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Federal Court of Australia |
Last Updated: 4 March 1998
MEDIA LAW - television - licences - whether company controlled by foreign persons for the purposes of the Broadcasting Services Act 1992 - test of "control" - whether control of a licence or vote requires an enforceable and immediately exercisable right to control that licence or vote - whether "in a position to control" requires a right or power - whether control that is confined to lawful activities is sufficient to constitute "control" - whether the ABA's finding of fact could be reviewed for an alleged lack of logic.
Broadcasting Services Act 1992 - s 57
Re Application of News Corp Ltd (1987) 15 FCR 227 - appl.
Bermuda Cablevision Ltd [1998] 2 WLR 82 - appl.
W.P. Keighery Pty Ltd v Federal Commissioner of Taxation [1957] HCA 2; (1957) 100 CLR 66 - dist.
Federal Commissioner of Taxation v Sidney Williams (Holdings) Ltd [1957] HCA 1; (1957) 100 CLR 95 - dist.
Equiticorp Industries Ltd v ACI International Ltd (1986) 10 ACLR 568 - dist.
National Companies & Securities Commission v Brierley Investments Ltd (1988) 14 NSWLR 273 - dist.
Taveli v Minister for Immigration, Local Government and Ethnic Affairs (1989) 86 ALR 435 - cons.
Collector of Customs v Agfa-Gevaert Limited [1996] HCA 36; (1996) 186 CLR 389 - dist.
Craig v South Australia [1995] HCA 58; (1995) 184 CLR 163 - cons.
CANWEST GLOBAL COMMUNICATIONS CORPORATION V AUSTRALIAN BROADCASTING AUTHORITY
NG 691 of 1997
JUDGES: BLACK CJ, LOCKHART AND BEAUMONT JJ.
PLACE: SYDNEY
DATE: 27 FEBRUARY 1998
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| NEW SOUTH WALES DISTRICT REGISTRY | NG 691 of 1997 |
|
BETWEEN: | CANWEST GLOBAL COMMUNICATIONS CORPORATION
AppELLant |
|
AND: | AUSTRALIAN BROADCASTING AUTHORITY
Respondent |
|
JUDGES: | BLACK CJ, LOCKHART AND BEAUMONT JJ |
| DATE OF ORDER: | 27 FEBRUARY 1998 |
| WHERE MADE: | SYDNEY |
ORDERS:
1. Appeal dismissed with costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| NEW SOUTH WALES DISTRICT REGISTRY | NG 691 of 1997 |
on appeal from a judge of the federal court of australia
|
BETWEEN: | CANWEST GLOBAL COMMUNICATIONS CORPORATION
AppELLANT |
|
AND: | AUSTRALIAN BROADCASTING AUTHORITY
Respondent |
JUDGES:
BLACK CJ, LOCKHART AND BEAUMONT JJ DATE: 27 FEBRUARY 1998 PLACE: SYDNEY
BLACK CJ:
The appeal should be dismissed with costs for the reasons given by Beaumont J.
I certify that this page is a true copy
of the Reasons for Judgment herein
of the Honourable Chief Justice Black.
Associate:
Dated: 27 February 1998
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| NEW SOUTH WALES DISTRICT REGISTRY | NG 691 of 1997 |
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
|
BETWEEN: | CANWEST GLOBAL COMMUNICATIONS CORPORATION
AppELlant |
|
AND: | AUSTRALIAN BROADCASTING AUTHORITY
Respondent |
JUDGE(S):
BLACK CJ, LOCKHART AND BEAUMONT JJ DATE: 27 FEBRUARY 1998 PLACE: SYDNEY
I agree with the reasons for judgment of Beaumont J and the orders which his Honour proposes.
|
I certify that this page is a true copy of the Reasons for Judgment herein of the Honourable Justice Lockhart |
Associate:
Dated: 27 February 1998
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| NEW SOUTH WALES DISTRICT REGISTRY | NG 691 of 1997 |
|
BETWEEN: | CANWEST GLOBAL COMMUNICATIONS CORPORATION
AppELLant |
|
AND: | AUSTRALIAN BROADCASTING AUTHORITY
Respondent |
JUDGES:
BLACK CJ, LOCKHART AND BEAUMONT JJ DATE: 27 FEBRUARY 1998 PLACE: SYDNEY
"57 (1) A foreign person must not be in a position to exercise control of a commercial television broadcasting licence.
(2) (Repealed)
(3) 2 or more foreign persons must not have company interests in a commercial television broadcasting licensee that exceed 20%."
Division 8 of Part 5 (ss 70-72) deals with action by the ABA. If the ABA is satisfied that a person is in breach of a provision of, inter alia, Division 4, it may, by notice in writing, direct the person to take action so that the person is no longer in breach (s 70). A person who fails to comply with a notice under s 70 is guilty of an offence (s 72).
The ABA may conduct investigations for the purposes of the performance or exercise of any of its functions and powers (s 170), and the ABA may cause a copy of a report on an investigation to be published (s 179(1)).
In 1997 the ABA conducted an investigation into whether the provisions of Part 5, and in particular s 57, were being complied with in relation to commercial television broadcasting licences held by Television and Telecasters (Sydney) Pty Ltd (TEN), Television and Telecasters (Melbourne) Pty Ltd (ATV), Television and Telecasters (Brisbane) Pty Ltd (TVQ), Network Ten (Adelaide) Ltd (ADS) and Network Ten (Perth) Ltd (NEW) ("the Ten licences").
In its report dated April 1997 ("the Report") the ABA undertook a comprehensive review of a number of complicated transactions and found that the appellant, CanWest Global Communications Corporation ("CanWest") (which, as was common ground, is a Canadian corporation and thus a "foreign person") was in breach of s 57(1) and (3).
CanWest instituted proceedings against the ABA seeking judicial review of the Report and the ABA's findings. A Judge of the Court (Hill J) dismissed the application (see CanWest Global Communications v Australian Broadcasting Authority (1997) 71 FCR 485). CanWest now appeals from this order.
"`control' includes control as a result of , or by means of, trusts, agreements, arrangements, understandings and practices, whether or not having legal or equitable force and whether or not based on legal or equitable rights;"
Schedule 1 of the Act sets out mechanisms that are to be used in (a) deciding whether a person is in a position to exercise control; and (b) tracing company interests of persons (s 7).
After making some introductory observations (which will be mentioned later), Part 1 of Schedule 1 explains the notion of "control" as follows (cl 1):
"The holding of company interests is not the only way to be in a position to exercise control. Clauses 2 and 3 set out the rules for deciding when a position to exercise control exists. While company interests may be important in deciding that question, they are only one issue. In some cases, it may be important to look at agreements and arrangements between people and at accustomed courses of conduct between people. In this respect, the definition of "associate" in section 6 of this Act is important...
... A person who has company interests exceeding 15% in a company is regarded as being in a position to control the company...
... Control of a company may also come about through company interests of 15% or less. This could happen where a person holds company interests of say 10% but no other person holds company interests of more than say 2% and those other persons do not act in concert."
Section 6(1) defines "associate" to mean, inter alia, the following:
"(d) a person (whether a company or not) who:
(i) acts, or is accustomed to act; or
(ii) under a contract or an arrangement or understanding (whether formal or informal) is intended or expected to act;
in accordance with the directions, instructions or wishes of, or in concert with, the first-mentioned person or of the first-mentioned person and another person who is an associate of the first-mentioned person under another paragraph; or
(e) if the person is a company - another company if:
(i) the other company is a related body corporate...; or
(ii) the person, or the person and another person who is an associate of the person under another paragraph, are in a position to exercise control of the other company..."
But s 6(1) goes on to provide that persons will not be associates if -
"the ABA is satisfied that they do not act together in any relevant dealings relating to that company [or] licence..., and neither of them is in a position to exert influence over the business dealings of the other in relation to that company [or] licence...".
Part 2 of Schedule 1 describes when a person is in a position to exercise control relevantly as follows (cl 2):
"2. (1) ... a person is in a position to exercise control of a licence or a company if:
(a) the person, either alone or together with an associate of the person, is in a position to exercise control of the licensee or the company; or
(b) ...
(c) in the case of a non-licensee company - the person, either alone or together with an associate of the person, is in a position to exercise (whether directly or indirectly) control of a significant proportion of the operations of the company; or
(d) the person, either alone or together with an associate of the person, is in a position to:
(i) ...
(ii) appoint or secure the appointment of ... at least half of the board of directors of the licensee or the company; or
(iii) exercise, in any other manner, whether directly or indirectly, direction or restraint over any substantial issue affecting the management or affairs of the licensee or the company; or
(e) the licensee or the company or more than 50% of its directors:
(i) act, or are accustomed to act; or
(ii) under a contract or an arrangement or understanding (whether formal or informal) are intended or expected to act;
in accordance with the directions, instructions or wishes of, or in concert with, the person or of the person and an associate of the person acting together or, if the person is a company, of the directors of the person." (Emphasis added).
Clause 4 has special provisions for "authorised lenders" (i.e. banks and certain financial institutions) so that their loan agreements are to be disregarded on the issue of "control". It is common ground that none of the parties involved here is an "authorised lender".
Part 3 of Schedule 1 deals with "deemed control" by "the 15% rule" as follows (cl 6):
"6. (1) If a person has company interests in a company exceeding 15%, the person is to be regarded as being in a position to exercise control of the company."
Application of this method through a chain of companies is dealt with by cl 7:
"7. The method described in clause 6 can be applied in the case of a chain of companies. Where a company interest of more than 15% is maintained throughout the chain, the person [is to be regarded as being] in a position to exercise control of the last company in the chain."
"Company interests" is relevantly defined by s 6(1) as follows:
"company interests', in relation to a person who has a shareholding interest [or] a voting interest... in a company, means the percentage of that interest or, if the person has 2 or more of those interests, whichever of those interests has the greater or greatest percentage;"
Section 8, which defines shareholding and other interests, relevantly provides:
"(2) For the purposes of this Act:
(a) a person has a voting interest in a company if the person is in a position to exercise control of votes cast on a poll at a meeting of the company; and
(b) the percentage of the interest is the greatest percentage of the number of votes, expressed as a percentage of the total number of votes that could be cast on any issue at a meeting of the company, the casting of which the person is in a position to control.
(3) ...
(4) ...
(5) A person may have a voting interest... in a company even if the person does not have a beneficial entitlement to, or to an interest in, shares in the company."
(1) On 8 November 1996, three shareholders in The Ten Group Limited ("TGL"), Copplemere Pty Ltd ("Copplemere"), Leibler Media Holdings Pty Ltd ("Leibler Media") and Belshaw Pty Ltd ("Belshaw"), sold TGL shares into a new group of companies established for the purpose of holding the shares. The main company in the group was Selli Pty Ltd ("Selli").
