CATTO v AMPOL LIMITED SUPREME COURT OF NEW SOUTH WALES — COURT OF APPEAL KIRBY P, PRIESTLEY JA and ROGERS AJA 17, 22 March, 28 April 1989 [1989] NSWCA 34 COMPANIES — reduction of capital — preferential shares — resolutions to reduce capital passed at general meeting — company seeks confirmation by Court pursuant to s 123 Companies (New South Wales) Code 1981 — company holds most ordinary shares — seeks to acquire preferential shares — scheme of arrangement proposed — scheme not approved by preferential shareholders — company acquires 61.4% of preferential shares at $4 each — offer by some remaining preferential shareholders to sell shares at $4 each — offer rejected as order filled — company acquires preferential shareholders' director on board — company thereafter proposes reduction of capital — scheme offers remaining preferential shareholders $2.78 per share — application to Court for confirmation of reduction of capital — held: (allowing appeal from Cohen J) (1) The Court will only confirm the reduction of capital of a company if its terms are fair and equitable. Bannatyre v Spanish Telegraph Co [1886] 34 ChD 247; Poole and others v National Bank of China, Limited [1907] AC 229 applied; (2) The market may not always provide a fair indication of the value of shares, particularly in circumstances of limited trading. Kingston vy Keprose Pty Limited (No 2) (1988) 10 ACLC 111 approved; (3) In determining fairness to the preferential shareholders in respect of a reduction of capital the Court is entitled to take into account, amongst other things, the principle reflected in the Companies (Acquisition of Shares) (NSW) Code that buyers of shares, seeking to secure control of a company should, as a matter of fairness, give all members of the class the opportunity of sharing equally whatever premium the rights attached to that particular class of shares bring into existence; (4) As that had not occurred here, the proposed reduction of capital was not fair and should not be confirmed. PRACTICE — intervention — company law — interpretation of Codes — entitlement of National Companies and Securities Commission to intervene under s 540 Companies (NSW) Code — observations by Kirby P and Rogers A-JA concerning the desirability of the intervention of the NCSC pursuant to s 540. North Sydney Brick and Tile Co Limited v Darvall (1986) 5 NSWLR 681, 684; Hamilton v Oades, unreported, High Court, 12 April 1989 referred to. STATUTES — construction — interpretation of two codes having operation upon related events — desirability of harmonious construction — Companies (NSW) Code and Companies (Acquisition of Shares) (NSW) Code — Commissioner of Stamp Duties v Permanent Trustee Co Ltd (Trustee for Dal Bon) (1987) 9 NSWLR 719, 722 and Abdi v Release on Licence Board (1987) 10 NSWLR 294, 295 referred to. Companies (New South Wales) Code 1981, ss 123, 540(1). Companies (Acquisition of Shares) (New South Wales) Code 1981, ss 11, 15, 43(6). Kirby P. On 30 March 1989, the Court made orders allowing this appeal; setting aside orders made by Cohen J on 29 December 1988 and entered on 5 January 1989; and in lieu thereof ordering that the summons by the respondent for confirmation of the reduction of the capital of the respondent, be dismissed. The Court reserved its reasons. I now proceed to state my reasons. 2 UNREPORTED JUDGMENTS Inherent in the Court's earlier orders was an additional order that the appellant should have leave to be added as a party to the appeal. Although he took part in the proceedings before Cohen J, it is not clear that he did so as a party. Indeed, it seems that he was not joined as such. For the reasons given by Rogers A-JA, it was appropriate that he should be given the necessary leave to appeal, although not formally a party at the trial. It was not suggested thattaking this course occasioned any prejudice to the respondent. The Court reserved for later announcement the orders which it would make in respect of costs. A proposed reduction of capital When the case came before Cohen J it did so in circumstances of considerable urgency. It was heard, for the most part, in vacation. Under an arrangement described by Rogers A-JA, there was no cross-examination of the witnesses whose affidavits were read. This procedure led to certain difficulties in the consideration and final evaluation of the evidence. The failure to cross-examine contested evidence normally leads to the consequences described by McHugh JA in Levinge v Director of Custodial Services, Department of Corrective Services & Ors (1987) 9 NSWLR 546 , 560. However, in the circumstances of this case, I agree with Priestley JA that no point is served in exploring the question of where the burden of proof lay, ie whether on the company seeking confirmation of the reduction of capital or upon the preferential shareholder(s) asking the Court to refuse to confirm the reduction on the ground that it was not fair and equitable. The better view is that the burden devolves on those supporting the reduction of capital to prove that it is fair. Cf In Re Holders Investment Trust Ltd [1971] 1 WLR 583 , 589; [1971] 2 All ER 289, 291. But where the legal criteria to be applied by a court are as widely stated as those involved in the exercise of the discretion provided bys 123 of the Companies (New South Wales) Code 1981, in few cases will the evidence be so finely balanced that the court, deciding the matter, needs to resort to the assignment of the burden of proof in order to determine the outcome. The present, in my view, is not such a case. The very generality of the criteria involved in the application of s 123 of the Code, imported into its