Re National Companies and Securities Commission v David Roy Aspinall; Ian Robert Maxwell and the Bell Group Limited [1990] FCA 149 (10 May 1990)

FEDERAL COURT OF AUSTRALIA

Re: NATIONAL COMPANIES and SECURITIES COMMISSION
And: DAVID ROY ASPINALL; IAN ROBERT MAXWELL and THE BELL GROUP LIMITED
No. VG130 of 1990
FED No. 288
Company Law

COURT

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Lee J.(1)

CATCHWORDS

Company Law - Companies (Acquisition of Shares) (Western Australia) Code - acquisition of substantial shareholding in public company - disposal of share parcel to third party - application for interim orders restraining third party from further disposition of share parcel pending hearing of application for vesting of share parcel in applicant - whether unfair prejudice caused to third party by interim order - discretion in Court - power of the Court to make orders restraining third parties - balance of convenience - matters of public interest.

Companies (Acquisition of Shares) (Western Australia) Code, ss.11, 45 and 60, sub-s.49(1), para.49(2)(a)

Companies (Western Australia) Code, ss.137 and 138

Adsteam Building Industries Pty. Limited v. The Queensland Cement and Lime Company Limited (1985) 1 Qd R 127

Gjergja v. Cooper (1987) 10 ACLR 577

HEARING

PERTH
10:5:1990

Counsel for the Applicant: Mr G. Cantwell and Ms L. Hudson

Solicitor for the Applicant: J.G. Lightowlers

Counsel for the First Respondent: Mr S. Harrison

Solicitors for the First Respondent: Sly and Weigall

Counsel for the Second Respondent: Mr T. Bathurst, Q.C. and Mr R. Ainslie

Solicitors for the Second Respondent: Mallesons Stephen Jaques

Counsel for the Third Respondent: Mr M. Bennett

Solicitors for the Third Respondent: Bennett and Co.

ORDER

On the applicant's application for interim orders:

1. Until further order there be an order that the second
respondent be restrained from disposing of the parcel of
shares.
2. There be liberty to the second respondent to apply to
vary the order on 48 hours' notice.
3. The costs be reserved.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

This matter is urgent and it is necessary that I endeavour to set out my reasons now so that the parties understand what I propose to do and why.

2. The first thing I note is that there has been no challenge to jurisdiction of the Court to make orders in this matter. The applicant relies upon the cross-vesting legislation. I am aware that there are arguments that raise questions as to the foundation for that jurisdiction but no party has sought to raise any of those questions here and no argument has been addressed to the point. The fact remains that legislation is in place and that the Court can proceed to act upon it.

3. The relevant facts, in short, appear to me to be as follows.

4. On Friday, 27 April of this year, the first respondent, Aspinall, whilst Managing Director of the third respondent, acquired a parcel of shares comprising approximately 16 per cent of the voting rights of the third respondent. At that time the holding company of the third respondent, Bond Corporation Holdings Limited, held approximately 74 per cent of the voting entitlement in its subsidiary. The foregoing elements were sufficient to support the applicant's contentions that there was a serious question to be tried as to whether there had been a breach of s.11 of the Companies (Acquisition of Shares) (Western Australia) Code ("the Shares Acquisition Code").

5. The relevant facts occurred in circumstances that were somewhat unusual. A substantial holding in the third respondent was placed on the market by an apparently anxious vendor. According to the material before the Court, the offers made for the purchase of the shares in that parcel may have indicated that the placing of the parcel on the market caused the market to undergo a substantial fall. The third respondent was then asked by the Australian Stock Exchange ("the Stock Exchange") to explain the reason for the fall.

6. Upon the matter coming to the notice of the first respondent he made an offer for the shares at the reduced market price and in due course the offer was accepted. That transaction was effected in the early afternoon of Friday, 27 April 1990. On the material before the Court, it is suggested that the first respondent made the purchase to prevent a strategic shareholding, as it was described, being acquired by certain undisclosed persons. The acquisition was made after tentative legal advice had been received but before that advice had been confirmed. After the acquisition the first respondent received advice to the effect that there had been a breach of s.11 of the Shares Acquisition Code and the first respondent sought to on-sell the parcel he had acquired. The circumstances indicate that he sought a buyer in an off-market sale and, in particular, sought out the second respondent. On Sunday, 29 April 1990 the first respondent agreed with the second respondent to sell the latter shares comprising approximately 14.9 per cent of the voting rights of the third respondent. The third respondent agreed to sell the major part of the parcel he had acquired and to do so at cost with no profit to himself.

