Gantry Acquisition Corp v Parker & Parsley Petroleum Australia Pty Ltd

(1994) 51 FCR 554

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(Judgment by: Burchett J)

Gantry Acquisition Corp
vParker & Parsley Petroleum Australia Pty Ltd

Court:

Judges: Sheppard J

Burchett JBeazley J

Subject References:
Corporations
Takeovers
Whether Pt A statement deficient
Whether failure to set out particulars of offeror's intentions regarding continuation of business of target company
Whether breaches es-tablished
Consideration of proper approach to construction of Corporations Law provisions
Corporations Law ss 698, 731, 739, 743, 750

Legislative References:
Corporations Law - s 698; s 731; s 739; s 743; s 750

Case References:
Samic Ltd v Metals Exploration Ltd - (1993) 60 SASR 300
Sagasco Amadeus Pty Ltd v Magellan Petroleum Australia Ltd - (1993) 177 CLR 508; 113 ALR 23
ICAL Ltd v County Natwest Securities Australia Ltd & Transfield (Ship Building) Pty Ltd - (1988) 6 ACLC 467
Associated Dairies Ltd v Central Western Dairy Ltd - (1993) 11 ACLC 827
Fitzgerald-Hart v Attorney-General - [1985] 3 All ER 455
Re Paddle River Construction Ltd - (1961) 35 WWR 605
A v B - [1969] NZLR 534
Bond Corp Holdings Ltd v Sulan - [1990] 3 WAR 49
Re Karounos Ex parte Official Trustee in Bankruptcy - (1989) 89 ALR 580
Jolly v District Council of Yorketown - (1968) 119 CLR 347
House v R - (1936) 55 CLR 499
Neil v Nott - (1994) 121 ALR 148

Hearing date: 4 July 1994
Judgment date: 20 July 1994

Sydney

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Judgment by:
Burchett J

This is an appeal from a final order made under s 1324 of the Corporations Law restraining the appellant from sending a copy of a Pt A statement prepared on behalf of the appellant to any shareholder of Bridge Oil Ltd, a company which the appellant is endeavouring to take over.

Bridge Oil Ltd is a well known Australian company with interests in oil and natural gas in Australia and in widely scattered regions of the world. It has a wholly owned subsidiary, Bridge Oil USA Inc (BOUSA), which has interests in a number of oil fields in the United States. The United States assets amount to between 50% and 60% in value of the group's assets.

At the heart of the dispute is the question of the sufficiency, to comply with s 750 of the Corporations Law, of the disclosure made by para 15 of the Pt A statement, read of course in the light of the whole of the statement. Paragraph 15 is headed ''GANTRY'S INTENTIONS REGARDING BRIDGE OIL'S BUSINESS ETC'', although it should be noted that para 1.3 cautions: ''Headings are for convenience only and do not affect the meaning of the paragraphs they introduce.'' I refrain from setting out para 15 in these reasons because it has already been set out by Sheppard J.

An understanding of the last sentence of para 15.1 requires para 4.2 to be perused; Sheppard J has set it out also.

What I am required to consider, for the purposes of this appeal, is the application to these paragraphs of cll 17 and 20 of s 750 of the Corporations Law. Section 750 sets out a series of requirements with which a Pt A statement is to comply. Of those requirements, cl 20 is particularly relevant to the present case, and its terms have been reproduced in the judgment of Sheppard J. The provision made by cl 17 must also be kept in mind, when the impact of cl 20 is being considered; it, too, has been set out by Sheppard J.

These are important provisions, plainly reflecting a legislative determination to ensure that a detailed disclosure is made in a Pt A statement of all matters material to a shareholder's decision whether or not to accept the offer made. There are a number of indications of the comprehensiveness of the disclosure required. It is clear that it embraces both information bearing on the bargaining possibilities of the situation, including the value to the offeror of the interest sought to be acquired, and also information bearing on a concern, perhaps unrelated to economics, which some shareholders may have for the future of the enterprise itself, or of its employees. But the extent of the area of disclosure is matched, as an indication of the seriousness of the legislative requirement, by the precision of the detail also demanded. Clause 20(1) requires ''particulars'', not an outline or a general statement; while cl 20(2) precludes an offeror from simply saying no decision has been made, where he is considering a possible course of action or possible courses of action -- in such a case ''the statement shall set out that fact and specify the course of action or courses of action concerned and the reason why the offeror has not made a decision on the matter''. I have emphasised the word ''specify'' because it is a word which leaves no doubt that precision is essential. It should be noticed too that cl 20(2) carefully preserves the full meaning of cl 20(1) by the opening words: ''Without limiting the generality ...'' Finally, the anxiety of the legislature to ensure that the whole picture is put before shareholders is underlined by cl 17, with its requirement of ''any other information material to the making of a decision ...''.

