Takeovers Panel v Glencore International AG

REASONS FOR JUDGMENT 1 Centennial Coal Company Ltd made a takeover bid for Austral Coal Limited. It offered ten Centennial shares for every 37 Austral Coal shares. In due course it received acceptances which gave it in excess of 80 per cent of Austral Coal's share capital. It is, however, unable to compulsorily acquire the remaining shares because, together, Glencore International AG (or through its subsidiary, Fornax Investments Ltd) and two merchant banks, ABN Amro Bank NV and Credit Suisse First Boston, hold a blocking stake. The companies came to acquire a blocking stake in the following circumstances. Prior to 4 April 2005 Glencore and its subsidiary (collectively "Glencore") had acquired 4.56 per cent of Austral Coal's share capital. Then on 4 April 2005 Glencore entered into an agreement with each bank, an agreement which is colloquially referred to as "a cash settled equity swap arrangement", in relation to shares in Austral Coal. To cover its potential exposure under the agreement, each bank purchased shares in Austral Coal: ABN Amro acquired 2.46 per cent and CSFB 4.03 per cent of the issued capital. An announcement disclosing those facts was made later on 4 April 2005. 2 The Takeovers Panel is considering (to use a neutral term) whether the failure by Glencore during the period of the takeover bid to declare that it had entered into the swap arrangements constitutes "unacceptable circumstances" under s 657A of the Corporations Act 2001 (Cth). It has indicated that it may wish to make a declaration to that effect. The period within which such a declaration can be made, on any view, had passed. On the application of the Panel I extended the time for making the declaration. What follows are my reasons for that order. 3 On 3 June 2005 Centennial made an application under s 657C that there be a declaration of unacceptable circumstances under s 657A. Pursuant to s 657B the Panel could only make such a declaration within: (a) three months after the circumstances had occurred (that is, 4 July 2005); or (b) one month after the application under s 657C was made (namely 3 July 2005), whichever ends last. The section provides that the court may extend the period on application by the Panel. 4 On 28 June 2005 (within time) the Panel made a declaration of unacceptable circumstances, being the failure by Glencore to disclose the combined holdings of itself, Fornax and the two banks exceeded 5 per cent of the capital of Austral Coal. In addition the Panel made remedial and other orders under s 657D(2). 5 Section 657EA provides for a review of a decision of the Panel made on an application under s 657C. The review is to be undertaken by the Panel itself. Section 657EA does not prescribe what constitutes a review. There are two possibilities. One is that the Panel is to determine whether its original decision was the correct or preferable one. According to McHugh JA in Strange-Muir v Corrective Services Commission of New South Wales [1986] 5 NSWLR 234, 250 there is a presumptive rule that "in an administrative appeal to an administrative body the issue is whether the decision was correct when it was made." The other possibility is that the review is a hearing de novo in which the Panel must satisfy itself whether a declaration under s 657A or order under s 657D(2) should be made: see eg Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577, 589, 599. 6 On 30 June 1995 Glencore applied for review of the Panel's original decision. Both the Panel and the parties seem to have assumed that the review was to be de novo. At least the review proceeded that way and it has not been suggested that by proceeding that way the Panel fell into error. Both the Panel and the parties appear also to have assumed that if the circumstances under investigation were unacceptable in the requisite sense it was necessary for the Panel to make a fresh declaration to that effect. Although this assumption has not been questioned, it is clearly incorrect. 7 At any rate, on 20 July 2005 the Panel made a second declaration of unacceptable circumstances which was in terms different from the original declaration. It did not, however, set aside the original declaration. (As to the power to set aside the original declaration see s 657EA(4)(b).) In addition, the Panel made new remedial orders under s 657D(2). These were said to be in variation of the original orders; the power to vary is conferred by s 657EA(4)(a). Regarding the second declaration, perhaps the view was taken that it was simply a variation of the original declaration. If it were not to be so regarded, it is likely that the power to make a declaration was spent. In any event, the two declarations could not stand together. 8 Whatever be the problem with the action taken by the Panel, it was short-lived. By order of the Federal Court made on 14 September 2005 the Panel's second declaration together with the substituted orders made under s 657D(2) were quashed. The reason the declaration and orders were quashed was that the judge (Emmett J) found that the Panel had not made findings that were a necessary "precondition of the making of a declaration". Accordingly, the judge ordered that "[t]he matter, consisting of the application by [Glencore] for review under s 657EA of the Corporations Act 2001 (Cth) be remitted to [the Panel] for determination according to law." 9 Now, if on the further hearing of the review (the hearing that is presently underway) the Panel decides that a new declaration (as opposed to a variation of the original declaration) should be made, the question that arises is whether the time for making that declaration has passed. Here there are three possibilities. The first is that the Panel had until 4 July 2005 to make the declaration. This possibility rests on the proposition that, subject to any extension by the court, s 