded all sales during the relevant period, the effect, as a matter of arithmetic, would not be that the consideration is zero but that the consideration is infinite. Such a result would be nonsense. That is another reason for concluding that the provision must be construed as not permitting AMPII to exclude all sales. The question is whether the promise by AMPII to vest AMP shares in shareholders of GIO is illusory. I do not consider the promise to be illusory. Accordingly, this complaint also fails. Variation of Offer GIO contended that any relevant offer would contravene section 654 of the Law in that the discretion conferred on AMPII would permit a unilateral variation of the terms of the offer other than as permitted by Division 5 of Part 6.3 of the Law. GIO argued that the discretion permits AMPII: (a) to vary the consideration by decreasing the number of shares from that which would otherwise be applicable by application of the formula, being a form of variation not contemplated by section 655;
(b) to effect the variation in a manner not contemplated by section 657;
(c) to vary the consideration between offerees contrary to section 636.
"655(1) [Methods of Variation] An offeror may vary an offer under a takeover scheme by doing one or more of the following in relation to the whole or a part of the consideration that is specified in the offer as the consideration for the acquisition of the shares to which the offer relates: (a) where a cash sum is specified - by increasing the amount of that sum;
(b) where shares are, stock is, or debentures are, specified - by specifying a cash sum in addition to the shares, stock or debentures;
(c) where shares are specified - by increasing the number of those shares;
(d) where stock is specified - by increasing the amount of that stock;
(e) where debentures are specified - by increasing the rate of interest payable under those debentures;
(f) where debentures are specified - by increasing the amount of those debentures;
(g) where an option to acquire unissued shares is specified - by varying that option so as to increase the number of unissued shares that may be acquired under that option.
657(1)[Procedure for variation of offers] Variations of offers under a takeover scheme shall be made by: (a) serving on the target company a notice: (i) signed in the same manner as a Part A statement is required by subsection 637(1) to be signed; (ii) setting out the terms of the proposed variation and particulars of such modifications of the Part A statement as are necessary having regard to the variation; and (iii) where the effect of the proposed variation will be to postpone for more than one month the time by which the offeror's obligations under the takeover scheme are to be satisfied - stating the effect of the provisions of section 658; and
(b) sending a copy of that notice in an approved manner to each person to whom an offer was made under the takeover scheme (including, subject to subsection (3), a person who has accepted an offer).
636(1) [Offers to be identical] The offers must be the same disregarding: (a) the fact that the number of shares that may be acquired under each offer is limited by the number of shares held by the offeree; and
(b) any differences in the consideration specified for each share in the offers that are attributable only to the fact that the offers relate to share shaving different accrued dividend entitlements or relate to shares on which different amounts are unpaid." I do not consider that this complaint is made out. There is nothing in the Law which requires consideration to be formulated in any particular way. In particular, there is no requirement that the amount or value of consideration be certain as at the time the offer is made or at the time when it is accepted. So long as the offer clearly sets out a mechanism for determining the consideration, and the requirements of the general law as to certainty are satisfied, there is no other relevant requirement of the Law. In so far as a discretion is reserved to AMPII, that is one of the terms of the offer itself. If, under the general law, there is a binding agreement constituted by acceptance of an offer by a shareholder of GIO, the entitlement of the GIO shareholder is to receive the consideration determined in accordance with the exercise of the discretion by AMPII. So long as that discretion is exercised in accordance with the terms of the agreement, there is no variation of the agreement by the determination of the consideration in accordance with the discretion reserved. Section 655 therefore has no application in the circumstances of this case. Since section 655 has no application, it is not necessary to consider section 657. I do not consider that the terms of the offer entail any contravention of section 636. Identical offers will be made to each shareholder of GIO. While separate offers are, of course, made to each shareholder and separate contracts come into existence as between AMPII and each shareholder, I do not consider that the formula should be construed as to permit AMPII to exercise its discretion differentially as between members of GIO. I consider that the provisions should be construed such that if AMPII elects to exclude any sale, it must do so for each contract constituted by acceptance of an offer. Accordingly, this complaint also fails. UNVETTED DOCUMENTS GIO contended that if material bears on the decision of an offeree whether or not to accept the offer, it should be included in the AMP Part A Statement. GIO argued that material of that kind which has not been submitted either for registration or review by GIO should not be despatched with the offer to shareholders of GIO. Attached to Mr Trumbull's memorandum to directors of 2 September 1998 was a form of "Chairman's Letter" and "Marketing Summary" relating to the proposed takeover offers. Those documents comprised four pages in total. The form of those four pages is consistent with a note dated 28 August 1998 which states: "At this point in the shareholder pack there will be a four page 'Marketing Document' that will contain a letter from the Chairman, some information about AMP, a simple outline of the key features of proposed transaction and benefits to all parties." The four page document purported to set out in a simplified and summary form information material to a GIO shareholder's decision to accept or reject the offer, including: (a) the consideration being offered; (b) the benefits to GIO shareholders flowing from the combined entity; and (c) pro forma financial statements. GIO contended that, having regard to the demographic spread of GIO's shareholders and the size and complexity of the AMP Part A Statement, there would be a strong likelihood that some GIO shareholders would place disproportionate reliance upon what would appear in such a marketing document. For example, the draft marketing document contains the following:
