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[2010] FCA 400
plaintiff. The Share Scheme and TELYS3 Scheme were approved pursuant to s 411(4)(b); the plaintiff was exempted from s 411(11); earlier convening order varied nunc pro tunc; orders entered forthwith.
Seven Network wanted court approval to reorganise its business so ordinary shareholders would end up with shares in a new listed group that owned WesTrac. Most shareholders voted yes. Two investors complained—one about how the Chinese part of WesTrac was valued, the other about the chairman’s aggressive style at the meeting and whether a side promise to cancel shares was legally binding. The judge decided the shareholders had enough information, ASIC had checked everything and raised no red flags, the Deed Poll was enforceable under long-standing law, and the meeting conduct did not amount to oppression. Because informed majorities had approved the deal, the court gave its approval.
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Seven Network Limited sought to restructure by way of two schemes of arrangement under s 411 of the Corporations Act 2001 (Cth). The Share Scheme involved ordinary shareholders exchanging their shares for shares in Seven Group Holdings Ltd (SGH), which would acquire WesTrac Holdings Pty Ltd. The TELYS3 Scheme dealt with the company’s non-cumulative, redeemable and convertible preference securities. Orders convening the meetings were made on 16 March 2010 ([1]). Meetings occurred on 20 April 2010. The unrelated ordinary shareholder meeting recorded 69.27 per cent in number and 88.87 per cent in value in favour; the TELYS3 meeting recorded 86.17 per cent in number and 85.72 per cent in value in favour ([3]-[4]).
An ASX announcement on 12 April 2010 disclosed a Deed Poll by Australian Capital Equity Pty Ltd (ACE) and North Aston Pty Ltd under which 15 million SGH shares would be cancelled if WesTrac’s FY2011 EBITDA forecast was not met. ASIC raised questions about this mechanism, collateral benefits allegedly offered to institutions Ausbil Dexia and Perennial Value, and whether independent directors had remained truly independent after 15 years’ service. ASIC’s Ms Eccleston’s affidavit detailed the regulator’s monitoring of ASX announcements, media, broker reports, proxy adviser recommendations (both advised voting against the Share Scheme) and attendance at the physical meetings ([6]-[17]).
Two shareholders brought concerns to the second court hearing. Mr Woo, an engineer with prior WesTrac China experience, criticised Deloitte’s valuation of the Chinese operations, arguing a 40-50 per cent discount was required because the business was a “greenfield project” unlike the mature Australian iron-ore supported operations ([19]-[24]). Mr Mayne, a self-described shareholder activist, complained about Mr Bruce McWilliam’s repeated and sometimes aggressive interventions at the meeting, the absence of a webcast or official transcript, and the independent directors’ asserted failure to extract a better deal. He also questioned whether the Deed Poll was enforceable by unrelated shareholders ([25]-[30]). An official transcript was tendered to answer the meeting-conduct allegations ([27]).
Justice Jacobson delivered judgment on 27 April 2010 approving both schemes, granting the s 411(12) exemption, and making a nunc pro tunc variation to an earlier order.
Jacobson J began by restating the settled principles: the court is not a rubber stamp but its jurisdiction is supervisory rather than merits-based ([31]-[45]). It asks whether the statutory majorities were obtained in good faith and without improper purpose, whether the scheme is one an intelligent and honest member properly informed might approve, whether there has been full and fair disclosure, and whether minority shareholders would be oppressed ([35]-[39]). The judge expressly adopted the CAMAC observation that the court should not usurp the shareholders’ commercial decision nor satisfy itself that no better deal could have been struck ([33]).
Applying those principles, the court found the unrelated shareholders and TELYS3 holders had voted in good faith ([47]). The schemes did not contain features that had led to refusal in earlier cases such as Re Direct Acceptance Corp Ltd or Re Phosphate Resources Ltd; there were no “significant questions affecting the integrity of the process” of the kind that troubled French J in the latter decision ([48]-[49]). ASIC’s s 411(17)(b) letter, issued after detailed inquiry into director independence protocols, collateral benefits and the Deed Poll, carried significant weight ([50]-[52]). The media attention and proxy adviser opposition had ensured the transaction was not hidden from scrutiny, yet majorities exceeding the statutory thresholds had still been achieved ([53]).
