Primelife Corporation Ltd v Aevum Ltd

DECISION : Notice of variation extending period of takeover offer validated.

CATCHWORDS : CORPORATIONS [161] - Takeover offers - Other matters - Off-market takeover bids - Variation of.

Acts Interpretation Act 1901 (Cth) ss 22(1)(b) & (j) LEGISLATION CITED : Corporations Act 2001 (Cth) Part 6.6 Division 2 ss 256C(2), 630(3), 650A(1), 650B, 650C, 650D, 650E, 659B, 1322(1), (2), (4) & (6), 1325D(1) & (4)

Barondene Pty Ltd v Breakfree Ltd (2003) 22 ACLC 910 David Grant & Co Pty Ltd v Westpac Banking Corp (1985) 185 CLR 265 Diamond Rose NL v Striker Resources NL (1998) 85 FCR 76 Hamilton v Property Investments Ltd [1983] WAR 317 CASES CITED : Pinnacle VRB Ltd v Reliable Power Inc (2001) 163 FLR 215; 39 ACSR 8 Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (In Liq) [1991] 2 Qd R 456 Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2000) 157 FLR 59 Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2001) 166 FLR 144; 40 ACSR 221

Primelife Corporation Limited (P) PARTIES : Aevum Limited (D)

M B Oakes SC (P) COUNSEL : D J A Mackay, Solicitor (D)

Watson Mangioni (P) SOLICITORS : Minter Ellison (D)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1440/05 PRIMELIFE CORPORATION LIMITED v AEVUM LIMITED JUDGMENT 1 HIS HONOUR: I made orders in this matter on 11 February 2005, but reserved my reasons for doing so. These are those reasons. 2 These proceedings concern a defective notice of variation of an off-market bid. The defect came about in the following way. The plaintiff made an off-market bid for shares in the defendant. The bid contained a "defeating condition". The plaintiff wished to vary the offers under its bid by extending the offer period. Variation of an off-market bid is covered by Part 6.6 Division 2 of the Corporations Act 2001 (Cth) ("the CA"). 3 Section 650A(1) of the CA provides that a bidder may only vary offers under an off-market bid in accordance with ss 650B, 650C or 650D of the CA. Section 650B is not presently relevant. Section 650C(1) provides that where a bidder wishes to extend the offer period it may do so at any time before the end of the offer period, subject to the constraints in s 650C(2). Section 650D sets out the requirements for a notice of variation, its lodgement, and to whom it is to be given. 4 The initial offer period of the bid was scheduled to end on 7 February 2005. Because the bid was subject to a "defeating condition", the combined effect of ss 650C(2) and 630(3) of the CA was that notice of variation needed to be in place by 31 January 2005. The plaintiff purported to vary the bid by extending it on that date. 5 A further statutory effect flowed by virtue of the bid being subject to a "defeating condition". If the plaintiff wished to vary its bid by extending the offer period for more than one month whilst maintaining the "defeating condition", the notice of variation to extend the offer period needed to include the s 650D(1)(a)(ii) information that offerees who had accepted the bid had the right conferred by s 650E of the CA to withdraw their acceptances. 6 The notice of variation extended the offer period by 30 days which was more than one month. The notice of variation did not include the s 650D(1)(a)(ii) information. The effect of this contravention was that there was no notice of variation extending the offer period within the meaning of the CA, and the offer lapsed. 7 The circumstances in which the notice of variation came to omit the s 650D(1)(a)(ii) information are that it did not occur to the solicitor drafting the notice that in this instance a 30 day extension constituted more than a month. It did, of course, because February contains only 28 days. The notice was drafted and sent in January, but it extended time from 7 February to 9 March. I accept that the solicitor was acting honestly and that the omission was caused by inadvertence. 8 The following propositions emerge from the CA and relevant case law:

(1) The proper construction of ss 650B, 650C and 650D "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": see the judgment of Mandie J in the Supreme Court of Victoria in Pinnacle VRB Ltd v Reliable Power Inc (2001) 163 FLR 215; 39 ACSR 8 at [9].

(2) This arises from the use of the words "may only" in s 650A(1) and "the bidder must" in s 650D(1): Pinnacle at [9].

(3) The result which follows from the failure to comply with the "sole method" is that there will be a failure to vary validly: Pinnacle at [9] and [10].