7. It is a requirement under the Companies (Western Australia) Code that any acquisition of substantial shareholding or change of interest by a substantial shareholder be advised to the company in which the shareholding is held, and to the Stock Exchange, within two business days of the transaction, or events, which either led to the acquisition of the shareholding or changed the relevant interests.

8. On Tuesday, 1 May 1990, the third respondent and the Stock Exchange received notices under the Companies Code from the first respondent pursuant to s.137 of the Code and from Bond Corporation Holdings Limited pursuant to s.138 of the Code setting out, firstly, in respect of the first respondent the acquisition of the shareholding and in respect of the Bond Corporation Holdings Limited notice the change of its interest from 74 per cent to 91 per cent, or thereabouts, of the voting entitlement in the third respondent's shares. The notice given by the first respondent was dated 30 April 1990, the day after the transaction with the second respondent.

9. Although it may be the case, it does not appear, at least on the material before the Court, that any notice was lodged by the first respondent under s.138 of the Companies Code by 1 May 1990 in respect of the on-sale of his interest on 29 April 1990 nor did the second respondent lodge such a notification of interest with the Stock Exchange under s.138 until 2 May 1990. Whether such a notice was lodged with the company before that is unknown.

10. On 1 May 1990 the first and second respondents severally instructed solicitors to prepare a written record of the terms of the oral agreement made on Sunday, 29 April 1990. On 2 May 1990 the applicant applied in the Melbourne Registry of this Court for an injunction restraining the first respondent from disposing of the shares that he had acquired. The order was granted but the injunction was obtained after the transaction between the first and second respondents had been completed by settlement of the payment for the shares some minutes beforehand. The written record of agreement stated that settlement was to be carried out in Perth on 2 May 1990. Settlement was completed at about 3 p.m. Perth time on 2 May 1990.

11. In the principal application the applicant seeks an order vesting the shares in it pursuant to the powers granted to the Court by s.45 of the Shares Acquisition Code. The question to be decided now is whether any interim order should be made under para.49(2)(a) of the Shares Acquisition Code pending the determination of that application or for some lesser period. The applicant says that the alleged contravention of the Shares Acquisition Code may have so distorted the market for shares in the third respondent that the Court may determine it appropriate to exercise its discretion under s.45 and grant the vesting order sought having regard to the principles served by the Shares Acquisition Code, namely that it is desirable to ensure that the acquisition of shares in companies takes place in an efficient, competitive and informed market.

12. It may be accepted that there would be no point in considering an interim order if it were patent that unfair prejudice could be caused to third parties by any eventual order under s.45 of the Shares Acquisition Code. Sub-section 49(1) of the Shares Acquisition Code requires the Court not to make an order if it is satisfied that there will be such unfair prejudice to any party.

13. But otherwise, as discussed in the judgment of McGarvie J., in Gjergja v. Cooper (1987) 10 ACLR 577 at pp 581 and 583 the Court has a wide discretion to exercise as to whether an order should be made. It follows, of course, that there would be an even wider discretion in relation to an interim order which takes into account broader and less definite considerations.

14. In the present matter there is no present apprehension that an interim order would cause such a degree of prejudice as would disentitle the applicant to that form of order. Nor is it evident that such prejudice would be inevitable if it were ever the case that the Court were persuaded to make an order upon the principal application.

15. The real argument that has been raised on the application for an interim order is whether the Court has power to make an order under s.45 in respect of any third party and, in particular, the second respondent.

16. In the case of Adsteam Building Industries Pty. Limited v. The Queensland Cement and Lime Company Limited (1985) 1 QdR 127, McPherson J. was faced with an application for relief in similar terms restraining a third party from disposing of shares it had acquired from a party in breach of that State's Shares Acquisition Code. The parties to that application appeared to concede, by not pursuing the application, that the settlement of the sale of the shares by the party alleged to be in breach of the provisions of the Shares Acquisition Code rendered the provisions of s.45 unavailable in respect of the interests acquired by the third party.

