PERRAM J:
1 On 9 June 2023 the ordinary shares in Tesserent Limited ('Tesserent') were trading on the Australian Stock Exchange ('ASX') at $0.049. On the next trading day Thales Australia Holdings Pty Ltd ('Thales') announced an offer to acquire all of the shares in Tesserent for $0.13 per share which is a 165.3% premium. The directors of Tesserent, some of whom hold shares and/or options in Tesserent, are unanimous in their view that the takeover is in the best interests of the shareholders.
2 The takeover is to proceed by way of scheme of arrangement. On 14 August 2023 I made various orders convening a meeting on Monday 18 September 2023 of the ordinary shareholders of Tesserent and on the same day a meeting of certain categories of option and warrant holders in Tesserent. The purpose of the first meeting is to consider a scheme of arrangement under which Thales proposes to acquire all of the issued shares in Tesserent. The purpose of the second meeting is to consider a scheme of arrangement under which all of the options and warrants on issue will be cancelled for cash consideration calculated using the Black-Scholes methodology.
3 The option scheme is conditional on the share scheme proceeding and being approved by the Court. However, the converse is not true and the share scheme is not conditional on the option scheme proceeding and being approved.
4 I made the orders convening the meetings because I was satisfied that the Court's power to make them under s 411(1) of the Corporations Act 2001 (Cth) was enlivened and because I considered it appropriate for the meetings to be convened so that the shareholders and option holders can consider Thales' proposal.
5 Tesserent prepared its evidence for its application for the orders in a manner consistent with the views expressed by Jackman J in Vita Group Ltd, in the matter of Vita Group Ltd [2023] FCA 400 ('Re Vita Group'). I asked Mr Thomas SC, who appeared for Tesserent on the application, to draw to my attention the extent to which preparation of the matter in that fashion had altered the evidence from that which it otherwise would have been. He very properly drew to my attention four matters: (a) whether the evidence required by r 3.2 of the Federal Court (Corporations) Rules 2000 (Cth) ('Corporations Rules'), which concerns the nomination of the chairperson and alternate chairperson for the meetings, needs to be given directly or can be given in the form of hearsay; (b) whether compliance with r 3.2(b)(ii) (which requires evidence about the chairperson and alternate chairperson's previous relationships or dealings with the body subject to the scheme or any other person interested in the scheme) should be dispensed with; (c) whether there needs to be evidence of the means by which the explanatory statement and other materials are to be conveyed to the shareholders and option and warrant holders or whether the Court's consideration of the proposed orders will suffice; and (d) whether a notice concerning the Court's approval hearing is to be published in a newspaper or whether an announcement to the ASX is sufficient.
6 For the purposes of augmenting certainty rather than diminishing it, I will confine my remarks to these four matters but I will begin by observing that Re Vita Group was concerned with a scheme of arrangement providing for the takeover of a relatively small listed company. I do not read Re Vita Group as a more general statement about schemes of arrangement outside the context of takeovers.
7 Turning then to the first of the four matters, this concerns his Honour's observations concerning a practice which has developed around r 3.2 Corporations Rules. That rule provides:
3.2 Nomination of chairperson for meeting
Before the hearing of an application under subsection 411(1), (1A) or (1B) of the Corporations Act, the plaintiff must file an affidavit stating:
(a) the names of the persons who have been nominated to be the chairperson and alternate chairperson of the meeting; and
(b) that each person nominated:
(i) is willing to act as chairperson; and
(ii) has had no previous relationship or dealing with the body, or any other person interested in the proposed compromise or arrangement, except as disclosed in the affidavit; and
(iii) has no interest or obligation that may give rise to a conflict of interest or duty if the person were to act as chairperson of the meeting, except as disclosed in the affidavit; and
(c) the name of the person (if any) proposed to be appointed to administer the proposed compromise or arrangement; and
(d) that the person does not fall within paragraphs 411(7)(a) to (f) of the Corporations Act, except as disclosed in the affidavit.
8 I respectfully agree with Jackman J's observation at [22] of Re Vita Group that this rule does not require direct evidence from the persons nominated of the matters the rule requires to be specified. Because the application is interlocutory the plaintiff is exempted from the operation of the hearsay rule by s 75 of the Evidence Act 1995 (Cth) and, like Jackman J, I can see no particular reason why the evidence of the matters in r 3.2 needs to be given directly.
9 The second matter concerns the requirement in r 3.2(b)(ii) that the chairperson and alternate chairperson's previous relationships or dealings with the body subject to the scheme or any other person interested in the scheme be disclosed. In relation to r 3.2(b)(ii) Jackman J took the view that it was appropriate to dispense with its operation because it was unnecessary and sometimes onerous. The dispensing power in r 1.3(1) is in these terms:
1.3 Application of these Rules and other rules of the Court
(1) Unless the Court otherwise orders:
(a) these Rules apply to a proceeding in the Court under the Corporations Act, or the ASIC Act, that is commenced on or after the commencement of these Rules; and
(b) Division 15A applies to a proceeding in the Court under the Cross-Border Insolvency Act.
