Inp Consortium Limited v Tourang Limited; D L Nicholl; K W Skinner and Ord Minnet Securities Limited [1993] FCA 40 (19 February 1993)

FEDERAL COURT OF AUSTRALIA

INP CONSORTIUM LIMITED v. TOURANG LIMITED; D. L. NICHOLL; K. W. SKINNER and
ORD MINNET SECURITIES LIMITED
No. G812 of 1991
FED No. 44
Number of pages - 5
Strike Out

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Lockhart J(1)

CATCHWORDS

Strike Out - No reasonable cause of action - O.11 r.16 - breach of contract - s. 52 Trade Practices Act - estoppel - evaluation and acceptance of offers to purchase newspapers which do not comply with Broadcasting Act 1942.

Trade Practices Act 1976: s. 52

Broadcasting Act 1942

HEARING

SYDNEY, 5 February 1993
19:2:1993

Counsel for the Applicant: F S McAlary QC and P Dowdy

Solicitors for the Applicant: Landerer and Co

Counsel for the Respondents: T F Bathurst QC

Solicitors for First Respondent: Freehill Hollingdale and Page

Solicitors for Second Respondent: Mallesons Stephen Jaques

Solicitors for Third Respondent: Clayton Utz

ORDER

THE COURT ORDERS THAT:
1. The motion of the second respondents, Mr D L Nicholl and Mr K W

Skinner, be dismissed.
2. The second respondents pay the costs of the applicant of the
motion.

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

DECISION

LOCKHART J The second respondents, Mr D L Nicholl and Mr K W Skinner, moved the Court to strike out paragraph 29F, and paragraphs 29H to 29Q inclusive of the second further amended statement of claim filed on 26 August 1992. The primary ground of the motion is that the paragraphs are said to disclose no reasonable cause of action against the second respondents. On the subsidiary ground, it is claimed that the paragraphs have a tendency to cause prejudice and embarrassment in the proceeding. The argument proceeded on the primary ground, and no additional arguments were put on the subsidiary ground. The motion is made pursuant to O.11 r. 16.

2. In the further amended statement of claim, which is apparently the fourth statement of claim filed by the applicant in this proceeding (I shall refer to it for convenience as the "statement of claim"), it is alleged that the second respondents are receivers to John Fairfax Group Pty Limited ("Fairfax"), appointed in 1990. It is alleged that Fairfax was the publisher of prominent newspapers in Sydney and Melbourne and that in December 1990 the second respondents as receivers of Fairfax made a general announcement that the company was to be sold and invited offers to purchase. The applicant (INP Consortium Limited) is a company formed specifically for the purpose of making a takeover offer. The first respondent, Tourang Limited ("Tourang"), also made an offer to purchase the shares in Fairfax. The third respondent is Ord Minnet Securities Limited ("Ord Minnet"), a company of stockbrokers which it is alleged at all material times was a wholly owned subsidiary of Westpac Banking Corporation Limited. Westpac holds television licences in Sydney and Melbourne. The relief sought by the applicant is damages against all respondents, including the receivers.

3. On 31 July 1992 a Judge of this Court (Foster J), on the application of the second respondents, made an order striking out paragraph 29 of the statement of claim in its then form and gave leave to the applicant to replead generally against the second respondents. Paragraph 29 still remains physically in the statement of claim in its earlier form, notwithstanding that it was ordered to be struck out by order of Foster J. It is obvious from what was said by counsel in this matter that its present retention is a mistake: it is to be treated as if it no longer exists.

4. It is necessary to set out the allegations in the statement of claim that are material for present purposes. They commence with paragraph 29A and conclude with paragraph 29Q.

