Re Goodyear Australia Limited; Kelly-Springfield Australia Pty Limited v Green & Ors

A S Bell (Applicant) N Cotman, SC (Third Respondent) COUNSEL : Alexander James Green (in person) Gordon Bradley Elkington (in person) David Bennett, QC /G Hill (Commonwealth Attorney-General) SOLICITORS : Mallesons Stephen Jaques (Applicant) Stephen Blanks & Associates (Third Respondent) CATCHWORDS : CORPORATIONS - Takeover of preference shares - Compulsory acquisition - Meaning of "fair value" - allocation of "fair value" between and within classes - Valuation principles. - CONSTITUTIONAL LAW - Acquisition on just terms where fair value paid under s667C - judicial restraint in not answering constitutional questions not required for decision. - STATUTORY INTERPRETATION - travaux preparatoires not determinative of interpretation. Constitution of the Commonwealth of Australia s51(xxxi) LEGISLATION CITED : Corporations Act Part 6A.2; s1350; s1384 Corporations Law; s664C; s664E; s664F; s667C Air Services Australia v Canadian Airlines International Ltd (1999) 74 ALJR 76 Australian Tape Manufacturers Association Ltd v Commonwealth(1993) 176 CLR 480 Austrim Nylex Limited v Kroll [2001] VSC 168 (18 May 2001) Re Boulton; ex parte Bean (1987) 162 CLR 514 Cedar Rapids Manufacturing and Power Company v Lacoste & Ors [1914] AC 569, 576 Commonwealth of Australia v Milledge (1953) 90 CLR 157 Commonwealth v Tasmania (1983) 158 CLR 1 Commonwealth of Australia v State of Western Australia (1999) 196 CLR 392 Emerald Quarry Industries Pty Ltd v Commissioner of Highways (SA) (1979) 142 CLR 351 Fraser v city of Fraserville (1917) AC 187 Gambotto v WCP Ltd (1995) 182 CLR 432 Georgiadis v Australian Overseas Telecommunications Corporation (1994) 179 CLR 297 Re Goldfields Kalgoorlie Limited: Winpar Holdings Ltd v Goldfields Kalgoorlie Limited (2000) 34 ASCR 737 Grace Bros Pty Ltd v The Commonwealth (1946) 72 CLR 269 Health Insurance Commission v Peverill (1994) 179 CLR 226 Re Hellenic Trust Ltd [1976] 1 WLR 123 CASES CITED : Holt v Cox (1994) 15 ACSR 313 Housing Commission of NSW v San Sebastian Pty Ltd (1978) 140 CLR 196 Lucas v The Chesterfield Gas and Water Board [1909] 1 KB 16 Metal Manufacturers Limited v Lewis, on appeal at (1988) 13 NSWLR 315 Monier v Szabo (1992) 28 NSWLR 53 Mutual Pools & Staff Pty Ltd v the Commonwealth (1994) 179 CLR 155 Nelungaloo Pty Ltd v The Commonwealth (1948) 75 CLR 495 Nintendo C Ltd v Centronics Systems Pty Ltd (1994) 181 CLR 134 Re Patterson; ex parte Taylor (2001) 75 ALJR 1439 Pauls Limited v Jennifer Mary Dwyer & Ors (Douglas J, Supreme Court of Queensland, 13 March 2001, unreported) Pauls Limited v Milly Elkington [2001] QCA 414 (2 October 2001) R v Hunt (1979) 25 ALR 497 Pointe Gourde Quarrying and Transport co Ltd v Sub-Intendent of Crown Lands [1947] AC 565 Smith v ANL Ltd (2000) 75 ALJR 95 Southern Cross Interiors Pty Ltd (in liq) v DCT (2001) 39 ACSR 305 Universal Film Manufacturing Co (Australasia) Ltd v New South Wales (1927) 40 CLR 333 Winpar Holdings Ltd v Goldfields Kalgoorlie Limited [2001] NSWCA 427 DECISION : Application granted; see paras 100 to 103.

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

No 2079/01 In the matter of GOODYEAR AUSTRALIA LIMITED ACN 000 017 489 Kelly-Springfield Australia Pty Limited ACN 000 998 327 Applicant Alexander James Green First Respondent Wilcorp No. 41 Limited ACN 001 994 949 Second Respondent Winpar Holdings Limited ACN 003 035 523 Third Respondent Gordon Bradley Elkington Fourth Respondent Pamela Etheridge Fifth Respondent JUDGMENT 14 February 2002 INTRODUCTION 1 The present proceedings challenge the compulsory acquisition of some preference shares in a bid for all of them. They pose squarely this question. How should a separate class of preference shares have been valued so that "fair value" is paid for them upon their compulsory acquisition so as to satisfy the requirements of the Corporations Act in that behalf? 2 Should that question be answered favourably to the parties seeking compulsory acquisition, there is nonetheless a potential further constitutional question as to the validity of the relevant Part 6A.2 of the Corporations Act. That question depends on the correctness of the assumption that the compulsory acquisition provisions of the Corporations Act, though satisfied, may nonetheless be invalid insofar as they mandate or permit payment for shares compulsorily acquired which fall short of "just terms" as applicable to the acquisition of property under s51(xxxi) of the Constitution of the Commonwealth of Australia. Its potential application follows from these proceedings being a "continued proceeding". That is, by reason of the application thereto of s1384 of the Corporations Act (not challenged in this case) with the consequence that the substantive law to be applied is Commonwealth law, namely the Corporations Act and in particular Part 6A.2 thereof. 3 If, however, it be the case that the "fair value" required by the Corporations Act necessarily also constitutes "just terms" within s51(xxxi) then that constitutional question could not arise. This is because the constitutional requirement for just terms, if applicable, would be satisfied by the requirement to pay "fair value". Thus in Austrim Nylex Limited v Kroll [2001] VSC 168 (18 May 2001), Justice Warren observed at [17]: "s664F of the Corporations Law expressly provides for the payment of compensation to the persons from whom the shares are acquired. There is no basis whatsoever for the argument that the compensation there specified is other than 'just'." 4 The constitutional question likewise could not arise, were s51(xxxi) of the Constitution incapable of application to a compulsory acquisition under the Corporations Act, on the basis that the relevant legislation could not properly be characterised as a law with respect to the acquisition of property, for the purposes of s51(xxxi). Thus a law which gives rise to an acquisition of property is not characterised as a law with respect to the subject matter of s51(xxxi) if:

(i) the law constitutes no more than "the means appropriate and adapted to the achievement of an objective falling within [a head of power other than s51(xxxi)] where the acquisition of property without just terms is a necessary [which in this context does not mean indispensable Mutual Pools & Staff Pty Ltd v the Commonwealth (1994) 179 CLR 155, 180 per Brennan J] or characteristic feature of the means prescribed" [ Mutual Pools & Staff Pty Ltd v the Commonwealth (supra) at 179 per Brennan J [emphasis added]; see also Air Services Australia v Canadian Airlines International Ltd (1999) 74 ALJR 76, [98] per Gleeson CJ and Kirby J], or