17. However, that proposition was not made the subject of argument. It was simply not pursued and it was not a matter upon which his Honour had to make any determination. The question is fundamental. If it were clear that the construction of s.45 of the Code is that it has no application to third parties, such as the second respondent - so clear that it is beyond argument - then there could be no ground for any interim order.

18. It might be noted that in Adsteam the present applicant was represented as an intervenor in that application. However, that was a different status from that which the applicant now enjoys in this application and, of course, the fact that the applicant did not seek to make any submissions on that point in that case does not debar it from raising the point of construction now.

19. It is, of course, unnecessary for me to determine that question now. For my part I do not find it a question capable of ready answer. It is certainly arguable that the proper construction is as the second respondent contends. But it is not beyond dispute and in truth there is a real argument of construction to be decided.

20. Matters that would bear upon that construction would be the fact that having regard to the purpose of the legislation it would be strange indeed if the provisions were not intended to extend to third parties at least in circumstances where there has been, say, a conscious breach of the Act with an ulterior motive and with a pre-ordained on-sale of the parcel acquired with the purpose of moving shareholding beyond the reach of s.45.

21. Another thing to bear in mind is that the Shares Acquisition Code treats a breach of s.11 as an offence. The penalties able to be imposed in respect of such a breach are not substantial which may indicate that the weight of the Shares Acquisition Code is intended to be applied through remedial provisions such as s.45.

22. If those provisions were intended to be limited to apply only to the party actually in default, it would be a very narrow and peculiar result. However, if that is the result, so be it. Another matter to take into account is the fact that under sub-s.49(1) any innocent third party would always be protected. Indeed, the provision is broader than that in that the interests of third parties - irrespective of innocence - are always protected by the removal of powers to make any orders where unfair prejudice would result.

23. However, that is a matter to be determined on the hearing of the issue. What I have indicated is that there is an arguable case as to the proper construction of s.45. Having concluded that there are serious issues to go to trial, the next matter is to determine whether it is appropriate to make any interim order at all and to have regard to where the balance of convenience lies.

24. It was suggested by the second respondent that s.60 of the Shares Acquisition Code provides another option for the applicant and that, therefore, the Court should not make any interim orders at this juncture if the applicant has not chosen to use the powers it has available to it under s.60. However, it is not clear that such powers may be exercised in this case. It would not be appropriate, as part of this application, for the Court to speculate on the likelihood of a declaration, or determination, made by the applicant under s.60 of the Shares Acquisition Code being maintained, or countermanded, by the Court.

25. In having regard to the matters of balance of convenience and the question whether an interim order should be made, the interests of the parties are to be taken into account but there is also the matter of public interest to be considered.

26. I note that there is no material before the Court suggesting any impending disposal of the share parcel held by the second respondent. It would certainly be the case that the practical result of a further sale of the parcel may well be a limitation upon the exercise of the remedial powers available to the Court if it held that it had the power to act.

27. Other matters that may be taken into account in considering whether to make an interim order include the fact that the second respondent, through its solicitors, had notice of the application for injunction which was eventually granted. It chose to conclude its bargain and to proceed to take the parcel in question as it was entitled to do. But it is a fact that it was done with notice of the applicant's contentions.

28. The second respondent was not a purchaser in the open market concluding a purchase that had been the result of a buying order placed beforehand. It was a party to an agreement made with some despatch in circumstances in which the perceived problems of the first respondent were to be alleviated and in which no profit was sought by the first respondent as vendor of a strategic parcel.

29. If a swift resolution of the application can be effected and the interests of the parties are not otherwise adversely affected pending that resolution, the proper balance in all the circumstances may lie in making an interim order to the effect that there be no further disposal of the parcel by the second respondent, with provision for the second respondent to make application to vary that order if circumstances change and address the Court as to why it should be so varied.

30. I consider that an interim order to preserve the status quo at this stage is appropriate. It may be that the order may have to be varied at a later date as events transpire, for example, if it is not possible to reach a swift determination of the application or if other circumstances arise that make it appropriate to discharge the order. Such circumstances may be duly considered when they arise.

31. But as matters stand today it is appropriate to make the form of order I have indicated. There will be an order in the terms that until further order, or until determination of the application, the second respondent be restrained from disposing of the shares it now holds in the third respondent acquired from the first respondent.