Sagasco Amadeus Pty Ltd v Magellan Petroleum Australia Ltd [1993] HCA 14; (1993) 177 CLR 508; (1993) 10 ACSR 399; (1993) 113 ALR 23; (1993) 11 ACLC 452; (1993) 67 ALJR 566 (20 May 1993)

HIGH COURT OF AUSTRALIA

SAGASCO AMADEUS PTY. LTD. AND ANOR v. MAGELLAN PETROLEUM AUSTRALIA LTD.
F.C. 93/025
Number of pages - 6
[1993] HCA 14; (1993) 10 ACSR 399, (1993) 113 ALR 23, (1993) 11 ACLC 452
(1993) 67 ALJR 566

High Court of Australia
Mason CJ(1), Dawson(1), Toohey(1), Gaudron(1) and McHugh(2) JJ

CATCHWORDS

HEARING

HOBART, 16 March 1993
20:5:1993, SYDNEY

ORDER

Appeal dismissed with costs.

DECISION

MASON CJ, DAWSON, TOOHEY AND GAUDRON JJ This is an appeal by Sagasco Amadeus Pty. Ltd. ("Sagasco") and Sagasco Holdings Ltd. ("Sagasco Holdings") against an interlocutory order made by the Court of Appeal of the Supreme Court of Queensland restraining Sagasco from dispatching takeover offers pursuant to a takeover scheme for the acquisition of shares in Magellan Petroleum Australia Ltd. ("Magellan Australia").

2. Sagasco is a company incorporated in South Australia and is a wholly owned subsidiary of Sagasco Holdings, also incorporated in South Australia. Magellan Australia is a company incorporated in Queensland. Approximately 50.5% of the shares in Magellan Australia are held by Magellan Petroleum Company ("Magellan U.S."), a company incorporated in Delaware in the United States of America.

3. Three companies controlled by Bankers Trust Australia Ltd., namely Permanent Trustee Company Ltd., BT Custodians Ltd. and Pendal Nominees Pty. Ltd., held shares in Magellan Australia and Magellan U.S. By a contract made on 3 September 1992 with each of these three companies, Sagasco Holdings agreed on behalf of Sagasco to acquire a number of ordinary 50 cent fully paid shares in the capital of Magellan Australia for $2.75 a share, a price which was substantially in excess of the listed share price at the time. By another contract made on 3 September 1992 with each of these three companies Sagasco Holdings agreed on behalf of Sagasco to acquire a number of one cent undesignated shares in Magellan U.S. for $2.53 each, a price which was considerably higher than the current market price of those shares. The total number of shares in Magellan Australia which Sagasco Holdings contracted to acquire was 6,136,208, amounting to 13.8049% of its issued capital. The total number of shares in Magellan U.S. which Sagasco Holdings contracted to acquire was 3,305,869, amounting to approximately 13.5% of its issued capital. Completion of the sale of the shares in Magellan Australia was conditional upon the completion of the sale of the shares in Magellan U.S.

4. On the same day, 3 September 1992, Sagasco announced that it proposed to dispatch offers to acquire all of the ordinary 50 cent fully paid shares in Magellan Australia. A notice of substantial shareholding under s.709(1) of the Corporations Law dated 4 September 1992 was given disclosing the entitlement of Sagasco to 13.8049% of the shares in the capital of Magellan Australia. A Part A statement under s.750 of the Corporations Law dated 9 September 1992 was registered by the Australian Securities Commission on 10 September 1992. According to the Part A statement and the accompanying pro forma offer, the consideration to be offered by Sagasco for each ordinary 50 cent fully paid share in Magellan Australia will be $2.75.

5. On 21 September 1992, Magellan Australia commenced this action against Sagasco, Sagasco Holdings and, as third defendants, the three companies which had agreed to sell their shares in Magellan Australia and Magellan U.S. to Sagasco Holdings or its nominee. The relief claimed includes a declaration that Sagasco and Sagasco Holdings contravened s.698(2) of the Corporations Law by giving or offering to give or agreeing to give to the third defendants a benefit that Sagasco was not proposing to provide for under takeover offers proposed to be sent to the shareholders in Magellan Australia and an injunction restraining Sagasco from dispatching offers pursuant to the Part A Statement.

6. Section 698 relevantly provides:
"(1) Subject to subsection (5), if a Part A statement
is served on a target company, the offeror, or an associate
of the offeror, shall not, during the takeover period, give,
offer to give or agree to give to a person whose shares may
be acquired under the takeover scheme, or to an associate
of such a person, any benefit not provided for under the
takeover offers or, if the takeover offers are varied in
accordance with Division 5 of Part 6.3, under the takeover
offers as so varied.
(2) Subject to subsection (5), a person who proposes
to send takeover offers within the next following 4 months
(in this subsection called the 'proposed offeror'), or an
associate of such a person, shall not give, offer to give or
agree to give to a person whose shares may be acquired under
the takeover scheme, or to an associate of such a person,
any benefit that the proposed offeror is not proposing to
provide for under the takeover offers.
...
(5) Nothing in this section prohibits:
(a) the variation of a takeover offer as provided by
Division 5 of Part 6.3; or
(b) the acquisition of shares in a company at an
official meeting of a stock exchange in the
ordinary course of trading on the stock market of
that stock exchange."
7. For the purpose of the interlocutory proceedings, the appellants, Sagasco and Sagasco Holdings, do not dispute that Sagasco Holdings on behalf of Sagasco gave each of the third defendants a benefit in the form of the premium it paid for the shares in Magellan U.S., which Sagasco does not propose to provide to shareholders in Magellan Australia under the takeover offers for that company. It also seems to have been assumed, both in the courts below and before us, that Sagasco acquired from each of the third defendants the beneficial interest in the whole of its shareholding in Magellan Australia.

