Pinnacle VRB Ltd v Reliable Power Inc [2001] VSC 262

[2001] VSC 262

CORPORATIONS--off-market takeover bid--whether purported extension of offer period an invalid variation of offer under Corporations Act 2001, ss. 650A(1) and 650C--whether required notices given to offerees after expiry of the offer period--whether "give" in Corporations Act, s. 650D(1)(c), means "send" or "serve"--whether ss. 1322 and 1325D of the Corporations Act are available to cure any such invalid variation of offer or excuse the "contravention"-whether an extension of time which permits the giving of notices beyond the expiry of the offer period can and, if so, should be granted under s. 1322(4)(d) of the Corporations Act.

For the Australian Securities and Investment Commission

2. The plaintiff (Pinnacle) is a listed public company. The defendant (Reliable) is a company registered in Delaware in the United States of America. On 22 January 2001, Reliable announced on the ASX that it intended to make an off-market cash takeover bid for all ordinary shares in Pinnacle at no less than 55 cents per share conditional upon a minimum acceptance of 51 per cent and upon a number of other conditions.

5. A Bidder's statement was lodged on 5 March 2001 and on 20 March 2001 Reliable made such a cash offer at 65 cents per share, the offer to expire at 7.30 p.m. on Tuesday 22 May 2001 unless withdrawn or extended. On or about 14 May 2001, Reliable extended the offer period until 7.30 p.m. on 10 July 2001. Reliable has since purported to extend the offer period again and it is that extension which is challenged by Pinnacle in this proceeding.

8. Pinnacle seeks by a proceeding commenced on 20 July 2001 declarations that Reliable's offer lapsed at 7.30 p.m. on 10 July 2001 and that Reliable failed to comply with ss.650C and 650D of the Corporations Act 2001 when attempting to extend its offer. Reliable denies that its extension of offer was invalid but, in the alternative, relies upon ss.1322(4) and 1325D of the Act and seeks an extension of time or to have any invalidity cured or any contravention excused.

11. On Friday 6 July 2001, Reliable lodged with ASIC a notice of extension purporting to extend the offer period until 7.30 p.m. on Tuesday 21 August 2001. Thereafter on the same day the notice was given to Pinnacle. Notices were not dispatched to shareholders before Tuesday 10 July 2001. It cannot be disputed, on the evidence, that most of the notices were not dispatched until after 7.30 p.m. on 10 July 2001 and some were not dispatched prior to the following day, Wednesday 11 July 2001.

14. It is thus clear that most of the notices to shareholders were dispatched after the expiry of the offer period, that is to say after the end of the bid period (see s.9 of the Act for the definition of the "bid period"). On that basis the court is not concerned with the operation of s.659B of the Act in relation to court proceedings before the end of the bid period unless, in some way, Reliable has validly extended its offer despite the late dispatch of its notices. Of course if that were so, Pinnacle's proceeding would fail in any event.

17. Before considering some of the facts in a little more detail, it is necessary to refer to the relevant provisions of the Act. The parties did not seek to contend that there were any problems arising from the transition from the Law to the Act, while pointing out that there were some limited differences between the two pieces of legislation. All parties conveniently treated the Act as the source of all provisions now governing this current dispute.

20. Section 650A(1) of the Act provides that a bidder, "may only" vary the offers under an off-market bid in accordance with s.650B, s.650C or s.650D. Section 650C(1) of the Act empowers a bidder making an off-market bid to extend the offer period at any time before the end of the offer period.

23. Section 650D provides:

"650D(1) Variation to be made by notice to the target and holders. To vary offers under an off-market bid, the bidder must: (a) prepare a notice that: (i) sets out the terms of the proposed variation; and (ii) if the bid is subject to a defeating condition and the proposed variation postpones for more than 1 month the time by which the bidder must satisfy their obligations under the bid - informs people about the right to withdraw acceptances under section 650E; and (b) lodge the notice with the ASIC; and (c) after the notice is lodged, give the notice to: (i) the target; and (ii) everyone to whom offers were made under the bid. Note: Sections 648B and 648C provide for the manner in which documents may be sent to holders. 650D(2) [Obligation to send notice] A person must be sent a copy of the notice under subparagraph(1)(c)(ii) even if they have already accepted the offer. However, they need not be sent a copy if: (a) the variation merely extends the offer period; and (b) the bid is not subject to a defeating condition at the time the notice is given to the target. 650D(3) [Signatures required] A notice under subsection (1) must be signed by: (a) if the bidder is, or includes, an individual - the individual; and (b) if the bidder is, or includes, a body corporate with 2 or more directors - not fewer than 2 of the directors who are authorised to sign the notice by a resolution passed at a directors' meeting; and (c) if the bidder is, or includes, a body corporate that has only one director - that director. 650D(4) [Content of notice] A copy of a notice given to a person under subparagraph (1)(c)(ii) must include a statement that: (a) a copy of the notice was lodged with ASIC on a specified date; and (b) ASIC takes no responsibility for the contents of the notice."