(ii) the law merely adjusts the competing rights or claims of persons in a particular relationship or area of activity; Australian Tape Manufacturers Association Ltd v Commonwealth (1993) 176 CLR 480, 510 per Mason CJ, Brennan, Dean and Gaudron JJ; Mutual Pools & Staff Pty Ltd v the Commonwealth at 171-172 per Mason CJ, 178 per Brennan J, 189-190 per Dean and Gaudron JJ; Health Insurance Commission v Peverill (1994) 179 CLR 226, 236 per Mason CJ, Deane and Gaudron JJ; Georgiadis v Australian Overseas Telecommunications Corporation (1994) 179 CLR 297, 305-308 per Mason CJ, Deane and Gaudron JJ; Nintendo C Ltd v Centronics Systems Pty Ltd (1994) 181 CLR 134, 161 per Mason CJ, Brennan, Deane, Toohey, Gaudron and McHugh JJ. 5 Finally, even if s51(xxxi) of the Constitution were otherwise capable of application to such an acquisition, there is still the question whether s1350 of the Corporations Act removes the possibility of any constitutional invalidity. Under s1350(1), if the operation of the relevant Part 6A.2 of the Act (dealing with compulsory acquisition) would result in an acquisition otherwise invalid by reason of s51(xxxi) of the Constitution, "[the acquirer of the security] is liable to pay compensation of a reasonable amount to [the minority security holder] in respect of the acquisition." In the absence of agreement on the amount of compensation, the minority security-holder may institute court proceedings to recover from the acquirer "such reasonable amount as the court determines" (s1350(2)). 6 The Solicitor General for the Commonwealth of Australia, David Bennett, QC, made submissions which were in support of the constitutional validity of Pt 6A.2 containing the relevant compulsory acquisition provision. The Third Respondent, Dr Elkington also made submissions on the issues before the Court. 7 Some aspects of these questions have arisen either directly or tangentially in a number of cases in recent times both at trial and more recently at intermediate appeal level. They have done so in a variety of contexts, including schemes of arrangement and conventional takeovers. In Pauls Limited v Milly Elkington [2001] QCA 414 (2 October 2001) the Queensland Court of Appeal rejected the argument that Part 6A.2 was invalid. It noted that it would have reached the same decision whether or not a subsequent challenge to s1384 of the Corporations Act were successful. However, no case has yet decided all of these issues. They arise in the present case in the context of a compulsory acquisition of shares (preference shares) thus of a different class from the ordinary shares and effected pursuant to a conventional takeover of those preference shares rather than a scheme. 8 The facts set out below are essentially agreed. So too is the description which follows of the expert opinion given on behalf of the party seeking to compulsory acquire and the expert opinion obtained by those resisting a compulsory acquisition. As emerges, the real dispute between the parties relates to the legal issues to which I have earlier made broad reference. AGREED FACTS Goodyear/Kelly-Springfield 9 Goodyear Australia Limited ("Goodyear") is an unlisted Australian public company, originally incorporated on 11 December 1926. It is the Australian subsidiary of the Goodyear Tire & Rubber Company of Akron, Ohio, in the United States of America, one of the world's leading tyre and rubber companies. 10 Goodyear currently has issued share capital of: (a) 13,994,000 ordinary shares of $2 each ("the ordinary shares"); and (b) 300,000 8% cumulative preference shares of $2 each ("the preference shares"). 11 Of the ordinary shares, the Goodyear Tire & Rubber Company owns 13,993,999, with the remaining share owned by The Goodyear International Corporation. 12 Of the preference shares: (a) 279,496 (or about 93.16%) of that particular class of shares in Goodyear, are owned by Kelly-Springfield Australia Pty Limited a related company; and (b) the remaining 20,504 were, as at 5 February 2001, owned by 23 other shareholders. 13 The preference shares entitle their holders to a fixed cumulative preferential dividend at a rate of 8% of their paid up capital, with a right in the event of the winding up of Goodyear, to payment of capital and any arrears of dividend. They do not confer any further right to participate in the profit or assets of Goodyear. 14 Article 59A of Goodyear's article sets out the voting rights of the preference shareholders. These rights are limited to meetings convened: (a) to reduce the capital of the company; (b) to wind-up the company; (c) to alter the rights attaching to the preference shares; or (d) where the dividend on the preference shares has been in arrears for more than three calendar months prior to such a meeting. 15 Kelly-Springfield is an Australian proprietary company limited by shares and incorporated in 1972. It is a fully owned subsidiary of the Kelly-Springfield Tire Company of Cumberland, Ohio, in the United States of America. The Kelly-Springfield Tire Company is a subsidiary of Goodyear Tire & Rubber Company, having been acquired by it in about 1935.

Decision to redeem preference shares 16 Since about 1981 the Goodyear Group has, through Kelly-Springfield, purchased over 93% of the preference shares. 17 In June 1990, Kelly-Springfield made an offer for all outstanding preference shares at a price of $4.10 per preference share. In August 1990, Kelly-Springfield increased its offer to $5.00. 18 On 7 November 2000 Kelly-Springfield, having received legal advice as to the process that it would have to follow, decided to approach ASIC to obtain nomination of an expert to prepare a report for the purpose of the compulsory acquisition of all remaining Goodyear preference shares that it did not already own. 19 On 10 November 2000 there was a meeting of Goodyear's Board of Directors, held at the company's registered office, Level 2, 460 Church Street, North Parramatta. Robert Anderton, one of two Goodyear directors present at that meeting, and David Andrews, in their capacity as the Goodyear board, resolved that Kelly-Springfield: (a) acquire the remainder of the preference shares; and (b) approach ASIC for advice on appropriate organisations to prepare an independent expert's report of Goodyear Australia for the purpose of acquisition of the preference shares.

Nomination of Expert 20 On 16 November 2000 Kelly-Springfields solicitors, Mallesons Stephen Jaques ("Mallesons") wrote to ASIC advising that they acted for Kelly-Springfield in relation to its proposed acquisition of the remaining preference shares in Goodyear and requesting that ASIC nominate a person to prepare an independent expert's report for the purposes of s664C of the Corporations Law. 21 On 28 November 2000 ASIC wrote to Kelly-Springfield, care of Mallesons, advising that it had decided to nominate three experts and that Kelly-Springfield might choose which of those it would commission to prepare the necessary report. The three experts nominated were: (a) Licence holder: SG Hambros Australia Limited Contact person: Mr David Williams/Mr Philip Powell Telephone number: (03) 9672 4213 (b) Licence holder: Ferrier Hodgson Corporate Advisory (VIC) Pty Ltd Contact person: Ms Sussan Hodgkinson/Ms Deborah Scerri Telephone number: (03) 9600 4922 (c) Licence holder: DMR Corporate Pty Ltd ("DMR Corporate") Contact person: Mr Derek Ryan Telephone number: (03) 9629 4277 22 On 1 December 2000 Sonia Liddell, Goodyear's accountant, telephoned each of the ASIC nominated firms to discuss how they would prepare an expert's report as to the value of Goodyear and the probable cost of doing so. She spoke to Susan Hodgkinson of Ferrier Hodgson, Philip Powell of SG Hambros Australia Limited, and Paul Lom at DMR Corporate Pty Ltd. 23 Later that day Sonia Liddell sent an e-mail to DMR Corporate asking for them to provide a quotation for the preparation of the independent valuation report 24 On 4 December 2000 Craig Andrews (a director of Kelly-Springfield) reviewed the Australian Financial Review's list of Australian Stock Exchange listed industrial stocks, focusing on listed preference shares. He: (a) determined the par value of preference shares by comparing the dividend paid in respect of each such share with the interest rate payable on the same; (b) considered the last sale price and the 52 week highs and lows for such shares; and (c) determined that Kelly-Springfield should offer $3.00 per outstanding preference share in Goodyear. 25 On 4 December 2000 Paul Lom sent a facsimile to Sonia Liddell enclosing a suggested engagement letter and career summaries for himself and his partner, Derek Ryan, the two principals of DMR Corporate. 26 On 5 December 2000 Craig Andrews signed DMR Corporate's engagement letter and returned it under cover of a fax dated 5 December 2000 to Paul Lom at DMR Corporate, together with a draft Notice of Compulsory Acquisition and a list of the current preference shareholders of Goodyear. 27 On 2 February 2001 Derek Ryan e-mailed a copy of DMR Corporate's "final" draft independent expert's report for review by Mallesons and Craig Andrews as to factual accuracy. The draft report assessed the value of each preference share subject to compulsory acquisition to be in a range of $2.01 to $2.99.

