Australian Securities and Investments Commission v DB Management Pty Ltd [2000] HCA 7

What the court decided

Southcorp Wines Pty Limited made takeover offers for Coldstream Australasia Limited, which closed on 30 July 1996 [5]. By then Southcorp had acquired 97 per cent of the issued shares [6]. Three option holders, DB Management Pty Limited, Batoka Pty Limited and Winpar Holdings Limited, held 3,100 options between them and refused to sell [2], [8].

Southcorp applied to the Australian Securities and Investments Commission for a declaration modifying section 701, which the option holders opposed [9]. On 1 October 1996 the Commission declared that Chapter 6 was to apply to Southcorp as if section 701 were modified to allow compulsory acquisition of shares issued when those options were exercised [10]. The modification extended the concept of relevant shareholder to a person who became a holder once the offer period had ended [11]. As the Administrative Appeals Tribunal later summarised it, Southcorp had to state a cash price with an expert's report on whether the terms were fair and reasonable [12]. On that summary, subsection (6) was left largely intact, so dissenting holders could still apply to a court [12].

The option holders sought review in the Tribunal, which affirmed the decision [14]. Whitlam J dismissed their appeal, but a majority of the Full Court (O'Connor and Dowsett JJ, Beaumont J dissenting) held the declaration outside the power [2]. The Commission and Southcorp then appealed in two appeals heard together, the second being Southcorp Wines Pty Ltd v DB Management Pty Ltd [1], [4].

Gleeson CJ, Gaudron, Gummow, Hayne and Callinan JJ gave a single joint judgment [1]. The issue was whether the power could modify section 701 to permit an acquisition it did not itself allow [33]. Their Honours held that section 730, read literally, authorised the modification and that nothing warranted another meaning [20], [47].

The Full Court majority had relied on several considerations [39]–[40], [42]; the joint reasons answered each [42]–[45]. A presumption against interfering with vested property rights was of little assistance, since that interference is what compulsory acquisition is about [43]. Nor were affected persons denied a hearing: the option holders were heard by the Commission and the Tribunal [44]. Nor could the power be confined to declarations affecting only the applicant: the language of section 730 did not support that, and in most takeovers a modest modification may affect third parties [45]. The principle that express mention of one matter excludes others was of least help where the power was one to modify the legislation itself [42].

Their Honours noted that most earlier judicial commentary on section 730 had emphasised the apparent width of its terms [35]. Its predecessor was section 58 of the Companies (Acquisition of Shares) Code, whose width Gobbo J had stressed in TNT Ltd v National Companies and Securities Commission (1986) 4 ACLC 624 [24], [36]. They noted Brooking J's comment in ANZ Executors and Trustees Ltd v Humes Ltd [1990] VR 615 that the predecessor appeared not to empower a modification authorising compulsory acquisition of convertible notes, adding that "the same may, perhaps, be said of s 730" [38]. The statutory focus on shares, however, may, they said, explain why the declaration was aimed at shares and not the options [38].

Leaving out of section 701 a right to acquire compulsorily the shares that options produce when exercised in these circumstances did not show an intention to exclude its creation under section 730 [46]. The Commission instead had a discretionary power to create that right, exercised in the light of the Eggleston principles in section 731 and other relevant considerations, subject to the possibility of judicial review [32], [46]. That, their Honours said, was a much more restricted right than the one section 701 conferred [46].

The High Court also rejected the argument that the Tribunal's decision was manifestly unreasonable [19]. That point arose only if the power was wide enough to support the declaration [18]. The appeal to the Federal Court under section 44 of the Administrative Appeals Tribunal Act 1975 (Cth) lay only on a question of law [2], [18]. Those criticisms went to matters of fact and discretion and raised no such question [19]. Their Honours found it unnecessary to examine how administrative law unreasonableness relates to that statutory concept [19].

Both appeals were allowed with costs; the Full Court's orders were set aside and the appeal to that court dismissed with costs [48].

Why it matters

The provisions considered were those of the Corporations Law as applied in October 1996 [10], [31]. Readers should check the current legislation before relying on the decision.

Under the scheme in force then, a bidder without a section 701 right to acquire shares issued on the exercise of options after the offer period could look to the Commission's discretion to create a more restricted one [46]. The joint reasons also noted, without deciding it, that the power may not extend to authorising compulsory acquisition of convertible notes [38].

On that scheme the merits were for the Commission and, on review, the Tribunal [18], [46]. Complaints about factual and discretionary matters did not become questions of law by being called manifestly unreasonable [18]–[19].

In my view, the joint reasons' remark that a contention against the literal meaning may lack force without a plausible alternative [35] is worth remembering when implied limits are urged on a broad power.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.