(2) On 8 November 1996, Selli and its two subsidiaries, Numeration Pty Ltd ("Numeration") and Turnand Pty Ltd ("Turnand"), acquired TGL shares from Copplemere, Leibler Media and Belshaw. Each of the purchases was financed by Drie Sterren Kapitaal (Nederland) BV. ("DSK") (which, as will be seen, was a subsidiary of CanWest).
(3) On 27 November 1996, Selli purchased TGL shares from Winston Capital Inc ("Winston"). This purchase was also funded by DSK.
(4) On 10 January 1997, a recently incorporated company, Donholken Pty Ltd ("Donholken"), purchased TGL shares from Audant Communications Pty Ltd ("Audant") and Corom Pty Ltd ("Corom"). This purchase was also funded by DSK.
It is convenient that I note here that CanWest, through its Netherlands subsidiary CGS Shareholding (Netherlands) BV ("CGS"), also held 455,000 convertible debentures in TGL having a face value of $1.01 paid to 10 cents and 45,500,000 subordinated debentures with a face value of $1 fully paid. Hill J observed (at 488) that while the CanWest "direct shareholding interest" in TGL was just under the 15 per cent limit permitted by the Act, its "real economic interest" was considerably greater than that as a result of the debentures.
Ownership of the share capital of TGL at the material times was conveniently stated in a document provided to us by counsel for CanWest as follows:
| PRE SELLI-DONHOLKEN TRANSACTIONS | POST SELLI-DONHOLKEN TRANSACTIONS | ||
| TNQ Television Ltd
(18,200,000 shares)
CGS Shareholding (Netherlands) BV (a company controlled by CanWest) (6,824,999 shares) | 40%
14.99% |
TNQ Television Ltd
CGS Shareholding (Netherlands) BV (CanWest) | 40%
14.99% |
| Belshaw (a company controlled by Mr John Singleton)
Leibler Media (a company controlled by Mr Isi Leibler)
Winston Capital Inc (a company controlled by Mr S Berney)
Copplemere (a company controlled by Mr Steven Skala) | 10.00%
5.00%
1.61%
1.10% | Selli
Numeration
Turnand | 11.19%
0.82%
5.42% |
| Audant (a company controlled by Mr Robert Whyte)
Corom (a company controlled by Mr Jack Cowin) | 10.05%
10.00% | Donholken | 20.05% |
| AMP Society
Rossendale Investments Ltd (a company controlled by Mr P Viner) | 6.45%
0.79% | AMP Society
Rossendale Investments Ltd
Copplemere | 6.45%
0.79%
0.27% |
"By looking at both the formal and informal means by which control of a licence, a newspaper or a company may be exercised, the ABA is able to focus on the issue of whether a person is in fact in a position to exercise control at any given time."
"... the power to control [votes] must be immediately exercisable, in the sense of not being subject to any requirement for external approval, or other external condition precedent... The definition of `control' in the [Act] requires that the ABA take account of control arising as a result of, or by means of, `trusts, agreements, arrangements, understandings and practices, whether or not having legal or equitable force and whether or not based on legal or equitable rights'. However, as the definition of `control' is inclusive, the ABA is not restricted to considering control arising as a result of, or by means of, `trusts, agreements, arrangements, understandings and practices."
The ABA went on to say that it -
"... must consider whether there is an immediate factual power to control the votes, as a result of, or by means of, trusts, agreements, arrangements, understandings or practices, as well as matters of legal entitlement. A legal entitlement which carries the potentiality to obtain control of the votes in the future may be relevant to the question of whether there is an immediate factual control..."
The ABA stated that it proposed to -
"... consider whether DSK has a power to control, in the sense of directing, restraining, dominating or commanding the exercise by Selli or Donholken of the votes which Selli or Donholken hold in TGL on a poll at a meeting of TGL.
In doing so the ABA must consider not only the legal agreements between the parties, but also any commercial or other arrangement or understanding underlying those agreements. The parties' understanding of the agreements and arrangements, as well as the relationships between the parties, are potentially also of relevance to the question of control."
[lozenge] Leibler Media (controlled by Mr Isi Leibler) sold its 5 per cent holding to its recently incorporated subsidiary, Turnand. Leibler Media exercised its pre-emptive rights over Belshaw's holding in respect of 189,583 shares and then onsold them to Turnand.
[lozenge] Belshaw sold 4,360,118 shares, the remainder of its holding, to Selli, CanWest's nominee.
[lozenge] Copplemere (controlled by Mr Steven Skala) sold 75 per cent of its 1.1 per cent holding to its recently incorporated subsidiary, Numeration.
The purchase of the TGL shares by Selli, Numeration and Turnand was financed by the issuing of debentures in Selli to DSK, a related corporation of CanWest: as will be seen below, the Report went on to note that the money raised by the debenture issue was used by Selli to acquire TGL shares directly from Belshaw as CanWest's nominee, and also to acquire Class B shares in Numeration and Turnand; and the money received by Numeration and Turnand for the issue of the Class B shares to Selli was used by them to purchase the TGL shares from Copplemere and Leibler Media. These Class B shares held by Selli are convertible into voting participatory Class C shares in Numeration and Turnand.
In his evidence, Mr Skala said that his understanding of the arrangement with CanWest was:
"...that CanWest would put up a structure which - I mean I didn't want to incur... all the expense of running around trying to put this together - absolutely no financial position to be able to do that. They undertook to come up with proposals which... we would then have a look at to make sure that we were satisfied with the proposals."
On 5 October 1996, Clayton Utz, CanWest's solicitors, wrote to Arnold Bloch Leibler, solicitors for Leibler Media stating that:
"...enclosed are a number of draft documents which together constitute a proposal which our client would like to put to your client as a way in which its shares may be disposed of should it so desire."
Mr Leibler's evidence was that he had only a limited knowledge of the transactions relating to Selli and that he relied on Mr Skala's advice. Mr Strike testified that Mr Skala and Mr Leibler "negotiated for themselves [a] preferential dividend payment of $300,000". Mr Skala also negotiated an escalator provision in the sale agreements between Copplemere and Numeration and Leibler Media and Turnand, so that although the companies of Mr Skala and Mr Leibler had sold their TGL shares for $11.75 per share, if CanWest subsequently financed the acquisition of other TGL shares at a higher price, CanWest agreed to pay Mr Skala's and Mr Leibler's companies the difference. Mr Skala (who, with Mr Leibler, was a director of Selli) also said in his evidence that he successfully negotiated for directors' fees to be payable (although the permission of debenture holders was required), for costs of inquiries or litigation to be met by Selli, and for expenses to be met out of cash flow. Mr Strike gave evidence that his view prevailed in negotiations on certain call options (discussed later in the Report). Mr Skala agreed that he had been unsuccessful in seeking more flexibility in the transaction documents, and that Selli paid for its legal expenses through the issue of debentures to DSK.
The Report went on to state:
"The ABA noted the statements by Messrs Asper, Strike and Lerner... and Mr Skala... that the structure of Selli had been created in order to comply with the [Act]. The ABA noted the evidence of Mr Leibler and Mr Skala that they would only enter into an agreement with CanWest on the basis that it complied with the [Act] and that there was no control over Selli's actions. The ABA noted the evidence of Mr Strike that he had made clear to Mr Skala that Selli must act completely independently of CanWest. Mr Strike testified that there was an understanding between himself and Mr Skala and Mr Leibler that Mr Skala and Mr Leibler could vote the TGL shares held by Selli, Numeration and Turnand in any way they thought fit. The ABA notes that CanWest and the directors of Selli sought legal advice before participating in the Selli structure."
The ABA expressed its findings of fact in this connection as follows:
"The idea for setting up the structure which became Selli originated in CanWest.
Most of the development of the structure, up to and including the preparation of all the major documents, was done by CanWest and its solicitors and paid for by CanWest.
The structure proposed by CanWest was adopted by Mr Skala on behalf of Selli without substantial change.
Mr Skala accepted the structure proposed by CanWest on behalf of Selli because the transaction produced benefits for himself and Mr Skala. [sic]
Mr Leibler played a limited role in the negotiations with CanWest.
Mr Skala acted with the authority of Mr Leibler in his dealings with CanWest in relation to the Selli transactions.
The structure of Selli was established to create a vehicle which could acquire parcels of TGL shares if they were offered for sale by existing TGL shareholders by the exercise of pre-emptive rights or otherwise."
Copplemere held the two Class A voting shares in Numeration. As at 4 December 1996, Selli held the 4,904,534 Class B non-voting, participating shares in Numeration.
The issued capital of Selli (which was incorporated on 29 October 1996) consisted of:
[lozenge] Two Class A voting, non-participating shares, one of which is held by Leibler Media and the other by Copplemere.
[lozenge] Two Class B limited voting, participating shares, one of which is held by Leibler Media and the other by Copplemere.
[lozenge] Two Class E non-voting, non-participating shares, to which Leibler Media and Copplemere have subscribed the amount of $1 each, plus a premium of $24,999 each. These shares are redeemable to their par value plus any premium paid.
The holders of the Class A shares are not entitled to any dividends in Selli. The holders of the Class B shares are only entitled to vote on matters relating to the Class B shares and are entitled to a preferential dividend of $300,000; they are also entitled to 5 per cent of the net distributable income of Selli, after payment of expenses and interest to convertible and participating debenture holders.
The Report noted that, in order to capitalise Selli (so that it may be regarded as a party of substance for the purposes of being a "qualified nominee" of CanWest under the Share Subscription Agreement) Leibler Media and Copplemere also subscribed for Class E Shares to the amount of $50,000.
The purchase of the TGL shares by Selli, Numeration and Turnand was financed by the issue of debentures in Selli to DSK (a related body corporate of CanWest and a wholly owned subsidiary of CGS Shareholdings (Netherlands) BV, which in turn was (indirectly) a wholly owned subsidiary of CanWest. (The terms of the debentures are discussed later in the Report (see below)).
The money raised by the debenture issue to DSK was used by Selli directly to acquire TGL shares from Belshaw as CanWest's nominee and also to subscribe for Class B shares in Numeration and Turnand. The money received by Numeration and Turnand for the issue of the Class B shares to Selli was then used by them to purchase the TGL shares from Copplemere and Leibler Media.
The Class B shares held by Selli in Numeration and Turnand are convertible into voting participating Class C shares in Numeration and Turnand. The Report noted that if the shares are converted by Selli, it will control these companies, because it will control a majority of their voting shares; however, any conversion is subject to a "qualifying requirement" (discussed later in the Report).