27. In my opinion the proper construction of these sections is that they provide, subject to the Act, the sole method by which offers under off-market bids may be varied, including extensions of the offer period. I note the use of the words in s.650A(1) "may only" and in s.650D(1) "the bidder must".

30. It follows that Reliable has failed to validly extend the offer period beyond 10 July 2001 because, on any view, it failed to give notice to all shareholders or offerees before the end of the offer period as required by ss.650C and 650D(1). However if the word "give" in s.650D(1)(c) means "send" or "dispatch", the failure to comply with that section may be thought to be of a lesser order than the failure to comply if "give" means "serve" or "place in the hands of the offerees" as Pinnacle contends. That is particularly so because some of the offerees have overseas addresses.

33. In my opinion, contrary to Pinnacle's submission, there is no non-compliance with ss.650C and 650D(1)(c) if the notices are served or received, as opposed to dispatched or sent, after the end of the offer period. In that regard I would adopt what was said by Lee J in Diamond Rose NL v. Striker Resources NL.[1] In my opinion the construction urged by Pinnacle is impractical and commercially unrealistic and would make variation of offers potentially unmanageable. Despite the slight change in terminology in the current provision, these consequences could not have been intended by the legislature.

36. I also accept the submission of ASIC, which appeared by its legal representative to argue this point only, that the construction to be preferred is that which promotes one purpose or object underlying these provisions in the Act, which is that of commercial certainty for participants in financial markets. In addition, on a textual basis, I note that while the word "give" is used in s.650D(1)(c), the word "sent" is used in relation to the same notices to offerees by s.650D(2). It would seem that the verbs "give" and "send" are being used interchangeably.

39. I conclude therefore that the failure by Reliable was the failure before the expiry of the offer period to send all of the notices in the manner required by ss.648B and 648C of the Act (dealing with sending by prepaid post -airmail for overseas, ordinary in Australia-- or by courier). [2]

42. The evidence is that Reliable used Computershare Investor Services Pty Ltd to organise the mail-out and that Computershare in turn used Dynamic Direct Pty Ltd. There is some evidence that Dynamic's mail-out job achieved the following results:

(a) 400 notices were posted, that is collected by Australia Post, at 5 p.m. i.e. before the deadline;

(b) 1994 notices were posted, that is collected by Australia Post, at about 8 p.m., or in any event after the deadline of 7.30 p.m.;

(c) 116 notices were not posted on 10 July 2001, but the next day.

48. At any rate, I am satisfied that all notices were posted by no later than 11 July 2001, that is, no more than one day late.

51. It was not contended that notices posted to offerees after 7.30 p.m. on 10 July 2001, in relation to a notice of variation initiated on 6 July 2001, could be attacked on any basis other than the expiry of the offer period at 7.30 p.m. on 10 July 2001.

54. Pinnacle contended that Reliable's failure to effectively extend the offer period could not be cured, validated or excused because ss.1325D and 1322(4) of the Act were not available. Pinnacle submitted that the words "may only" in s.650A(1) evinced an intention to exclude those provisions, citing the constructional approach taken to s.459G of the law by the High Court in David Grant & Co Pty Ltd v. Westpac Banking Corporation.[3]

57. I do not accept that submission. The main factor in David Grant was that the key section which granted jurisdiction to the court to set aside statutory demands was itself expressly delimited because the relevant application could "only" be made within 21 days after service of the demand.[4] There were other features, too, based upon the particular scheme established by Part 5.4 of the Corporations Law and its context.

60. To the contrary here, s.1325D(1) and (3) of the Act expressly provide that the court may declare an act to be not invalid because a person has contravened a provision of, inter alia, Chapter 6, dealing with takeovers. That shows a clear intent that Chapter 6 is not a self-contained regulatory regime as submitted by Pinnacle. I note that in s.9 of the former Law, "contravene" was defined to include "fail to comply with" and, now, that definition, although not contained in the Act itself, is dealt with by s.22(1)(j) of the Acts Interpretation Act 1901 which provides that "contravene includes fail to comply with". I find no reason of policy why variations to offers ought be excluded from the operation of s.1325D(1) and (3) by reason of the words "may only" in s.650A(1). If that is correct, there is no good constructional reason to exclude s.1322(4), either, from operating in relation to variations of offers governed by s.650A(1) of the Act.

