Berne No132 Pty Ltd & South Zeal Pty Ltd, Re [1990] QSC 20

13060 IN THE SUPREME COURT OF QUEENSLAND O.S. No. 196 of 1990 Before Mr. Justice Byrne IN THE MATTER of the Rules of the Supreme Court - and - IN THE MATTER of an application by BERNE NO. 132 PTY. LIMITED and SOUTH ZEAL PTY. LIMITED JUDGMENT - BYRNE J. Delivered the 21st day of February, 1990. (Revised) CATCHWORDS: Companies takeovers declarations refused where of no practical value in view of S. 11 (5) of the Code. Counsel: Solicitors: Mr. C.E.K. Hampson Q.C. and Miss R. Dalton for applicants Mr. P. J. Lyons Q. C. and Mr. B. J. Clarke forrespondent Ariadne Australia Limited Mr. G.A. Thompson for respondent Grylis Pty. Ltd. Thynne and Macartney for applicants Morris, Fletcher and Cross for respondent Ariadne Australia Limited Cannan and Peterson for respondent Grylis Pty. Ltd. Chambers McNab, Tully and Wilson for respondentsMagenta Holdings Limited and Ampersand International Limited -- 1 of 11 -- Hearing dates: 19th, 20th and 21st February, 1990 IN THE SUPREME COURT OF QUEENSLAND O.S. No. 196 of 1990 IN THE MATTER of the Rules of the Supreme Court - and - IN THE MATTER of an application by BERNE NO. 132 PTY. LIMITED and SOUTH ZEAL PTY. LIMITED JUDGMENT - BYRNE J. Delivered the 21st day of February, 1990. (Revised) Berne No. 132 Pty. Limited ("Berne") and South Zeal Pty. Limited are shareholders in Ariadne Australia Limited ("Ariadne"). Berne has been a member since November, 1985. By originating summons issued on 15th February, made returnable the next day, those shareholders sought these orders: "1. Time be abridged as necessary to allow the hearing and determination of the application. 2. Upon its true construction, a certain share sale agreement dated 30th November, 1988 between Grylis Pty. Ltd., Magenta Holdings Limited and Ampersand International Limited is an acquisition of shares in Ariadne Limited by Grylis Pty. Ltd. in contravention of Section 11 of the Companies (Acquisition of Shares) (Queensland) Code; and a declaration that the Applicants have the right to apply to the Court pursuant to Section 45 of the Companies (Acquisition of Shares) (Queensland) Code for any or all of the Order therein contained. 3. Further or alternatively:- ( a) the resolution of Ariadne Limited in General Meeting on 30th March, 1989 is not an agreement by it, by resolution in General Meeting, to the purchase by Grylis Pty. Ltd. from Ampersand International Limited of 146,000,000 shares in -- 2 of 11 -- 2 Ariadne Limited pursuant to a share sale agreement dated 30th November, 1988 between Grylis Pty. Ltd. and Magenta Holdings Limited and Ampersand International Limited within the meaning of and for the purposes of sub-section 12(g) of the Companies (Acquisition of Shares) (Queensland) Code; (b) A declaration that the Applicants are entitled to apply to the Court pursuant to the Companies (Acquisition of Shares) (Queensland) Code for any or all of the Orders therein contained. 4. Such further or other determinations, declarations, orders or relief as may be just. 5. That the Respondents, Grylis Pty. Ltd., pay the costs of and incidental to the application to be taxed." Ariadne and Grylis were identified in the summons as respondents. Ampersand International Limited {"Ampersand") and Magenta Holdings Limited ("Magenta") were not. On Friday, 16th February, ,the application was adjourned by Williams J. It came before me on Monday when Grylis's Counsel, Mr. Thompson, objected that the application should be dismissed without consideration of the merits of the contention that the Grylis acquisition of the 146 million shares in Ariadne involved an unremedied,contravention of S. 11 of the Companies (Acquisition of Shares) (Queensland) Code ("the Code"). It is appropriate to mention aspects of the background to these proceedings. Grylis, Ampersand and Magenta are parties to a written agreement dated 30th November, 1988. The contract provides that "Magenta [and Ampersand hereby jointly and severally] agree to sell" to Grylis 1 46 million shares in Ariadne foF $85 million. A recital explains the unusual way in which the vendor of the parcel is identified. records: Recital B -- 3 of 11 -- 3 "Magenta and/or Ampersand has agreed to purchase/is the registered holder and the beneficial owner of 1 46 million shares in Ariadne comprising approximately19.679 per cent of the issued capital of Ariadne ... " According to Recital A, Grylis then was or was entitled to become the registered holder and beneficial owner of another 129,865,764 shares in Ariadne, "which shares comprise approximately 17.504% of the issued capital of Ariadne." By cl. 3.1, the agreement was expressed to be conditional upon Ariadne's shareholders approving the Grylis Acquisition in accordance with S. 12(g) of the Code. Cl. 3.2 stipulated: "This agreement shall be of no force or effect until the approval referred to in cl. 3.1 is obtained." A general meeting of Ariadne's shareholders was held in Brisbane on 30th March, 1989. The meeting resolved: "That for the purposes only of para. 12(g) of the Companies (Acquisition of Shares) (Queensland) Code the company agrees, to the purchase by Grylis Pty. Ltd. of 146,000,000 fully paid ordinary shares in the capital of the company from Magenta Holdings Limited