657B defines for all purposes the period within which the Panel can make a declaration under s 657A. By this I mean that s 657B sets the time limit within which a declaration must be made, whether on an application under s 657C or on an application for review under s 657EA(1). This is the view contended for by Glencore. In a persuasive argument, Ms Gordon SC submitted that this must be the correct view for it gives precise effect to the language of s 657B. She pointed out that the section provides that "[t]he Panel can only make a declaration under s 657A" (her emphasis) within the prescribed periods and draws no distinction between a declaration made pursuant to an original application or an application for review. Not only was this argument persuasive, it had the advantage of applying the so-called "literal rule" of statutory interpretation (J Willis, "Statute Interpretation in a Nutshell" (1938) 16 Canadian Bar Review 1, 10-12), which, for the most part, has been supplanted by the "purposive rule". 10 The second possibility, which is one of the positions taken by the Panel, is that it had one month from the application for review within which to make a new declaration. This position is based on the concluding sentence of s 657EA which provides that: "In conducting the review, the Panel has the same power to make a declaration under section 657A … as it has when it is considering an application under section 657C." Here the argument is that when the Panel exercises "the same power" to make a declaration as on the original application, that power is to make a declaration within the prescribed time. Put another way, the reference to "the same power to make a declaration" is a reference to the ability to make a declaration under s 657A within the period mentioned in s 657B, subject always to the court's power to extend time. This construction necessarily picks up s 657B in a modified form so that it can operate in relation to an application for review. If s 657B is picked up in this fashion, modifying its language to suit the circumstances would not present any difficulty: see eg R v Whitehead [1982] QB 1272, 1282. 11 The third possibility, which is the other position taken by the Panel, is that it had one month from the time of the remitter from the Federal Court to make a new declaration. I cannot see in the legislation any basis for this approach. 12 Strictly speaking, there is a fourth and, perhaps, a fifth possible construction, namely that there is no time constraint within which a declaration may be made on a review or, alternatively, that the only restriction is that the declaration must be made within a reasonable time. (For an example of the latter kind see The Hospital Benefit Fund of Western Australia Inc v Minister for Health, Housing and Community Services (1992) 39 FCR 225.) But these constructions are, in the one case, too open-ended and, in the other, too uncertain in the context of a takeover to be accepted as representing Parliament's will. 13 For reasons that will immediately become apparent it is not necessary for me to resolve this difficult construction question. For what it is worth, however, I tend toward the first construction for the following reasons. In most cases a review will follow the making of a declaration. The principal task for the Panel usually will be to consider whether the original declaration should have been made. If the Panel is of opinion that the declaration was appropriately made that will be the end of that matter. It need only dismiss the application for review on this aspect. If the Panel is dissatisfied with the terms of the original declaration it has the power to vary the declaration (s 657EA(4)(a)) and that power is not subject to any time constraint. The Panel may also be asked to consider whether any orders under s 657D(2) remain to be varied. Here again, there is no time constraint on that exercise. In circumstances where there is little likelihood that a new declaration will be necessary, a strict application of the statute will cause no difficulty. 14 I appreciate there will be cases where the application for review will be in respect of a decision not to make a declaration. Such an application can only be made with the consent of the President of the Panel: s 657EA(2). In that circumstance, it may be impossible to complete the review and make a declaration within the period fixed by s 657B. Then the remedy will be to obtain an extension of time from the court. 15 As events turned out, by a combination of circumstances, the Panel could not conclude the review within the month it thought was available to make a new declaration. In the first place, almost two weeks were lost while the Panel considered whether it should be reconstituted by different members. This was an issue raised by the Panel itself. It wrote to the parties seeking submissions. The matter was taken up by Glencore, who argued for new members. It is difficult to understand why the Panel raised the issue. If there were any possibility of an appearance of partiality were the original Panel members to conduct the review that should have been raised before Emmett J when he remitted the matter to the Panel. Because it was not raised it could hardly be the subject of later complaint. However that may be, the upshot was that the Panel was reconstituted. Then another ten days were lost while the Panel waited for submissions from the parties. In the result, if a new declaration were needed, by the time submissions were received the Panel had (according to its timeframe) only four days within which to complete its review. This was insufficient time to give proper consideration to a complex matter. 16 As will by now be apparent, the Panel seems to be seeking an extension of time on the mistaken assumption that if at the conclusion of the review it decides that there should be a declaration of unacceptable circumstances it is required to make a new declaration to that effect. 