63. I do not think that the use of the word "only" in s.650A(1) should be taken to show an intent to exclude the court's broad powers to relieve against injustice to be found in ss.1322 and 1325D, as applied to the time limit to be found in s.650C(1) of the Act. Nor do I think that ss.650A and 650C fall within the reasoning applied by Young J in Re Infomedia Pty Ltd.[5] In particular, I consider that s.1322(4)(d) of the Act is available to extend the time limit contained in s.650C(1) of the Act in an appropriate case.

66. Apart from the foregoing, Pinnacle did not suggest that there was any other reason why ss.1322(4) and 1325D of the Act might not be available but submitted that, in all the circumstances of this case, those provisions should not be utilised in favour of Reliable. In that regard some additional matters should be mentioned.

69. Remarkably, there have been five applications to the Corporations and Securities Panel in relation to Reliable's bid, one initiated by Pinnacle and four by Reliable. It is unnecessary to detail the matters considered and decided by the Panel, which are to some extent canvassed in the affidavits and the exhibits and which I have read, but it should be noted that the Panel required Pinnacle to call a shareholders' meeting to approve certain transactions proposed to be entered into and that the timing of this meeting and material in relation to it to some extent affected the timing of Reliable's decision to extend the offer period from 10 July 2001. Another factor was a modification granted by ASIC.

72. However, I am satisfied that the failure to give all the relevant notices to offerees prior to 7.30 p.m. on 10 July 2000 was probably mainly caused by the failure of Reliable's solicitors to expressly instruct Computershare that all of the notices had to be posted to meet a deadline of 7.30 p.m. on 10 July 2001. The instruction given was to mail out on that day but the solicitors assumed, without expressly enquiring, that this would ensure that the deadline was met. It is unnecessary to determine whether, even with such an instruction, some of the notices might not have been posted in time or on that day and, if so, what was the cause of such delay. Precisely what happened in the mailing house is immaterial. Thus I consider that Reliable's non-compliance was minor and unintentional. The subsequent conduct of Reliable's solicitors is in my view irrelevant.

75. Pinnacle relied upon a number of matters in support of a contention that no relief should be granted to Reliable including the time and trouble caused to Pinnacle by Reliable's bid, the costs involved in dealing with Reliable's bid, including the various applications to the Panel, and the small number of acceptances of the bid to date (about four to five per cent). While taking those matters into account, it seems to me that the factors of trouble time and cost are essentially historical and collateral to the present question and to some extent brought about by Pinnacle's own conduct in relation to certain business transactions with associated parties. The small number of acceptances perhaps suggests that the bid is unlikely to succeed but it may be that many shareholders are awaiting the outcome of the meeting. A prime consideration, it seems to me, is that the right of the shareholders to choose should be maintained.

78. I consider that, pursuant to s.1322(4)(d) of the Act and in all the circumstances, the time for extending the offer period and for giving the notices by Reliable under ss.650C(1) and 650D(1)(c)(ii) of the Act should be extended to midnight on 11 July 2001 on condition that (1) Reliable undertakes to pay to Pinnacle and ASIC their costs of this proceeding to be taxed on a party-party basis including reserved costs; (2) Reliable lodges with the Prothonotary by 4 p.m. on Wednesday 1 August 2001 the sum of $30,000 as security for the aforesaid costs of Pinnacle and $2000 as security for the aforesaid costs of ASIC. I make that order because of the absence of any real presence or assets of Reliable within Australia, so far as appears, and I also note the failure of Reliable to pay costs of $19,614 ordered on 1 May 2001 by the Panel to be paid to Pinnacle. (I note Mr Strong's statement on behalf of Reliable this morning that the cheque is in the mail in relation to that latter amount).

81. I do not think that any substantial injustice has been or is likely to be caused to Pinnacle or any other person by those orders.

84. If the conditions are not met, Pinnacle is granted liberty to apply for the declarations it seeks and any consequential relief, and for an order dismissing Reliable's interlocutory process.

[1] (1998) 85 FCR 76, 79-80.

[3] [1995] HCA 43; (1995) 184 CLR 265.

[5] [2000] NSWSC 649; (2000) 34 ACSR 682.