pursuant to a share sale agreement dated 30 November 1988 between Grylis Pty. Ltd., Ampersand International Limited, and Magenta Holdings Limited." The contract provided that completion should take place two business days after the meeting at which S. 12(g) approval was given but that if approval was not given by 31st January, 1989, or by such later date as Grylis approved, Grylis was to become entitled to terminate the agreement. Mention has already been made of the 30th March resolution. Grylis claims to have approved that date. The sale was not completed. Grylis instituted proceedings in the Equity Division of the Supreme Court of New South Wales seeking specific performance of the agreement (subject to a presently irrelevant change in its -- 4 of 11 -- 4 completion date) . On 5th January, reasons for concluding that Grylis performance. His Honour required 1990 Waddell J. delivered was entitled to specific the bringing in of short minutes providing for settlement not later than 27th February, 1990. On 1 st February, 1990 the Supreme Court of New South Wales formally ordered that Ampersand specifically perform the share purchase agreement and that completion take place on 20th February, 1990. The summons reveals that the applicants' propositions are that: a. The share sale agreement contravened S. 11 of the Code: something which requires consideration of the impact of cl. 3. 2. b. On its proper construction, the resblution passed at the general meeting on 30th March, 1989 did not authorise the Grylis purchase. The deficiency alleged is that the resolution specifically identifies Magenta as the vendor although the agreement, to which reference is made in the resolution, contemplates that Ampersand might be the or a Vendor. Neither of the applicants was a party to the share sale agreement. For obvious reasons therefore {cf. Duncombe v. New York Properties Pty. Ltd. [1986] 1 Qd.R. 16, 20) they did not participate in the litigation which established Grylis's entitlement to speci£ic performance. This brings me to the course the application took. ,.The hearing began mid-morning on Monday. Mr. Thompson then informed me that it was proposed to argue procedural objections -- 5 of 11 -- 5 to the form of originating process selected by the applicants. At his request, the matter was adjourned to afford Grylis an opportunity to prepare its submissions. The hearing resumed in the afternoon. By this time, all parties were content that Mr. Thompson's objections should be decided before consideration of the substantive issues the applicants wished to agitate. Grylis' s decision in this respect was a choice it made to attempt to forestall arguments on the merits of the applicants' legal contentions. Obviously it involved a real risk that the crucial issue whether the Grylis acquisition infringed the Code might not be resolved until after the next day when completion of the Ampersand purchase was required by Waddell J' s order. Mr. Thompson explained that Grylis recognised that risk. He told me that Grylis -was intent on c_ompleting in any event, taking the view that S. 11 ( 5) of the Code meant that its purchase was not invalid by any contravention of S. 11 which may have occurred in the Ampersand transaction (cf. Re Rossfield Group Operations Pty. Limited [1981] Qd.R. 372, 379) and that it should complete in accordance with Waddell J's order. Plainly this stance was correct. S. 11 (5) provides: "An acquisition of shares is not invalid by reason of a contravention of this section." When the objections were propounded by Mr. Thompson, they concerned more than form. They were that: ( i) the applicants, not being parties to the share sale agreement, should not be accorded standing to challenge the acquisition. Reliance was placed on Tasker v. Small (1837) 40 E.R. 848. According to this -- 6 of 11 -- 6 submission, it was only by invoking S. 45 of the Code that a shareholder who was not a party to an agreement giving rise to an acquisition could challenge it on such grounds as the applicants advanced; (ii) the challenge to the S. 12(g) resolution infringed the rule in Foss v. Harbottle (1843) 2 Hare 461; and (iii) in view of S. 11 ( 5) of the Code, the declarations sought afforded no practical value: Young Declaratory Orders 2nd ed. (1984) p. 60-62. It was said that if the applicants succeeded in obtaining the declarations sought, the victory would be pointless because, without an order under S. 45 which affected the acquisition, no relevant adverse legal consequence attended it. These objections were argued into Monday evening. At the conclusion of argument, I reserved my decision on these "preliminary objections". I also ordered that Ampersand and Magenta be joined as respondents and served with the material relied on by the parties. The hearing resumed at 2.30 p.m. yesterday. Mr. Thompson then announced that Grylis had no further interest in the outcome and intended not to participate further. After Counsel for the applicants and Ariadne indicated that they intended to ask for orders against Grylis, Mr. Thompson and his solicitors were, at their request, granted leave to withdraw. Grylis' s conduct means that it is unnecessary to decide the fate of Mr. Thompson's preliminary objections. -- 7 of 11 -- 7 The