17 The true position is this. If the Panel is satisfied that the first declaration was appropriately made, then, as I have said, that declaration can be confirmed by the dismissal of the application for review on that aspect. Alternatively, if the Panel believes that the original declaration requires variation the Panel can make the appropriate changes under its power to vary the decision under review (s 657EA(4)(a)). I repeat, there is no time constraint on the exercise of that power. It is only if the Panel is of opinion that the original declaration should be replaced by a declaration which is so radically different from the original that the power to vary cannot be used that an extension will be required. 18 Be that as it may, the application was opposed by Glencore. There were two grounds of opposition. The first was that there could be no extension of time once the prescribed time had elapsed. The second was based on discretionary factors. 19 I reject the first contention. Section 70 of the Corporations Act provides that where the Act "confers power to extend the period for doing an act, an application for the exercise of the power may be made, and the power may be exercised, even if the period, or the period as last extended, as the case requires, has ended." This section has effect "except so far as the contrary intention appears": see s 6(1). In my view there is nothing in s 657B, or in the Part in which this provision appears, that evinces an intention to exclude the operation of s 70. It is true that s 657B states that the Panel "can only" make a declaration within the period which is there set out. But that period is capable of extension as s 657B itself provides. Moreover, there is no good reason to limit the time within which an application for an extension should be sought. 20 This conclusion is not in conflict with David Grant & Co Pty Limited (Receiver Appointed) v Westpac Banking Corporation (1995) 184 CLR 265. That case dealt with an application to set aside a statutory demand which could "only be made within 21 days after the demand is … served". There was no power to extend the time. The question arose whether s 1322(4) of the Corporations Law permitted a late application. That provision conferred upon the court the authority to declare proceedings instituted under the Corporations Law not invalid by reason of the contravention of an express provision. It was argued that this section validated an application to set aside a statutory demand made out of time. The High Court rejected this argument. It held that s 1322(4) could not override an express restriction established by the Corporations Law. In the instant case, by way of contrast, there is not a fixed period within which a declaration must be made. It is a period that is capable of being extended. The only question that arises is whether the extension can be granted after the period has ended. Section 70 says it can. And, as I have said, there is no reason to deny to s 657B the temporal operation of s 70. 21 I now come to the exercise of my discretion. Here Glencore makes two broad points. First, it says that the Panel has not shown good reason for the extension. To the contrary, it is said that the Panel's conduct militates against an extension. Its second point is that Glencore will be unduly prejudiced if the extension be granted. 22 As to the first point, I accept that this is a borderline case. In no small measure significant time was lost when the Panel unnecessarily raised the matter of its composition. On the other hand, Glencore went along with this by insisting that there be a change to the composition. If Glencore desired expedition it could simply have told the Panel to get on with it. While this caused a two week delay, once the composition of the Panel was sorted out, the matter proceeded with due expedition. 23 What also persuades me to overlook the Panel's delay are these factors. For one thing, there is the public interest in having the application determined on its merits. Then, I think (as should by now be obvious) the present application is much ado about nothing. The Panel seems to have forgotten that it has the ability to allow the original declaration to stand or, if it be necessary, at any time vary that declaration. 24 On the second point, I propose to put aside altogether the prejudice claimed by Glencore. I do not mean to suggest that it has not or will not suffer prejudice by reason of the Panel's delay. No doubt Glencore will incur some additional expenditure. But in the overall context the expenditure is insignificant. In any event, I propose to be guided by Mr Atanaskovic, Glencore's solicitor. Mr Atanaskovic knows as much as anyone about the takeover provisions. He certainly knows more than anyone about his client's position. As to prejudice, Mr Atanaskovic told the Panel in a letter dated 16 September 2005 that "many months have passed since the relevant conduct occurred and there is no pressing urgency in terms of market requirements for this matter to be dealt with on an expedited basis, particularly in light of the difficulty of the matter". 25 Finally, I must deal with the costs. I do not think, as Glencore would have it, that this is an application for an indulgence requiring the Panel to pay the costs. The application was made necessary (if it were necessary at all) by the exigencies. This does not mean that the ordinary rule should apply. There was probably no need for the Panel to obtain the power to make a new declaration of unacceptable circumstances. So I view this application as one made out of an abundance of caution. I also view Glencore's opposition in much the same light. For these reasons, it is appropriate that the costs lie where they fall. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.