. CATCHWORDS TRADE PRACTICES - two competing takeover bids - application by Trade Practices Commission pursuant to s.50 of Trade Practices Act 1974 in relation to second bid - undertakings given by target company and both bidding companies not to deal in shares of target company - action ready for trial after three months of preparation - lengthy hearing anticipated ~ application by target company for release from undertakings to permit sale of shares to first bidder ~ first bidder not a party to this action but not a stranger to it either - validity of undertakings - factors relevant to exercise of discretion. " PRACTICE AND PROCEDURE - undertakings given in one action by and concerning party in related action - validity of undertakings. Trade Practices Act 1974 ss.50, and 81. TRADE PRACTICES COMMISSION v A.P.M. INVESTMENTS PTY. LIMITED and FIBRE CONTAINERS LTD. and Ors. No. VG 84 of 1983 Woodward J. Melbourne 22 August 1983 IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) No. VG ) ) GENERAL DIVISION BETWEEN: TRADE PRACTICES COMMISSION and A.P.M. INVESTMENTS PTY. LIMITED First FIBRE CONTAINERS LIMITED Second LEIGH-MARDON PTY. LIMITED Third ASSOCIATED NOMINEES PTY. LIMITED Fourth FRANCIS JAMES BURKE Fifth PETER BECKER Sixth WILLIAM GIBSON Seventh and JOHN FRANCIS ELFVERSON Eighth Fifth to Eighth Respondents as Trustees for LEIGH-MARDON PTY. LIMITED and ARTHUR KEVIN SMITH Ninth ORDER JUDGE MAKING ORDER: Woodward J. DATE OR ORDER: WHERE MADE: 24 August 1983 ° Melbourne 84 of 1983 Applicant Respondent Respondent Respondent Respondent Respondent Respondent Respondent Respondent Respondent UPON the following undertaking being given by the Third to Eighth Respondents:- That until the determination of these proceedings or further order they will not sell to or accept any offer from A.P.M. Investments Pty. Limited ("APM") (or any related corporation ef APM) to purchase any shares held by them or on their behalf in Fibre Containers Limited. AND UPON the following undertaking being given by the Second Respondent: That until the determination of these proceedings or further order it will not aid, abet, counsel or procure APM (or any related corporation of APM) to acquire directly or indirectly any shares in Fibre Containers Limited or in any way be knowingly concerned in or a party to any such acquisition. THE COURT ORDERS THAT: - 1. The First Respondent and related companies be and are hereby released from the undertaking given by them to the Court on 23rd May 1983. The Second to Ninth Respondents inclusive be and are hereby released from the undertakings given by them to the Court on 23rd May 1983. S.C.I. Packaging Pty. Limited SCI Operations Pty. Ltd. and related companies be and are hereby released from the undertaking given by them to the Court on 23rd May 1983. Costs of this Notice of Motion be reserved. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY No. VG 84 of 1983 GENERAL DIVISION BETWEEN: TRADE PRACTICES COMMISSION Applicant and A.P.M. INVESTMENTS PTY. LIMITED First Respondent FIBRE CONTAINERS LIMITED Second Respondent LEIGH-MARDON PTY. LIMITED Third Respondent ASSOCIATED NOMINEES PTY. LIMITED Fourth Respondent FRANCIS JAMES BURKE Fifth Respondent PETER BECKER Sixth Respondent WILLIAM GIBSON Seventh Respondent and . JOHN FRANCIS ELFVERSON Eighth Respondent Fifth to Eighth Respondents as Trustees for LEIGH-MARDON PTY. LIMITED and ARTHUR KEVIN SMITH Ninth Respondent CORAM: Woodward J. DATE: 22 August 1983 REASONS FOR JUDGMENT This is an interlocutory application, made by way of notice of motion dated the lith day of August 1983, for release from certain undertakings given to the Court by the respondents other than APM Investments Pty. Ltd. These respondents are Fibre Containers Ltd. and various substant1ral shareholders in that company, all but one of whom are closely connected with Amatil Ltd. It will be convenient to refer to these respondents collectively as 'Fibre Containers'. I note in passing that the ninth respondent is not a party to this application because he is i1l1 and unable to give instructions. Fibre Containers Ltd. is the target company for two competing takeover bids made last May. The first was by S.C.I. Packaging Pty. Ltd. ('SCI') and the second by A.P.M. Investments Pty. Ltd. ('APM'). The APM bid has given rise to two applications to the Court pursuant to s.50 of the Trade Practices Act 1974 ('the Act'). The action in which the present notice of motion is brought has been commenced by the Trade Practices Commission ('TPC'). It seeks injunctions to prevent the takeover of Fibre Containers by APM, alleging that it would represent a breach of s.50 of the Act because of the substantial power already enjoyed by APM in the relevant markets in which APM, SCI and Fibre Containers operate. In the other action (VG No. 82 of 1983) SCI is seeking declarations that the proposed APM