The structure of Selli is illustrated in the following diagram provided to us on the appeal by Counsel for the ABA:
Mr Strike gave evidence that CanWest had initially sought a nominee to acquire TGL shares who would not have required CanWest funding. However, because of the short period available to make a decision (the thirty days in the pre-emptive rights clause of the Share Subscription Agreement), CanWest had not pursued the idea; and the involvement of institutions had also proved "too complicated". So, Mr Strike said, it became logical to discuss the possibility of Mr Skala and Mr Leibler "becoming nominees". A decision was made during Mr Strike's visit to Australia (in late September or early October 1996) that Messrs Skala and Leibler would be the nominee for CanWest to acquire Belshaw's TGL shares, following negotiations about the sale of Mr Skala's and Mr Leibler's interests in TGL. According to Mr Skala's evidence, Mr Strike contacted him to ask that he and Mr Leibler be CanWest's nominee for the purchase of the Belshaw shares; and, after consulting Mr Leibler, they agreed to do so.
The ABA found:
"Selli:
* accepted CanWest's nomination to acquire TGL shares from Belshaw;
* acquired shares in Numeration and Turnand;
* acquired TGL shares from Winston Capital;
* accepted CanWest's nomination to acquire TGL shares from Corom;
* accepted CanWest's nomination to acquire TGL shares from Audant;
* entered into agreements to acquire the TGL shares of Corom and Audant.
CanWest funded, through DSK, each purchase of TGL shares by Selli, Numeration and Turnand.
The above business operations undertaken by Selli have been at CanWest's suggestion and initiative.
CanWest, through DSK, decided to fund the acquisition of the Corom and Audant shares although senior executives of CanWest responsible for making the decision to fund the acquisition considered the price to be high.
The directors of Selli agreed to purchase the Corom and Audant shares although they acknowledged that the price was high."
A Convertible Debentures Deed was entered into between DSK and Selli on 29 October 1996. The convertible debentures issued by Selli to DSK are partly paid to one cent and attract a ten per cent per annum interest payment. Clause 10 of the Selli Convertible Debentures Deed confers a conditional right upon a noteholder to convert notes into fully paid Class C or D conversion shares. Class C shares are voting and participating, whilst the Class D shares have very limited voting rights and are participating shares. The Noteholder can convert its notes into shares or nominate another person to hold the shares, "subject to the Qualifying Requirement having been satisfied and subject to clause 10(g) [of the Deed]". Clause 10(g) provides:
"(g) Notwithstanding anything to the contrary in these Conditions, the rights of a Noteholder under clause 10 to have any Conversion Shares issued to it or to its Nominee shall not arise and the Issuer's obligations under clause 10 to issue any Conversion Shares to a Noteholder or its Nominee do not become binding on it, in each case unless and until the exercise of such rights by the Noteholder would not constitute a breach of Foreign Control and Ownership Legislation or any mandatory directive given thereunder." (Emphasis added).
The "Qualifying Requirement" means, the Report stated, that the noteholder or its nominee is an Australian resident and that conversion of the convertible debentures would not result in a breach of the Foreign Acquisitions and Takeovers Act 1975 or the Act.
In addition, there is a conversion right between C and D class shares, subject to a similar "qualifying requirement".
A Participating Debentures Deed was entered into between Selli and DSK on 29 October 1996. Under this Deed the participating debentures are fully paid to $1.00 and attract an interest payment linked to the distribution which Selli is paid on its TGL shares. The interest payment is effectively 95% of the TGL dividends and certain other distributions.
Clause 7 of each of the Selli Convertible and Participating Debentures Deeds contains another "qualifying requirement", that notwithstanding any other provision, no entitlement or benefit in relation to the debentures shall arise or be permitted beyond that which would be permitted without contravention of the Foreign Acquisitions and Takeovers Act 1975 and the Act; and the opinion of the debenture holder's lawyers is to be conclusive of this issue.
The ABA found:
"Subject to the operation of the Qualifying Requirement in the Selli Convertible Debentures Deed, the provisions of the Deed allow DSK to enable a nominee to acquire a majority of the voting shares in Selli.
CanWest is entitled to sell DSK or the financial instruments held by DSK. Mr Strike acknowledges this.
Mr Strike acknowledges that Copplemere and Leibler Media Holdings could be removed as shareholders of Selli through the transfer of
DSK to an Australian and the Australian exercising the debentures and call options.
Mr Strike acknowledges that in the event of Selli's directors being hostile, CanWest has the option of disposing in some fashion of DSK or the financial instruments held by DSK.
Mr Skala acknowledges that the issue of whether Selli continues in the present arrangements is, to some extent, in the hands of the debenture holders.
By nominating a qualified nominee to acquire a majority of the voting shares of Selli, DSK can effect the removal of the directors of Selli."
Leibler Media has granted a similar conditional option to Selli over its Class A voting shares in Turnand under a Call Option Deed dated 1 November 1996. Copplemere has also granted a similar conditional option to Selli over its Class A shares in Numeration under a Call Option Deed dated 1 November 1996.
Mr Skala said that he regarded the call option as part of the security arrangements for the whole transaction.
Mr Strike gave evidence that the call option was "really just for the sake of tidiness more than anything else". He said that the call options might be called "where we might want to sell our debentures to someone and we would probably sell the call options with the debentures". Doing so however, Mr Strike stated, had not been contemplated.
The Report found:
"Subject to the operation of the Qualifying Requirement, the provisions of the Call Option allow DSK to have the voting shares in Selli acquired by its nominee.
DSK can sell its Call Options to another party who can, subject to the operation of the Qualifying Requirement, exercise the options and acquire the voting shares of Copplemere and Leibler Media Holdings."
Mr Skala's evidence was that he could not "think of any reason why Selli, as a company, commercially would need the right to go out and borrow money, in the sense of obtaining financing from a bank".
Moreover, the Report noted, Selli's Articles impose constraints on altering its share capital without the consent of debenture holders. The directors may not issue any more of the existing classes of shares to any person, except on conversion of the convertible debentures. Options cannot be issued without the consent of the debenture holders. There are restrictions on the issue of redeemable preference shares.
Class A and B shares (held by Copplemere and Leibler Media) may not be transferred. The Class B shareholder may elect that Selli redeem some or all of those shares on twelve months notice, provided that there is at least one Class B, C or D share on issue following redemption. Selli may elect to redeem all of the Class B shares, provided there is at least one Class C or D member.
Any resolution by Selli to alter its capital must be approved by debenture holders. Debenture holders are entitled to attend general meetings. Debenture holders are entitled to appoint one director of Selli (on a board of three). A director who has an interest in a matter that is being considered at a directors' meeting may vote, unless prohibited by the Corporations Law. Payment of remuneration to the directors is subject to the consent of the debenture holders. The director appointed by the debenture holders must be present for a quorum. Debenture holders are entitled to nominate the auditors. No other person can be appointed, unless the debenture holders fail to nominate anyone. The auditors have an important role in determining financial benefits for shareholders.
Selli cannot be wound up without the consent of the debenture holders. The vesting of property in trustees for contributories requires the consent of the debenture holders.
Article 1.5(c) provides that:
"Notwithstanding anything contained in these Articles, where the requirement for the written consent of the Participating Debenture Holders expressed to be required pursuant to these Articles will give rise to a breach of the... Act, the expressed requirement for such written consent will be deemed to be severed from these Articles."
Article 1.6 provides that:
"Each of these Articles shall be construed so as:
(a) not to result in a breach of the Shareholders Agreement;
(b) not to result in a contravention of the... Act; and
(c) to render the Article or part of an Article enforceable."
Mr Skala gave evidence that he did not really regard Copplemere's inability to dispose of its shares in Selli as a constraint. He said that the benefits which he had negotiated were the benefits which Copplemere and Leibler Media were seeking. He acknowledged in his evidence that it was a restraint, in the sense he could not sell, but he said it did not trouble him.
The Report found:
"The Memorandum and Articles of Association of Selli impose significant constraints on the activities in which Selli can engage in unless authorised by DSK."
* Constraints in the Debenture Stock Trust Deed
The Debenture Stock Trust Deed entered into between Selli, Turnand, Numeration and Lintondale Pty Ltd (as Trustee) dated 6 November 1996, creates a charge over the assets of Selli, Numeration and Turnand in favour of DSK, held by the Trustee. A Trustee is appointed by a majority of stockholders (i.e. holders of Participating and/or Convertible debentures). The Trustee acts in accordance with the instructions of a majority of the stockholders. DSK is the only current holder of debenture stock in Selli. Selli may not create or issue debenture stock without the Trustee's consent. Supplemental Trust Deeds can only be executed with the consent of the stockholders. The chargors (Selli, Numeration and Turnand) can only amend their respective Memoranda and Articles of Association with the consent of the Trustee. The chargors must not lease or hire any asset. The chargors cannot create encumbrances or sell or lease the property subject to the charge without the consent of the Trustee. The chargors cannot change the general character of or discontinue their businesses without the consent of the Trustee.
On an "event of default", the Trustee can procure itself to be the registered holder of shares and would then have significant powers over the chargors. Events of default include the making of an application to wind up a company, a chargor ceasing to carry on its business or threatening to do so, changes in the shareholding of a chargor without the consent of the Trustee, and a reduction in capital without the consent of the stockholders. Some events of default involve subjective judgments by the Trustee acting on the instructions of the stockholders, for example, when the Trustee forms the opinion that the continued carrying on of any relevant business would endanger the value of the Trustee's security interest. However, the Report noted, the exercise of the powers of the Trustee is subject to a "qualifying requirement" of the kind previously mentioned.
Clause 27.6 of the Selli Trust Deed provides that:
"Any provision of this Deed which is illegal, void or unenforceable will be ineffective to the extent only of that illegality, voidness or unenforceability without invalidating the remaining provisions of this Deed."
Mr Skala's evidence was that "my view of the security was [that] I was indifferent to it". He also said that "I had absolutely no problem in regard to provision of securities so it made no - it was irrelevant".
The Report found:
"The Selli Debenture Stock Trust Deed imposes significant constraints on the activities in which Selli, Numeration and Turnand can engage unless authorised by DSK."
* Restrictions through the call options
The grantors of the Selli Call Options (Copplemere and Numeration) covenant not to grant any other option in relation to the voting shares. They covenant not to sell, assign, transfer or otherwise dispose of the shares. The Selli Call Options may be assigned by DSK without the consent of Copplemere or Numeration. The Call Option may only be exercised subject to a "qualifying requirement" being satisfied.
* Financial and other benefits for shareholders of Selli arising from commercial arrangements with DSK
Under the Articles of Association of TGL, shareholders are generally entitled to appoint a board member for every tranche of 10 per cent of the shares held by the shareholder. For so long as CanWest holds more than 14 per cent of the issued capital of TGL, it has the right to appoint what amounts to 20 per cent of the directors of TGL. The Share Subscription Agreement also provides that:
"The total number of directors [of TGL] shall be not less than 10 nor more than 15 and... may, but need not include a number of additional directors including independent directors and without limiting the foregoing shall include Mr Issy Liebler... subject to interests associated with him subscribing to approximately 5 per cent of the issued capital and becoming an Original Shareholder." [Cl 6.1(h)(8)].