(Mr Ryan's) Independent Expert Report 28 In preparing his report, Mr Ryan adopted a methodology that consisted of: (a) assessing the value of Goodyear as a whole; (b) valuing the preference shares in order to allocate a portion of the value of Goodyear to the preference share class; (c) dividing the value of the preference share class by the 300,000 preference shares on issue to arrive at the value of each preference share; and (d) comparing the value of each preference share with Kelly-Springfield's offered acquisition price of $3.00 per preference share to determine whether the offer price amounted to fair value for the preference shares that Kelly-Springfield sought to compulsorily acquire. 29 In assessing the value of Goodyear as a whole Mr Ryan considered a number of potential bases of valuation, including valuing Goodyear on the basis of net assets, the orderly realisation of assets , Goodyear's share price history, the net present value of Goodyear's projected cash flows and an earnings based valuation. He adopted a net assets methodology as the most appropriate and valued Goodyear at $93,018,000 (as set out at Appendix A of his report). 30 Having valued Goodyear as a whole, Mr Ryan proceeded to consider the value of the preference shares, by considering: (a) the limited rights attaching to, and Goodyear's obligations in respect of; (b) the nature of; and (c) the impact of Goodyear's underlying performance on, the preference shares. He concluded that the preference shares were effectively a perpetual debt on Goodyear, and that the underlying performance of Goodyear was irrelevant to the valuation of the preference shares, except to the extent that the underlying performance would have an impact on Goodyear's cost of borrowing. 31 Mr Ryan went on to: (a) examine the market evidence of transactions in Goodyear preference shares. He noted that the preference shares were unlisted, and that there had been no transfers of preference shares in the 18 months prior to 31 December 2000, and one transfer of 7,238 preference shares in January 2001 at $3.00 per share; and (b) examine the trading in twelve listed cumulative preference shares for the 123 months to December 2000 to establish a market dividend yield, the average yield being 7.08%. 32 Using the above information, Mr Ryan valued the Goodyear preference shares by capitalising the annual 8% dividend (16 cents) per preference share at a dividend yield derived for the twelve examined cumulative preference shares. This gave a capitalised valuation of between $2.01 and $2.54 per preference share. 33 Mr Ryan then considered the value of the preference shares as a debt instrument, identifying ten-year Commonwealth bonds as an appropriate comparative investment. He valued the Goodyear preference shares at $2.99 per share as a debt instrument. 34 The effect of Mr Ryan's valuation was to conclude that the fair value of the Goodyear preference shares was between $2.01 and $2.99 per share, or $603,000.00 to $897,000.00 for the class of preference shares. 35 Having assessed the fair value of the Goodyear preference shares, Mr Ryan compared that valuation with Kelly-Springfield's offer price of $3.00 per preference share and concluded that, as the offer price was greater than the maximum value attributed to each preference share, the terms offered by Kelly-Springfield gave fair value for the securities concerned.

Decision to compulsorily acquire remaining preference shares in Goodyear 36 On 3 February 2001 there was a meeting of the Kelly Springfield board of directors, held at its registered office at Level 2, 460 Church Street, North Parramatta. At that meeting Craig Andrews tabled the "final" draft valuation of Goodyear, prepared by DMR Corporate. The board then resolved that Kelly-Springfield would compulsorily acquire the remaining preference shares in Goodyear for the price of $3 per share. 37 DMR Corporate's final independent expert report, (in substantially the same form as the "final" draft dated 1 February 2001), was signed off on 5 February 2001 and received by Kelly-Springfield the same day.

Compulsory Acquisition Notice 38 Also on 5 February 2001: (a) Kelly-Springfield wrote to each other person who was a holder of preference shares in Goodyear, at the address for each holder in the Goodyear register of members, enclosing copies of: (i) the Notice; (ii) DMR Corporate's independent expert report; and (iii) the objection form. Each letter was sent by pre-paid ordinary post; and (b) Kelly-Springfield also lodged the Notice with ASIC, together with a copy of DMR Corporate's independent expert report and the objection form.

Objections to the Notice 39 Kelly-Springfield subsequently received five notices of objection, one from each of the respondents to these proceedings. Those respondent objectors hold a total of 10,150 preference shares or about 49.5% of the remaining 20,504 preference shares that Kelly-Springfield is seeking to acquire compulsorily. Objections were not received from the 18 other minority holders of preference shares. 40 Kelly-Springfield lodged each of the objection notices received by it with ASIC shortly after their receipt. 41 The one-month period for objections to be made expired on 8 March 2001. 42 Also on 8 March 2001 ASIC returned the objection notices from Winpar Holdings Limited and Gordon Elkington to Kelly-Springfield. 43 On 15 March 2001 Kelly-Springfield wrote to ASIC: (a) noting that the objection period for preference shareholders in Goodyear had closed; (b) attaching a list of those preference shareholders who had objected to the compulsory acquisition of the preference shares; (c) confirming that a copy of that list had been provided to Goodyear; (d) noting that Kelly-Springfield had previously lodged the returned objection forms with ASIC in accordance with s664E(2) of the Corporations Law, but that these had been returned by ASIC with the comment that they did not need to be provided; and (e) seeking ASIC's confirmation that they did not require the returned objection notices. 44 Also on 15 March 2001 Craig Andrews provided a copy of the list of objectors to Goodyear. 45 Kelly-Springfield subsequently and within time gave notice of its application to the Court, pursuant to s664F(1) of the Corporations Law, for approval of the acquisition of the relevant securities. It seeks to establish, as required by s664F(3) that the terms set out in the compulsory acquisition notice it had previously given "give a fair value for the securities", so as to obtain the court's approval of the acquisition. 46 That application is contested by the Respondents. They have relied principally on affidavit evidence (a) from one of the Respondents Dr Gordon Elkington (affidavit of 22 October 2001) (who also made submissions and was cross-examined, in the course of which he acknowledged that the preference shares were tightly held with few transactions but that he could without difficulty realise his investment, and second that he had never in 20 years exercised his vote; T, 217) and Robert Catto (affidavit 16 October 2001) (who gave evidence that to-day there are only some nine companies still with old-style non-redeemable preference shares and that there were 20 or so companies the subject of takeover offers (or other modes of elimination) for their preference shares in recent years with prices paid serving as a general guide to what was a fair price); and (b) on their expert Mr Wayne Lonergan (see his affidavits of 18 October 2001 and 15 November 2001) and who was also cross-examined. I turn now to a comparison of two experts, itself essentially uncontroversial, insofar as it merely describes their differences. COMPARISON OF TWO EXPERTS' OPININONS Summary of Lonergan valuation technique 47 The Respondents' expert Mr Lonergan states by way of introduction: "11. In our opinion, the "fair value" of the preference shares comprises the following elements: (i) the value of the preference share as a secure income producing security; plus (ii) a share of the "special benefit" that will be able to be accessed as a result of the acquisition of the remaining preference shares; plus (iii) a premium for forcible taking to compensate preference shareholders for the disadvantages they will suffer as a result of the compulsory acquisition of their shares.

"12 In other words, an offer consideration would, in our view, be demonstrably unfair if it leaves the preference shareholders with materially less income and less security of income than they would have had but for the acquisition. It would also, in our view, be demonstrably "unfair" if the preference shareholders did not share in the special benefits created by their acquisition plus a premium for the forcible taking of those shares to compensate them for the financial and other disadvantages that they will suffer." 48 The proper implementation of that methodology is stated by Mr Lonergan in his report of 12 October 2001 to be as follows: (1) Value the company Goodyear as a whole (at a sum significantly greater than any allocated value of the preference shares). (2) As part of the valuation of the company as a whole, recognise scope for increments to that value by reason of special value or benefits (sometimes called 'synergy benefits') such as costs savings if preference share class is eliminated, and 100% ownership achieved; see paras 100, 101 and 121-124 inclusive. (3) Allocate that (augmented) value of Goodyear to the preference shares by considering: (a) the present capital value of the (secure) income stream of the shares (or dividend obligation of the company) allocated to preference shares; (b) (i) allocate any particular increments in the value of the company associated with the preference share class being eliminated (that is "special value"), between the holders of ordinary and preference shares 50/50 and thence pro rata between the preference shares (paras 100 and 124); or (ii) provide a differential allocation of special benefits as between Preference class and Ordinaries to favour the actually resumed share class, per para 144; (c) to the extent the allocated value is otherwise inadequate to compensate for the loss of the shares or the costs associated with losing them, allow and allocate wholly to compulsorily acquired preference shares a premium for forcible taking (see paras 61-70 and para 129); this is to allow for the loss of the value of the general rights attaching to the shares, e.g. value of voting rights (para 88 ff), and loss of value of deferred tax benefits, other benefits and opportunities principally income and asset cover and exposure to transaction costs (residue to the balance of preference shareholders and ordinary shares). As to allocation see paras 166-7. 49 Mr Lonergan explains the interaction of allocation of special value and a premium for forcible taking as follows: "The ordinary shareholders can only receive the special value benefits (in perpetuity) through acquiring all the preference shareholders' shares, which they are unlikely to do, but for the compulsory acquisition, unless they share the special benefits with the preference shareholders. This is because, inter alia, the preference shareholders would be exposed to financial risks as a result of this access being granted. It would be economically irrational for preference shareholders to expose themselves to this risk without compensation." Para 14(d) 50 The valuation process requires a further cross-check for reasonableness against market evidence, de minimus aspects (being a minimum payment based on what would be "immaterial" as judged by the acquirer to pay, relative to the totality of benefits gained from 100% ownership) and other relevant factors, Para 134 ff. As to market evidence, past offers by Goodyear were cited and transactions at $4.10 and $5, as well as the claimed costs savings associated with those offers. As a result of carrying out the cross-checks, Mr Lonergan concludes that a 50/50 sharing of special value between the ordinary and preference classes and then pro rata division amongst preference shares would not, on its own, produce fair value. 51 Mr Lonergan then adds, as requiring to be paid, a premium for forcible taking, which only applies to compulsorily acquired shares. The premium for forcible taking is to compensate for costs and risks that are incurred only because of the acquisition, and are incurred involuntarily. 52 The final Lonergan valuation of the compulsorily acquired preference shares is set out at paras 159-162 as follows: VIII Our valuation assessment 159 After considering the issues set out above, it is our opinion that the 'fair value' of the preference shares comprises: (a) their value as a secure income producing security; (b) a share of the special benefits from acquiring the remaining preference shares (eg cost savings); plus (c) a premium for forcible taking (including loss of voting rights). 160 For the purposes of determining a single point estimate of 'fair value' we have adopted a value of $5.00 per share made up as follows:

Preferred value $ Range (a) Value as a secure income producing security (higher value chosen because of the massive asset cover) 2.62 $2.37 - $2.62 (b) Share of the special value (high end of de minimus range) 1.37 $0.68 - $6.83 · Voting rights 33¢ (c) Premium for forcible taking 1.00 · loss of deferred tax benefits 4-12¢ · loss of income and asset cover _____ $4.99 Rounded to $5.00

161 We therefore conclude that the 'fair value' of the remaining preference shares for the purposes of section 667C of the Corporations Act is no less than $5.00 per preference share. 162 We note that our valuation is substantially below that justifiable if a 50% share of the special benefits was paid to minority preference shareholders, as set out in paragraph 145."

I note that the abovementioned de minimus range is between 5% and 10% so the high end is 10%. 53 Subsequently in a report dated 13 November 2001 Mr Ryan of DMR Corporate comments upon the approach of Mr Lonergan. Essentially the principal points of disagreement (and agreement) can be summarised as follows: (a) he favours determining "fair value" equivalently to the way market value is determined in commercial circles viz "Fair value means the amount by which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction" (paras 1-2 under "affidavit of Lonergan"); (b) (i) the company should not be valued as if the acquisition had taken place and thus one does not take into account "special value" or "special benefits" derived from 100% ownership, but rather the valuation is as at the date of valuation ignoring such potentialities (paras 2 and 3 supra); but (ii) if one did take any part of the special value into account, s667C mandates that it be taken into account "pro rata" or proportionately as between all shares such that Mr Lonergan is wrong (para 110 of his Report) in considering that one should "apportion the special value benefits equally between ordinary and preference shareholders" (para 16 supra). (c) (i) the preference shares should not be valued on the assumption that the company is immune from the risk of collapse, in describing the preference shares as providing a "low risk, but relatively high, and relatively secure income return (which they believed would be paid (virtually) forever)"; para 7 supra; and (ii) the limited voting rights of the preference shares should not be treated as specially valuable, given that they vote only on some issues, given that the non-Kelly-Springfield preference shareholders hold 20,504 preference shares out of a total 300,000 (6.8%) and they hold none of the 13,994,000 ordinary shares on issue (para 10 supra and see also para 11); (d) (i) he rejects the Lonergan view that any amount attributable to "premium for compulsory taking" could be a component of the value of the company as a whole; (ii) if taken into account at all, it may be "a redirection of part of the value of the equity (with or without special value) between classes of shares but is not an amount to be added to the equity value as a whole (para 13 supra), but in any event; (iii) Section 667C does not admit of any premium for forcible taking, it having "been specifically enacted to acquire small minority shareholdings and there is no reference to premium for forcible taking referred to in the legislation" (para 22 supra); (e) However, if one excludes any addition of estimated values for "special benefits" and "premium for forcible taking" there is no essential difference between the two valuations. Thus at para 18 (supra) Mr Ryan explains: "18. In paragraph 116 Lonergan states the opinion that our low value of $2.01 is 'far too low' but he does not give any reason for that view. Instead, he goes on to value the preference shares using a yield range of 7% to 6.3%. Lonergan does not justify the use of 7% to 6.3% or explain how he arrived at this yield range. Presumably this is meant to be the ten-year government rate of 5.355%, adjusted for risk. This represents a risk premium in a range of 17.6% to 30.7%. Lonergan then concludes that the value is in a range of $2.37 to $2.62. The mid point of Lonergan's valuation is $2.50 ((2.37+2.62)/2), as compared to the mid point of our valuation of $2.50 ((2.01+2.99)/2). I conclude from this that Lonergan has effectively agreed with our valuation (apart, of course, from his addition of estimated values for 'special benefits' and 'premium for compulsory taking')." (f) Moreover if one (i) takes Mr Lonergan's estimate of the "fair value" of the preference shares in Goodyear before considering and adjusting for cross checks for reasonableness (which led to him at para 160 increasing overall value to $5.00 per share based on a higher amount ($1.37) being attributed to "share of special value" as compared to 47 cents; (ii) takes the high end ($2.62) of the "value as a secure income producing security" compared to the range $2.37 to $2.62); and (iii) excludes only the $1.00 premium for forcible taking but leaving in only the low end 47 cents for share of special value; then again the result of the two valuations is similar, and below $3 in each case. 54 As Mr Ryan explains at para 23 supra: "23. If the $1.00 premium for forcible taking was removed from Lonergan's calculations in paragraph 130 then his low value is $2.84 and his high value is $3.09. the mid point of these two valuations is $2.965 (2.84+3.09/2). This is below the Kelly-Springfield offer price of $3.00."

Thus $2.84 is $2.37 + 47 cents whilst $3.09 is $2.62 + 47 cents. One then takes the mid point of the two, producing a figure below $3. ISSUES FOR RESOLUTION 55 The issues for resolution are most conveniently dealt with by answering the following legal questions in the order in which posed and to the extent question 2 (constitutional issues) requires answer.

56 Question 1 - Fair value for Corporations Act purposes and just terms for purposes of s51(xxxi) of the Constitution. Has "the 90% holder" (Kelly-Springfield), pursuant to s664F of the Corporations Act , established that the terms set out in its compulsory acquisition notice for the acquisition of the preference shares in Goodyear are such that the Court "must approve" the acquisition of those terms? This is on the basis that those terms: (a) constitute "fair value" in accordance with the requirements of s667C of the Act, and (b) "just terms" for purposes of s51(xxxi) of the Constitution, assuming that its provisions were capable of application under the acquisition in question? 57 Question 2 - Constitutional validity If the answer to Question 1(a) is in the affirmative but to Question 1(b) is in the negative: (a) is s51(xxxi) capable of application to the acquisitions in question, and (b) if so capable, is any invalidity cured and validity assured by the application of s1350 of the Corporations Act insofar as it renders the acquirer of securities liable to pay compensation of a reasonable amount?

Question 1 - Fair value for Corporations Act purposes and just terms for purposes of s51(xxxi) of the Constitution. 58 In argument, much was made of what was said to be the guidance to be found in the travaux preparatoires in construing those statutory provisions which govern the requirement for the party seeking compulsory acquisition obliging the acquirer to "give a fair value for the securities"; that is as an aid to construing s664F(3) of the Corporations Act and the associated s667C headed "Valuation of Securities". So much so, there emerged a tendency to treat this supplementary material as itself determinative of the statutory meaning before sufficient attention was given to the plain words of the sections themselves. 59 There has been repeated judicial cautioning against drawing general conclusions from the limited exposition possible in a second reading speech; see, for example, Mahoney JA in Metal Manufacturers Limited v Lewis, on appeal at (1988) 13 NSWLR 315 at 326 and Palmer J in Southern Cross Interiors Pty Ltd (in liq) v DCT (2001) 39 ACSR 305 a 329. Thus in Monier v Szabo (1992) 28 NSWLR 53 at 61-2 per Kirby JA (as he then was), noted that there was often a disharmony between the words of a statute and that of a second reading speech, and that the court's ultimate loyalty was to "the purpose of Parliament as expressed in the legislative language", citing Mason CJ, Wilson and Dawson JJ in Re Boulton; ex parte Bean (1987) 162 CLR 514 at 518.