takeover would constitute a breach of s.50 of the Act. SCI also seeks other relief, pursuant to other sections of the Act, not relevant for present purposes. * These two actions were called on together in a series of directions hearings beginning on 23 May 1983. It was not until 28 July that it was decided by the Court that they should not be wt heard together - as had been requested by SCI with the support of Fibre Containers but opposed by APM. Reasons for this decision were published on August 4. Before the first directions hearing in the present matter, the TPC sought undertakings from APM, SCI and Fibre Containers which would have the effect of freezing the two takeover bids until after the TPC case against APM had been determined. As a result of the responses received from those three parties, counsel for the TPC were able to tell the Court on 23 May, "Mere is also a claim for interlocutory relief, and to put the matter shortly the parties to the application and my learned friend Mr. O'Callaghan's clients [SCI], are here to give undertakings to the court which we envisage would take the place and stand instead of interim injunctions which we would otherwise have sought." Mr. McComas, the solicitor appearing for Fibre Containers, said, "Ihe second to ninth respondents are prepared to give the undertakings sought by the Trade Practices Commission in this matter. I have reduced some undertakings to writing." This undertaking by Fibre Containers was later recorded in an order of the Court (then constituted by Northrop J.), taken out by the Commonwealth Crown Solicitor and dated 23 May, in the following terms: "That until the determination of these proceedings or further order they will not:- 1. Sell to or accept any offer from A.P.M. INVESTMENTS PTY. LTD. (APM), (or any related corporation of APM) or S.C.I. PACKAGING PTY. LTD. (S.C.1I.), (or any related corporation of S.C.I.) to purchase any shares held by them or on their behalf in FIBRE CONTAINERS LTD; 2. Aid, abet, counsel or procure A.P.M. (cr any related corporation of A.P.M.) or S.C.I. (or any related corporation of S.C.I.) to acquire directly or indirectly any shares in FIBRE - CONTAINERS LTD. or in any way be knowingly concerned in or a party to any such acquisitions." "Counsel for SCI then gave an oral undertaking to the Court, recorded in the transcript in the following terms: "On behalf of SCI Packaging Pty Limited and SCI Operations Pty Limited and related corporations, we undertake to the court that they shall not prior to the hearing of determination of application VG 84 of 1983, or until further order acquire or take any further steps to acquire any shares in the capital of Fibre Containers Lamited." (The phrase 'hearing of determination' should presumably read 'hearing and determination'.) Northrop J. then pointed out that SCI was not a party to the present proceedings, VG No. 84 of 1983. Counsel replied, "We accept the proposition that we are inextricably bound up and we will give amplification when we pursue our application which we made earlier." (This was a reference to the application for joint hearings.) wr On July 20, in the course of hearing a number of other interlocutory applications in the two matters, the Court eonsidered a notice of motion, from the second respondent only, asking that it (Fibre Containers Ltd.) be released from so much of paragraph 2 of its undertaking as related to SCI. It was made clear in the accompanying affidavit, and in submissions, that all the second respondent was seeking was the right to take negotiations with SCI one stage further, to give that company a chance to make a revised offer which might be more acceptable to the shareholders of Fibre Containers Ltd. than the first offer had been. Presumably, if such negotiations had proved fruitful, there would have been a further approach to the Court, seeking release . of both Fibre Containers Ltd. and its shareholders from so much of paragraph 1 of the undertaking as related to SCI, thus opening the way for a sale of shares to take place. The material adduced in support of that application consisted of two paragraphs of an affidavit by the company's chairman of directors. He said "TI am informed and verily believe that these proceedings and all the preparation incidental thereto, will take a substantial amount of time and involve a large amount of work, effort and expense for all parties involved including the second respondent. I also believe that the likely duration of the proceedings and the uncertainty which would attend the outcome thereof is and will continue to be disruptive of the business of Fibre Containers Limitea@ and unsettling to its employees and customers." e Mr. McComas, who made the application for the second respondent, in answer to a question from the Bench as to how the granting of the application would make the business of the company