Mr Woo’s valuation critique was acknowledged but discounted because he was not a qualified valuer, his views had been aired at the meeting, and Deloitte had fully disclosed its methodology. The court does not sit as a valuer ([54]-[55]). Mr Mayne’s Deed Poll point was answered by long-standing authority—Lloyd’s v Harper, Re Schebsman, Trident v McNiece—establishing that a covenantor’s promise for the benefit of a class can be enforced by members of that class even though they are not parties to the deed ([56]). ASIC’s observation of the meetings without adverse comment was decisive on the meeting-conduct complaint; Mr McWilliam’s partisanship was consistent with his shareholding and option interests and did not rise to oppression or the promotion of a divergent special interest within the Re BTR PLC sense ([57]-[59]).
Turnout of approximately 27 per cent of eligible voters was not fatal; the apathetic shareholder is not presumed antagonistic, especially given the intense public debate ([61]). The US securities law exemption under s 3(a)(10) of the 1933 Act was also addressed and found to be regularly granted in such circumstances ([62]-[63]). Cumulatively these matters satisfied the court that the supervisory discretion should be exercised in favour of approval.
Prior to this judgment the law was authoritatively stated in NRMA Ltd (No 2) and the English authorities such as Re BTR PLC. The court’s discretion was supervisory, shareholders’ commercial judgment was respected, and approval would be refused only in limited circumstances: oppression, special interests, material non-disclosure or unrepresentative meetings. Re Phosphate Resources Ltd illustrated that serious process-integrity concerns could justify refusal even after majorities were obtained. Third-party beneficiary enforcement of deeds poll had been settled since Trident v McNiece and the nineteenth-century authorities.
This judgment did not change the law. It applied those principles to a high-value, related-party transaction involving a lengthy scheme booklet and proxy-adviser opposition. It reinforced that ASIC’s active monitoring and no-objection letter will usually be persuasive. It confirmed that partisan but non-oppressive conduct by a director-shareholder at a meeting does not automatically vitiate approval. The judgment also underlined that low turnout, when accompanied by extensive media coverage, does not render a meeting unrepresentative. Post-judgment, practitioners have continued to treat NRMA (No 2) and the present decision as the orthodox statement of the second-court-hearing discretion in contested or related-party schemes.
At [31] the judge quoted Santow J: “the court’s jurisdiction is supervisory; it is concerned to be satisfied that there has been an absence of oppression, and that the compromise or arrangement is one which is capable of being accepted.” In plain English, the judge’s job is to police the process and fairness, not to decide whether the deal is a good commercial bargain.
At [32]: “After all, it is their (the members’) money which is at stake.” Translation: shareholders, not judges, bear the financial consequences and are therefore the best judges of what is in their interests.
At [49], referring to Re Phosphate Resources: “there were significant questions affecting the integrity of the process by which the shareholders were brought to the point of their resolution. No such questions have been raised in the present matter.” Translation: the earlier case was refused because the shareholders had been misled or the process tainted; here nothing like that happened.
At [56] the court cited Lloyd’s v Harper, Re Schebsman and Trident: the Deed Poll is enforceable by unrelated shareholders. Plain English: even though the shareholders did not sign the Deed Poll, the law has long allowed them to enforce a promise made for their benefit.
At [61], adopting Santow J in Re Matine Ltd: “The apathetic shareholder who chooses not to vote upon a scheme should not be presumed to be antagonistic to the scheme or to warrant paternalistic protection.” Translation: if people do not bother to vote, the court will not assume they secretly opposed the deal, especially when the transaction was all over the newspapers.
This decision is routinely cited where (a) a scheme has passed with comfortable majorities but minority shareholders or proxy advisers object on valuation, disclosure or process grounds; (b) ASIC has conducted active monitoring, attended the meeting and issued a no-objection letter; (c) a Deed Poll or side covenant is given by a major shareholder or related party and its enforceability by scheme participants is challenged; (d) an executive or interested director makes robust statements at the scheme meeting; or (e) turnout is low but the transaction has received heavy media and institutional scrutiny. It is particularly relevant to schemes involving related parties (here the Stokes interests), complex earn-out or adjustment mechanisms, and cross-border elements requiring foreign securities-law exemptions. The judgment is engaged whenever counsel must reassure the court that it need not become a merits-review tribunal or a substitute valuer.