60 I start then with the statutory provisions themselves. As emerges, they have proved relatively plain in meaning and relatively straightforward to interpret; indeed ironically they tend to clarify ambiguity in the supplementary materials relied upon for their construction, when it comes to the very general references therein to inhibiting greenmailing. 61 Thus the travaux preparatoires are clear enough in their hostility to greenmailers, but less explicit in what precisely is meant by the term. One might infer that what is meant is the exercising of economic leverage to exact a higher price than fairly payable, against someone who seeks the advantage of 100% ownership. So the CLERP Explanatory Memorandum para 7.31, third bullet point, states that extending the power to compulsorily acquire securities will: "discourage minority shareholders from demanding a price for their securities that is above a fair value (often referred to as "greenmailing") That of course still leaves "fair value" to be defined, and for that one is told by para 7.45 that the draft provisions provide only "guidance" to experts as to how to value: "7.45 The issue of valuing companies for the purposes of compulsory acquisition is a difficult one and the drat provisions provides guidance to experts as to how they should go about valuing a company (proposed section 667C). It is proposed that experts would not account for premiums on account of the special value of the outstanding securities to the acquirer, or discounts on account of the lack of a market for particular securities." 62 Importantly, that guidance is expressed only generally, being in terms of what is proposed. Moreover, the relevant draft provisions at that date corresponded to s667C(1) only and had not (as yet) taken on the later s667C(2). They appear to preclude accounting for premiums on account of special value to the acquirer, but that of itself does not, at least unambiguously, preclude the valuer taking into account the fair value of the company and hence of its shares, when assessed on the basis of 100% ownership under a single owner. Section 667C(1) it will be observed precludes a premium referable to particular securities within a class (the classic greenmailer situation) but is entirely silent about a premium referable to the added value of 100% ownership for all shares in toto, or for each class as a whole. Nor does it preclude a fair allocation of that premium between classes, taking into account, non-exhaustively, the factors in s667C(1)(b). 63 Earlier the CASAC report, para 1.11 refers to the benefits of compulsory acquisitions as including "avoiding greenmailing, whilst para 10.1 makes reference to advantages which include "reduce the opportunity for greenmailing". Paragraph 10.21 in its terms, foreshadows s667C(1): "10.21 There should be some non-exhaustive legislative guidance for independent experts on determining fair value in these compulsory acquisitions, given the current uncertainty in the case law. These criteria should be similar to those for compulsory acquisitions under s701. In determining fair value, an independent expert should: · assess the value of the company as a whole and determine the value of each class of issued security, taking into account its relative financial risk and its distribution rights · expressly disregard whether the remaining securities of the offer class should attract a premium or discount. These fair value criteria would apply to compulsory acquisitions, but not necessarily to other circumstances involving valuation of securities. 64 Section 664F of the Corporations Act provides as follows: "The 90% holder must bear the costs that a person incurs on legal proceedings in relation to the application unless the Court is satisfied that the person acted improperly, vexatiously or otherwise unreasonably. The 90% holder must bear their own costs."

65 Section 667C then provides as follows: "SECT 667C Valuation of securities (1) To determine what is fair value for securities for the purposes of this Chapter: (a) first, assess the value of the company as a whole; and (b) then allocate that value among the classes of issued securities in the company (taking into account the relative financial risk, and voting and distribution rights, of the classes); and (c) then allocate the value of each class pro rata among the securities in that class (without allowing a premium or applying a discount for particular securities in that class). (2) Without limiting subsection (1), in determining what is fair value for securities for the purposes of this Chapter, the consideration (if any) paid for securities in that class within the previous 6 months must be taken into account."

66 Section 667C(2) was an amendment proposed by the Democrats in the Senate in October 1999. The new compulsory acquisition procedure generated considerable controversy in parliamentary debate. There was opposition by Labor as the new provisions were argued to "placate vested interests", and potentially expropriate "battling mums and dads shareholders" without proper compensation. Further, it was argued that "concern over greenmailers is not well documented" [Hansard, 14 October 1999, p. 9705-9707, Senator Conroy]. As such, it was contended that "Section 667C… proposed to impose an arbitrary and unfair formula for valuing securities" [Hansard, 14 October 1999, p. 9712, Senator Harris]. It was in that context that s667C(2) was considered necessary for "ensuring a fairer price" [Hansard, 14 October 1999, p. 9707, Senator Murray]. Senator Murray stated [Hansard, 14 October 1999, p. 9711]: " The amendment requires that in determining what is fair value for securities, the price, if any, paid for the securities within the previous six months must be taken into account". 67 The Applicant made much of the hostility to greenmailers said to have been exhibited by the travaux preparatoires. Indeed the degree of emphasis given to greenmailing in the reasoning of Douglas J in Pauls Limited v Jennifer Mary Dwyer & Ors (Douglas J, Supreme Court of Queensland, 13 March 2001, unreported) may have, with respect, distracted attention from the actual, clear words of s667C. I refer in particular to s667C(1)(c). There the prohibition is on a premium within a class of the shares being acquired, not as between classes, though any premium would need to be justified on proper valuation principles and fairly allocated in accordance with s667C(1)(b). In that case, presently on appeal, Douglas J stated: "In my view the valuation of these preference shares much be done in accordance with the procedures prescribed by Part 6A.2 of the Law. Therefore no question of special value arises in this case. I am fortified in this view that s667(1)(c) uses the words in connection with the valuation 'without allowing a premium'". 68 Passing from this apparent difference in judicial authority between my own judgment in Re Goldfields Kalgoorlie Limited: Winpar Holdings Ltd v Goldfields Kalgoorlie Limited (2000) 34 ASCR 737 at [68] (subsequently upheld on appeal) and the view expressed by Douglas J in Pauls v Dwyer (supra) at [9], I should start with the precise language of s667C. I do so, in the present case which deals with the allocation of value between two classes of shares, namely preference and ordinary shares. In contrast, the analogous use I made of s667C in Goldfields Kalgoorlie Limited (supra) was in the context of a selective reduction of ordinary capital involving no such allocation of value between classes such as ordinary and preference. I would here distinguish class differentiation based merely upon divergence of interest of acquirer and acquiree dealt with in Re Hellenic Trust Ltd [1976] 1 WLR 123. That was in any event a case on a scheme of arrangement, not a takeover where classes are determined in the scheme context of voters having a sufficiently common interest. Thus in that case, Templeton J stated [at 126]: "Vendors consulting together with a view to their common interest in an offer made by a purchaser would look askance at the presence among them of a wholly owned subsidiary of the purchaser." 69 Insofar as the CLERP Explanatory Memorandum suggests that it is necessary to provide "guidance" to experts as to how they should go about valuing their company, that guidance is in mandatory form but only as regards the overall sequential process. There is no specific directive as to how to value the company as a whole (sub-paragraph (a) of s667C(1)), though guidance is given as to factors to be taken into account. Thus the specific process of allocation of value between classes in sub-paragraph (b) of s667C(1) uses the expression "taking into account", non-exhaustively, so leaving room for other matters, if capable of bearing on fair allocation, also to be taken into account; compare para 7.45 of the Explanatory Memorandum. The only mandatory provision is sub-paragraph (c) preventing other than pro rata allocation within a class, and subsection (2) of s667C as regards taking into account purchases of the shares in the last six months. 70 The next matter to note is that the starting point for determining what is fair value is to "assess the value of the company as a whole". That immediately poses this question. Is that value to be determined on the assumption that the acquisition has already taken place, or does the valuation make no such assumption? 71 I prefer the first interpretation, supported as it is by High Court authority (see para 73 below). First, it conforms to the evident purpose of the valuation and the context in which it is required. That context is one where the intended endpoint of the compulsory acquisition process is a single shareholder. This will frequently, though not inevitably, reflect itself in cost savings for the company; for example Stock Exchange listing expenses though these should not be overstated, as the Respondents did here (see para 79 below). These savings are as much benefits to the company as they are to the would-be 100% shareholder, whose shareholding will be enhanced in value thereby to the extent such savings are material. In that sense, the special value of the purchase to a particular purchaser is simply the reciprocal of the enhanced value of the company, hence my calling it reflexive value. It is clearly to be taken into account under general principle in determining fair value. Section 667C(1)(a) simply reflects that reality. 72 Moreover, to exclude what I will hereafter call in this judgment the reflexive value derived from 100% ownership would not be in accordance with valuation principles for determining fair value. These require a "liberal estimate" to compensate a compelled vendor for deprivation of its ownership interest and of the capacity to share in any future benefits, to the extent those benefits would otherwise enure to that vendor; compare Holt v Cox (1994) 15 ACSR 313 at 339. 73 Finally, High Court authority makes clear that the "likely future" of the company is a matter bearing directly upon the fairness of the offered price. Thus in Gambotto v WCP Ltd (1995) 182 CLR 432 at 447 the majority conclude: "The second element, that the terms of the expropriation itself must be fair, is largely concerned with the price offered for the shares. Thus, an expropriation at less than market value is prima facie unfair (50), and it would be unusual for a court to be satisfied that a price substantially above market value was not a fair value (51). That said, it is important to emphasize that a shareholder's interest cannot be valued solely by the current market value of the shares (52). Whether the price offered is fair depends on a variety of factors, including assets, market value, dividends, and the nature of the corporation and its likely future (53)." [emphasis added]