5. The relevant paragraphs of the statement of claim are in the following terms:

"29A. The said senior debt lenders referred to
in paragraph 2 hereof as at the date of
the appointment of the Receivers were owed
approximately $1.2 billion.
29B. At all material times after their
appointment as Receivers their aim,
purpose and intent was to sell and
realise the assets of Fairfax for a
sum which would repay and discharge
the indebtedness of Fairfax to the
said senior debt lenders and other
creditors of Fairfax.
29C. Pursuant to and in accordance with
the said aim, purpose and intent the
Receivers in or about April 1991
invited prospective purchasers of
the assets of Fairfax to apply for
an Information Memorandum which
constituted an invitation to treat
in consideration of such prospective
purchasers executing and entering
into a Confidentiality Agreement.
29D. Further, at all material times it
was well known to the Receivers that
there were a number of interested
prospective purchasers of the assets
of Fairfax.
29E. Further, it was well known to the
Receivers at all material times that
any prospective purchasers of the
assets of Fairfax would need to
spend very large amounts of money in
investigating and evaluating the
business of Fairfax prior to making
any offer to buy.
29F. The applicant was at all material
times as was well known to the
Receivers a prospective purchaser of
the assets of Fairfax and executed
such a Confidentiality Agreement
(the terms and conditions of which
it craves leave to refer to as
though fully set forth herein) and
in consideration therefor received a
copy of the said Information
Memorandum (to the full terms and
effect of which the applicant will
refer as though fully set forth
herein) and by so providing the
Information Memorandum the Receivers
represented to the applicant that
they were interested in receiving
offers from the applicant and from
rival bidders which complied with
all relevant statutory and legal
requirements and in particular the
provisions of the Broadcasting Act 1942.
29G. By the Information Memorandum the
Receivers represented that Fairfax
was an extremely large and complex
firm having projected total revenues
of the very largest order and that
any serious prospective purchaser
would need to expend very large sums
in order to evaluate Fairfax and the
Receivers provided the Information
Memorandum for the purpose of
inducing prospective purchasers to
expend the very large sums necessary
to evaluate Fairfax.
29H. The said Confidentiality Agreement
was thereafter varied by the
extension contained in the letter
dated 18th September 1991 of the
Receivers' agent being Baring
Brothers Burrows and Co. Ltd. to the
applicant (to the terms of which the
applicant further craves leave to
refer as though fully set forth
herein) and by the said letter the
Receivers represented to the
applicant that all prospective
purchasers would be accorded
equitable treatment by the Receivers
in the consideration and evaluation
of their respective offers to
purchase and that only offers to
purchase which satisfactorily
complied with the relevant statutory
legal requirements and in particular
the provisions of the Broadcasting
Act 1942 would be considered by the
Receivers.
29I. In the premises it was a term of the
Confidentiality Agreement as
extended that all prospective
purchasers would be accorded
equitable treatment by the Receivers
in the consideration and evaluation
of their respective offers to
purchase and that all offers to
purchase must satisfactorily comply
with relevant statutory and legal
requirements and in particular the
provisions of the Broadcasting Act 1942.
29J. Further in the premises it was a
term of the Confidentiality
Agreement as extended that in the
event that the applicant made an
offer to purchase the assets of
Fairfax the Receivers if they
accepted any other offer for such
assets would not accept any offer
which did not comply with relevant
statutory and legal requirements and
in particular the provisions of the
Broadcasting Act 1942.
29K. Further, the applicant says that in
the premises it was a basic
assumption of the said transactions
between the applicant and the
Receivers that if they accepted any
other offer for such assets they
would not accept an offer which did
not comply with relevant statutory
and legal requirements and in
particular the provisions of the
Broadcasting Act 1942, which
assumption it would be
unconscionable for the Receivers to
deny and which they are estopped
from denying.
29L. The Receivers received three offers
for the assets of Fairfax inclusive
of the applicant's offer but by
reason of the matters pleaded in
paragraphs 6 to 25 hereof the
Tourang offer did not comply with
the Broadcasting Act 1942 and by
accepting the Tourang offer in
breach of the representations
referred to in paragraphs 29F, 29G
and 29H; the terms referred to in
paragraphs 29I and 29J, and the
basic assumption referred to in
paragraph 29K the Receivers have
caused loss and damage to the Applicant.
29M. Further, the Receivers in the
circumstances referred to in
paragraphs 1, 2, 3, 29A, 29B, 29C,
29D, 29E, 29F, 29G, 29H, 29I, 29J
and 29K by their conduct represented
that they would treat the
prospective purchasers equitably and
they would not accept any offer for
the purchase of the assets of
Fairfax which did not comply with
the relevant statutory and legal
requirements and in particular the
provisions of the Broadcasting Act 1942.
29N. In reliance upon the representations
referred to in paragraphs 29F, 29G,
29H, and 29M the applicant proceeded
to make an offer to purchase the
assets of Fairfax and spent large
amounts of money in investigating
and evaluating the business of
Fairfax and in formulating its offer
to purchase.
29O. The Receivers received the said
three offers to purchase the Fairfax
assets inclusive of the applicant's
offer and accepted the Tourang offer
which by reason of the said matters
pleaded in paragraphs 6 to 25 hereof
did not comply with the Broadcasting
Act and which non-compliance the
Receivers either were aware of or
ought to have been aware of before
their final acceptance or
alternatively final completion of
the said Tourang offer and by
accepting the Tourang bid the
Receivers did not treat all
prospective purchasers equitably for
the reason that the Tourang bid did
not comply with the Broadcasting Act 1942.
29P. Further, the Receivers having made
the representations referred to in
paragraphs 29L and 29M had it well
within their power and capacity to
make good and comply with such
representation but were recklessly
indifferent to the fact that they
had made the representations
referred to in paragraph 29L and to
the fact that the applicant had
spent millions of dollars preparing
its offer, in accepting the Tourang
bid in breach thereof.
29Q. In the premises in the making of the
said representations and thereafter
accepting the Tourang offer the
Receivers:-
(i) engaged in misleading and deceptive
conduct by them and each of them;
(ii) engaged in conduct for and on behalf
of the company to which they had
been appointed Receivers by which
conduct they aided and abetted,
counselled and procured and were
knowingly involved in misleading and
deceptive conduct of the said company;
(iii) engaged in conduct for and on behalf of
the corporations which had appointed them
to be Receivers by which conduct they
aided and abetted, counselled and procured
and were knowingly involved in the
misleading and deceptive conduct of the
said corporations."