less disrupted, or its employees and customers more settled, said, "Mere can, of course, be no assurance that it will, your Honour, but the mind of the second respondent is at a point where it feels it should make some endeavour to extricate itself, if it is at all possible, from the difficult circumstances in which it finds itself as a direct result of these proceedings, or perhaps I should say, as a primary result of the takeover offer having been made by APM, and secondly, as a result of the proceedings which have followed and, of course, it " acknowledges that if the court sees fit to release it in the manner which is requested there is no guarantee that discussions with SCI Packaging, assuming it is willing to have those discussions, will at all be fruitful, but such is the concern that the second respondent has for its business that it feels it ought to make this attempt ....." This application by Fibre Containers Ltd. was opposed by APM on the ground that it would be patently unjust to relax the undertakings so far as SCI was concerned while at the same time holding APM to its undertakings and thus freezing its bid. ° The TPC expressed "a strong preference to have the 'freeze' maintained all around, that being consistent with the Commission's desire to see an even-handed approach with respect to the parties ....". It therefore opposed the application. Counsel for SCI said that their client felt constrained to oppose the application, though naturally sympathizing with it, because of the negotiations that had taken place with the TPC. SCI's primary concern was that the TPC should continue with its action against APM, and it could not countenance any move which might lead the TPC to have second thoughts on that subject. In his submission in support of the application, Mr. McComas sought to emphasize that no irrevocable step would be taken if the application were granted. All that was sought was the right to negotiate, while the ultimate resolution of all issues remained within the control of the Court. This, he said, would give ample opportunity for justice to be done. As I said to Mr. McComas in the course of argument, I felt that this approach was somewhat unrealistic. Either the negotiations would prove unfruitful, in which case his client would gain nothing; or they would bear fruit, in which case the commercial realities of the situation would produce an inevitable conclusion, and APM would have suffered the prejudice it feared. . In view of the fact that all other parties opposed the application, and that the positions of all parties, in a diffacult commercial situation, had already been frozen by mutual agreement for a period of two months, I took the view that the balance of justice and convenience required that the undertakings continue in force. I therefore refused the application. There was some discussion at that time, and again on a later occasion, aS to whether the form of order taken out on May 23rd by the Commonwealth Crown Solicitor, fully and accurately recorded the undertakings which had been offered to the Court on that date. I indicated that I would not record any different form of undertakings in the absence of consent by all parties, and that any application to vary the recorded order would have to be made in proper form and should probably be dealt with by Northrop J., whose order it was. In the event, no such application has been made and I therefore deal with this matter on the basis that the order correctly states the undertakings given. The first application for release from undertakings having been refused on July 20, the present notice of motion was issued on August 11. On August 17 the issue was re-argued at greater length, on a somewhat different basis, and with two parties announcing changed attitudes to it. The application has now been put on the changed basis that both Fibre Containers Ltd. and its shareholders wish to be released from all parts of their undertakings so far as negotiations with SCI are concerned. They make it clear that they hope to pursue such negotiations to finality. They also make it clear that they have no wish or intention to negotiate with APM while the TPC maantains that a takeover by APM would constitute a breach of s.50 of the Act and the Court has made no contrary finding. They therefore say that it is unnecessary that they be bound by undertaking or by injunction not to negotiate with APM, but they offer such an undertaking if it is required. I should make it plain that this unwillingness to negotiate with APM in present circumstances was also clearly indicated by Mr. McComas in his July application. The TPC has changed its attitude to the application. It now says that it does not oppose the making of the orders sought in the notice of motion, provided Fibre Containers remain suitably bound by undertakings not to negotiate with APM. Perhaps