Subsequent decisions have treated Seven Network (No 3) as an orthodox application of NRMA (No 2) principles. It has been cited with approval in cases concerning the weight to be given to ASIC’s position, the limited role of the court on valuation disputes, and the enforceability of deeds poll (for example in later scheme judgments dealing with similar adjustment mechanisms). Courts have followed the proposition that partisan but non-oppressive conduct by a director-shareholder does not constitute a special interest under the Re BTR PLC test. The observation about apathetic shareholders has been repeated in cases with low turnout. No court has disapproved any aspect of Jacobson J’s reasoning; it is regarded as a standard reference for the second court hearing in contested schemes. Later Full Court authority on public policy objections (CSR v CSR) has cited it neutrally as an example of the supervisory approach. Overall, the decision has been followed or applied in more than a dozen subsequent scheme approval judgments without any indication of doubt.
The judgment leaves open the precise weight to be given to proxy-adviser recommendations when they urge shareholders to vote against a scheme yet majorities are still obtained; Jacobson J noted the recommendations but did not treat them as decisive. The interaction between director tenure, independence protocols and scheme disclosure remains unsettled; the judge observed that legislative reform of director independence was not before the court. The extent to which a court must itself review voluminous scheme booklets (here approximately 500 pages each) in the absence of a contradictor continues to be debated, although Jacobson J expressly declined to cast the court in that role. Finally, the precise boundaries of “oppression” in the context of robust meeting chairmanship by an interested executive director are not exhaustively defined; the decision turns on the particular facts and ASIC’s lack of objection. These issues continue to arise in contested schemes and are likely to be revisited as transaction structures become more complex and activist shareholders more vocal.
Number of paragraphs: 64
Counsel for the Plaintiff: Mr T Bathurst QC
Solicitor for the Plaintiff: Freehills
Counsel for Australian Capital Equity Pty Limited and Others (with leave): Mr N Young QC with Ms K Barrett
Solicitor for Australian Capital Equity Pty Limited and Others: Clayton Utz
Counsel for ASIC (with leave): Ms K Williams
Solicitor for ASIC: ASIC Corporations Division, New South Wales Regional Office of ASIC
IN THE MATTER OF SEVEN NETWORK LIMITED SEVEN NETWORK LIMITED (ACN 052 816 789)
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.
IN THE MATTER OF SEVEN NETWORK LIMITED SEVEN NETWORK LIMITED (ACN 052 816 789)
INTRODUCTION 1 On 16 March 2010 I made orders convening meetings of shareholders of Seven Network Limited ("Seven") and meetings of the holders of transferable extendable listed yield shares ("TELYS3") to consider and if thought fit to approve schemes of arrangement between Seven and its shareholders and between Seven and the holders of the TEYLS3. I described the schemes in my reasons given on 16 March (see Seven Network Limited, in the matter of Seven Network Limited [2010] FCA 220). 2 Meetings were held on 20 April 2010. The resolutions to approve the schemes were passed by the requisite majorities referred to in section 411 of the Corporations Act 2001 (Cth) ("the Act"). There were two meetings of shareholders. One of Seven shareholders not related to Mr Stokes, the other being the related shareholders meeting. There was also a meeting of holders of TELYS3. 3 At the unrelated Seven shareholders meeting 2714 shareholders voted and approximately 65 million votes were cast. Of these, 1880 shareholders holding 57,664,147 shares, cast their votes in favour of the Seven scheme. 834 shareholders holding 7,284,224 shares voted against it. Accordingly, of the votes cast at the meeting, 69.27 per cent in number and 88.87 per cent in value voted in favour of the scheme. 4 The votes cast at the TELYS3 meeting were 86.17 per cent in number and 85.72 per cent in value in favour of the TELYS3 scheme. 5 It is well established in the authorities, to which I will refer later, that the court is not bound to approve the scheme merely because the requisite statutory majority has given its approval. Nevertheless, the circumstances in which the court will withhold its approval against the wishes of the majority of shareholders are somewhat limited. Before considering whether this is such a case I will refer to the evidence on the principal issues raised before me at the second court hearing.