6. It will be seen from a perusal of those paragraphs of the statement of claim that the applicant pleads its case against the second respondents alleging three separate causes of action: (1) breach of contract, (2) misleading or deceptive conduct under s. 52 of the Trade Practices Act 1974 ("the Trade Practices Act"), including representations as to future matters under s. 51A of that Act, (3) estoppel (see Walton Stores (Interstate) Limited v Maher [1988] HCA 7; (1988) 164 CLR 387).

7. The relevant material to consider in the present motion consists of: the statement of claim; a letter of 9 September 1992 from the solicitors for the second respondents to the solicitors for the applicant seeking particulars of the material allegations in the statement of claim; a letter furnishing particulars in reply of 1 October 1992; and, a letter dated 18 September 1991 from Baring Brothers Burrows and Co Limited to a company known as Independent Newspapers PLC of Ireland which it appears is the company that promoted or controlled the applicant directly or indirectly. The writer of the lastmentioned letter acted as agent for the second respondents in the sale of the issued capital or assets of Fairfax and its subsidiaries when in receivership. The other relevant documents are what is described as the Information Memorandum volume 1 dated April 1991 which was sent by the agents for the second respondents to persons interested in making offers of acquisition, and a document referred to as the Confidentiality Agreement.

8. There is also in evidence press clippings and correspondence tendered by the applicant on the hearing of the motion. I admitted them subject to relevance and objection. Having read them, I find that the press clippings are irrelevant for present purposes. I therefore reject them. Some of the correspondence is relevant but, with the exception of a few letters, it is of little probative value for present purposes.

9. The second respondent intended to sell and realize the assets of Fairfax or the issued share capital of Fairfax for a sum which would at least repay and discharge the indebtedness of Fairfax to certain of its creditors. City Security Limited is a secured creditor of Fairfax which appointed the second respondents as receivers and managers of Fairfax on 10 December 1990. In about April 1991 the second respondents invited prospective purchasers of the shares or assets of Fairfax to apply for the Information Memorandum which they received, provided they entered into the Confidentiality Agreement. The Confidentiality Agreement sought to ensure that a party interested in considering the acquisition of the shares or assets of Fairfax would keep to itself material in the Information Memorandum which was confidential to the affairs of Fairfax and the second respondent.

10. Counsel for the second respondents accepted the high threshold to be crossed before they could succeed in the motion to strike out. The relevant principles are set out in the well known cases of Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62 and General Steel Industries v Commissioner for Railways (NSW) [1964] HCA 69; 112 CLR 125. The motion should succeed only where the absence of cause of action is clearly demonstrated. It is only in a very clear case that the jurisdiction to strike out should be exercised. Reference was also made by counsel to subsequent decisions of the High Court and other courts, to which it is not necessary for me to refer; the principles are well known.

11. Counsel for the second respondents argued that the case pleaded against them was manifestly groundless and would inevitably fail, whether based on contract, misleading or deceptive conduct or equitable estoppel.

12. Paragraph 29G is curiously phrased, but it became common ground in the course of argument that it should be read as if it alleged in its last few lines that the second respondents provided the Information Memorandum knowing that prospective purchasers would spend large sums of money in their evaluation of Fairfax.