Mr Strike gave evidence that the "genesis of that particular idea [setting up Numeration and Turnand] was in the preservation of Leibler's seat on the board". Mr Leibler believed that retaining a seat on the board was part of the package of his involvement in the Selli structure. Mr Leibler believed it was likely he would retain a TGL board seat if the company was floated.
Mr Strike gave evidence that he thought Mr Leibler and Mr Skala "got some additional things out of the Selli structure which they wouldn't have received if they just had simply entered into a sale transaction with Selli... I think they got board representation". He stated that he thought "Skala got a board seat as opposed to being an alternate". Mr Skala stated that he regarded the sale price of the TGL shares as, in part, providing compensation for the responsibilities which flowed from retaining voting rights.
Mr Strike gave evidence that the motivation for funding the purchase by Selli of the TGL shares held by Winston was to ensure that Selli achieved a seat on the TGL board.
Mr Skala's testimony was that a significant benefit for him and for Mr Leibler from participating in the Selli structure was the $13 per share price given for the TGL shares which they sold to Numeration and Turnand.
Copplemere and Leibler Media between them receive a preferential dividend from Selli of $300,000 per year. If any funds remain after the payment of that dividend, expenses and interest on debentures, they are entitled to 5 per cent of what remains. They are also entitled to 5 per cent of the capital appreciation of the value of the TGL shares, which can be realised on redemption of the shares, on a winding up, or through a reduction of capital.
Mr Skala also identified potential tax benefits in Selli.
Mr Strike gave evidence that the structure of Selli was designed to give CanWest flexibility to retain a long term investment, or not, as suited CanWest's interests; and that the future of Selli is subordinate to CanWest's assessment of the best use of its capital. The ABA noted that Mr Skala acknowledged that the future of Selli is not within his control.
Mr Lerner's testimony was that DSK would not need to involve Selli or Donholken in a decision as to whether to include the TGL shares held by Selli in a float: CanWest could compel Selli and Donholken to join it in a float through DSK, although, in his opinion, it would be necessary for an Australian to own DSK.
Mr Strike's evidence was that CanWest could "superimpose a new Selli on top of Selli and have Selli owned by different Australians exercising the debentures"; and that, in the event of the shareholders in Selli being hostile to CanWest's interests, CanWest's only options were "the disposition in some fashion" of DSK or of "the financial instruments" held by DSK.
Mr Skala said that he was not concerned about his lack of control over the future of Selli because he felt that, even on the worst case scenario, he would have got a major financial benefit (a price of $13 per share) from his participation in the transactions.
The Report found:
"The commercial arrangements entered into between Copplemere, Leibler Media Holdings, Numeration, Turnand, Selli and DSK, when considered as a whole confer a number of financial and other benefits on Copplemere and Leibler Media Holdings.
Mr Skala and Mr Leibler owe their positions on the TGL Board to DSK's funding of the acquisition of TGL shares by Selli and Turnand.
The continuation of the receipt of ongoing benefits could be jeopardised by DSK/CanWest."
* CanWest's control over DSK
CanWest has a chain of company interests greater than 15 per cent between it and DSK and (as was common ground) CanWest is therefore in a position to exercise "control" of DSK.
* Reasoning on the significance of Selli
Upon analysing the evidence as to the origins of the Selli structure, the ABA said:
"CanWest conceived of the Selli structure in order to realise financial and strategic ends in relation to TGL. CanWest played the major role in devising the structure, including drafting (through its solicitors) all the transaction documents. CanWest approached Mr Skala and Mr Leibler to participate in the structure (while at the same time financing the acquisition of their TGL shares) on the basis of their existing relationship as fellow shareholders and directors of TGL. CanWest agreed to pay a premium on the Copplemere and Leibler Media... shares in return for Messrs Leibler and Skala retaining voting rights.
CanWest financed all of the subsequent acquisitions of TGL shares by Selli and its subsidiaries.
Selli's involvement in these transactions has largely been at CanWest's suggestion and initiative, and largely in agreement with the terms and conditions proposed."
After observing that the Selli transaction documents, when considered as a whole, confer a number of benefits on the current members of Selli which may act as incentives to ensure that the present arrangements continue, the Report stated:
"The current members of Selli have a strong interest in the continuation of the arrangements, which could be jeopardised without the continuing goodwill of DSK and CanWest. While Mr Skala has indicated that he does not consider the benefits of ongoing participation substantial compared to the initial benefits of the transaction, the ABA is of the view that the benefits nevertheless are significant."
The ABA noted two "mechanisms" by which DSK could "place in jeopardy the benefits which the members of Selli currently receive": (1) the call options; and (2) the powers in the debenture deed allowing DSK to enable a "qualified nominee" to acquire a majority of voting shares in Selli, and to remove the directors of Selli.
Referring to the constraints imposed upon Selli, the ABA said:
"Even though they do not give DSK any direct legal power to control the way in which Selli exercises voting rights attached to TGL shares, the provisions of these agreements, taken together, constitute thoroughgoing constraints on the activities in which Selli can engage unless authorised by DSK."
The Report proceeded:
"There are disincentives as well against acting in accordance with the wishes of CanWest. These include the possibility of Mr Skala and Mr Leibler breaching their fiduciary duties as directors of Selli, the possibility of a breach of the [Act] occurring as a result of such action and the possibility of the reputations of Mr Leibler and Mr Skala being compromised by such action."
Upon analysing the "qualifying requirements" provisions, the ABA observed:
"In the context of factual control over the way in which Selli or Donholken exercises the votes attaching to the TGL shares which it holds, it matters little whether the various powers and entitlements in fact exist if the parties take the view that they do, and act upon that view.
The ABA has therefore concluded as a factual matter that the qualifying requirements will not operate in practice to prevent a breach of the control provisions occurring."
* Conclusion on the significance of Selli
The Report stated:
"Directors usually act in accordance with the wishes and interests of a party that has brought about their appointment and on whose goodwill their continuation in office depends unless that places them in breach of their duties. The ABA is satisfied that all of the current Selli directors, including Messrs Leibler and Skala (albeit that they were formally appointed as a result of Leibler Media and Copplemere's shareholding in Selli), would follow the wishes and interests of DSK/CanWest to that extent in exercising Selli's TGL votes.
The ABA accepts that Messrs Leibler and Skala would act in accordance with their duties as directors of Selli. However, the Authority places very little weight on their evidence that they would act independently of DSK/CanWest in exercising Selli's TGL votes. The ABA does not accept that they would so act on any matter of substance on which CanWest sought to influence their vote unless satisfied that a breach of their duties would otherwise result. The ABA has concluded that these statements of general intention would give way to commercial reality on any particular TGL issue of importance to CanWest."
The ABA found that CanWest was in a position to exercise control of the votes cast by Selli, Numeration and Turnand on a poll at a meeting of TGL.
In early January 1997, CanWest executives and Mr Skala, as a director of Selli, began to seek alternative purchasers for the TGL shares held by Corom and Audant.
Mr Strike gave evidence that the idea of a company, other than Selli, acquiring the TGL shares from Corom and Audant came from CanWest and its solicitors (Clayton Utz); and that CanWest asked him, around 2-4 January 1997, whether he knew anybody not associated with him, who might own the shares and exercise their voting rights.
Mr Lerner's testimony was that he had a conversation with Mr Strike about locating another purchaser, after which he contacted Mr Skala, who suggested he contact Ms Melda Donnelly (director of Murdon). On the evening of Sunday 5 January 1997 Mr Skala contacted Ms Donnelly. He explained to Ms Donnelly that Selli wished to acquire the TGL shares from Corom and Audant, but that there was a potential problem. Mr Skala asked Ms Donnelly whether she would be interested in acquiring the shares, and whether she was willing for her name to be put forward to CanWest as an interested person. Mr Skala contacted CanWest and told them he had spoken to Ms Donnelly.
Mr Lerner gave evidence that he then contacted Clayton Utz to "get going on the documentation... so they did that and then we spoke (to the Donholken principals) of the terms, the negotiations"; that on Monday 6 January he spoke to Ms Donnelly "to explain that shares were available if she was interested in purchasing them"; and that Ms Donnelly received draft transaction documents from Clayton Utz on Monday afternoon.
The Report noted that Mr Richard Kennett (director of Jacomo) was first approached about the transaction by Mr David Asper, son of Mr Israel Asper and Vice-President, Programming, CanWest, on 7 January 1997. Mr David Asper mentioned an expression of interest made by Mr Kennett to acquire TGL shares in September 1996. Mr Kennett had then contacted Mr David Asper, having read about shareholder difficulties in a newspaper, and told him that if a block of TGL shares came up for sale he would be interested in purchasing them.
Mr Lerner approached Mr Kennett on the afternoon of 7 January 1997 with the same offer put to Ms Donnelly, that is, that he purchase the TGL shares held by Corom and Audant.
Mr Lerner said that he "then spoke with one of the few ones I knew, who was a fellow who had worked at some time for CanWest [Anthony Hollis], to see what his interest was".
Mr Hollis gave evidence that he was approached by Mr Lerner on 7 January 1997 and asked whether he would like to participate in the acquisition of TGL shares by Donholken. He told Mr Lerner he would go to Melbourne to meet the other two participants and seek legal advice. On Wednesday 8 January 1997 he went to the offices of Clayton Utz to resign his directorship of Pacific Communications Pty Ltd ("Pacific Communications") and to "extract" himself as a shareholder in trust and as a signatory to the bank account of Pacific Communications.
On Tuesday 7 January 1997 Ms Donnelly went to the offices of Arthur Robinson and Hedderwicks, solicitors. That afternoon, Mr Lerner informed Ms Donnelly of the names of the other two potential nominees "who were to take up the opportunity" of purchasing shares under the pre-emptive rights. Later on that day, introductory conversations took place between Messrs Kennett and Hollis (director of Rusalka) and Ms Donnelly. On Wednesday 8 January 1997 Ms Donnelly and Mr Kennett met at the offices of Arthur Robinson and Hedderwicks, solicitors. On that day, Messrs Kennett and Hollis and Ms Donnelly decided to set up a company (Donholken). Arthur Robinson and Hedderwicks agreed to act for Donholken. Mr Hollis flew to Melbourne and met the other Donholken shareholders on Thursday 9 January 1997. Further negotiations over the transaction documents, with all three Donholken shareholders present, took place from 10.00 am Thursday until 3.00 am on Friday, 10 January. Donholken purchased the TGL shares on 10 January 1997.