10 I respectfully understand his Honour to have been referring to compliance with r 3.2(b)(ii) being unnecessary in the case before him. For myself, I would not read his Honour as saying that r 3.2(b)(ii) is in every case unnecessary and hence will in all cases be dispensed with. It may be that the rule is unnecessary in light of r 3.2(b)(iii) in the sense that previous relationships or dealings may only be relevant to the extent they give rise to a potential conflict of interest and disclosure of any such conflict is already required. On the other hand, perhaps the purpose of the rule is to permit others to form a view on the question of whether there is a conflict; that is to say, the evidence in r 3.2(b)(ii) might show that an opinion honestly given under r 3.2(b)(iii) that there is no conflict is wrong. Thus, I would hesitate to say that r 3.2(b)(ii) is in every case unnecessary. If r 3.2(b)(ii) is to be repealed by the co-ordinated actions of the rules committees of each of the Courts which apply the harmonised Corporations Rules then this is, in my view, a matter within the bailiwick of the Harmonisation Committee convened under the authority of the Council of Chief Justices. In any event, I do not think that this is what his Honour was saying.
11 I also respectfully agree that in some cases the application of r 3.2(b)(ii) may be onerous. Where there is evidence that it would be onerous to gather the evidence called for by r 3.2(b)(ii) I would also agree that it may be appropriate to exercise the dispensing power in r 1.3(1) to relieve a plaintiff of that unnecessary burden. However, in the absence of evidence as to its onerous nature, I do not think that it would be appropriate to proceed on the basis that the rule's onerous nature may be assumed. As [16] of Re Vita Group shows, his Honour was especially influenced by the relatively small nature of the scheme company concerned and, in that regard, I can well imagine that his Honour took the view that r 3.2(b)(ii) was, in the case before him, onerous in its application.
12 In the present case, there was no evidence that compliance with r 3.2(b)(ii) was onerous and hence this was not a basis upon which I could dispense with its operation. Since it was evident that the Plaintiff had legitimately been influenced by what had been said in Re Vita Group I nevertheless made the dispensing order. However, if the two schemes proceed and the Court's approval for them is sought then I would expect that at the approval hearing there would be evidence complying with r 3.2(b)(ii) or evidence as to why it would be onerous to comply with that rule.
13 The third matter concerns his Honour's departure from the recent practice of requiring evidence about the plan for the dispatch of the explanatory statement and other materials once they were approved at the first court hearing. In his Honour's view, at [36], evidence of this kind was otiose because the orders made at the first hearing were self-explanatory. There is, with respect, force in this proposition so long as the orders are self-explanatory. In this case, as in Re Vita Group, the orders were self-explanatory and I was satisfied from them that the manner in which the explanatory statement and other materials were to be conveyed to the members was adequate. In a case in which the orders were not self-explanatory a court would need to be satisfied by some other means.
14 The fourth matter concerns r 3.4 which provides:
3.4 Notice of hearing (Corporations Act s 411(4), s 413(1)) - Form 6
(1) This rule applies to:
(a) an application, under subsection 411(4) of the Corporations Act, for an order approving a proposed compromise or arrangement in relation to a Part 5.1 body; and
(b) an application, under subsection 413(1) of the Corporations Act, for an order in relation to the reconstruction of a Part 5.1 body, or Part 5.1 bodies, or the amalgamation of 2 or more Part 5.1 bodies.
(2) Unless the Court otherwise orders, the plaintiff must publish a notice of the hearing of the application:
(a) for an application in relation to one Part 5.1 body - in a daily newspaper circulating generally in the State or Territory where the Part 5.1 body has its principal, or last known, place of business; or
(b) for an application in relation to 2 or more Part 5.1 bodies - in a daily newspaper circulating generally in each State or Territory where any of the Part 5.1 bodies has its principal, or last known, place of business.
(3) The notice must be:
(a) in accordance with Form 6; and
(b) published at least 5 days before the date fixed for the hearing of the application.
15 In Re Vita Group Jackman J concluded at [23] that r 3.4 did not in terms require publication of the relevant notice in a newspaper although his Honour noted that there was a practice of publishing such a notice in a newspaper which is circulated throughout Australia. His Honour thought that in the case of a takeover of a listed company the information contained in Form 6 would be more usefully conveyed by means of an announcement made via the ASX.