13. The critical allegation, in whichever of the forms it is pleaded by the applicant, is whether the second respondents, in considering and evaluating offers to purchase, would only consider and evaluate offers which satisfactorily complied with the relevant statutory legal requirements, in particular the provisions of the Broadcasting Act 1942, and would not accept any offer that did not comply with those requirements. The foundation of the case for the applicants is the letter of 18 September 1991 from the agents for the second respondents to Independent Newspapers PLC. I have carefully considered this letter, together with all the other material mentioned earlier. Page 1 of the letter commences with this paragraph.

"This letter is intended to set out the
procedures which will govern the submission of
written proposals for the acquisition of the
John Fairfax Group Pty Limited (Receivers and
Managers Appointed) ('Fairfax') and all of its
subsidiary companies in receivership (together
'the Fairfax Group') or the assets of the
Fairfax Group. These procedures have been
developed to ensure the equitable treatment of
all prospective purchasers. They are also
designed to determine which of the prospective
purchasers should proceed to final, legal due
diligence of the Fairfax Group with the aim of
concluding a definitive agreement with the
Receiver of the Fairfax Group."

14. On page 2 of the letter under the heading "Contents of Written Proposals" the following appears:

"All submissions shall address each of the
following issues:
...
3 Sources of Equity and Quasi-Equity
Finance:
...
In addition, the proposal should contain a
statement identifying whether or not the
bidding vehicle will, upon completion of
the transaction, comply with the foreign
ownership provisions of the FATA, the
cross-media ownership requirements of the
Broadcasting Act and s50 of the Trade
Practices Act. If the bidding vehicle
will not comply with any of these, the
proposal should address what steps will be
taken to ensure that the transaction
contemplated in the proposal will be
allowed to proceed by the relevant
authority."

15. On page 3 under the heading "Rules for Submission of Written Proposals" the following is written:

"The following rules apply for the submission of
proposals:
...
. Only proposals which are specific as to
amount of consideration will be
considered. Any proposal which contains
provisions which trigger an automatic
increase in the consideration offered
depending upon the consideration offered
by others will not be considered.
...
. Barings and the Receiver expressly reserve
the right, without giving reasons
therefore, at any time and in any respect,
to amend or terminate these procedures, to
terminate discussions with any or all
prospective purchasers, to reject any or
all proposals, or to negotiate with any
party with respect to a transaction
involving the Fairfax Group."

16. On page 4 of the letter under the heading "Miscellaneous" the following appears:-

"Neither this letter nor any proposal submitted
by you shall be regarded as an offer capable of
acceptance giving rise to an enforceable
agreement. No agreement concerning the sale of
any of the shares in or assets of the Fairfax
Group shall arise or be deemed to exist between
you and the Receiver unless and until a
definitive agreement has been executed and
delivered. Unless and until such a definitive
agreement is executed neither Barings, the
Receiver nor Fairfax have any obligation of any
kind whatsoever to you in relation to any
proposal to acquire any of the shares in or
assets of the Fairfax Group. If you ultimately
enter into a definitive agreement with the
Receiver your rights against the Receiver,
Barings and Fairfax will be strictly limited to
the terms provided in that agreement. In this
regard we wish to remind you that all
information that Barings, the Receiver or
Fairfax have provided to you in the past and all
further information that they might from time to
time provide to you, in any way relating to the
affairs of the Fairfax Group has been and will
be (as the case may be) provided to you subject
to the terms of the Confidentiality Agreement
which you have entered into with Barings, the
Receivers and Fairfax."

17. It is, in my opinion, an arguable question as to whether the second respondents through their agent were entitled to consider and evaluate or accept an offer to purchase the shares or assets of Fairfax which did not comply satisfactorily with the relevant statutory legal requirements, in particular the provisions of the Broadcasting Act 1942. It is reasonably open to argument that the relevant documents give rise to a contract, representation or estoppel of the kind pleaded in the statement of claim in any one of the alternative forms appearing therein. I say nothing as to the degree of strength of the case. But it is for the second respondents to establish that it is a plainly untenable case, and I am not persuaded that the tests enunciated in the cases of Dey and General Steel have been satisfied by the second respondents.

18. It is high time that this case was advanced to the point where it approaches a final hearing. The arguments of the kind which the second respondents through their counsel put to the Court on the hearing of this motion would be more appropriately put at the final hearing. It does not strike me as a case, at least so far as the second respondents are concerned, that would involve undue length or complexity, provided any question of quantifying damage (if any) is severed from the main issues of liability. There are some cases where it is right that they be brought to a halt as soon as possible and before trial. I do not think this is such a case.

19. Accordingly the motion of the second respondents is dismissed. I order the second respondents to pay the costs of the applicant of the motion.