Super John Pty Limited & 4 Ors v Futuris Rural Pty Limited

SuperJohn.22June99 - 23 June, 1999: Super John P/L & 4 Ors v Futuris Rural P/L 8 REVISED - 24 June, 1999 IN THE SUPREME COURT OF NEW SOUTH WALES IN EQUITY

No. 2746/99 SUPER JOHN PTY LIMITED ACN 000 375 093 First Plaintiff/First Applicant BATOKA PTY LIMITED ACN 002 904 930 Second Plaintiff/Second Applicant ELIZABETH LANCEY & JULIAN LANCEY as trustees for ELIZABETH SUPERANNUATION FUND Third Plaintiff/Third Applicant ALLISTAIR HAZARD Fourth Plaintiff/Fourth Applicant IAN MORTON Fifth Plaintiff/Fifth Applicant FUTURIS RURAL PTY LIMITED ACN 009 339 333 Defendant/Respondent

JUDGMENT - ex tempore 22 June 1999 THE ESSENTIAL ISSUE

1 The essential issue before me is whether the Plaintiffs' application for dispensation for late filing of an application by a dissenting shareholder under s701(6) of the Corporations Law should be granted pursuant to s1322(4) of the Corporations Law. 2 The original application was made in time to the Federal Court but is rendered nugatory by the High Court's decision in the "cross-vesting" case on 17 June 1999; Re Wakim; ex parte McNally [1999] HCA 27. 3 While State legislation has been announced to validate Federal Court judgments otherwise rendered ineffective, it cannot be predicted with any certainty whether or not that legislation will be passed in a form validating the Plaintiffs' application in the Federal Court. It cannot at this time therefore affect the legal outcome of the present application so far as the substantive question is concerned.

FACTUAL BACKGROUND 4 The Plaintiffs over two years ago applied, purportedly in pursuance of s701(6) of the Corporations Law, to the Federal Court. This was for the purpose of obtaining an order from that court that the Plaintiffs' shares not be compulsorily acquired by the Defendant, Futuris Rural Pty Limited, pursuant to its offer for all the shares in Elders Australia Limited ("Elders"). That application was made within the time prescribed by s701(6) of the Corporations Law, that is to say prior to the expiry of 10 April 1997, on the assumption that the Federal Court had jurisdiction over the relevant proceeding. 5 That assumption was one which could reasonably have been made when the proceedings were commenced. It is rather like the situation before the House of Lords in Kleinwort Benson Ltd & Ors v Lincoln City Council [1998] 3 WLR 1095. The House of Lords were dealing with a mistake of law based on the then settled understanding of what the law was. They were attempting to reconcile the theory that judges declare rather than make the law - albeit restrained by principle, precedent and the exigencies of the case in hand - with the reality that only by evolutionary judicial change in the law is the common law kept relevant in a changing world (per Lord Browne-Wilkinson at 1100). In the present case arising in a constitutional context, the point of potential invalidity of the Federal Court's jurisdiction over Corporations Law matters was at most conceivable just over two years ago. But clearly enough, at that time the settled view of the law accorded with the assumption that the Federal Court had jurisdiction over such Corporations Law applications. It would have required quite remarkable prescience to predict that, following a prior unanimous full Federal Court decision confirming that outcome, later affirmed in the High Court, the High Court would still later come to the opposite conclusion; I refer to those decisions below. Certainly as at 10 April 1997 the appeal in Gould v Brown from the full Federal Court had commenced and while it had the potential to have rendered that assumption inoperative it in fact confirmed that result. Thus if one looked at subsequent events, following that unanimous Federal Court decision affirming Federal Court jurisdiction (on 24 June 1996 in BP Australia Ltd v Amman Aviation Pty Ltd (1996) 62 FCR 451), by 2 February 1998 the High Court in Gould v Brown (1998) 193 CLR 346 had likewise determined that the cross-vesting provisions did permit a State court to cross-vest to the Federal Court. It thus confirmed that jurisdiction was validly conferred on the Federal Court more generally in relation to Corporations Law matters. It is true that this result was so evenly balanced that on a bench of six, the result followed from the then Chief Justice, Brennan CJ, concurring in that result with two others. Nonetheless, this decision confirmed that view of the law. However, the reasoning of the dissentients had clearly opened the way for potential re-opening of the point, as has since occurred in Re Wakim (supra), rendering the law thereafter less settled. 6 Thus it was determined by the High Court on 17 June 1999 (by a majority of 6 to 1) that the relevant cross-vesting provisions did not validly confer State jurisdiction on Federal Courts (save for exceptions not presently relevant concerning the ACT and accrued jurisdiction). It followed that the Federal Court did not have jurisdiction over Corporations Law matters generally, save for those exceptions. The Federal Court we now know had thus no jurisdiction to determine the Plaintiffs' application under s701(6) of the Corporations Law, though that is said with the wisdom of hindsight. To have required that hindsight of the Applicant when making its application over two years ago is rather like expecting someone at the commencement of the 100 years war writing that "to-day the 100 years war began".