Since I have referred to the scope of cl 20 as including non-economic matters, I should cite the remarks of Bryson J in ICAL Ltd v County Natwest Securities Australia Ltd & Transfield (Ship Building) Pty Ltd (1988) 6 ACLC 467 at 486, where he said:

The existence in other persons of interest in prospective dealings with the assets of a takeover target is additional to what I regard as the obvious materiality of intentions and prospects of carrying out such exercises to shareholders who are considering whether to accept or reject a takeover offer. Such shareholders would not necessarily act solely on economically rational grounds; a shareholder might regard it as important that a particular operation should continue and might make a decision about disposal or retention of his shares with a view to affecting that matter and I regard those considerations as material.

One may add that a shareholder might have a conscience about the future of faithful employees of the company, or about the position of a particular category of employees. Clause 20(1)(c) appears to have such shareholders in mind. The passage I have quoted from the judgment of Bryson J was also cited by Ryan J in Associated Dairies Ltd v Central Western Dairy Ltd (1993) 11 ACLC 827 at 835. Ryan J said (at the same page), of a submission that ''the process of integration will necessarily involve the risk that any employee might be dismissed'':

I do not regard that as axiomatic. Clause 20(1) of s 750 does not relieve an offeror of the need to state intentions regarding the future employment of the present employees of the target company in the event of the offeror's succeeding in acquiring all the issued shares. That aspect of the legislation perhaps impliedly acknowledges that offeree shareholders may be motivated by considerations other than economic self-interest, including the target company.

Concerning the economic aspects, King CJ in Samic Ltd v Metals Exploration Ltd (1993) 60 SASR 300 said at 303:

It was important to Samic shareholders to be aware of the true nature of the group's takeover activities and MEX's intentions with respect to the Samic cash assets. This information could well affect the shareholders' assessment of whether MEX was likely to improve its offer, the prospects of a competing offer and the prospects of the shares, if retained, in the company under new management. It would assist shareholders to assess critically the attractiveness or otherwise of an offer of 45 cents for shares with a cash asset backing of 52 cents.

King CJ referred (at 308) ''to the statutory policy of ensuring an informed market and to the interest of those affected by the takeover proposal in having adequate information''. I respectfully agree with Sheppard J in regarding this judgment of King CJ as an important exposition of the principles which must be accepted in understanding the operation of cl 20 and in giving effect to cl 17.

If proper weight be given to the quite detailed requirements of cl 20, and if the words of King CJ which I have quoted are allowed a reasonable application, para 15.1 of the Pt A statement here in question must be found wanting. It tells the shareholders that Gantry intends to sell off a major fraction of the total assets of the group controlled by Bridge Oil Ltd for a sum of US$60 million, yet it says nothing whatever about the utilisation of this sum. Just as MEX's ''intentions with respect to the Samic cash assets'' constituted an important matter for shareholders to know, in the case with which King CJ was dealing, so, it seems to me, Gantry's intentions with respect to the cash asset it proposed to create in substitution for an interest in oilfields are a matter of materiality for the shareholders of Bridge Oil Ltd. The conversion of a major asset into so large a sum must be relevant to Gantry's intentions regarding the continuation of the business of Bridge Oil Ltd, as the holding company of BOUSA, within the meaning of cl 20(1)(a), and what is to be done must amount to a major change and to a redeployment of a fixed asset within the meaning of cl 20(1)(b). If the fact that the assets to be sold are held in a wholly owned subsidiary, rather than directly, could have the effect of withdrawing the whole question from the ambit of cl 20, then I think it would be clear that we would have just the sort of situation cl 17 is designed to cover. However, in my opinion, ''the business of the target company'', as that expression is used in cl 20, includes the business of a wholly owned subsidiary, and ''the fixed assets of the target company'' include fixed assets of a wholly owned subsidiary. Another way of looking at it would be to say that the business and assets include Bridge Oil's interest in its subsidiary, and that a major change in relation to the business and assets of the subsidiary must necessarily be reflected in a change in Bridge Oil's direct interest in the subsidiary.