"This information pack provides you with summary details of the offer. Please read the enclosed documents carefully and seek advice if you feel it is necessary." The implication of that comment is that a decision as to whether or not to accept or reject the offer could be made on the basis of the summary itself. GIO drew attention to the fact that the marketing document did not include or point to the definition of "Market Value of an AMP share" contained in the proposed form of offer. The form of chairman's letter contains, in bold print, the following: "You may elect to receive as consideration for your GIO shares either AMP shares (two AMP shares for every nine GIO shares subject to upwards adjustment as set out in the offer), or cash ($4.75 per GIO share), or a combination of both. Details of how to calculate the number of AMP shares you can receive are set out on page 4 of the accompanying offer document. If you need assistance on how to calculate the number of AMP shares you can receive you should contact your financial adviser or the AMP shareholder information line…" That does not expressly indicate how the upward adjustment is to be effected. On the other hand, the attention of shareholders of GIO is clearly drawn to the terms of the offer document itself. A shareholder who wanted to know how the upwards adjustment was determined could find out by reading the documents sent to him or her. GIO contended that the policy of the Law is that all information referred to in Part A of section 750 which is to be sent to shareholders of a target company must be included in the Part A statement to be registered with ASIC and served on the target prior to dispatch of offers. The purpose of such a policy was said to be to allow regulatory vetting in the case of ASIC and close scrutiny in the case of the target. Section 643 permits the inclusion in a Part A statement of information which is additional to that referred to in Part A of section 750. In so far as that additional information is included in a Part A statement, it will be seen by ASIC and by the target prior to dispatch of offers. GIO contended that "there is neither warrant nor authority" permitting the dispatch with offers of other information not submitted for registration and review by the target. Reliance was placed on observations made by McLelland CJ in Eq. in Solomon Pacific Resources NL v Acacia Resources Limited (1996) 19 ACSR 238 at 241 as follows: "The view is open that the provisions of the Corporations Law relating to takeover schemes proceed on the assumption that so far as concerns matters which are required to be included in a Part A Statement by Pt 1 in s 750, or additional matters which are in fact included in such a statement under the liberty granted by section 643, a Part A Statement will be a stand-alone document in the sense that it will be despatched to offerees unaccompanied by any other document (apart from the offer itself and any Part B Statement and accompanying report: see 639 (2) and section 640 dealing with those matters). Otherwise, it could be said, the statutory safeguards relating to the contents of a Part A Statement are liable to be subverted by the contents of other accompanying documents prepared by the offeror not subject to the same regulatory mechanism."
While I would afford to any observation made by McLelland CJ in Eq. the utmost respect, I am not persuaded, in this case, that his Honour's observations, made obiter, are correct. It is not necessary to find a warrant or authority for dispatch of additional materials. Unless there is a prohibition on dispatch of the material, its dispatch would be permitted. Having regard to the complex and comprehensive regulation of the contents of a Part A statement and what may and may not be done by an offeror in the context of a takeover scheme, I do not consider that it is appropriate to imply from the provisions of Chapter 6 prohibitions which are not expressly spelt out. Section 640 of the Law, which is contained within Division 1 of Part 6.3 specifying the requirements which must be complied with in order for acquisition of shares to have been made under a takeover scheme, provides that the offeror must have lodged, not later than the last day on which an offer was sent, a copy of every document that accompanied the offers, other than a document previously lodged under the Division. That appears to contemplate documents other than a Part A statement. Under section 646 of the Law, which is within the same Division, where takeover offers have been sent, the offeror must serve notice on the target company that the offers have been sent and the notice must be accompanied by a copy of every document that accompanied that offer. That also appears to contemplate documents other than a Part A statement. Of course, in so far as the marketing document contains material information which is not contained in the AMP Part A Statement, the AMP Part A Statement will be defective. In so far as the marketing document is misleading or deceptive, there may be a contravention of section 995. The existence of such provisions in the Law affords adequate protection to offerees in relation to any additional marketing material. Accordingly, unless the dispatch of the marketing document constitutes a contravention of section 995, I do not consider there is any prohibition on its dispatch. There was no complaint by GIO that the marketing document discloses material information which should have been contained in the AMP Part A Statement. I do not consider that the dispatch of the marketing document to GIO shareholders with the offer document and the AMP Part A Statement would constitute a contravention of section 995. Accordingly, this complaint also fails. CONCLUSION I have concluded that there are deficiencies in the Part A Statement in relation to the role of the Board of AMP in the "confirmation of the Prospectus Forecast and in relation to the assumptions on which the "confirmation" is given. I have also concluded that there is a deficiency in the reference to hedging. Questions therefore arise as to whether those deficiencies would justify intervention of the Court and whether relief should be granted to AMPII pursuant to its cross claim. Many of the questions raised have been complex and do not necessarily admit of a straightforward response. Accordingly, I consider that the appropriate course is to invite the parties to make further submissions as to the orders, if any, which I should make in the light of the findings which I have now published. I certify that this and the preceding eighty four pages (84) are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.
Associate: Dated: 25 November 1998 Counsel for the Applicant: N.J. Young QC S.J. Gageler A.S. Bell R.A. Dick Solicitor for the Applicant: Atanaskovic Hartnell Counsel for the Respondents: T.F. Bathurst QC M.B. Oakes SC R.G. McHugh Solicitor for the Respondents: Mallesons Stephen Jaques
Pancontinental Mining Industries
Goldfields Limited
(1992) 35 FCR 226
(1960) 104 CLR 206
(1935) 53 CLR 643
(1982) 149 CLR 600
(1969) 121 CLR 353
(1964) 112 CLR 597