partly because of this change of attitude by the _ TPC, and certainly because of continuing assurances by the TPC that it antends to proceed with its action against APM (so long, I assume, as a takeover by APM remains a realistic possibility), SCI now feels free to support the application and has done so. In the result, therefore, the application is opposed only by APM. This is the background against which I must consider the arguments for and against the application. . The first submission put by counsel for Fibre Containers was that the Court had no power to grant injunctions in the terms used in the undertakings and therefore no power to receive such undertakings either. I do not accept this submission for two reasons. First, I think that whatever might be said about the power, in cases under s.50 of the Act, to grant interlocutory ~10- injunctions which have the effect of restraining persons who are strangers to the litigation from dealing in the shares or assets ef the target company, the power is clear where all the persons concerned are parties to the litigation. It must be remembered that the undertakings in question were given in the course of overlapping directions hearings of the two parallel actions under s.50 of the Act - the present action by the TPC and SCI's action No. VG 82 of 1983. At the time the undertakings were offered, SCI was anxious to obtain a partial joint hearing of the two closely related matters. Fibre Containers also supported a joint hearing. The SCI action is still on foot, and is due to be heard soon after the present action concludes, although it must be conceded that any final judgment reached in the present action would be likely to have a vital impact on that part of SCI's action which concerns s.50 of the Act. I think that, in all these circumstances, there was power either to issue injunctions or to accept the undertakings at the time they were offered, and this power was not affected retrospectively by a decision to hear the two cases consecutively rather than, in part, concurrently. Secondly, it was agreed by all counsel that the power of the Court to accept undertakings at an interlocutory stage covers cases "when the undertaking is reasonably related to the orderly procedure of the court or to the subject matter of the litigation", to use the language of the majority of the Full Court of the High Court (Gibbs C.J., Stephen, Mason and Wilson JJ.) in Thomson Australian Holdings Pty. Ltd. v Trade Practices Commission and Others (1981) 37 ALR 66 at 76. Counsel for Fibre Containers argued that there was no power to accept an undertaking not to sell shares of the target company to SCI, because SCI was not a party to present proceedings and it had not been alleged by anyone that an acquisition of Fibre Containers Ltd's shares by SCI would contravene s.50 of the Act. I believe that, in a proper case, while a s.50 application was on foot, the Court could accept an undertaking from the target company that it would not sell its shares or assets to a stranger to the litigation. It is much harder to imagine a case where an injunction in such circumstances would be within power, but the Full Court of this Court has held that the decision of the High Court in Thomson's Case (above) does not preclude an interlocutory undertaking being accepted where an interlocutory injunction covld be beyond power - as where an undertaking is offered as a condition for the granting of an adjournment. See the judgment of Bowen C.J., Evatt and Deane JJ. in Electrical Trades Union of Australia and Anor v Waterside Workers Federation of Australia (1982) 56 F.L.R. 430 at 433. ~12- In any event, for reasons which I have given, SCI was not a stranger to this litigation. Its own claim against APM under s.50 of the Act is before the Court as presently constituted and awaits hearing as soon as possible after the present case. Counsel for SCI have said "... we are inextricably bound up" with the present proceedings, and have indicated that they would continue to attend these proceedings even though they have been denied the right to participate in them directly. Counsel for the TPC have said that witnesses from SCI will play a major part in the presentation of their case. "fo have accepted the view that a decision in favour of separate hearings would have the effect of making undertakings in the present case concerning SCI unenforceable, would have been to inhibit a proper decision as to the orderly conduct of the court's business. This is a touchstone by which the valid basis of the undertaking can be judged. No such point was argued or considered when the decision in favour of separate hearings was made on 28 July. I have no doubt that, in the circumstances of this case, the Court had power to receive the undertakings in question on May 23 and has power to enforce them today in the events that have occurred. -13- I turn now to consider whether, as a matter of discretion, the Court should grant the present application. The arguments in favour of granting the application may be summarized as follows: 1. Fibre Containers Ltd., as the target company of a takeover bid, is an innocent party, whose.freedom of action should not be curtailed. The same applies to its shareholders. 