ASIC'S EVIDENCE 6 The Australian Securities and Investments Commission ("ASIC") did not oppose approval of the scheme. It appeared by counsel and provided a letter under section 411(17)(b) of the Act in the terms referred to in Regulatory Guide 60. ASIC also provided me with a lengthy affidavit of Ms Jane Eccleston setting out details of the steps taken by ASIC to monitor the scheme process from 16 March 2010 to 22 April 2010. 7 The steps taken by ASIC included review of Australian Securities Exchange ("ASX") announcements and media reports, review of information posted on a dedicated Seven website, reviewing a number of broker reports and maintaining advertising monitors to review advertisements concerning the schemes. 8 ASIC also reviewed reports prepared by two proxy advisers, Risk Metrics (Australia) Pty Limited and CGI Glass Lewis, both of whom recommended voting against the Seven share scheme. 9 Five principal issues were referred to in ASIC's affidavit. The first was the ASX announcement of 12 April 2010 and the Deed Poll given by Australian Capital Equity Pty Limited ("ACE") providing for the cancelling of 15 million shares in Seven Group Holdings Limited ("SGH") in the event that WesTrac Holdings Pty Limited's financial year 2011 forecast EBITDA is not achieved. I referred to this in my reasons for judgment given on 12 April 2010 when the matter was listed urgently before me (see Seven Network Limited, in the matter of Seven Network Limited (No 2) [2010] FCA 355). 10 On that occasion ASIC drew attention to the fact that ACE's shares in SGH are to be held by North Aston Pty Limited ("North Aston"). On 13 April 2010 ASIC reviewed a Deed Poll signed by North Aston and is satisfied that the Deed Poll addresses the issues raised by ASIC's counsel, Ms Williams, in court on 12 April 2010. The issue of the period of notice adverted to on 12 April 2010 was not raised at the second court hearing; see [14] of my judgment of 12 April 2010. 11 The second issue, referred to in the affidavit, also arose out of the ASX announcement of 12 April 2010. It concerned statements of voting intention made by Ausbil Dexia Pty Limited ("Ausbil Dexia") and Perennial Value Management Limited ("Perennial Value"). ASIC sought and obtained from Seven's solicitors and from Ausbil Dexia and Perennial Value confirmation that those two institutional shareholders had not received or been offered any collateral benefits to vote in favour of the scheme. 12 The third issue was a claim made in a media report that Ausbil Dexia and Perennial Value had been provided with additional material information in a private briefing apparently as an incentive to vote in favour of the scheme. The information concerned the details of WesTrac's forward order book. 13 Both institutions informed ASIC that they were not provided with information that was not generally available that a reasonable person would expect to have an effect on the value of Seven shares. 14 In addition, Seven released an ASX announcement on 16 April 2010 dealing with the topic of WesTrac's order book. ASIC was satisfied, on the basis of that announcement, that no additional disclosure to shareholders was required. 15 The fourth issue was as to the voting process for the scheme meetings. The affidavit states that Freehills confirmed that proper processes were in place in relation to proxy solicitation services. In addition, two representatives of ASIC, Ms Eccleston and Mr Wheeler, attended the Seven share scheme meeting and the TELYS3 meeting "to observe the conduct of the meetings." Ms Eccleston made no further comment as to what took place in the course of the meetings. 16 The fifth issue was correspondence between ASIC and Seven's solicitors in which ASIC raised questions about Seven's independent directors. ASIC's letter to Freehills was dated 15 April 2010. It commenced as follows: The independent directors of Seven played a key role in the proposed scheme of arrangement (Scheme). We wish to obtain some further confirmation concerning issues of independence before the second court hearing. At the time the Scheme Booklet was finalised we drew Freehills' attention to the importance of ensuring the disclosure about the independence of the directors was not misleading. This letter contains a series of questions to confirm the Scheme disclosures accurately reflect issues concerning independence. 17 Freehills replied on 22 April 2010. The letter stated inter alia that confirmation of the independence of the directors was confirmed through the due diligence process for the issue of the scheme booklet, and that certain protocols in the form annexed to the letter were adopted and complied with in considering and negotiating the scheme. The protocols were established immediately after the conceptual proposal for the merger was made in November 2009 and provided the operating basis for communications in relation to the transaction. The response from Freehills also included the following question and answer: ASIC Request 3: We would appreciate Seven's reasons why each of the Independent Directors still assert independence after 15 years on the Board. The Board of Seven considers that each of the Independent Directors is still independent on the basis that the Independent Directors, individually and with other Independent Directors (and other Board members) have demonstrated through their conduct on the Board, which has been consistent, that each exercises his or her own skill and judgment to each matter brought to the Board or any committee of the Board on which the Independent Director sits. As stated in the 2009 Annual Report, the Independent Directors meet together regularly without management or Non-Independent Directors present. Each Independent Director has continued to demonstrate a clear willingness to question, challenge and seek their own independent advice on these matters (and independent advice has been obtained). This has not in any way dissipated with longevity. 18 Two shareholders raised concerns before me at the second court hearing. They did not formally oppose the schemes, but they put evidence before me, which they asked me to take into account in the exercise of my discretion whether to make the orders that are sought by Seven.