THE LEGAL ISSUES 7 It is against that background that the present application is made by the Plaintiffs, who are now the sole outside shareholders of Elders Australia Limited. It is resisted by the Defendant on a number of grounds. Before turning to the principal objection, I should deal with some preliminary arguments. First, the Defendant contends that the relevant provisions of Ch 6 of the Corporations Law, in which s701 finds its place, already provides exhaustively and to the exclusion of s1322

(a) for ASIC modifications and variations of Ch 6 by s730, and (b) for court dispensation for contraventions of Ch 6 by s743. 8 However, s1322(4) is an independent source of dispensing power in the court. Section 701 itself has no internal in-built provision for extension of time, as might have precluded s1322 being capable of independent application. Section 743 could not apply in any event, as there has been no contravention of Ch 6 even assuming that the application by the Plaintiffs purportedly under s701(6) was a nullity. Section 701(6) simply provides for how a dissenting shareholder is to apply, in order to resist compulsory acquisition. It is not contravened if the application is late; all that happens is that the application fails to conform to its requirements. 9 ASIC modification under s730 provides a wholly different basis for being permitted to do that which Ch 6 would otherwise preclude. It does not narrow s1322 in its intended sphere of operation. Nor has it been brought into play in the present circumstances, whatever inherent limitation there may be in its proper scope in facilitating the appropriation of the dissentient's property; compare DB Management Pty Ltd v Australian Securities and Investment Commission and Others [1999] FCA 293 for which leave to appeal to the High Court has been given. While allowing dispensation in one sense does deny the Respondent's contingent property interest in the Applicant's shares sought to be compulsorily acquired, that reasoning does not pre-ordain any outcome in favour of either party. The Applicant stands to lose its holding while the Respondent stands to lose its contingent interest in that holding - contingent that is, on being able to complete compulsory acquisition. 10 Moreover, the reasoning which concludes that s1322 is capable of operating independently of a specific power to vary provisions of a particular chapter is reflected in the analogous context of s447A and s1322 where both can operate independently also. The New South Wales Court of Appeal has confirmed that s1322(4) can dispense with observance of specific provisions of Pt 5.3A notwithstanding the presence of s447A in the same Part as also capable of modifying Pt 5.3A to achieve that same result; see Richard Campbell Brien & 1 Ors v Australasian Memory Pty Limited & Anor (1997) 25 ACSR 1 at 48 and (1999) 29 ACSR at 344 at 384-9 per Sheppard AJA. 11 The Defendants' next attack is based on David Grant & Co Pty Limited v Westpac Banking Corporation (1994-95) 184 CLR 265 relying on the leading judgment of Gummow J. However, the reasoning of Gummow J applicable to strict compliance with the requirements for setting aside statutory demands under s459G of the Corporations Law cannot be applied to s701(6). While both sections delineate the conditions for an application to be made in conformity with the relevant requirements, s459G does so with the additional peremptory emphasis of the words "may only". This in the context supports an interpretation that s459G leaves no room for s1322. Section 701(6) on the other hand contains language which lacked that emphatic peremptory character. The "gift" of the right to make application to a dissenting shareholder is, it is true, subject to statutory conditions. But the conditioning is not of the peremptory kind which precludes the dispensing power of s1322 where applicable, in contrast to s459G; compare David Grant (supra) at 277: "An integer or element of the right created by s459G is its exercise by application made within the time specified. To adapt what was said by Isaacs J in The Crown v McNeil (26), it is a condition of the gift in sub-s(1) of s459G that sub-s(2) be observed and, unless this is so, the gift can never take effect. The same is true of sub-s(3)." 12 I turn now to s1322 itself. While the Plaintiffs also rely upon s1322(2) on the basis that what has here occurred is a procedural irregularity, it is fair to say that the Plaintiffs wisely place principal reliance on s1322(4)(d) in seeking an order to extend the period now to apply to a fresh application to the Supreme Court of New South Wales under s701(6) of the Corporations Law. This is on the basis that its earlier application to the Federal Court is rendered without effect, as being out of time to satisfy sub-section (6). That application is made in circumstances where curative legislation has been foreshadowed by the various states including, relevantly here, New South Wales, where the target company Elders was and remains incorporated. However, I must necessarily decide this application without reliance upon whatever future effect, if any, that legislation may have. 13 The critical matter here is whether I am precluded from making an order of the kind sought, on the basis that s1322(6)(c) requires that the Court be satisfied that "no substantial injustice has been or is likely to be caused to any person". 14 The prejudice which the Defendant relies upon is the deferral of its capacity to compulsorily acquire the balance of the shares in Elders while the application under s701(6) is dealt with, causing a consequent delay in deriving the benefit of having it as a wholly-owned subsidiary. It can be conceded that this is a detriment. Its degree is contingent upon whether the Plaintiffs would ultimately successfully resist compulsory acquisition in the principal proceedings, if they are saved by a dispensing order. But there is at least the detriment of delay in litigating the matter. But detriment per se is not the same as substantial injustice; that must depend on whether the remedial order in giving rise to that detriment is unjust in the sense of causing such prejudice overall as to be unfair or inequitable, taking into account the interests of all of those directly affected by such dispensation. 15 The authorities on the meaning of "substantial injustice" are conveniently summarised in a judgment of Owen J in Elderslie Finance Corporation Limited v ASC (1993) 11 ACLC 787 at 791. "I agree with the submission of counsel for the applicant that s1322(4) of the Law is a remedial remedy and should be given a liberal construction: see Re Australian Koyo Ltd (1984) 2 ACLC 429 at 431; (1984) 8 ACLR 928 at 930. The onus is on the applicant to establish positively that no substantial injustice has been or is likely to be caused to any person; see Australian Hydrocarbons NL v Green & Ors; Green & Ors v Australian Hydrocarbons NL (1985) 3 ACLC 779 at 789; (1985) 10 ACLR 72 at 83. The word "injustice" requires the Court to consider real, and not merely insubstantial or theoretical prejudice. A degree of prejudice to a person or persons may be outweighed if the overwhelming weight of justice is in favour of making the order: see Re Compaction Systems Pty Ltd (1977-1978) CLC ¶40-313 at 29,316; (1976) 2 ACLR 135 at 150." 16 In my judgment, the "overwhelming weight of justice" is in favour of making the order sought by the Plaintiffs. There could have been no legitimate expectation at the time the original application was made, purportedly in pursuance of s701(6), that the Federal Court would not have jurisdiction. Since then, there has been an awakening realisation that there was that risk. It culminated in what can fairly be described as a windfall gain to the Respondent from a successful constitutional challenge not originally foreseen when the original application was made. But it could not be said that the Plaintiffs have so conducted themselves as to preclude them receiving the dispensation they seek. That is not said of course with any reference to the merits or otherwise of the Plaintiffs' ultimate case in relation to their application under s701(6). 17 The real prejudice to the Defendant is delay in obtaining compulsory acquisition while proceedings are conducted in this Court. No doubt those proceedings will be conducted with expedition as indeed should be a condition of any dispensing order. If compulsory acquisition were ultimately to be denied, that would reflect on the unfairness of the original proposal to compulsorily acquire and deserves no sympathy. This is more especially as there are no outside shareholders save for the Plaintiffs. On the other hand, if the Plaintiffs are denied a dispensing order, having, as I am satisfied, met the onus upon them to show that they would then be precluded from resisting compulsory acquisition, they would suffer the prejudice of being forced to sell, having lost irretrievably the opportunity to resist as a dissenting shareholder.