(50) Nova Scotia Trust Co v Rudderham (1969), 1 NSR (2d) 379, at p. 398; but cf Phillips v. Manufacturers' Securities Ltd (1917), 116 LT 290. (51) Re Sheldon; Re Whitcoulls Group Ltd (1987), 3 NZCLC 100,058, at P. 100,060. (52) Weinberger v UOP Inc (1983), 457 A 2d 701. (53) ibid., at p. 711. 74 Thus what could be more central to the nature of this corporation and its "likely future" than that it would become 100% owned by the intended compulsory acquirer of the remaining preference shares? To the extent 100% ownership in the corporate parent would bring about consequential reflexive benefits such as cost savings and other synergies, it is part of fair value. 75 Nor does it follow that attributing such reflexive benefits to the value of the company is in conflict with such inhibition on greenmailing as the statute lays down. Thus when one turns to the succeeding sub-paragraph (b) of s667C(1), no mention is made of premium whatsoever; that is to be found in sub-paragraph (c) to which I will shortly turn. 76 Sub-paragraph (b) is a direction to allocate that value "among the classes of issued securities in the company". It is to be done "taking into account the relative financial risk, and voting and distribution rights, of the classes". "Take into account" here must be cognate with "have regard to" in that non-exhaustive sense; compare R v Hunt (1979) 25 ALR 497. 77 Clearly enough, the classes of issued securities here in question are the ordinary shares held by the acquiring company and the preference shares to be compulsorily acquired. I would not however take into account as a separate class, those preference shares already owned by the acquiring company or its related companies. 78 Such an interpretation, though favoured by the Respondents, is derived from the earlier cited English authority Re Hellenic Trust Ltd (supra). It concerned schemes of arrangement. There the acquiring company, via its wholly-owned subsidiary could otherwise have voted its shares with preponderant influence if not treated as a separate class. That is far from the circumstances here. Classes are determined in a particular context where the necessary divergence of its interest can be evaluated. Voting on a scheme is distinct from participating in an allocation of value by a takeover though this is in terms of process, not end result. Sub-paragraph (b) in its context refers to classes defined by reference to the matters non-exhaustively taken into account by that sub-paragraph, namely relative financial risk, and voting and distribution rights. Clearly if a further relevant right such as to convert to ordinary shares existed, that too would have to be taken into account insofar as it went to allocation between classes. Clearly enough, there would be no difference in relative financial risk, and voting and distribution rights, as between the preference shares already owned by the party seeking compulsory acquisition and the preference shares sought to be compulsorily acquired. It is likewise the case, were compulsory acquisition to be of the balance of ordinary shares. Accordingly, I would reject that interpretation of separate classes for acquirer and acquiree, based on that discrimen. 79 How then is the value of what I have termed reflexive benefits, or as the Lonergan valuation calls it, "special value" or "special benefit" to be allocated? That is, as between, on the one hand the ordinary shares and on the other, preference shares both still to be acquired and already acquired. Clearly enough, if one only took into account relative financial risk, and voting and distribution rights, of the preference shares compared to the ordinary shares, it would be difficult to justify any allocation to the preference shares of the so-called "special value" or "special benefit" attributable to 100% ownership and reflected in the value of the company. This is so, though much was made by the Respondents of the proposed value to the acquiring company of not having to have regard to preference shares in any future decisions made in relation to the company, and thus not to have to take into account the capacity to vote. Yet that vote is limited to specific subject matters and is so miniscule in voting effect as to be unable to effect a voting result save where class rights of the preference shares were affected. Thus I find that reasoning wholly unconvincing. There is no evidence that the US parent has been in any way inhibited in relation to its Australian subsidiary when it comes to voting matters. Indeed it is difficult to see how that inhibition could arise, where there are no past tax losses and where, accepting the Applicant's evidence, the cost savings from 100% ownership are modest. Thus whilst Mr Lonergan (at para 123 of his valuation) estimates the annual savings that would accrue at $50,000 capitalised at $280,000, Mr Andrews, the Finance Director of Goodyear and responsible for all of Goodyear's financial affairs in his second affidavit of 12 December 2001 at paras 3 and 4 says: "Mr Lonergan's estimated cost savings bear no comparison with either the current actual annual cost of administering Kelly-Springfield or the potential cost savings that might result, to either Goodyear or Kelly-Springfield, from Kelly-Springfield achieving 100% ownership of the preference shares in Goodyear. In particular the estimated cost savings identified by Mr Lonergan does not reflect the fact that: (a) Kelly-Springfield is a non-operative holding company: (i) whose assets consist entirely of receivables (in the form of loans to related entities) and investments (shares in related entities); (ii) whose only operating revenue is by way of dividends received in respect of its assets; (iii) that has no employees; and (b) Goodyear has just 23, largely inactive, minority preference shareholders, holding 6.84% of the preference shares in Goodyear (about 0.14% of all (preference and combined) shares in Goodyear). In my experience the time and cost spent on liasing with the remaining minority preference shareholders is minimal. For example, at Goodyear's last annual general meeting ("AGM"), held at its North Parramatta offices on 20 December 2000, the sole attendee who was not a Goodyear employee was Robert Catto." (See also T.116, line 25 - T.118, line 27; T.133, line 25-40). This evidence was not assailed in cross-examination (T.123, line 55 - T.131, esp. at T.127, line 28-35 and T.128, lines 31-35). Broad ranging Notices to Produce (see T.130) did not yield any evidence to contradict Mr Andrew' evidence.