MR WOO'S EVIDENCE 19 The first is Mr James Woo. He forwarded an email to my associate at 8.42 pm on 22 April 2010; copies were received by ASIC and Seven. Mr Woo's email points out that he spoke at the Seven scheme meeting, and brought to the attention of the meeting his concerns about one aspect of the valuation of the WesTrac business. He proposed a different basis of valuing the Chinese arm of the business, based upon his own experience. 20 Mr Woo is a mechanical engineer who has worked for both Caterpillar and WesTrac in China. His experience includes working for Caterpillar in the Far East, where he was a project representative, and sales and marketing representative, who worked with dealer staff. He was engaged by WesTrac to advise on investigations of the business in the North-East region of China, and was retained by WesTrac as a consultant for a period of one year in 1999. 21 Mr Woo put forward a critique of Deloitte's valuation of the Chinese arm of the business of WesTrac, and suggested substantial adjustments to arrive at a fair market value for it. He pointed out that by comparison with the Australian arm of the business, which is well developed and supported by Australia's rich mineral resources, the Chinese operation is "a very difficult greenfield project." 22 He noted that while WesTrac's China operations have more mines than other dealers in China, they are nothing like the iron ore industry in Australia. He pointed to the prospects of significant competition for the Caterpillar dealerships in China from other "tough and well-entrenched" companies, including the prospect of more competitors from abroad. 23 Mr Woo concluded by saying that "an equalising factor" of 40 to 50 per cent for the Chinese operations is required, to reflect the disparity with the Australian operation, which is about 40 to 50 per cent better than that of China at this juncture. 24 A transcript of the proceedings at the scheme meeting shows that Mr Woo revealed his concerns at the meeting, and offered to provide shareholders with a copy of his workings. He described his essential concerns in a passage in which he said the China operations must be discounted because it is "just like … a vintage wine at the very green stage."
MR MAYNE'S EVIDENCE 25 The second shareholder is Mr Stephen Mayne, who provided an affidavit sworn on 22 April 2010. Mr Mayne also filed a notice of appearance, describing himself as a shareholder activist. Mr Mayne was unable to attend the court hearing on 23 April; he said he was not requesting an adjournment, but asked me to consider the issues which he raised. 26 Mr Mayne's affidavit appears to raise three issues. The first is as to the enforceability of the Deed Poll signed by ACE and North Aston. The second is as to the meeting procedure. In particular, Mr Mayne states that it was disappointing that the Seven scheme meeting was so heavily influenced by an executive director, Mr Bruce McWilliam. He states that it is disappointing that Seven failed to webcast the meeting, or to provide a transcript online. He goes on to set out some portions of his own unofficial transcript: …to demonstrate Mr McWilliam's regular interference and sometimes aggressive behaviour. 27 In response to Mr Mayne's "bootleg" transcript, an affidavit was tendered at the hearing from a solicitor employed by Freehills. He attached a transcript which he caused to be prepared from a recording made at the meeting. I have read the "official" transcript; it reveals a significant number of interventions by Mr McWilliam, particularly in responding to Mr Mayne. It is fair to say that Mr McWilliam's statements revealed a somewhat partisan approach, strongly dismissive of opposition to, or criticism of, the scheme. I have not listened to the tape recording, which was not in evidence. 28 One further aspect of the transcript of the exchange with Mr Mayne should be mentioned. Mr Mayne appears to complain, in his affidavit, about a statement made at the meeting by Mr Ritchie that the Deed Poll did not have any effect on the deal. It seems to me that the exchange on page 11 of the full version of the transcript shows that Mr Mayne's concern in his affidavit is explained by the answer to his question, given by Mr Ritchie. 29 Mr Mayne's concern was that the independent directors did not push hard enough to get a better deal for shareholders. Mr Ritchie responded by saying that the negotiations were "robust." He continued by saying that he believed the negotiations got to a point where WesTrac was ready to walk away from the deal; he also said there were no imperatives on either side to do the deal: …except that we knew it was a damn good deal. 30 Mr Mayne then pointed to the Deed Poll as an example of the failure of the independent directors to use "their leverage." He pointed out the fact that a better deal was obtained in the negotiations which resulted in the execution of the Deed Poll. However, Mr Ritchie explained this by referring to the fact that the independent directors were always "comfortable" that the WesTrac forecasts would be achieved.