(4) The failure to vary will mean, subject to any remedial court order, that the bid has lapsed and there are no extant offers.

(5) Section 659B of the CA provides that a bid period needs to have come to an end before "court proceedings in relation to a takeover bid" may be commenced. If an application for a remedial order is the subject of a s 659B prohibition (which it is unnecessary to decide) the prohibition does not apply in this proceeding because the bid period had technically come to an end at the time the application was made.

(6) The statutory requirement to "give" a notice in s 650D(1)(c) means "send" or "dispatch" and does not connote the concept of service or actual receipt: Pinnacle at [10].

(7) An object of the bid variation provisions in the CA is to create "commercial certainty for participants in financial markets": Pinnacle at [12].

(8) "Month" in s 650D(1)(a)(ii) means "calendar month" by operation of s 22(1)(b) of the Acts Interpretation Act 1901 (Cth) ("the AIA").

(9) A "contravention" of legislation, by operation of s 22(1)(j) of the AIA, includes a failure to comply with legislation: applied in Pinnacle at [19].

(10) "'Inadvertence' generally means being 'not properly attentive' or not directing one's mind to the doing of an act due, inter alia, to being ignorant of a requirement that an act be done, or done in a particular way, or by a particular time.": per Lee J in Diamond Rose NL v Striker Resources NL (1998) 85 FCR 76 at 81D-E, citing Hamilton v Property Investments Ltd [1983] WAR 317 and Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (In Liq) [1991] 2 Qd R 456.

(11) Section 1322(4) is a source of power for making remedial orders where there has been a contravention of the bid variation provisions of the CA: Pinnacle at [17] - [19] and [25]; and see the decision of Mullins J in the Supreme Court of Queensland in Barondene Pty Ltd v Breakfree Ltd (2003) 22 ACLC 910 at 912. So is s 1325D: Pinnacle at [17] - [19].

(12) The use of the words "may only" in s 650A(1) does not evince an intention to exclude the operation of the remedial provisions in ss 1322(4) or 1325D or an intention that the constructional approach in David Grant & Co Pty Ltd v Westpac Banking Corp (1985) 185 CLR 265 is to be taken: Pinnacle at [17] and [19].

(13) Section 1322(4) has greater flexibility than s 1325D, in that orders can be made "subject to such conditions as the court imposes": Barondene at 912.

(14) Section 1322(4) conditions may be expressed so that the order is given "on condition that" the party seeking the relief undertakes to do certain things, as it was expressed in Pinnacle at [25]; or as part of a package that includes undertakings and orders, as occurred in Barondene at 913.

(15) Section 1322(4) is a "remedial provision to be applied with liberality": per Giles JA (with whom Beazley JA agreed) in Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd ( 2001) 166 FLR 144; 40 ACSR 221 at [74].

(16) In order to make an order under s 1322(4)(a), it is necessary for only one of the sub paragraphs of s 1322(6)(a) to be fulfilled, because the sub paragraphs are disjunctive.

(17) In order to make any order under s 1322(4), it is necessary for s 1322(6)(c) of the CA to be fulfilled, namely, that "no substantial injustice has been or is likely to be caused to any person".

(18) For the purposes of fulfilling s 1322(6)(a)(ii) of the CA, namely, that a person seeking a remedial order was acting honestly, the actions or inactions of a solicitor acting on behalf of that person are capable of being sufficient to fulfil the requirement. In Winpar , the trial Judge (Santow J) found that the solicitor, advising on a selective reduction of capital, considered the concluding words of s 256C(2), which required a special resolution at a meeting of those members of the company whose shares were being cancelled. The solicitor construed the words as meaning that the resolution could be considered at the general meeting of all members to consider the reduction of capital: Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2000) 157 FLR 59 at [31] - [33]. The Court of Appeal regarded this view as wrong but, the solicitor having acted honestly, held there was an appropriate basis for s 1322(4) relief: CA at [76].

(19) The concept of "acting honestly" can embrace active but incorrect consideration of a legal issue, as well as failure to consider the issue at all.

(20) It is desirable that an application for remedial orders in a bid variation situation be brought on quickly, as a two to five day delay may test the limits of any excusable period: Diamond Rose at 82C-D.