Mr Lerner's testimony was that it was his intention to negotiate a deal for CanWest similar to that of Selli - he said: "that's what we were prepared to finance".
The ABA found:
"The establishment of Donholken and the purchase of the TGL shares was initiated by CanWest which brought the future shareholders together, organised the drafting of the transaction documents and financed the purchase of the TGL shares.
The transaction structure proposed by CanWest, was adopted by Ms Donnelly and Messrs Kennett and Hollis with a number of amendments.
The substantive elements, including Donholken being a single purpose company, a charge over assets of Donholken and the issue of convertible and participating debentures (with the exception of the call option over a voting share) were accepted by Ms Donnelly and Messrs Kennett and Hollis.
The Directors of Donholken accepted the substantive elements of the transaction because the transaction produced benefits for them."
* The effects of the legal agreements with respect to Donholken
After analysing the documentation in its detail, the ABA found:
"Subject to the operation of the Qualifying Requirement in the Donholken Convertible Debentures Deed, the provisions of the Deed allow DSK to enable a nominee to acquire a majority of the voting shares in Donholken.
By nominating a qualified nominee to acquire a majority of the voting shares of Donholken, DSK can effect the removal of the directors of Donholken.
CanWest is entitled to sell DSK or the financial instruments held by DSK. Mr Strike acknowledged this.
The CanWest principals recognised the capacity for CanWest to change the control of companies in which DSK holds financial instruments by selling those instruments."
The structure of Donholken is illustrated in the following diagram provided to us on the appeal by Counsel for the ABA:-
* Constraints on the activities of Donholken
The ABA concluded that the provisions in the Memorandum and Articles of Association of Donholken and the Donholken Stock Trust Deed impose "significant constraints" on the activities in which Donholken can engage, unless authorised by DSK.
* Financial and other benefits for shareholders of Donholken arising from their arrangements with DSK
Ms Donnelly's evidence was that entering into the Donholken transaction had "commercial advantages" as well as a "business fit from a company directorship perspective and a media learning curve".
Mr Hollis gave evidence that the $100,000 to be paid to him, either as a dividend on the Class B shares, or as a director's payment (or a combination of both) was an important incentive to his agreeing to be a party to the Donholken transaction. In addition, Mr Hollis had recently established a business as a media consultant and entering into the transaction was perceived by Mr Hollis as a potential benefit to this enterprise.
Mr Kennett said that there were three incentives for him to enter into the transaction: (1) the $100,000 dividend or director's fee; (2) the 5 per cent of the increase of net assets of Donholken on redemption of the Class B shares; and (3) the seat on the TGL board.
Messrs Hollis, Kennett and Ms Donnelly said that they have the "understanding" that if their involvement in Donholken ceases within the first year of the company and the sum of $100,000 is not paid as a dividend, they will be entitled to that sum by way of directors' fees. Ms Donnelly gave evidence that her understanding was that her payment of the $100,000 would depend upon her involvement as a director of Donholken.
Murdon, Rusalka and Jacomo between them have a right to receive a dividend payment from Donholken of $300,000 on a year-by-year basis. Alternatively, this may be paid in full, or in part, as director's remuneration to Ms Donnelly and Messrs Kennett and Hollis. They are also entitled to 5 per cent of the net increase in value of the assets of Donholken (being the TGL shares), which can be realised on redemption of the shares, on a winding up or through a reduction in capital.
* Reasoning on the significance of Donholken
The ABA reviewed, along lines similar to the analysis made of Selli, the origins of the Donholken structure, its benefits to current members of Donholken, DSK's capacity to jeopardise those benefits, the constraints on Donholken, the disincentives against acting in accordance with CanWest's wishes, and the effect of the "qualifying requirement" provisions.
* Conclusion on the significance of Donholken
The Report stated:
"Directors have a duty to have regard to the interests of shareholders as a whole, which normally includes the collective interests of both present and prospective shareholders. However, this does not mean that directors cannot have particular regard to the interest of outsiders (such as debenture holders), unless in doing so the director disregards the interests of the shareholders as a whole. As Bowen CJ stated in Re News Corporation Limited (1987) 70 ALR 419 at 437, referring to nominee or representative directors:
`It is both realistic and not improper to expect that such directors will follow the interests of the company which appointed them subject to the qualification that they will not so act if of the view that their acts would not be in the interests of the company as a whole.'
The principle is not restricted to nominee or representative directors....
It is consistent with a director's duty for the director to follow the wishes of a particular interest which has brought about their appointment, without a close personal analysis of the issues, unless the director is of the view that in doing so he or she is not acting in the best interest of the company as a whole. See Re Broadcasting Station 2GB Pty Limited [1964-5] NSWR 1648 at 1663.
These statements of legal principle accord with the Members' own knowledge and experience. Directors usually act in accordance with the wishes and interests of a party that has brought about their appointment and on whose goodwill their continuation in office depends unless that places them in breach of their duties."
The Report went on to state that the ABA was satisfied that all of the Donholken directors, including Ms Donnelly and Messrs Kennett and Hollis (notwithstanding their formal appointment by virtue of Murdon's, Rusalka's and Jacomo's shareholding in Donholken), would follow the wishes and interests of DSK/CanWest to that extent in exercising Donholken's TGL votes.
The ABA concluded, accordingly, that CanWest is in a position to exercise control of votes cast by Donholken on a poll at a meeting of TGL.
* 14.99% (CGS)
* 11.19% (Selli)
* 0.82% (Numeration)
* 5.42% (Turnand)
* 20.05% (Donholken)
_______
52.49% total
After noting that DSK was a related corporation of CanWest, the ABA considered whether Selli and Donholken were "associates" of CanWest. With reference to the definition of "associate" in s 6(1)(e)(ii), the Report found that CanWest and DSK are in a position to exercise control of Selli and Donholken because:
[lozenge] (applying cl 2(1)(c) of Schedule 1 of the Act) DSK is "in a position to exercise control of a significant proportion of the operations" of Selli and Donholken; or
[lozenge] (applying cl 2(1)(d)(iii) of Schedule 1 of the Act) DSK is in a position to exercise "direction or restraint over a substantial issue affecting the management or affairs" of Selli and Donholken.
The ABA further found that DSK had the capacity to exercise direction or restraint over Selli in respect of: the raising of capital; the appointment of auditors; changes in the Articles or the general character of its business; and its ability to generate profits. By reason thereof, the ABA found that DSK is in a "position to exercise direction or restraint over substantial issues affecting the affairs" of Selli, and that CanWest and DSK, "as associates", are in a position to exercise "control" of Selli.
The ABA noted that Selli cannot purchase TGL shares, unless it can finance such a purchase. DSK, however, is in a position to exert restraint over the ability of Selli to raise capital. Furthermore, DSK is also in a position to exercise restraint over the ability of Selli to generate profits. Accordingly DSK is in a position to exercise "control" over the sale or purchase of TGL shares or interests associated with TGL shares. As a significant proportion of the operations of Selli is the buying and selling of TGL shares, or interests in TGL shares, DSK is in a position to exercise "control over a significant proportion of the operations" of Selli. Thus DSK is in a position to exercise control of Selli. As CanWest is in a position to exercise "control" of DSK, it can be said that DSK and CanWest are in a position to exercise "control" of Selli in the terms of s 6(1)(e)(ii) (definition of "associate").
In considering whether Selli is an "associate" of CanWest, the Report noted that it is necessary to consider the application of the qualification in the definition of "associate" in s 6. That is, Selli is not an associate "if the ABA is satisfied that [CanWest and Selli] do not act together in any relevant dealings relating to [TGL]... and neither [CanWest nor Selli] is in a position to exert influence over the business dealings of the other in relation to [TGL]...".
The Report found that Selli and CanWest (through DSK) have acted together in relevant dealings relating to TGL when Selli purchased the TGL shares held by Belshaw and Winston, and when it purchased the Class B Shares in Turnand and Numeration. DSK financed those purchases by Selli. CanWest provided DSK with that finance. Dealings in shares in TGL are "relevant dealings" in terms of the definition of "associate" in s 6. Those relevant dealings relate to TGL. Accordingly, the ABA was not satisfied that CanWest and Selli do not act together in any relevant dealings relating to TGL.
Further, by virtue of the restrictions imposed upon Selli by its Memorandum and Articles and by the debenture deed, the ABA was not satisfied that neither CanWest nor Selli is in a position to "exert influence" over the business dealings of the other in relation to TGL.
The ABA accordingly found that Selli is an "associate" of CanWest in relation to the control of TGL.
The ABA further found that DSK, as the sole debenture holder in Donholken, is in a position to exercise direction or restraint over the following issues relating to Donholken: the ability to raise capital; the nomination of auditors; changing the business or constitution of Donholken; and the ability to generate profits. The Report went on to find that DSK is in a position to exercise direction or restraint over "substantial issues affecting the affairs" of Donholken; and that DSK and CanWest are, "as associates", in a position to exercise "control" of Donholken.
The ABA noted that the operations of Donholken are limited by its Memorandum to dealings in TGL shares and debentures; that Donholken cannot sell its TGL shares without the consent of DSK; that Donholken cannot purchase TGL shares unless it can finance such a purchase; that DSK is in a position to exert restraint over the ability of Donholken to raise capital; and that DSK is also in a position to exercise restraint over the ability of Donholken to generate profits.
Accordingly, the ABA found that DSK is in a position to exercise "control" over the sale or purchase of TGL shares or interests associated with TGL shares. As a significant proportion of the operations of Donholken is the buying and selling of TGL shares or interests in TGL shares, DSK is in a "position to exercise control of a significant proportion of the operations" of Donholken. Thus, the Report found, DSK is in a position to exercise "control" of Donholken. As CanWest is in a position to exercise "control" of DSK, it can be said the DSK and its associate, CanWest, are in a position to exercise "control" of Donholken.
The Report further found that Donholken and CanWest, through DSK, "acted together in relevant dealings" relating to TGL when Donholken purchased the TGL shares held by Corom and Audant. DSK financed those purchases by Donholken. CanWest provided DSK with the finance for the subscriptions for debentures in Donholken to finance the purchase by it of TGL shares. Accordingly the ABA was not satisfied that CanWest and Donholken do not act together in any relevant dealings relating to TGL. DSK is in a position to exert influence over the ability of Donholken to finance a purchase of shares in TGL. This is a business dealing that relates to TGL and DSK is in a position to exert influence over that business dealing. As CanWest is in a position to exercise control of DSK, CanWest is in a position to exert influence over that business dealing. Accordingly, the ABA was not satisfied that neither CanWest nor Donholken is in a position to exert influence over the business dealings of the other in relation to TGL. As the ABA could not be satisfied "that [CanWest and Donholken] do not act together in any relevant dealings relating to [TGL]... and neither [CanWest nor Donholken] is in a position to exert influence over the business dealings of the other in relation to [TGL]...", it found Donholken is an "associate" of CanWest.