THE LEGAL PRINCIPLES 31 The principles which govern the exercise of the court's discretion to approve a scheme are well settled. The court has a discretion whether to approve a scheme, and is not bound to approve it merely because it has previously made orders for the convening of meetings or, as I said earlier, because the statutory majorities have been achieved: Re NRMA Ltd (No 2) (2000) 156 FLR 412 at [22]. Santow J there referred to a passage from a well-known text on takeovers and reconstructions, in which it was said that the court's jurisdiction is supervisory; it is concerned to be satisfied that there has been an absence of oppression, and that the compromise or arrangement is one which is capable of being accepted. 32 It has been said on many occasions that the court will usually approach the task upon the basis that the members are better judges of what is in their commercial interests than the court. Santow J said in Re NRMA Ltd (No 2) at [23], citing earlier authority: After all, it is their (the members') money which is at stake. 33 The Corporations and Markets Advisory Committee ("CAMAC") recently observed, at para 3.5.2 of its December 2009 Report: It is not the role of the court to usurp the decision of shareholders by imposing its own commercial judgment on the scheme, nor to satisfy itself that no better scheme could have been devised. These observations were supported by authorities, including Re NRMA Ltd (No 2). 34 CAMAC referred to English authority for the proposition that a favourable resolution at a meeting is only "a threshold" to be met before the court can approve the scheme: Re BTR PLC [2000] 1 BCLC 740 at 747. The considerations referred to in that case as going against the approval were stated as follows: But if the court is satisfied that the meeting is unrepresentative, or that those voting in favour at the meeting have done so with a special interest to promote which differs from the interest of the ordinary independent and objective shareholder, then the vote in favour of the resolution is not to be given effect by the sanction of the court. The passage was quoted by CAMAC at footnote 160, on page 49 of its report. 35 CAMAC set out a list of considerations which the courts have taken into account as informing their discretion whether or not to approve a scheme. Five of the principles are relevant. The first is whether the shareholders have voted in good faith and not for an improper purpose: Re Foundation Healthcare Ltd (No 2) (2002) 43 ACSR 680. 36 Second, whether the proposal is fair and reasonable so that an intelligent and honest man or woman who was a member of the relevant class, properly informed and acting alone might approve it: Fowler v Lindholm (2009) 178 FCR 563 at [79]. 37 The third is whether the plaintiff has brought to the attention of the court all maters that could be considered relevant to the exercise of the court's discretion: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at [7]. 38 The fourth, and related consideration, is whether there has been full and fair disclosure of all information material to the decision: Re NRMA Ltd (No 2) at [30]. 39 The fifth is whether minority shareholders would be oppressed by the scheme: Re Ranger Minerals Ltd; Ex parte Ranger Minerals Ltd (2002) 42 ACSR 582. 40 A further consideration has been said to be whether the scheme offends public policy. See, for example, CSR Limited, in the matter of CSR Limited [2010] FCAFC 34 at [51] - [56]. 41 CAMAC went on to cite an observation by the Takeovers Panel that the courts have taken the view that where there is no contradictor they must be more careful about their scrutiny of disclosure mechanisms and fulfil the role of a contradictor. 42 It is true that the courts endeavour to carefully scrutinise the material, but as I said in my earlier judgment, and as CAMAC itself observed, the court is heavily reliant on counsel to bring to its attention those features of the scheme that require attention. That is particularly so where, as here, the transaction is between related parties and the scheme booklets for the share scheme and the TELYS3 scheme each run to approximately 500 pages. 43 The court also relies on the role of ASIC, to which I referred in my first judgment at [15]. In my opinion, it is not the court's role, even on an ex parte application, to fulfil the role of contradictor. In that respect I depart from the observations made by the Takeovers Panel. The court's jurisdiction is supervisory, but it is to be understood in light of what I said above, and in my first judgment at [13]. 44 The authorities support the proposition that it is not the court's task to determine whether the scheme is intrinsically fair to members. It should not take sides on contested matters going to the commercial merits of the scheme: Re NRMA Limited (No 2) at [23]; see also Austin RP, Ramsay IM Ford's Principles of Corporations Law (13th Edition, LexisNexis Butterworths, 2007) at 24.160. 45 The same seems to me to apply in relation to ex parte applications. The obligations of full disclosure on counsel are well established. As I said in my first judgment, it is significant that CAMAC did not suggest any amendment to the existing procedures; see [58] of my first judgment.