It cannot be seriously suggested that Gantry has neither an intention, with respect to the US$60 million, nor is considering any possible course of action in relation to that sum. Unlikely as it may seem, this proposition might just conceivably have been accepted had there been evidence led by the appellant upon the matter. However, there was none. The appellant did not go into evidence, and cannot complain if the natural inference that it must have had either an intention, or a course of action under consideration, in respect of the US$60 million is the subject of a firm conclusion by the court. In my opinion, no other conclusion is possible. What that means is that shareholders would not be informed by the document in question as to whether this large sum is to be withdrawn from the business, is to be utilised in some new venture, or is to be dealt with in some other way, nor even what the possibilities are, notwithstanding that I hold on the evidence a plan or alternative plans for its utilisation must exist.

The learned judge who heard the matter at first instance (Davies J) decided it upon a different basis. His Honour said (at 7):

Clause 15.1 gives very little information as to the options being considered with respect to the businesses outside the United States. It is implied in cl 15.1 that the businesses will be sold but nothing is said as to the future of the employees or as to the period of time during which the break-up will occur. Even with respect to the US businesses, it is not expressly stated that the five executive officers will continue as the chief executives of Bridge Oil USA. It is not stated as to what will occur to the employees of the South Texas field when that asset is sold. It is stated in para 17(d) that ''Gantry has no plans to cause the termination of any such employees''. But whether this relates to the employees who may be engaged in the South Texas fields is not made clear. The severance agreement is highlighted, but it is not clear to which employees it is thought that the agreement will probably apply. Nor is the temporary leave of absence of Mr G G Fenton clarified in any way. Perhaps Mr Fenton's position is a trivial matter but it is just one of the things that leaves one in doubt after reading this Pt A statement.

My major concern is para 15.2. In view of the fact that the non-Australian [this is plainly an error for ''non-United States''] assets are to be disposed of in due course and that part of the American assets are also to be disposed of, presumably approximately 50% in all of the existing assets of the Bridge Oil Group, para 15.2 seems to me to be misleading. If Gantry proposes to break up and to dispose of 50% of the businesses then that should be stated positively. A reading of cl 15.2 would not suggest that that was the case.

I find myself in agreement with Davies J, and would dismiss the appeal on this ground also. Part A statements should not be drawn as if the reader had a lawyer sitting across the table to give interpretative guidance. Their drafting should be clear for the ordinary shareholder to read. Paragraph 15 commences with the vague statement that ''Gantry intends ultimately to concentrate its activities to within the USA'', continues by stating that the consequent divestment of operations outside the USA will take place ''at an appropriate time and on the most favourable terms'', refers to a valuation ''in light of prevailing market conditions'', and then states that ''Gantry intends that the non-US operations and assets would continue to be managed in the best long term interests of those operations and assets''. The last statement is plainly inconsistent with the first, unless it is read down to refer only to the period, which might be long or might be very short in reality, up to the sale or other disposal of the operations and assets. But taken at its own face value, the assertion of intention that operations and assets ''would continue to be managed in the best long term interests of those operations and assets'' explicitly asserts an intention, reaching into the future, that the operations of Bridge Oil in Australia will go on. That is a statement some shareholders might wish to hear, and the comforting words, which otherwise seem quite pointless, can hardly have been inserted for any other reason. Then subpara 2 reinforces the impression with a series of statements about intention to continue the business of Bridge Oil and its subsidiaries, an absence of intention to make any major changes, and an intention ''to continue the future employment of the present employees of Bridge Oil and its subsidiaries''. The last is again something shareholders might wish to hear. Only if they observed, as of course a careful lawyer would, the qualification, ''[s]ubject to paragraph 15.1'', would they appreciate that the reassurances were almost entirely meaningless. There is in fact no assurance that there is any intention to continue the future employment of employees and no assurance of any intention to continue the business. The real intention is precisely the opposite -- to dispose of the non-US operations and assets.

In my opinion, there are really two vices which vitiate para 15. In the first place, the statement of an intention to dispose of the Australian operations is so muffled in subpara 1 by expressions such as ''ultimately'', ''at an appropriate time'', ''after Gantry has ... further considered its position'' and ''Gantry intends that the non-US operations and assets would continue ... '', that the precise statements in subpara 2 stand out like beacons against a cloudy background, and the fact that they are said to be ''subject to'' so much vagueness would be unlikely to be noticed by many readers. That is calculated to deceive. It is especially calculated to deceive those readers who want to hear the very points that are so clearly and succinctly stated against the letters (a), (b) and (c) of subpara 2. Accordingly, I think the form of para 15 is calculated to deceive.