Noting that the company interests of Selli, Donholken and CanWest in TGL total 52.44 per cent, the ABA found that CanWest, together with its associates, is in a position to exercise "control" of TGL.
For the reasons previously given, the ABA concluded, "as a factual matter", that the "qualifying requirements" will not operate "in practice" to prevent a breach of the control provisions occurring.
The ABA went on to find that CanWest is in a position to exercise "control" of TGL, since its "associates" Donholken and Selli, are in a position to exercise control of TGL.
* Whether CanWest is in a position to exercise direction or restraint over a substantial issue affecting the management or affairs of TGL
The Report noted DSK's power to restrain Selli's capacity to transfer its shares in TGL; and DSK's power to restrain any change in the control of Selli; and similar restraints in the case of Numeration, Turnand and Donholken. The ABA found that CanWest is in a position to exercise restraint over the disposition of the ownership and/or control of more than half of the shares of TGL; and that CanWest is in a position to exercise direction over the disposition of the control of more than half the shares in TGL. The Report further found that the disposition of the ownership, and/or control, of more than half the shares in TGL is a substantial issue affecting the affairs of TGL; and that CanWest is in a position to exercise "control" of TGL because CanWest is in a position to exercise direction and restraint over a "substantial issue affecting the management and affairs" of TGL.
* Whether CanWest is in a position to control TGL by being in a position to secure the appointment of at least half of its board
After referring to Mr Strike's evidence that CanWest was "concerned" about TGL board membership, the ABA proceeded to make these findings: that CanWest was aware that Messrs Skala, Leibler, Kennett and Ms Donnelly wished to become or remain TGL directors or were willing to become TGL directors; that Messrs Skala, Leibler, Kennett and Ms Donnelly agreed to participate in transactions funded by DSK with the understanding that they would obtain or retain seats on the TGL board as an outcome of those transactions; that CanWest funded the acquisition of TGL shares by Turnand on the understanding that the effect of the acquisition was that Mr Leibler would remain on the TGL board; that CanWest funded the acquisition of TGL shares by Selli on the understanding that Mr Skala would be one of the TGL directors appointed by Selli; that one of the reasons CanWest funded the acquisition of TGL shares by Selli from Belshaw and Winston was to secure a TGL board seat for Selli; that CanWest funded the acquisition of TGL shares by Donholken on the understanding that Mr Kennett and Ms Donnelly would be the TGL directors appointed by Donholken; that CanWest, through DSK, enabled Donholken and Selli to appoint Messrs Skala, Leibler, Kennett and Ms Donnelly as TGL directors by financing the acquisition of TGL shares by Selli, Turnand and Donholken; that Selli and Donholken could not have appointed any persons to the TGL board without the funding provided by DSK.
The Report concluded that since CanWest has secured the appointment of at least half the directors of the TGL board, it was therefore in a position to exercise "control" of TGL.
By its grounds of appeal, CanWest now submits that the following findings should have been made at first instance:
* That, for the purposes of the Act, the question whether a person is in a position to exercise control of a commercial television broadcasting licence is to be answered by reference to whether that person has an immediately enforceable right to control that licence.
* That, for the purposes of s 8(2), the question whether a person is in a position to exercise control of votes cast on a poll at a meeting of a company is to be determined by reference to whether that person has an immediately enforceable right to control those votes.
* That the ABA committed a reviewable error of law in that, without reaching a conclusion that there was any arrangement or understanding between CanWest, on the one part, and Mr Skala, Mr Leibler or the Donholken directors, on the other, it nonetheless found a factual foundation for the ABA's conclusion that CanWest was in a position to exercise control of the votes of Selli or Donholken on a poll at a meeting of TGL.
* That the ABA committed a reviewable error of law in determining that, for the purposes of cl 2(1)(d)(ii) of Part 2 of Schedule 1, CanWest was in a position to secure the appointment of at least half the board of directors of TGL.
* That, in determining whether persons who have been appointed directors would act generally in the interests of a company which appointed them, or which financed the entire activity of the company, the fact that the directors would act in accordance with their fiduciary duties negated a finding of "control".
* That the various "qualifying requirements" provisions had the effect of preventing CanWest from being in a position to exercise control of: commercial television broadcasting licences controlled by TGL; the votes cast by Selli (and its subsidiaries) and Donholken on a poll at a meeting of TGL; and/or securing the appointment of at least half the board of directors of TGL.
* First, the primary Judge held that, notwithstanding that the ABA committed no error of law in concluding that CanWest's subsidiary DSK was in a position to exercise restraint over substantial issues affecting the management or affairs of Selli and Donholken, the ABA erred in failing to go on to consider, as it was required to do, the two limbs of the proviso to the definition in s 6(1) of "associate". But (as is now common ground) this observation by his Honour was an oversight: in fact, the ABA did address each of those matters. Moreover, the ABA contends, there was no error of law in not being satisfied of the two matters specified in the proviso.
* Secondly, the ABA found that CanWest was in a position to exercise direction or restraint over a "substantial issue" affecting the "affairs" of TGL, namely, the disposition of the ownership and control of more than half of its share capital, and was therefore in a position to exercise "control" of TGL. Through this "gateway", the ABA found that CanWest's subsidiary, DSK, was in a position to exercise: (a) restraint and direction over the transfer of TGL shares held by Selli, Numeration, Turnand and Donholken; and (b) direction over the disposition of control of those companies. The primary Judge approached the matter from the point of view of a restraint affecting the affairs of Selli and Donholken. Yet, the ABA's inquiry was, in truth, whether the fact that CanWest was in a position to exercise, indirectly, direction and restraint over the disposal of more than 50 per cent of the shares in TGL was a "substantial issue" affecting TGL's affairs for the purposes of cl 2(1)(d)(iii). The ABA's conclusion that the "affairs" of a company included "the ownership of shares in the company and the power of persons to dispose of or exercise control over the disposal of shares" accords with s 53 of the Corporations Law, which defines the affairs of a company to include such matters.
The essential primary facts, extracted from the findings previously summarised, were as follows:
* The structure of the shareholdings in Selli, Turnand, Numeration and Donholken came about as a result of arrangements entered into between CanWest and various companies and their principals: in Selli's case, Leibler Media (Mr Leibler) and Copplemere (Mr Skala); and in the case of Donholken, Murdon (Ms Donnelly), Jacomo (Mr Kennett) and Rusalka (Mr Hollis).
* The Selli structure was proposed by CanWest to Mr Leibler when he was seeking to sell all his shares in TGL; and to Mr Skala when he was seeking to sell the majority of his shares. The structure was developed by CanWest and its solicitors and paid for by CanWest. Selli, Turnand and Numeration acquired shares representing approximately 17 per cent of the issued capital of TGL at $13 per share, at a total cost of $103m. This acquisition was funded by CanWest.
* The Donholken structure was proposed by CanWest to Ms Donnelly, Mr Kennett and Mr Hollis because the shares of Audant (Mr Whyte) and Corom (Mr Cowin) could not be acquired through the Selli vehicle because of TNQ's objection. These three principals of Murdon, Jacomo and Rusalka respectively were approached between 5 and 7 January 1997. By 8 January 1997, Donholken had been formed. On 10 January 1997, Donholken "purchased" shares comprising 20.05 per cent of the capital of TGL at $15 per share, at a total cost of approximately $136m. There was no discussion between Ms Donnelly, Mr Kennett or Mr Hollis of the price. None of them had any previous business association or had intended, or had the capacity, to acquire a substantial parcel of TGL shares. Again, the transaction was funded by CanWest.
* Both transactions were only able to proceed upon terms that were dictated by, and acceptable to, CanWest; and because CanWest, through DSK, was prepared to finance them. Those terms were recorded in the formal documentation, being the constating documents (the Memoranda and Articles) of Selli, Turnand, Numeration and Donholken, the debentures deeds and the call options. As Hill J observed (at 508), the effect of the constraints thereby imposed upon the directors and shareholders of Selli and Donholken was to place them in a "strait jacket".
* The lending transactions between DSK, Selli and Donholken were not negotiated in any ordinary, arm's length fashion: neither transaction was the result of an approach by a borrower to a lender for the purpose of enabling the borrower to acquire an asset. Nor, as has been noted, was DSK an "authorised lender" for the purposes of the Act.
* The transactions occurred because CanWest was, as a foreign body, unable itself to acquire the TGL shares, but was also seeking to ensure that the shares not be acquired by any person having a different view as to how TGL should be run. The documentation prepared by CanWest's solicitors contained provisions which would have enabled CanWest to remove Leibler Media and Copplemere as voting shareholders in Selli, Turnand and Numeration in the event that they decided to act contrary to CanWest's wishes. The situation with respect to Donholken was similar.
* The effect of the documentation was as follows: The only business permitted to be carried on by Selli and by Donholken was the acquisition, holding or disposal of TGL shares, the receipt and investment of dividends on those shares, and the payment of dividends in accordance with their own articles; the TGL shares held by each company could not be sold or charged without DSK's written consent; none of the companies could borrow or raise money, or charge any of its property, or issue further shares (except upon DSK's conversion of its debentures); alteration or reduction of the capital of any of these companies required DSK's consent, as did any alteration of their Memoranda or Articles; DSK was entitled to appoint one director to the board of each company, whose presence was required for a quorum; DSK was entitled to notice of, and to attend, general meetings of the companies; DSK was entitled to nominate the auditor of the companies; the voting shares in Selli held by Leibler Media and by Copplemere could not be transferred; the voting shares in Donholken held by Murdon, Jacomo and Rusalka could only be transferred if DSK consented; and the principals of Selli and Donholken were entitled to receive (a) as dividends (or as directors' fees) priority payments of $300,000 per annum; and (b) a share of 5 per cent of any capital appreciation in the value of the TGL shares.
The earlier provisions of the Act with respect to the ownership and control of licences were considered by a Full Court of this Court in News (above). These provisions were, to some extent, retained in the present legislation. For instance, the earlier inclusive definition of "control" contained in s 91(1) is now re-enacted in the same form in the definition in s 6(1). The other legislative provisions applicable in News differed, in form and in substance, from the present legislation in significant respects. Moreover, the factual context in News was quite different. Notwithstanding these important differences in matters of detail, News is significant for our purposes: first because it is a case in this legislative area; and second, because two members of the Full Court made some general observations which are of importance in the present context.