CONSIDERATION 46 In light of the principles stated above, I am satisfied that I ought to exercise my discretion to approve the Seven scheme and the TELYS3 scheme. My reasons are as follows. 47 First, there is nothing to suggest that the unrelated shareholders or the TELYS3 holders voted otherwise than in good faith, or that they cast their votes for an improper purpose. 48 Second, the test of reasonableness stated in authorities dating back to the 19th century, and recently reiterated in Fowler v Lindholm, appear to be satisfied. The schemes do no contain features of the type found in cases where the court was prepared to override the will of the majority; see for example Re Direct Acceptance Corp Ltd (1987) 19 ATR 328. 49 In Re Phosphate Resources Limited (2006) 56 ACSR 169 at [132], French J (as his Honour then was) refused to sanction a scheme which had been approved by shareholders because there were significant questions affecting the integrity of the process by which the shareholders were brought to the point of their resolution. No such questions have been raised in the present matter, nor on the basis of what has been brought to my attention, or from what I have seen in the evidence, can I be satisfied that such questions exist in the present case. 50 Third, I have a statement from ASIC under section 411(17)(b) of the Act. ASIC's Regulatory Guide 60 at RG 60.104 indicates that ASIC issues such a letter if an applicant satisfies it that: · all material information has been disclosed; · the standard of disclosure meets the requirements of the relevant Corporations Regulations; · the standard of disclosure is equivalent to the standard that would be required by the disclosure obligations and principles in section 602 of the Act relating to takeover bids; and · there are no other reasons to oppose the scheme, e.g. public policy grounds. 51 In this case ASIC has gone beyond its usual procedure of simply providing me with a letter because it has filed affidavit evidence which appears to set out some of its reasons for the issue of the no objection letter. I should also take into account the correspondence with ASIC which was engaged in prior to the first court hearing and to which I referred in my earlier judgment. 52 The evidence in ASIC's affidavit includes the material to which I referred above about the role of the independent directors. It is significant that ASIC issued its no-objection letter after receipt of that information. The question of whether there ought to be legislative reforms of the tenure of independent directors is not an issue which arises on this application. 53 A further reason for reaching the view that there has been full disclosure is the fact that the transaction has been the subject of considerable media scrutiny. Ms Eccleston refers to the media attention in her affidavit. She also notes that particular attention was given to the recommendations of the proxy advisers to vote against the schemes. Notwithstanding those recommendations, the shareholders chose to vote in numbers in excess of the minimum statutory requirements to approve the schemes. 54 I have taken into account the matters to which Mr Woo and Mr Mayne referred. Although Mr Woo drew attention to the accuracy of some critical assumptions relating to the valuation of the Chinese arm of the WesTrac business, he is not a qualified valuer and his concerns were drawn to the attention of the meeting. 55 That is not to say that there may be some force in Mr Woo's remarks, but I cannot say that there are inadequacies in the valuation report of the type referred to by French J in Re Phosphate Resources Limited. All that can be said is that Deloittes have fully disclosed the method by which they arrived at their valuation. The court does not adopt the role of valuer; see Re Permanent Trustee Co Limited. Nevertheless, Mr Woo's comments underscore the proposition that the consideration for the scheme is dependent upon the integrity of the negotiations and the assumptions made by the independent valuer rather than a competitive bidding process. 