applicants now ask for the declarations and costs. This requires consideration of the merits of the application. It may be said at once that Grylis did not deny the applicants' entitlement, as members of Ariadne, to apply to the Court pursuant to S. 45 of the Code for orders for which that section makes provision. The applicants' failure to secure in Grylis a contradictor of their claim of standing to seek relief under S. 45 is a substantial obstacle to obtaining a declaration of such an entitlement: Re McKenzie [1974] Qd.R. 171; Forster v. Jododex Australia Pty. Limited (1972) 127 C.L.R. 421, 437-8. However, Grylis has opposed the applicants' other contentions. Mention has already been made of Cl. 3.2 (seep. 3). The significance of such a provision in the takeover context has recently been considered in New South Wales (Baden Pacific Ltd. v. Port Reeve Pty. Ltd. (1989) 7 A.C.L.C. Australia (Magnacrete Ltd. v. Douglas-Hill 194) and in South (1989) 7 A.C.L.C. 1056). For two reasons, this issue is of no practi9al importance in these proceedings. In the first place, the applicants have deliberately refrained from seeking relief under S. 45: orders which might (for example, by divestiture or restraint) actually affect the Grylis Acquisition. As I have said, S. 11 (5) means that the acquisition is not invalidated by the contravention alleged. It would be pointless in these circumstances to declare for a contravention where that contravention has no practical significance, as it cannot have in the absence of a claim for S. 45 relief. To do so would be to cast a shadowy taint over a significant commercial transaction which might, had it proceeded to completion, have -- 8 of 11 -- 8 shifted the balance of power in this public company. Secondly, unless the objection to the S. 1 2 ( g) resolution is soundly based, again to declare for a S. 11 contravention in respect of the antecedent share sale agreement is of no utility. In support of the challenge to the 30th March resolution it was objected, among other things, that the resolution conveys the impression that the shares would only be transferred from Magenta. Some shareholders, it was said, might not have cast their vote for the resolution had they understood that Ampersand would or might be the transferor. However that may be, and it seems to me improbable ( particularly as a synopsis of the agreement was distributed to shareholders with the notice of meeting which revealed Ampersand's involvement see, for example pp. 8 and 16 of that document), the suggested deficiency in the language of the resolution is not, in my opinion, a sustainable objection. The resolution in terms identifies the written agreement for which the general meeting's confirmation was sought. It does so by clearly identifying Grylis as the purchaser. The words of the resolution therefore expose the obvious inference that the other parties to the agreement, Ampersand and Magenta, both of whom are named in the resolution, must have been prospective transferors. In short, the challenge to the S. 12(g) resolution fails. Then there is the matter of delay. The applicants are major shareholders in Ariadne. Berne must have known of the resolution since its adoption more than 10 months ago. Presumably they both were aware also of the New South Wales litigation and its outcome. Yet it was only six days ago that -- 9 of 11 -- 9 these proceedings were commenced. The intent of their institution was to impede Grylis's completion of the sale ip accordance with Waddell J' s order. The involvement of the National Companies and Securities Commission mentioned in the media release dated 16 January, 1990 is not, in my view, a sufficient answer to the apparent delay. The refusal of declarations because of the applicants' delay would not prejudice shareholders or any wider public interest. If, on analysis, contrary to my decision, the acquisition had involved a contravention of S. 11 which was not sufficiently remedied by the S. 12(g) resolution, proceedings might be brought after completion of the sale claiming the remedies for which S. 45 provides. Any shareholder would be a competent applicant. By s. 45: "Where a person has acquired shares in a company in contravention of S. 11, the court may, on the application of the Commission, the company, a member of the company or the person from whom the shares were acquired, make such order or orders as it thinks fit II It will be apparent that had Grylis chosen to argue the substance of the applicants' case instead of delaying consideration of the merits by its decision to argue preliminary objections, all the declarations sought by the originating summons would have been refused, as they now are, before today. -- 10 of 11 -- 1 0 Orders The summons is dismissed. In respect of the costs of the respondent Ariadne Australia Limited, I order that the applicants pay that respondent's taxed costs of and incidental to the proceedings up to and including the appearance before Williams J. I order that the respondent Grylis pay the taxed costs of the applicants limited to those incurred in the appearances on Monday 19th February. I order that the applicants pay the taxed costs of the respondents Magenta Holdings Limited and Ampersand International Limited. -- 11 of 11 --