Bowen CJ said (at 241), as the Tribunal noted, that the term "in a position to exercise control of a company" should be taken to mean "the power to direct or restrain what the company may do on any substantial issue". His Honour went on to say (at 243):
"The second argument advanced by counsel for both groups of applicants was that, even if control of the board of directors be relevant, TNCL's power was only to appoint half of the board of NTHL and did not put it in a position to exercise control of that company. It was argued that a power of veto does not constitute control in the relevant sense. Control, it was said, exists only where there is a power to get one's own will.
I do not agree that the concept of control is so limited. The Oxford English Dictionary defines `control' as `to exercise restraint or direction'. A power to veto is a power to restrain, and hence to control."
In my opinion, these observations are also apposite in the present case.
Lockhart J, having earlier referred to s 91(1) (the equivalent of the definition of "control" in s 6(1) of the Act) said (at 246):
"It is plain that questions of control, whether through voting power or financial interests, are to be determined by practical and commercial considerations rather than highly refined legalistic tests. The relevant provisions of the Act are not directed to or concerned with subtleties of company law."
Again, I respectfully agree.
An approach similar to that in News was taken recently by the Privy Council in Bermuda Cablevision Ltd [1998] 2 WLR 82. The issue was the meaning of a legislative provision that local companies "shall be controlled by Bermudians". A Bermudian company required finance to operate a cable television system in Bermuda. United States citizens became involved in the project. A scheme was devised to protect their interests, including the grant of a power to block any significant resolution at a general meeting. One of them entered into a consulting agreement with the company for a fee equal to 60 per cent of the company's profits.
Lord Steyn said (at 88-89):
"Counsel for the appellants submitted that the authorities establish that the natural meaning to be given to the word `controlled' in paragraph 1(1) is control by virtue of a simple majority of the votes entitled to be cast at general meetings of the company. For this proposition counsel cited several tax cases which included three decisions of the House of Lords, namely British American Tobacco Co. Ltd. v. Inland Revenue Commissioners [1943] A.C. 335; Inland Revenue Commissioners v. J. Bibby & Sons Ltd. [1945] 1 All E.R. 667 and Barclays Bank Ltd. v. Inland Revenue Commissioners [1961] A.C. 509. The decisions cited do not assist. Indeed a study of the reasoning in those decision shows that expressions such as `control' and `controlling interest' take their colour from the context in which they appear. There is no general rule as to what the word `controlled' means. Contrary to the submissions of counsel for the appellants, the expression `controlled by Bermudians' in paragraph 1(1) is not a term of art. The expression must be given the meaning which the context requires."
His Lordship went on to say (at 89):
"Nothing in Part I of Schedule 3 warrants a restrictive interpretation of paragraph 1(1) to limit its scope to control by means of a vote at general meetings. Indeed paragraph 2(1), so far as it requires the percentage of Bermudian directors not to be less than 60 per cent., shows that the legislature did not proceed on the myopic footing that control can be exercised only through a vote at general meetings. That the legislature was alive to the fact that businessmen might by `arrangement, artifice or device' create the appearance of compliance with the legislation is made clear elsewhere: see section 113(2). This was the context in which the legislature adopted the broad general statutory requirement of control by Bermudians. The generality of the meaning of control in such a context is illustrated by the famous decision of the House of Lords in Daimler Co. Ltd. v. Continental Tyre and Rubber Co. (Great Britain) Ltd. [1916] 2 A.C. 307."
Lord Steyn (at 89) then cited observations of Lord Parker in Daimler [at 340] that -
"... the character of those who can make and unmake those officers, dictate their conduct mediately or immediately, prescribe their duties and call them to account, may also be material in a question of the enemy character of the company. If not definite and conclusive, it must at least be prima facie relevant, as raising a presumption that those who are purporting to act in the name of the company are, in fact, under the control of those whom it is their interest to satisfy."
Lord Steyn then said (at 89):
"While those observations dealing with an issue of trading with the enemy cannot be treated as definitive in the present case they are illustrative of a possible wide general meaning of the concept of control in the context of companies. And their Lordships are satisfied that there is nothing in the present contextual scene which justifies any restriction on the natural width of the expression `controlled by Bermudians.' Indeed, if one has regard to the purpose of the legislation this conclusion is reinforced. The purpose of the requirement is plainly to ensure that Bermudian resources remain Bermudian. And it must have been intended to make an effective provision to this end. Giving the words in paragraph 1(1) their ordinary meaning achieves this legislative purpose."
These observations are equally apposite in the present context.
Particular reliance was placed by CanWest upon the reasoning of the High Court in the revenue case of W. P. Keighery Pty Ltd v Federal Commission of Taxation [1957] HCA 2; (1957) 100 CLR 66, especially per Dixon CJ, Kitto and Taylor JJ, where their Honours said (at 85):
"It is, of course, nothing to the point that the existence of the power of future redemption might conceivably have made the holders of the redeemable preference shares more willing than otherwise they would have been to comply with the wishes of Mr. and Mrs. Keighery. Clearly enough, the description of a company as `capable of being controlled' is not satisfied by the mere fact that a majority of shareholders, while not under any legal or equitable obligation to obey the directions of other persons, may possibly prove so anxious to retain shares which those other persons are able to eliminate that they will obey those directions against their own desires. A power in a person to provide shareholders with an incentive or inducement to exercise their voting power as that person may wish is not aptly described as making the company capable of being controlled by that person. The person must be able to dictate the decisions of the general meeting, through a preponderance of voting power which either is vested in him or is subject to his command." (Emphasis added).
But, as Bowen CJ pointed out in News (at 243), in distinguishing Keighery there, it was held in Keighery that a company was "capable of being controlled" by a person, or group of persons, at a particular date within the meaning of the taxation legislation only where that person or group had, at the relevant date, a presently exercisable power of control. Accordingly, the essence of the decision in Keighery, in that context, is that having a potential to exercise a power in the future, is not the same as having a present right to exercise that power.
A similar tax question arose in Federal Commissioner of Taxation v Sidney Williams (Holdings) Ltd [1957] HCA 1; (1957) 100 CLR 95. There, Dixon CJ, Kitto and Taylor JJ rejected (at 112) the Commissioner's argument that would have "construe[d] the expression `capable of being controlled' as referring, not to a capability existing in law - that is to say a liability to a lawful control by the exercise of legal or equitable rights or powers which persons are shown to possess - but to a possibility of being wrongfully subjected to de facto control by persons acting in breach of the rights of others". (Emphasis added).
These cases, and another revenue case, Mendes v Commissioner of Probate Duties (Victoria) [1967] HCA 23; (1967) 122 CLR 152, were concerned with the possible application of familiar common law concepts of "control" and of a "controlling interest" in a revenue context. They, and other tax cases, were considered but distinguished in the judgments of Bowen CJ and myself in News. I remain of the view, without needing to restate the reasons for that conclusion (see at 251-252), that they can provide little assistance in the present quite different factual and legislative contexts. As Bowen CJ said in News (at 244) in a passage also relied on by Hill J (at 505-506):
"In my opinion, the decision in Keighery is not decisive of the present question. First, it is to be noted that the provision there in question, s 105(1)(f) of the Income Tax and Social Services Contribution Act 1936 , was worded differently from the provision now under consideration. The words `in a position' were not present. Those words, which appear in s 92D(1) of the Broadcasting and Television Act 1942 , convey a wider concept of control. They are capable of applying to a situation where the control is not being exercised in fact as at the date of the inquiry. The words are, thus, `in addition to, and expansive of, `control' simpliciter': see Equiticorp Industries Ltd v ACI International Ltd (1986) 10 ACLR 568 at 572."
In Equiticorp (later reported at [1987] VR 485), the question was whether registration of a transfer of shares would result in a "foreign person", as defined by the Foreign Takeovers Act 1975 ("the FAT Act"), having a "substantial interest" in more than 15 per cent of the issued shares of a company through the application of elaborate tracing provisions in the legislation and in the company's Articles of Association. For our purposes, it will suffice to note that the Articles deemed a "substantial interest" to exist if a person is "in a position to control" not less than 15 per cent of the company's voting power. The FAT Act also contained a provision (s 8) in terms similar to the description of "control" in s 6(1) of the Act. Having referred to Keighery and Sidney Williams, the Full Court (Murphy, Fullagar and Gobbo JJ) said (at 489):
"The above authorities lend strong support to the proposition that when one speaks of a company capable of being controlled in terms of voting power, or, to use the language of s. 9(1), of being in a position to control a certain voting power, one looks for an enforceable and presently and immediately existing right enabling the voting power to be controlled. It must be more than control in certain eventualities. In addition, the voting control is that to be exercised by the majority of votes at a general meeting: see Mendes v. Commissioner of Probate Duties [1967] HCA 23; (1956) 122 C.L.R. 152; James Bibby & Sons v. Inland Revenue Commissioner [1945] 1 All E.R. 667; Barclays Bank Ltd. v. I.R.C. [1961] A.C. 509." (Emphasis added).
It must follow that the Full Court proceeded upon the footing that the essential scheme of the legislation in the tax cases and the FAT Act were, in all relevant respects, identical. But the same comparison cannot be made of the Act and the revenue legislation applied in the revenue cases. As a matter of form, and of substance, there are significant differences. For that reason alone, I would distinguish Equiticorp.
There were important factual differences in Equiticorp also. The Full Court went on to refer to s 8 of the FAT Act, and said (at 492):
"We have come to the conclusion that s. 8 does not assist the respondent in the present case. In our view, the section concerns itself with cases where there is control of voting power, although the control may be indirect or exercisable only by means of arrangements or practices. It does not direct itself to the question which is an earlier one in point of time, namely how does one secure or acquire voting power? Moreover, in the present case, there was no evidence at the trial directed to this matter. It is significant that though Hawkins, the principal figure in the takeover arrangements, was cross-examined at some length, there was no suggestion made to him or material elicited that there were any arrangements or practices of the kind contemplated by s. 8."
Their Honours went on (at 492) to restate, following the approach taken in the revenue authorities, that "in order to be in a position to control voting power, there must be an enforceable and immediately exercisable right to exercise control of the requisite voting power at the relevant time".
Equiticorp was distinguished on the facts, and legislative differences were noticed, by Hodgson J in National Companies & Securities Commission v Brierley Investments Ltd (1988) 14 NSWLR 273, a case concerned with the limits imposed by the Companies (Acquisitions of Shares) (New South Wales) Code upon the capacity of a foreign company to control shares in a New South Wales company. Hodgson J, in a passage followed by Hill J (at 504-505), said (at 287):
"So far as concerns the case of Equiticorp, in my view, it does show that a distinction between power to control, and a potentiality to obtain power to control, may apply to these provisions. However, it does not, in my view, exclude the possibility that a person who has, as a matter of legal entitlement, only a potentiality to obtain power to control, may at the same time have an immediate factual power to control, based on understandings or arrangements, and further supported by the legal entitlement to which I have referred. That possibility is expressly put to one side in Equiticorp (at 242-243) as not being the subject of evidence in that case, and the general statement in that case that `there must be an enforceable and immediately exercisable right to exercise control' should be read with that in mind: if that general statement were read as being entirely unqualified, it would, I think, be inconsistent with the Foreign Takeovers Act (Cth), s 8.