16 I respectfully differ from this for two reasons. First, so far as I can see r 3.4(2) does require publication of the relevant notice in a newspaper although only in one circulating in the State or Territory in which the company has its principal place of business. Thus whilst I would accept that publication in a national newspaper appears only to be a matter of practice, the requirement of publication in a newspaper is not. On the other hand, it is also true that r 3.4(2) contemplates its own dispensation. Indeed, in Re Vita Group the orders made included an order dispensing with r 3.4 and Form 6 so that there is, at least to my mind, perhaps a tension between his Honour's observation that the practice of publishing the relevant notice in a newspaper was not required by r 3.4 and his Honour's subsequent order dispensing with that rule.
17 Secondly, whether the requirement that the relevant notice be published in a newspaper should be dispensed with and replaced with an announcement in similar terms on the ASX turns on the extent to which one thinks that ASX announcements make their way to the members of listed entities. Not everyone elects to receive company information by email and some people occasionally change address without remembering to update their information. Even amongst those who do elect to receive information via email there may be some who change email address without updating their records accordingly. These problems are likely to be more acute amongst older shareholders many of whom can be found on the share registers of blue chip companies and many of whom do in fact read actual newspapers. I therefore agree with Jackman J's view that the notice in accordance with Form 6 should be published by means of an ASX announcement which is a welcome innovation but I respectfully differ from his Honour's conclusion that the publication of the notice in a newspaper should at this stage be altogether consigned to history. Further, whilst the rule requires the notice to be placed in a newspaper circulating in the State or Territory where the company has its principal place of business, I think there is much to be said for the view that it should be published in a newspaper circulating nationally.
18 That question seems to me to raise a significant question of policy about the operation of r 3.4 in an age in which the nature of shareholder communications is to a degree in flux. In my view, such a question of policy is more appropriately addressed through the auspices of the Harmonisation Committee which can consider whether r 3.4 should be varied. In the present case, because Re Vita Group understandably caused the Plaintiff to prepare its evidence in a particular way I made the order dispensing with r 3.4 at the hearing. However, I think it would be wise in the present case if the Plaintiff nevertheless published a newspaper advertisement in a national newspaper prior to any application for approval of the schemes.
19 Schemes of arrangement give rise to particular challenges so far as the orderly conduct of judicial business is concerned. Applications to convene scheme meetings are generally made ex parte and even approval hearings can often be unopposed. The area thus presents as one in which appellate review is rare. Different judges in different courts can develop particular views about what needs to be proved on an application. The profession responds by ensuring that the next application meets all of the requirements which have been pronounced up until that point. This results in an outcome not unlike university reading lists in days of yore where lecturers each year added to the list but no item was ever removed. The absence of substantive appellate scrutiny aggravates this process and procedural barnacles accrete.
20 On the other hand, the Corporations Rules are harmonised so that each Court's rules committee gives effect to the rules approved by the Harmonisation Committee on which each Court is represented. The process of changing the Corporations Rules requires any amendment to pass through each Court's rules committee and also the Harmonisation Committee. The Harmonisation Committee meets twice a year. Thus, the process of changing the Corporations Rules is inevitably slow.
21 These two matters can combine, indeed have combined, to give rise to the dissatisfaction expressed in some quarters and to which Jackman J referred in Re Vita Group. Such a sense of frustration may be, with respect, understandable and one can sympathise with a desire to knock one or two barnacles off the ship. Even so, certainty is also an important value in any judicial system. The profession has understandably reacted to Re Vita Group by proceeding on the basis that schemes of arrangement should now be prepared in accordance with what was said there. As I have indicated above, whilst I agree with much of what Jackman J said in that case and think that it is both useful and welcome that his Honour said it, there are some elements of it with which, respectfully, I do not agree. As will be apparent, these differences can hardly be described as earth shattering. They do nevertheless illustrate the difficulties in working in an area in which no one judge can control the approach taken by others and where there is in reality no circuit breaker of appellate review to resolve any differences which arise. In such an area, comity remains an important value. On the other hand, comity without appellate review leads to the accretion of practices which may over time become cumbersome. The solution to this conundrum is by no means obvious.
22 In my respectful opinion, one solution to the conundrum may be for the Harmonisation Committee to consider Re Vita Group and, if it be thought necessary, to amend the Corporations Rules or promulgate a harmonised practice note. It may even be that schemes of arrangement involving takeovers of listed entities warrant their own specific rules. In the meantime, the approach I propose to take is that the Corporations Rules apply including the dispensation rule. As will be apparent, I do not think that the newspaper advertisement rule should generally be dispensed with in the absence of a rule change and whilst I am open to dispensing with the requirements of r 3.2(b)(ii) where its application would be onerous, I would not propose to do so without some evidence that it was in fact onerous.
I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Perram.