SUMMING UP 18 To sum up: as any detriment to the Defendant is the result of being deprived by the remedial order of an unforeseen constitutional windfall, that hardly constitutes substantial injustice; certainly not such as would outweigh the irremediable injustice of depriving the Plaintiffs of their right to invoke s701(6). This is when they had acted according to the settled view of the law at the time in lodging their application with the Federal Court and had done so within the requisite period were the Federal Court competent to entertain that application.

COSTS 19 I do not intend to make any cost orders, despite the Plaintiffs' success in these present proceedings. The Defendant quite reasonably agreed to withhold any compulsory acquisition till after the New South Wales legislation was passed, if it were passed within two weeks and subject to an undertaking as to damages. That legislation may or may not have cured the problem. That was declined by the Plaintiffs, when the price of it was an undertaking as to damages. Also, in this context if the Plaintiffs should ultimately fail in resisting compulsory acquisition, subject to any submissions that may be made at the time, the judge concerned should be free to reflect that outcome in cost orders that include the present application.

ORDERS 20 I make orders as follows: (1) An order in terms of paragraph 4 conditional upon the Plaintiffs pursuing their principal proceedings pursuant to s701(6) of the Corporations Law with all due expedition, noting that the Defendant undertakes to the Court that it will proceed with any defence or counterclaim with all due expedition. (2) I reserve the costs of this application. (3) I give leave to either party on reasonable notice, following the proposed State legislation referred to in my judgment being passed, to apply to vary these orders so as to take account of the effect of that legislation.

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