Further, in my view, there are relevant differences in the legislation, especially in s 9(2) and s 9(3) of the Acquisition Code. There is nothing corresponding to s 9(2) of the Acquisition Code in the Foreign Takeovers Act (Cth)(which was dealt with in Equiticorp), and there is no equivalent in the Foreign Takeovers Act (Cth) of the reference to breach of or revocation of agreements etc, as appears in s 9(3) of the Acquisition Code. These words suggest that one may have a present power to control, within the meaning of s 9 of the Acquisition Code, even when there is an element of futurity, in that a step such as revocation of an agreement is required. I think that this means in turn that although there may be cases under the Acquisition Code where a person has only a potentiality to obtain a power to control, and not an actual power to control, these may not be the same cases as under the Foreign Takeovers Act (Cth)."
I respectfully agree with these observations, but note, as Hill J pointed out (at 505), that s 9(3) of the Acquisition Code is not part of the legislative scheme of the Act. Section 9(3) provides:
"(3) A reference in this section to power or control includes a reference to power or control that is direct or indirect or is, or is capable of being, exercised as a result of, or by means of, or in breach of, or by revocation of, trusts, agreements, arrangements, understandings and practices, or any of them, whether or not they are enforceable, and a reference in this section to a controlling interest includes a reference to such an interest as gives control."
To that extent, the decision in Brierley may also be distinguished for our purposes.
It will be convenient next to deal with the questions posed by CanWest's grounds of appeal in turn.
On behalf of CanWest it is submitted that the Tribunal should have held, applying the reasoning in the revenue cases and in Equiticorp, that in order to be in a position to control a licence or a vote for present purposes, there must be "an enforceable and immediately exercisable right to exercise control...". It is argued that the passage from the reasons in Keighery, at 85, cited above, "is directly in point".
I cannot accept the submission. For the reasons previously given, I am of the view that both the legislative schemes and the facts of the cases now relied on by CanWest differ from the present case in substantial respects. Moreover, there is no explicit or implicit requirement in the Act that the relevant power be immediately exercisable on legally enforceable grounds. The whole tenor of the legislative scheme is to the contrary. The essence of the notion of control is, as Bowen CJ stated it, and as the ABA properly recognised, "the power to direct or restrain what [may be done]...". That is the core concept, or end, and the inclusive description of "control" in s 6(1) provides that the means used to achieve this end pick up, inter alia, control achieved "as a result of, or by means of... arrangements, understandings and practices, whether or not having legal or equitable force and whether or not based on legal and equitable rights". In my opinion, the ABA correctly appreciated the nature of the legal question it was required to address.
Hill J (at 505) criticised the reasoning in Equiticorp, declining to follow it. CanWest now challenges his Honour's approach. But it is sufficient for present purposes to distinguish Equiticorp for the reasons given. It is not necessary to consider whether it was correctly decided.
I have difficulty accepting the submission.
In the first place, there is no requirement, explicit or implicit, in the legislative scheme that a specific finding of the kind suggested must be made as a condition precedent to concluding that a state or condition of "control" exists. Of course, the existence of such an arrangement or understanding may constitute one means of providing a factual foundation for a finding that control, in the sense of a power to direct or restrain activity, actually exists. But it is not the only means, logically or otherwise. An equally obvious example is the existence of a situation of practical control of the kind found to exist here, arising out of the many formal constraints, financial incentives and disincentives, and other surrounding circumstances and context fully described by the ABA in its Report.
Moreover, the present matters are factual only, and cannot be judicially reviewed as an error in law, even if thought to be lacking in "logic". As Menzies J said in Reg. v The District Court; Ex parte White [1966] HCA 69; (1966) 116 CLR 644 (at 654), "[t]o establish some faulty (e.g. illogical) inference of fact would not disclose an error of law". Brennan J observed in Waterford v The Commonwealth [1987] HCA 25; (1987) 163 CLR 54 (at 77) that "[t]here is no error of law simply in making a wrong finding of fact". In Australian Broadcasting Tribunal v Bond [1990] HCA 33; (1990) 170 CLR 321 Mason CJ said, after citing these authorities (at 356):
"Thus, at common law, according to the Australian authorities, want of logic is not synonymous with error of law. So long as there is some basis for an inference - in other words, the particular inference is reasonably open - even if that inference appears to have been drawn as a result of illogical reasoning, there is no place for judicial review because no error of law has taken place."
In any event, I cannot accept that the ABA's conclusion on this aspect does lack logic. To the contrary, its finding was reasonably open in the particular circumstances. They provided a sufficient basis for the ABA's inference of control.
This conclusion, CanWest submits, constituted an error of law because it was founded on reasoning that was "illogical" (see Taveli v Minister for Immigration, Local Government and Ethnic Affairs (1989) 86 ALR 435 at 453 per Wilcox J (appeal rejected [1990] FCA 169; (1990) 23 FCR 162)). The facts found by the ABA, it is contended, were incapable of satisfying the statutory test (see Collector of Customs v Agfa-Gevaert Limited [1996] HCA 36; (1996) 186 CLR 389). The ABA's conclusion "flies in the face" of the common law test of causation which needs to be applied (see, by way of analogy, March v E & M H Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506). Alternatively, it must be inferred that the ABA applied the wrong test or misconstrued the meaning of "secure the appointment" (see Craig v South Australia [1995] HCA 58; (1995) 184 CLR 163 at 178). Alternatively, CanWest argues, the ABA's conclusion involved an error of law because it failed to recognise that the ability to "secure" appointments needs to be, but was not, a presently exercisable ability.
I cannot accept the submission.
In the first place, although the ABA did rely in this connection on the matters mentioned, they were not the only considerations taken into account. As has been seen, the ABA viewed the question from a much broader perspective and had regard to the whole of the circumstances, as it was entitled (indeed bound) to do, being the actual context in which the issue fell to be decided.
Secondly, the observations made by Wilcox J in Taveli (at 453) should themselves be viewed in their own context which was as follows:
"In numerous cases the comment has been made that unreasonableness, in this sense, is a difficult ground to establish. Probably the ground has its most frequent application in cases in which the challenger can demonstrate an illogicality in, or misapplication of, the reasoning adopted by the decision-maker; so that the factual result is perverse, by the decision-maker's own criteria. Parramatta City Council v Pestell [1972] HCA 59; (1972) 128 CLR 305 and Prasad v Minister for Immigration and Ethnic Affairs [1985] FCA 47; (1985) 6 FCR 155; 65 ALR 549 constitute examples of this type of case. There may be cases - although I think that they are likely to be rare - in which all of the factors germane to a particular decision point in one direction. If such a case arose, it would seem proper to brand as unreasonable a decision to the contrary effect. But ordinarily there will be factors pointing in each direction. Where that is the situation, the weight of those factors is a matter for evaluation by the decision-maker. In such a case, even though a particular judge might feel that the preferable decision would have been otherwise, that feeling would not be sufficient to justify the condemnation of the decision as unreasonable, in the relevant sense."
His Honour went on to hold (at 454) that "it cannot be said that the decisions [under challenge] were so unreasonable that no reasonable person could have made them". This statement, and the references to Pestell and Prasad make it clear that Wilcox J had the possible application of the "Wednesbury" principle in mind. His Honour's use of the term "illogicality" should be understood in that special sense, bearing in mind that one of the dictionary meanings (Macquarie) of "illogical" is "unreasonable". No "Wednesbury" case could have been, or was, advanced here. The factual conclusion that CanWest held the power to "secure" the appointment was plainly open, given the surrounding circumstances mentioned in the Report. I have already dealt with the absence of any jurisdiction in this Court to review a finding of fact for alleged lack of "logic".
In Agfa-Gevaert, a tribunal hearing a customs duty appeal construed a composite phrase by reference to the technical or trade meaning of some words and the ordinary meaning of another word. Decisions of the tribunal were reviewable only upon questions of law. It was held that the tribunal's construction involved no error of law; but that it would be sufficient to raise a reviewable question of law that the composite phrase was identified as being used in a sense different from that which it had in ordinary speech.
But there is no composite phrase involved here. The crucial word is "secure" (no question arises as to the meaning of "appointment"). In its context, the verb "secure" appears to have "obtain" as one of its primary dictionary meanings (Macquarie). It further appears that the ABA understood the verb in that sense and applied it to the facts as it found them. In my opinion, it cannot be said that the ABA's conclusion, in all of the circumstances it mentioned, was not open as a matter of fact. No question of law arises, in my view, in this respect.
Nor, in my opinion, is any question of the application of the common law test of causation involved. The Act requires something different, that is, that CanWest be "in a position" (i.e. have the power, in fact, as discussed above) to secure the appointment. This must be a power that presently exists (with or without a legal or equitable foundation), but there is nothing in the ABA's reasons to suggest that this requirement was not appreciated.
In Craig, the High Court said (at 177-178) that an inferior court will exceed its authority and fall into jurisdictional error "if it misconstrues the statute... and thereby misconceives the nature of the function which it is performing...". In my view, for the reasons previously given, the ABA made no such error.
In my view, the argument should be rejected. It is true that the ABA's finding in this connection, which has already been fully set out, accepts that although the various directors would act in accordance with the instructions or wishes of CanWest, they would not do so if any breach of their fiduciary duties was involved. In other words, the "control" of CanWest over the directors would be confined to directing or restraining their activities in circumstances that fell within lawful limits. Clearly the ABA had in mind that there would be circumstances in which such control, that is, control in circumstances falling within lawful limits, would occur. But it does not follow that "control", even if limited to this extent, is not "control" of a kind contemplated by the Act. In other words, "control" over some activities is sufficient for present purposes. It is not necessary also to find that "control" extended to unlawful conduct.
In my view, there was no legal error by the ABA in this regard.
ORDERS
I propose that the appeal be dismissed, with costs.
|
I certify that this and the preceding fifty-seven (57) pages are a true copy of the Reasons for Judgment herein of the Honourable
Justice Beaumont J |
Associate:
Dated:
|
Counsel for the Appellant: | R B S Macfarlan QC and J Griffiths of counsel |
| Solicitor for the Appellant: | Clayton Utz |
| Counsel for the Respondent: | A J Meagher SC and N J Williams of counsel |
| Solicitor for the Respondent: | Australian Government Solicitor |
| Date of Hearing: | 24 and 25 November 1997 |
| Date of Judgment: | 27 February 1998 |
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/1998/115.html