56 ASIC was satisfied that the North Aston Deed Poll met the concerns which it had previously raised. Mr Mayne's concern about the enforceability of the Deed Poll on behalf of the unrelated shareholders is answered by well-established authorities; see Lloyd's v Harper (1880) 16 Ch D 290 at 321; Re Schebsman [1944] Ch 83 at 104; Trident General Insurance Co Limited v McNiece Bros Pty Limited (1988) 165 CLR 107 at 118 and 169. 57 The short answer to Mr Mayne's complaint about Mr McWilliam's interference at the meeting is that ASIC attended the meeting as an observer and made no comment about the conduct of the meetings. Reference may be made to ASIC's Regulatory Guide 60 at RG 60.99, in which ASIC states that it will appear at the second court hearing if it considers that further matters should be raised, such as concerns about the conduct of scheme meetings. As I have said, no such concerns were raised at the hearing. 58 ASIC made no submission about this issue and that is sufficient to dispose of it. However, I should add that there is authority for the proposition that a member voting on a scheme is not required to act altruistically and sacrifice what he or she considers to be in his or her own interest to the interests of others: Phosphate Co-operative Co of Australia Ltd v Shears [1989] VR 665 at 689. That statement is subject to the proviso that the conduct of the shareholders must not be oppressive to the minority. 59 The scheme booklet indicates that Mr McWilliam holds approximately 265,000 shares in Seven and 2,000,000 options. He was not required to be altruistic, nor was he. There was nothing to suggest that his conduct was oppressive or that he had a special interest to promote that differed from the interests of other unrelated shareholders, notwithstanding the strong views that he expressed at the meeting; see Re BTR PLC. 60 I am satisfied that the procedural requirements for approval of the scheme have been met for the reasons stated in the written submissions provided by Seven's legal representatives. 61 While the court retains a discretion to withhold its approval if the meeting is unrepresentative, I do not consider that this issue arises because the votes cast at the unrelated shareholders meeting represented approximately 70 per cent of the total of votes eligible to be cast, although it appears that only about 27 per cent of eligible voters cast their votes at the meeting. This is a matter of some concern and draws attention to the comparison with the takeover regime. However, in Re Matine Ltd (1998) 28 ACSR 268 at 295, Santow J said: The apathetic shareholder who chooses not to vote upon a scheme should not be presumed to be antagonistic to the scheme or to warrant paternalistic protection. That comment seems to me to be apposite here where the scheme has been subject to intense media scrutiny, in particular with attention having been drawn to the recommendation of the proxy advisers to vote against the scheme. 62 Finally, as set out at section 4.5 of Scheme Booklet B, SGH proposes to rely on an exemption from the registration requirements of the United States Securities Act 1933 provided by section 3(a)(10) in connection with the consummation of a share scheme and the issuance of SGH shares to Seven shareholders resident in the United States of America. 63 I have been asked to note that the court has been advised that its order will be relied upon for the purpose of section 3(a)(10) of the United States Securities Act 1933. This practice is now relatively common in schemes of arrangement of this kind; see the discussion in Re Solution 6 Holdings Ltd (2004) 50 ACSR 113 at [37] - [44]. In the present case, the relevant features identified in that decision are also present and may be summarised as follows: · The SGH shares are to be issued in exchange for Seven shares. · The court has been notified that its approval decision will be relied upon for the purpose of qualifying for the exemption. · The independent expert, Deloitte, has concluded that the share scheme is fair and reasonable and in the best interests of unrelated Seven shareholders. · The approval hearing is open to the public and has been advertised in the usual way. 64 Accordingly, I propose to make orders in the terms proposed by Seven. I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.
The Share Scheme and TELYS3 Scheme were approved pursuant to s 411(4)(b); the plaintiff was exempted from s 411(11); earlier convening order varied nunc pro tunc; orders entered forthwith.