(21) A prime consideration for making a remedial order which will continue a bid is maintaining the right of shareholders to choose to accept the bid ( Pinnacle at [24]; Barondene at 912), even if it is likely that the bid will be unsuccessful: Pinnacle at [24].

(22) A relevant consideration for making a remedial order, where an extension of a bid is involved, is that some notice of the extension has been given to the market: Barondene at 912.

(23) Where a bid has lapsed and is effectively reinstated by a remedial order, and shares have traded during the hiatus between the lapse and the remedial order, it is appropriate to consider as a condition of relief, an undertaking by the bidder to compensate the vendors of such shares in the target for the difference between their sale price and the bid price: Barondene at 913. 9 ASIC was informed of these proceedings and wrote a letter, which was tendered, stating it did not wish to appear. That letter asked that the Barondene decision be brought to my attention. In Barondene, an undertaking was given by the bidder to compensate those who had traded their shares (on the basis that they had not been informed that the bid had been extended) at a price which was less than the bid price. In these proceedings, the evidence is that the market price has at all material times exceeded the bid price, so anyone selling on the basis that there was no extant bid would not be out of pocket. In short, the factual situation is the opposite of Barondene. The defendant target announced to the ASX on Tuesday, 8 February 2005 that the bid had lapsed, and the plaintiff announced to the ASX after the close of business that day that it intended to apply to the Court for remedial orders, so the trading window between the two pieces of information was limited to Tuesday, 8 February 2005. On these facts, Senior Counsel submitted that a "Barondene undertaking" was unnecessary, and I accepted that submission. 10 There still remained three other issues affecting the members. The first issue was that one effect of making a remedial order in relation to the notice of variation was that the members of the defendant who had accepted the plaintiff's offer remained uninformed of their s 650E right to withdraw their acceptances. This was dealt with by an undertaking to the Court by the plaintiff to send a notice, referred to in these proceedings as a "withdrawal notice", in a form submitted to the Court, informing members of the s 650E right. The plaintiff undertook to lodge the withdrawal notice with ASIC, and send it to the ASX, the defendant and all members of the defendant. 11 The second issue was that the period of one month under s 650E for a member of the defendant accepting the bid to withdraw the acceptance is tied by the CA to receipt of the notice of variation, which, as I observed, did not include notification of the s 650E withdrawal of acceptance right. This was dealt with by an order under s 1322(4)(d) of the CA extending the one month period, to allow for the month to run from receipt of the withdrawal notice. 12 The third issue was that between 8 February 2005 and receipt of the withdrawal notice, a member who had accepted the offer may have dealt with his or her shares on the basis that the bid had lapsed, and thus not be in a position to lodge a withdrawal notice as the shares were no longer held. This was dealt with by an undertaking to the Court by the plaintiff to treat any action by any member of the defendant who accepted the bid, which action was inconsistent with the terms of the offer and which action occurred between 8 February 2005 and the date of receipt of the withdrawal notice by such member, as a valid exercise of that member's right to withdraw acceptance of the offer. 13 In all the circumstances, I was satisfied that s 1322(6)(c) was fulfilled. 14 Section 1325D(1) permits the Court to declare a document "not invalid" because a person has contravened a provision of Ch 6 of the CA "if the Court is satisfied that the contravention ought to be excused in all the circumstances". Section 1325D(4) permits the Court to have regard to a contravention caused by a person's "inadvertence or mistake". The relevant "inadvertence" is that of the solicitor drafting the notice of variation and omitting the s 650D(1)(a)(ii) information. In all the circumstances, I was satisfied that the contravention ought to be excused. 15 For these reasons I made the orders and accepted the undertakings of the plaintiff set out in the short minutes. 16 Mr Oakes, of Senior Counsel for the plaintiff, put his case at hearing on the basis of s 1322(4) and s 1325D. After I had made my orders, Mr Oakes SC submitted another way in which the facts might be analysed, and that is that the notice of variation was a "proceeding under this Act" within s 1322(1)(a), that the omission of the s 650D(1)(a)(ii) information was a "defect … of notice" within s 1322(1)(b)(ii), was thus a "procedural irregularity" within s 1322(1)(b), and was thus contingently valid under s 1322(2). I note this argument but it can wait for another day.

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