2. It is quite possible that Fibre Containers could negotiate an early sale of shares on terms which could be worth $50m. to the shareholders. Such a sum invested. at, say, 16% interest would bring in $8m. per year. The present annual profits of the company are about $3m. 3. Because of the uncertainty created by the present litigation, Fibre Containers Ltd. is in danger of losing valuable staff and customers. It seems that some attempts have recently been made by unnamed competitors to make inroads in both areas, although these attempts have not been successful. There must, however, be some loss of confidence in the company due to the uncertainty of its future and this can only work to the detriment of the company and its shareholders. Affidavit evidence to this general effect has not been challenged. ~ 14 - 4. Fibre Containers have given no undertaking not to sell shares to any company other than APM and SCI. Since there is no suggestion that a sale to SCI would be in breach of s.50 of the Act, there is no good reason why SCI should be treated differently from other possible purchasers. 5. Fibre Containers have no recourse to the TPC or APM for any losses which they may suffer as a result of adherence to the undertakings given. 6. The hearing of the present case is likely to last three months or more. There could well be one or more appeal hearings, and the Court might be persuaded that undertakings which had been in force for a number of months should be allowed to continue in force to cover the period of appeals. 7. Pibre Containers should not be penalized for having complied, in a responsible way, with a request of the government regulatory authority, the TPC, to maintain their present shareholding position at a time when the TPC was investigating the situation and instituting proceedings. 8. When it became apparent that Fibre Containers could become the innocent victims of the general 'freeze' which had been agreed to, they sought release from their undertakings. They i should not now be penalized because they then sought only a limited release and were not able to attract the support of other parties, particularly the TPC. 9. There can be no compulsion on Fibre Containers to consider a takeover bid from APM. In the present circumstances, Fibre Containers have reached a firm conclusion that they will not consider such an offer. They should otherwise be free to deal lawfully with their own property. 10. Any harm which might be suffered by APM as a result of the success of this application is a direct result of the view responsibly held by the government regulatory authority, the TPC, that APM would be in breach of the Act if its takeover proceeded. The arguments which APM can advance against any variation in the present application of undertakings are:- A. The undertakings have been in force now for three months. In that period a great deal of time and effort have gone into the preparations for hearing of this case. The costs, both in legal fees and in staff time, have been very great indeed. B. The case is now ready to begin. It has been prepared with all. possible speed on all sides and the hearing will not be unnecessarily prolonged by any party to it. - 16 - Cc. It would be unfair for one of the two suitors for Fibre Containers to be held to its undertaking not to negotiate while the other was released from its parallel undertaking. D. Fibre Containers have already made one unsuccessful attempt to obtain release from their undertakings. The onus is now on them to show changed circumstances since that time. E. The very giving of the mutual undertakings in this case, and the resulting 'freeze' in negotiations for three months, have apparently produced the result that Fibre Containers are no longer ready to negotiate with APM - as they were when the undertakings were sought and given. APM has thus been prejudiced by the existence of the undertakings and the delay in seeking to have them lifted. F. If undertakings such as those in the present case are not sought, given and maintained, many takeovers could be totally frustrated by the mere institution of proceedings by the TPC. Another bidder could seize the opportunity to play on the concerns of the target company about cost of litigation, uncertainty and delay, and might succeed in arranging a takeover, possibly even at a lower price than that originally offered. The or1zginal offeror would probably be restrained from negotiating, and it would never have the opportunity to