The second point relates to the substance of para 15. The same expressions, to which I have already referred, ''ultimately'', ''at an appropriate time'' etc, upon a full and careful analysis reduce the paragraph to such generality that the information it provides is useless. All the operations and assets may be disposed of within weeks of the takeover, or may be held for years or decades. Some of the assets or operations outside the United States -- but none can be identified -- may fall in the former category, and some in the latter, and of course there are intermediate positions. Not only does this make the expression of subpara 2 deceptive; it also makes the whole paragraph virtually incapable of conveying any clear meaning, to a reader wary enough to avoid deception, with respect to the operations outside the United States. Clause 20 of s 750 of the Corporations Law, as I have pointed out, requires an offeror to ''specify'' both the courses of action under consideration and the reason why a decision has not been made on them, with respect to each of the particular matters set out in cl 20(1). I cannot regard para 15 as complying with that requirement. In the absence of any evidence to the contrary from the appellant, I can only conclude that very much more precise alternative courses of action must have been considered, which the Pt A statement, far from specifying them, conceals under a series of generalities.

The word chosen by the legislature for use in cl 20(2) of s 750 is 'specify'', a word which signifies precision. Even such a word must yield to context, since no word has a meaning which remains rigidly fixed, however it is used. A word is not a locked box with static contents; it is more like a living cell, changing as it responds to the environment, which is its context. But no change wrought by the contextual currents enveloping the word ''specify'' in cl 20 can so transform it that it fails to signify a requirement of clarity and precision. On the contrary, the context of the clause suggests that unambiguous precision was exactly what the draftsman was striving to require. In the previous subclause, which is expressly said not to be limited by the succeeding one, the word was ''particulars''. Judicial attempts to expound the meaning of the word ''specify'' have repeatedly fixed upon unambiguous clarity as being connoted by it: Re Green's Will Trusts ;; Fitzgerald-Hart v Attorney-General [1985] 3 All ER 455; Re Paddle River Construction Ltd (1961) 35 WWR 605 at 618; A v B [1969] NZLR 534 at 536; Bond Corp Holdings Ltd v Sulan [1990] 3 WAR 49 at 64 see also Re Karounos ; Ex parte Official Trustee in Bankruptcy (1989) 89 ALR 580 at 585, per Sheppard J. In Jolly v District Council of Yorketown (1968) 119 CLR 347 at 351, Barwick CJ and Owen J equated ''specify'' with ''state in explicit terms'', a sense closely corresponding with that adopted by Kitto J in the same case at 352 and by Higgins J in his dissenting judgment in Federated Engine-Drivers and Firemen's Association of Australasia v BHP Co Ltd (1913) 16 CLR 245 at 284-5. In that last case, Barton J said (at 272): ''Things specified must be specific things. Here all is general.'' Those words might have been written for the present case.

A number of other grounds were taken by the respondent in support of the injunction, but I find it unnecessary to deal with them, having found established both of the grounds which I have discussed.

For the appellant, an argument was advanced that, the decision to grant an injunction being discretionary, the learned judge had failed to make clear the basis on which he exercised his discretion in favour of the respondent. However, the decision was an ex tempore one, because of the urgency of the matter, and it is quite clear that his Honour simply refrained from repeating discretionary considerations which he had fully aired during the argument. In any event, the well known principles stated in House v R (1936) 55 CLR 499, in the joint judgment of Dixon, Evatt and McTiernan JJ, place stringent limits upon appellate interference with such a decision, even where the reasoning of the primary judge on the discretionary issue has not been exposed, although a sufficient case may occasionally be shown: Neil v Nott (1994) 121 ALR 148. The relevant passage in House v R is at 505, as follows:

It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance.

While it is plain from this passage that an exercise of discretion need not necessarily reveal how the result has been reached which is embodied in the order, in this case, as I have said, the reasoning was revealed during the argument, and it has not been attacked by the appellant.

In any event, in my view, it would be impossible to sustain the appeal on this issue, even if this court were to regard itself as at liberty to exercise the discretion afresh. The appellant called no evidence. Where there is a serious defect in a Pt A statement, an offeror who wishes to seek an exercise of discretion in his favour has a positive onus to discharge. In the present case, the ambiguities to which I have directed attention would have to be clarified by evidence before the appellant could be found to have taken the first step towards obtaining a decision in its favour under s 739 or s 743 of the Corporations Law, or upon the basis that in all the circumstances an injunction ought not to be granted to the party seeking it.

It was for these reasons that I joined in dismissing the appeal with costs.