8. The Court of Appeal, in granting an interlocutory injunction, found that the respondent, Magellan Australia, had established the probability of final relief being granted upon the footing that the premiums paid to the third defendants by Sagasco Holdings on behalf of Sagasco were prohibited by s.698(2) of the Corporations Law.

9. The appellants contest the construction of s.698(2) which led the Court of Appeal to its conclusion. Their submission is a simple one. They submit that, even if Sagasco was "a person who propose(d) to send takeover offers" within the four months following the acquisition of the third defendants' shares in Magellan Australia, none of the third defendants was at the time of the acquisition (and therefore at the time of being given any benefit) "a person whose shares may be acquired under the takeover scheme". All of the third defendants' shares having been acquired before there was any takeover scheme, they could not, so the submission runs, "be acquired under the takeover scheme". The appellants rely upon the definition of "takeover offer" in s.603 of the Corporations Law as meaning "an offer to acquire shares made under a takeover scheme". "Takeover scheme" is itself defined by s.603 as "offers that relate to shares in a company and, because of section 634, are taken to be made under a takeover scheme". Section 634 provides that "offers to acquire shares are made under a takeover scheme if, and only if, the offers relate only to a class of shares in a company" and the requirements of Div.1 of Pt 6.3 of the Corporations Law have been complied with.

10. The argument, as we understand it, is as follows. The expression in s.698(2), "a person whose shares may be acquired under the takeover scheme", also appears in s.698(1). In that section "takeover scheme" refers to a takeover scheme within the meaning of the definition in s.603, that is, an actual takeover scheme which complies with the requirements of Div.1. When that same expression "a person whose shares may be acquired under the takeover scheme" also appears in s.698(2), "takeover scheme" should be given the same meaning that it has in s.698(1). Otherwise its construction would depart from the statutory definition (a departure is allowed by s.603 only if a contrary intention appears), and further, the same expression would be given two different constructions within the same section. Therefore, in s.698(2), "the takeover scheme" must mean the actual takeover scheme when it eventuates, being a takeover scheme that complies with the requirements of Div.1. Since the third defendants' shares in Magellan Australia were sold to Sagasco and could not thereafter be acquired under any takeover scheme that might eventuate, the third defendants were not "person(s) whose shares may be acquired under the takeover scheme". Thus even if a benefit was given to them, there was no breach of the sub-section.

11. In our view that argument must be rejected. When s.698(2) refers to "a person who proposes to send takeover offers" it must, by reason of the definition of "takeover offer", be taken to be referring to offers "to acquire shares ... under a takeover scheme". But it is clear that in so doing it is speaking of a proposed takeover scheme rather than one then in existence. The reference to a takeover scheme does not occur directly but by reason of "takeover offer" being defined as an offer under a takeover scheme. The express reference to "the takeover scheme" later in s.698(2) can then only be a reference to the proposed takeover scheme earlier referred to. Such a construction does not, in our view, involve any departure from the definition of "takeover offer" or "takeover scheme", nor does it give two different meanings to the same expression in the same section.

12. Thus, if Sagasco Holdings on behalf of Sagasco contracted to acquire the third defendants' shares in Magellan Australia, and at that time Sagasco proposed to send offers under a takeover scheme for shares of that class in that company, then at that time the third defendants were persons whose shares "may be acquired" under the proposed takeover scheme. Assuming also that the price paid for the third defendants' shares in Magellan U.S. incorporated a premium amounting to a "benefit" within the meaning of s.698(2), the Court of Appeal was not in error in concluding that, as a matter of probability, the payment of that premium was in breach of s.698(2).

13. The construction of s.698(2) for which the appellants contend would lead to anomalous results. If a shareholder were to refuse to sell its shares to a person proposing to send takeover offers in circumstances where that person was offering a benefit within the meaning of s.698(2), the offer of the benefit would constitute a breach of the sub-section. The shareholder would remain "a person whose shares may be acquired under the takeover scheme". On the other hand, upon the appellants' argument, if the shareholder were to accept the benefit and sell the whole of its shareholding, there would be no breach of s.698(2) because the shareholder would not be "a person whose shares may be acquired under the takeover scheme".