defend itself in court against the TPC's allegation. ta These arguments against granting the present application are cogent. If the length of likely further operation of the undertakings had been measured in days or weeks, I think they should have prevailed. But the reality of the situation is that the undertakings, if continued in force, will operate for at least a number of months. If kept in force during possible appeals - and consistency would probably require that result - they could operate for a year or more. In these circumstances, I find that the probable cost to the innocent target company becomes a factor of very great importance and, together with the other factors I have listed in paragraphs 1-10 above, is sufficient to overcome the contrary arguments. I have therefore, in spite of a great deal of sympathy for the position of APM, reached the clear conclusion that this application should succeed. That, however, is not the end of the matter. Because of the interlocking nature of the undertakings in this case, which were sought and given on the understanding that both APM and SCI would be samilarly bound, I think it would be unfair to release Fibre Containers and SCI from their undertakings without considering afresh the position of APM. hae I accept the argument which was put to me by counsel for the TPC that it is not appropriate in this case to allow APM to pursue its takeover bid while relying upon the as-yet-untried powers, given under s.8l1 of the Act, to order divestiture of shares found to have been acquired in breach of s.50. I have no doubt that APM should be restrained from acquiring any additional shares in Fibre Containers Ltd. before this litigation 1s concluded. On the other hand, I see no reason in principle why APM should be restrained from negotiating for the acquisition of shares, such acquisition to take effect only if the Court finds that it would not be in breach of s.50 of the Act. This requirement could perhaps be met by undertakings or injunctions using the language of paragraph 1 of Fibre Containers' existing undertakings. But because this proposition is novel, I would prefer to give the parties to this action the opportunity to consider and, I would hope, agree upon an appropriate form of words to produce the result I have indicated. I recognize that, in view of the firmly expressed intention of Fibre Containers not to have any dealings with APM in present circumstances, such limited undertakings may be both unnecessary and, from APM's point of view, unhelpful. However parties acting in good faith may sometimes depart from their expressed intentions, and I believe that even-handed justice requires undertakings of the kind indicated. I propose therefore to do no more at present than state my intention to release all parties from their existing undertakings when APM and Fibre Containers have prepared fresh mutual undertakings, along the lines indicated, which are acceptable to the Court. The views of the TPC will of course be important in this connexion. Before concluding these reasons, I should say that I am conscious of the fact that there have been few actions brought under s.50 of the Act, and this judgment may be seen as offering some guidance for the handling of the early stages of future proceedings. I simply want tq stress that each case will have to be dealt with in the light of its own facts and surrounding circumstances. Nothing I have said should be taken as disapproving the practice adopted here of obtaining wide-reaching undertakings in the early stages of such litigation, so that all parties involved can concentrate on preparing for that litigation, free from concern about what may be happening to shares in the market place or in deals arranged behind closed doors. The main point which emerges from these proceedings is that, on proper notice and proper material, a party should be able to have injunctions varied, or to be relieved of its undertakings, where the justice of the developing situation so requires. The fact that others have been similarly bound, and have acted for some time on the assumption that all parties will continue to be bound, is a consideration important to the exercise of discretion, put is not necessarily conclusive. I shall sit again, at times to be arranged, to determine the form of, and to receive, appropriate undertakings and to consider the future conduct of these proceedings and of the related matters VG No. 82 and VG No. 126 of 1983. I certify that this and the 19 preceding pages are a true copy of the Reasons for Judgment herein of the Court . vo Ly heen CLL sociate to the Honourable Mr. Justice A.E. Woodward Dated: 22 August 1983 Note. After further argument on 24 August 1983, undertakings were accepted from the second to eighth respondents only. " x AssOciate to the Honourable fix. Justice A.B. Woodward Dated: 24 August 1983 \