80 On the basis of Mr Andrews' figures, Mr Lonergan's recalculated "special value" figure, if taken into account at all, based upon a yielded cost saving of $5,362 (as opposed to $280,000) would amount to $0.0004 per share, pro rated across the entire shareholding. If 50% were allocated exclusively to the preference shares, this would produce $0.009 per preference share, assuming that figure were then pro rated across all 300,000 preference shares. If, contrary to s667C(1)(c), 50% of the saving were allocated to the 20 out of the 524 non-Kelly-Springfield preference shares (being 6.8% of all preference shares), the figure is still only a modest 13 cents per share. This, when added to Mr Lonergan's range for the value of shares as a secure income producing asset ($2.37 to $2.62) is still well under the offered $3 per share. 81 To this it may be said that the allocation of value among the classes of issued shares prescribed by sub-paragraph (b) must take into account the particular matters referred to in sub-paragraph (b). But that requirement, as I have said, is not exhaustive of the matters to be taken into account. Thus if it be the case that other matters bear upon a fair allocation of the value of the company as a whole, those other matters should also be taken into account. That sub-paragraph (b) is not exhaustive is confirmed firstly by the parenthetic reference to "taking into account" the specified matters. That clearly suggests that these factors are subject to the paramount consideration of what is fair in terms of value whilst offering guidance to the valuer as to specific factors which undoubtedly would be relevant in every case. To those factors subsection (2) of s667C adds yet a further factor which "must be taken into account". It is the "consideration (if any) paid for securities in that class within the previous six months". Significantly, subsection (2) makes clear what is the purpose of the valuer's exercise. It is "in determining what is fair value for securities for the purposes of this Chapter", not merely for the purpose of an allocation formula in sub-paragraph (b). That is not however to say that such sales, as a factor, should prevail over clear evidence of a lower value, especially if the sales may be driven by other considerations than value. 82 In the present case when regard is had to the value of $3 as against a capitalised valuation of between $2.01 and $2.54 per preference share used by Mr Ryan, or the $2.37 to $2.62 range chosen by Mr Lonergan, there is ample margin to accommodate such portion of the special value, if any, as should be allocated to the preference shares. That Mr Ryan chose to value the Goodyear preference shares at $2.99 per share as a debt instrument simply illustrates that there is more than one "fair value", or basis for reaching it, within a range or spectrum of what is fair. It does not justify further increments to that value for what is not a debt instrument in reality, by allocating some further increment by reference to "special benefit" or "special value" to the preference shares; that is to say, on some basis that is not justified by the factors in sub-paragraph (b) or cognate factors, or s667C(2) (sales in the preceding six months). 83 I should add that Mr Ryan, in valuing the preference shares at $2.99 per share as a debt instrument, by reference to ten year Commonwealth Bonds as an appropriate comparator, insofar as he was considering relative financial risk, was giving a very generous weighting. After all he was valuing what was in reality still equity albeit with ample asset cover. He might fairly have reflected that such asset cover was not as secure as having actual security, or the security represented by a promise to pay by the Commonwealth. 84 Accordingly, subject to consideration of sub-paragraph (c), I see no basis for concluding that the fair value attributed by the valuer Mr Ryan should have been increased to give any further amount by reference to "special value" or "special benefit" given the circumstances of his valuation with its generous upper end, itself exceeded (by one cent) in the $3 paid. This is in order to represent "fair value" in either the statutory sense or its meaning at general law or, for that matter, its meaning in the expression "just terms" in s51(xxxi) of the Constitution. In so concluding, I do not wish to suggest that in other circumstances there may not be a basis for attributing additional special value earlier taken into account in the value of the company to shares being compulsorily acquired. This is so long as shared equally with all other shares of the same class and allocated fairly between classes. It is more likely to be appropriate to do so where such shares would, unlike these preference shares, share in surplus assets on a winding-up and have dividends reflecting the overall profitability of the company. Such indeed would be the case were this compulsory acquisition instead to be of ordinary shares. 85 Turning to sub-paragraph (c), it is here and here alone that reference is made to any premium. Consistent with precluding greenmailing, sub-paragraph (c) makes clear that no premium (or discount) is to be applied when allocating the value of each class "among the securities in that class". Thus sub-paragraph (c) makes clear, it is "without allowing a premium or applying a discount for particular securities in that class". [emphasis added] 86 So viewed, the very generally expressed policy of precluding greenmailing in the travaux preparatoires, is reflected in a mandatory requirement to allocate the value of each class pro rata among the securities within that class. That is to say, no benefit or premium can be given to the "hold-out" members of that class, so impermissibly discriminating against others within the class. That does not however preclude some portion of a premium for what I have called reflexive benefits within what is the overall "value" of the company as a whole being allocated between classes. Such premium must be capable of justification on objective grounds. In so doing, the valuer must make such allocation taking into account the matters specifically referred to in s667C(1)(b) as well as other cognate matters of the kind which would bear on what is a fair allocation between classes of that premium. Greenmailing typically involves allocating a special premium to the hold-out members. It has nothing to say to the allocation between classes of the money equivalent of a special benefit, when it is itself objectively justified as part of the value of the company as a whole, post 100% ownership. Thus if all shares of a class being acquired including, but not limited to, those compulsorily acquired, share in such a justified reflexive benefit, reflecting a fair allocation of it between classes, that is permissible, so long as that allocation takes into account the factors in sub-paragraph (b) and any relevant cognate factors (as well as subsection (2) if applicable). 87 This analysis thus leads to three conclusions. First is that there can be no discrimination in favour of the shares to be compulsorily acquired, as against other shares in the same class. Second is that the allocation of a reflexive benefit is allowable, but only if carried out non-discriminatorily, pro rata within the relevant class and fairly between classes. Third, and in consequence, no premium for forcible taking of the kind Mr Lonergan held to be mandatory is in fact required in order to pay fair value or is indeed allowable, if discriminatory. Such a premium is, on Mr Lonergan's analysis, only to be paid to the shares to be compulsorily acquired. That immediately contravenes the directive in sub-paragraph (c) not to allow a premium for particular securities in the class being acquired. That means here, the shares being compulsorily acquired as compared to the shares of the same class earlier acquired or already owned. Such a premium for forcible taking is the very premium by another name which the greenmailer seeks to exact. It does not lose that character as a greenmail exaction because dressed up as a "premium for forcible taking". 88 It is no answer to this difficulty to say that the same premium could then have been paid to all of the preference shares not limited to those compulsorily acquired. Such an argument is in direct contradiction to the very rationale for such a premium being payable in the first place, namely that it is compensation for forcible taking. Those of the preference shareholders who accept without compulsory acquisition have done so willingly and could thus not qualify on any view for a premium for the forcible taking. Whether they come in early or late, "the last shall be first and the first shall be last", so all members of the class are treated the same; compare Matthew 20:1-16 treating equally the labourers in the vineyard who come at different times. 89 Where, however, all preference shares can legitimately benefit is from the "liberal estimate" as compensates a compelled vendor, here for expected future reflexive benefits, along with those who receive the same consideration by reason of having accepted an offer in the same terms; compare Holt v Cox (supra) at 339. Such a liberal estimate for compulsory expropriation is not to require any more than what is fair within a range, though it should be on the generous side within that range of what is fair, reflecting well-settled principles applicable to expropriation generally. Thus as I said in Holt v Cox at 337: "It is thus appropriate to look at matters first from the vendor's point of view, in considering the rights of the shares, and what, to the vendor, they may be expected to yield him in the future by way of benefits, for loss of which a fair sale price is compensation. This is particularly when, as here, the vendor has no choice but to sell. It is necessary to ask what a willing, but not anxious vendor would consider a 'fair price' for being deprived of the shares with all [their] existing advantages and with all [their] possibilities (McCathie, supra), not what the purchasers with their greater bargaining power might in reality be able to exact on a compulsory sale … A liberal estimate of the shares is the approach to be taken. Furthermore, their value to the purchaser, ignoring the purchaser's expropriatory power (except as justifying a liberal estimate) must reciprocally be taken into account in determining a fair price. This is precisely as [the vendors] continued shareholding rights do detract from the value of the remaining shares .." [at p.337]" 90 The approach I have here taken is consistent with that taken by the Court of Appeal in Winpar Holdings Ltd v Goldfields Kalgoorlie Limited [2001] NSWCA 427 on appeal, in particular Giles JA at paras [112] to [117]. It is true that in that case the question was whether or not a selective reduction of capital was fair and reasonable to the company's shareholders as a whole (see Giles JA at [113]). Here, one is concerned rather with whether fair value is being