14. The construction of s.698(2) which we would adopt is, in our view, the only construction which the language of the section permits. It is also a construction which is consonant with the evident policy of the legislation. Section 731 sets out four principles, commonly known as the Eggleston principles, for the exercise of the Australian Securities Commission's powers in respect of the acquisition of shares. "Unacceptable circumstances" are taken to have occurred if any of these four principles is infringed ((1) s.732.). Paragraph (d) of s.731 contains the fourth principle:

"(d) that, as far as practicable, all shareholders of
a company (should) have equal opportunities to
participate in any benefits accruing to shareholders
under any proposal under which a person would acquire
a substantial interest in the company".

That principle is reflected in s.636(1) of the Corporations Law which provides that, with certain exceptions which are not material, the takeover offer made to each holder of shares in the relevant class must be the same. It is also reflected in s.641(1) which provides that the cash price offered under a takeover offer must be, save in certain specified circumstances, not less than the highest price per share paid by the offeror for shares in the relevant class during the four months ending on the day on which the first of the offers is sent. The same principle is to be seen in s.655 which provides that where there is a variation of the consideration specified in a takeover scheme for the acquisition of shares and a takeover offer under the scheme has previously been accepted, the acceptor is entitled to any increase in the price offered. And finally in s.698 itself, sub-s.(1), which appeared in earlier legislation without sub-s.(2) ((2) Companies (Acquisition of Shares) Act 1980 (Cth), s.40.), prohibits the giving of any benefits not provided for under the takeover offers during the takeover period to shareholders whose shares might be acquired under a takeover scheme.

15. In Intercapital Holdings Ltd. v. NCSC ((3) (1987) 12 ACLR 684; 6 ACLC 243.) the Supreme Court of Victoria considered the fourth Eggleston principle, at that time enforced by s.60(3)(d) of the Companies (Acquisition of Shares) (Victoria) Code. The plaintiff had acquired shares in a company at a higher price than the price which it proposed to offer subsequently under a takeover scheme. Marks J rejected a submission that the plaintiff's conduct was unacceptable, holding that the relevant acquisition of a substantial interest for the purposes of s.60(3)(d) was that proposed under the takeover scheme and not the previous acquisition of shares at a higher price or the aggregation of both acquisitions. His Honour said ((4) (1987) 12 ACLR, at p 688; 6 ACLC, at p 247.):

"It is true that a person might acquire more than one
substantial interest and that the sum of them is also a
'substantial interest'. If, however, s 60(3)(d) is to apply
to the latter then a shareholder who sold at a higher or
lower price than another anywhere along the way could be
capable of activating the section, no matter what the time
lapse between acquisitions. This would make the Code
unworkable, particularly in a market as volatile as the one
we have experienced in recent years."

The problem adverted to in Intercapital Holdings Ltd. v. NCSC was addressed by the legislature and the result was the insertion in the legislation of s.698(2). Clearly the legislature wished to extend the principle of equality to a period before the period of the takeover scheme and it did so by referring to proposed takeover offers and adopting a limit of four months consistently with s.641(1). No doubt, in the absence of any deeming provision, whether at a particular time a person "proposes" to send takeover offers pursuant to a proposed takeover scheme may in some circumstances be difficult to prove ((5) Deeming provisions were included in the Corporations Bill 1988 (Cth) introduced into the House of Representatives in 1988, but were deleted by amendment: see Commonwealth, House of Representatives, Parliamentary Debates (Hansard), 28 September 1988, at p 1113.), but the intention which lies behind s.698(2) is clear enough.

16. It is argued that to construe s.698(2) as we have suggested would lead to difficulty because the mere acquisition of shares in a company, even at the same price as that later offered under a takeover scheme, would confer a benefit upon shareholders whose shares were acquired before the commencement of the takeover period in that they would receive the price at an earlier time. It is said that, as a result, s.698(2) may preclude the acquisition of shares otherwise than on the stockmarket ((6) See s.698(5).) for a period of four months before proposed takeover offers were made. For example, it is said that the sub-section may preclude a person proposing to make takeover offers from building up during that period a shareholding of the permitted percentage ((7) See s.615.) by off-market acquisitions before launching the takeover scheme. We do not think that this argument can be sustained. The price paid for shares, whenever paid, is consideration for the shares and earlier payment means relinquishing the shares and the rights that go with them at an earlier date. Mere earlier payment would not, therefore, constitute a benefit for the purposes of s.698(2).

17. For these reasons we would dismiss the appeal.

McHUGH J I agree that this appeal should be dismissed for the reasons which are given in the judgment of Mason CJ, Dawson, Toohey and Gaudron JJ.

2. However, I am unable to agree that an off-market acquisition of shares, at the same price as the price later offered for shares under a takeover scheme, does not constitute a benefit for the purpose of s.698(2). At least in the case where no dividends or other benefits will be derived from the shares in the period between the off-market acquisition and the takeover acquisition, early payment must be a benefit to the shareholder who sells before the takeover date. The quantum of the benefit will depend on the length of the period and the current interest rates. But except in the case where the period is so short that it can be disregarded for practical purposes, early payment must be a benefit even when the nominal sale price of both lots of shares is the same.