paid for the shares acquired under a takeover. Functionally, takeover or selective reduction (as also many schemes) are all a means with varying process to the same end, namely 100% ownership of a company, though carried out under different statutory regimes. Any distinction between them is more apparent than real. In the present case one is determining what is fair value under a takeover, to be liberally estimated pursuant to an allocation which must bring about that result without paying any premium discriminatorily within the class of shares being acquired. A selective reduction of capital operates similarly, such that its end result must be fair. Each will necessarily involve a judgment as to what part, if any, of any special benefit should be allocated to the shares being compulsorily acquired along with the remainder of that class. Here, I am satisfied, that "a" fair value has been provided under the terms set out in the compulsory acquisition notice. Any reflexive benefits have been fully taken into account as they should be, and the price paid has been liberally estimated within a range of what is fair value. Any transaction costs in replacing this well secured preference share investment should not, on the evidence, alter that result. Dr Elkington and any other preference shareholder whose shares were acquired could invest the $3 per share (which confers on him and the other Respondents a capital gain) in Commonwealth bonds at the current rate and derive even greater asset security as well as a slightly higher yield (T, 217 and T, 28 on 18 December 2001). Though such bonds may not generate capital gains - that depends on the movement of interest rates - transaction costs would be minimal. I do not of course need to determine whether a lower value than the $3 would also have been fair. It suffices that I am satisfied that the terms offered at least equal what is fair, indeed, in the Shakespearean sense "exceeding fair". 91 At [112] Giles JA deals with an argument that the whole of the special value should have been allocated to the non-Goldfield's shareholders whose shares were being cancelled by the selective reduction of capital, as distinct from the 50% proposed by Mr Lonergan as fair in the present case. He properly rejects that argument. In doing so, he distinguishes the observations by the High Court in Commonwealth of Australia v Milledge (1953) 90 CLR 157 at 164: "… compensation must include not only the amount which any prudent purchaser would find it worth his while to gift the land, that also any additional amount which a prudent purchaser in the position of the owner, that is to say with a business such as the owner's already established on the land, would find it worth his while to pay sooner than fail to obtain the land." 92 Such an allocation whether 50% or 100% would on the Applicant's evidence, which I accept, produce a result which would not exceed in fair value terms the $3 here paid. But even applying the Milledge test, I would not assume that Kelly-Springfield would pay any more than it is offering to pay, rather than "fail to obtain" the preference shares. I would adopt what Giles JA said at the conclusion of [113] "… The allocation of the special value was one feature only of fairness and reasonableness between the shareholders as a whole. Taken to the full, if an acquiring majority had to pay to the last cent to an acquired minority a pecuniary value for every benefit flowing from the capital reduction, there would be no reason to make the capital reduction. The vendor-purchaser transaction approach is not determinative." 93 Moreover, as Giles JA observed at [116], it is perfectly legitimate to take into account in determining what is fair value, a margin already allowed the preference shares over and above the strict capitalisation of their value "as a secure income producing security". I refer here to the margin above $2.62 in the Lonergan valuation or above $2.50 being the midpoint of $2.01 to $2.99 in the Ryan valuation. In each case the 50 cent differential far exceeds any conceivable allocation of any justified special benefits. Under the Ryan valuation, had $2.50 been stipulated, then the same result would be achieved. That is, by taking into account a notional allocation of the special benefits, even valued at an amount considerably more generously than was, according to Mr Andrews' evidence, the correct figure. 94 Moreover, if a premium for forcible taking were required to be paid to the compulsorily acquired minority or if some special benefits premium were required to be so paid on an exclusive or disproportionate basis to such minority, this would preclude compulsory acquisition for fair value properly allocated between classes and paid pro rata within a class. It would breach the prohibition in s667C(1)(c) if paid only to the minority compulsorily acquired and not to the rest of the class. Importantly, it would lead to the absurd result, inconsistent with the language of s667C(1)(a) of mandating a value for the shares so acquired as would, when added to value of all other shares, exceed any rational calculation of the fair value of the company as a whole. That would in turn be incompatible with the mandatory direction for the calculation of fair value in s667C(1) and (2) and in particular s667C(1)(a), which defines the pot to be divided up in share value terms as "the value of the company as a whole"; See exchange between bench and witness (Mr Lonergan) at T, 209-213 especially T, 212. 95 Finally, in considering whether the terms offered to acquire the preference shares represented not only "fair value" in terms of the Corporations Act but also "just terms" in terms of s51(xxxi) of the Constitution I am satisfied that they do. 96 It is primarily for Parliament to determine what is the appropriate compensation for a compulsory acquisition. It is then for the Court to determine whether that compensation might (or might not) reasonably be regarded as on just terms. Thus, "[i]f that compensation satisfies the requirements of 'just terms' the Court will not declare the terms unjust and the law in excess of power for the reason that the Court entertains an opinion that other terms would have been fairer or more appropriate". See the Commonwealth v Tasmania (1983) 158 CLR 1 at 289 per Deane J and the cases there cited. Whether the compensation is "just" is determined by reference to whether the compensation is "fair" as between the owner of the property and the person acquiring the property; see Grace Bros Pty Ltd v The Commonwealth (1946) 72 CLR 269, 280 per Latham CJ, 286 per Starke J, 290 per Dixon J, 295 per McTiernan J; Nelungaloo Pty Ltd v The Commonwealth (1948) 75 CLR 495, 569 per Dixon J; Smith v ANL Ltd (2000) 75 ALJR 95, [48] per Gaudron and Gummow JJ. cf Commonwealth of Australia v State of Western Australia (1999) 196 CLR 392, 461 per Kirby J. 97 I accept that when it comes to attributing the value of any special benefit, to allocate that special benefit by an allocation formula which produces a fair value in the manner I have earlier set out, may on one view be more generous than the longstanding common law principle reflected in Commonwealth land acquisition legislation. That common law principle is that the value of what is acquired pursuant to a compulsory acquisition should be determined without regard to the purpose for which the acquisition occurs; Emerald Quarry Industries Pty Ltd v Commissioner of Highways (SA) (1979) 142 CLR 351, 356 and 367 per Gibbs J and 367 per Mason J. See also Lucas v The Chesterfield Gas and Water Board [1909] 1 KB 16; Cedar Rapids Manufacturing and Power Company v Lacoste & Ors [1914] AC 569, 576; Fraser v city of Fraserville (1917) AC 187, 194; Pointe Gourde Quarrying and Transport co Ltd v Sub-Intendent of Crown Lands [1947] AC 565, 572; Grace Bros Pty Ltd v The Commonwealth (supra) at 280, 286, 291-292, 295, contra 301-302; Housing Commission of NSW v San Sebastian Pty Ltd (1978) 140 CLR 196, 205. Here however, it is a question of determining value on the basis of 100% ownership, consistent with Gambotto principles. 98 Nor could it be said to be intrinsically unfair to provide for the allocation of the value as a whole between the classes of issued securities in the company; that is, having regard to the stipulated and other relevant characteristics of those classes; see s667C(1)(b). Nor is it intrinsically unfair as between the 90% holder and the minority security-holders to provide for the allocation of the value within the class of securities being acquired, pro rata among the securities in that class, without allowing any premium or applying any discount for particular securities in the class (s667C(1)(c)). Rather, such provision is designed to protect the rights of shareholders within a class and to avoid a greenmail type reward for the hold-out members for that class as against those within that class who have accepted the offer. 99 Finally, I would adopt the reasoning in paragraph 21 of the Commonwealth's submissions which I quote below: "21. If the minority security holders could require a premium for their securities, Parliament's express intention (and power) to provide for the compulsory acquisition of property on just terms would be frustrated. In particular, the inclusion of a premium in the determination of 'fair value' would suggest a capacity in the minority security holders effectively to veto the compulsory acquisition process by seeking prohibitive prices (based solely on the security holders' minority status) for the acquisition of their securities." OVERALL CONCLUSION 100 Question 1 should therefore be answered in the affirmative. It follows that the terms of acquisition of the relevant preference shareholders are such as to constitute both "fair value" within the meaning of s667C of the Corporations Act, and also constitute just terms for the purposes of s51(xxxi) of the Constitution. 101 In those circumstances, it is not necessary for me to answer question 2, as regards whether s51(xxxi) of the Constitution is capable of application to the acquisition and, if so capable, is nonetheless satisfied by the application of s1350 of the Corporations Act were otherwise the terms not just. 102 There is ample authority for the stricture that Constitutional questions should not be decided beyond what is necessary for the decision in the case; see most recently the High Court in Re Patterson; ex parte Taylor (2001) 75 ALJR 1439 at [251] to [252] per Gummow and Hayne JJ citing Starke J in Universal Film Manufacturing Co (Australasia) Ltd v New South Wales (1927) 40 CLR 333 at 356. It is clearly not necessary for the decision in the present case that I deal further with the constitutional questions and thus I refrain from doing so. COSTS AND ORDERS 103 Prima facie, costs should follow the event, though the parties may address me on costs if they wish. I direct the parties to prepare orders giving effect to this judgment within seven days.

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