language by judicial decisions, presents a question upon which minds, considering the same evidence, may quite easily differ. This fact provides a reason, in the normal case, for hesitating before disturbing the conclusion reached by the trial judge who has had the advantage of seeing any witnesses, hearing the evidence in its totality and sequence and (as here) specialist experience in regularly determining applications of a like character. However, an exception arises where it is shown that the trial judge, in exercising his discretion, has acted upon irrelevant material, failed to take into account relevant considerations or approached the evaluation of what is fair and equitable in a way which fails to consider all of the matters relevant to the determination of that question in the circumstances. If the appellate court concludes that this has occurred, it may set aside the decision at first instance and proceed, itself, to consider afresh the application for confirmation of the reduction of capital as provided by the Code. It is by this means that I come to the same conclusion as that reached by the other members of the Court. In myopinion the terms of the proposed reduction of the capital of the respondent were not, in all of the circumstances, fair and equitable to the remaining preferential shareholders, including the appellant. With respect to Cohen J, I consider that it is artificial to judge the fairness of the terms of the proposed reduction by focusing attention upon the suggested market URJ CATTO v AMPOL LIMITED (Kirby P) 3 price of the preferential shares immediately before the offer was made which the respondent seeks, in effect, to have confirmed. In particular, it is artificial to consider the issue of the fairness of the offer made for the remaining preferential shares in isolation from all of the relevant events which have preceded the proposed reduction of capital. The artificiality of so proceeding is demonstrated by asking the question why the confirmation of the court is required for the reduction of the capital of a company at all? Why not just leave it to the corporators, acting by special resolution to so decide? The answers are obvious. The corporators may not be sufficiently attentive to the position of the minority preferential shareholders. Amongst other purposes, it is to protect their position and to ensure the observance of fairness and equity to them that the requirement of the confirmation of the Court is laid down by s 123 of the Code. In exercising the discretion there provided, the Court is not blinkered by considerations only of the market price of the shares at the time of the proposed reduction of capital. It is obliged to examine a wider rangeof circumstances surrounding and preceding the proposed reduction of capital. Harmonious construction of related legislation Like the other members of the Court, I am prepared, for the purpose of this appeal, to approach the case upon the basis upon which it has been argued. I shall assume that the Companies (Acquisition of Shares) (New South Wales) Code 1981 does not apply to the offer by the respondent to purchase the remaining preferential shares by way of eliminating them in the course of the reduction of capital. Accordingly, I shall assume that the sole question to be determined is that posed by the broad discretion enlivened by s 123 of the Companies (New South Wales) Code 1981. Nevertheless, in construing that provision I regard it as legitimate and appropriate for a court to keep in mind the provisions of the Acquisitions of Shares Code. The two Codes should be read together. They are addressed, substantially, to the same actors. Often they operate upon the same events. Their operation is of great importance to the corporations of this country which are, in turn, of vital significance for our economic well-being. So far as the language and apparent purposes of the Codes permit, a court should endeavour to provide an interpretation of them which affords a harmonious, practical and mutually supportive operation to each. I consider that this is the approach sanctioned by the Court in a number of cases where meaning had to be given to statutory provisions which had an obviousrelationship to other legislation. See eg Commissioner of Stamp Duties v Permanent Trustee Co Ltd (Trustee for Dal Bon) (1987) 9 NSWLR 719 , 722 and Abdi v Release on License Board (1987) 10 NSWLR 294 , 295. Sometimes this approach will not prove possible. A clear lacuna in legislation will be demonstrated. In such a case, the court is not authorised to distort the ordinary meaning of the legislation or to impose upon it an artificial construction. This is, for example, was the conclusion which the Court reached in North Sydney Brick and Tile Co Limited v Darvall (1986) 5 NSWLR 681. Care must also be taken to avoid the error referred to by Gibbs CJ in Public Service Board of New South Wales v Osmond (1986) 159 CLR 656 at 669. Where Parliament has provided in a particular way, it is not for courts to fill perceived gaps in the legislation in order to secure conceived objectives of harmony favoured by the court but which Parliament did not see fit to legislate. 4 UNREPORTED JUDGMENTS No such errors are involved in the approach which I consider section 123 of the Companies New South Wales) Code requires in the present case. To the contrary, it is obviously sensible that the Court should approach the exercise of the discretion required by s 123 of the Companies Code, keeping in mind the language and legislative policy of the Acquisition of Shares Code as it affects transactions which are related, although separate. Specifically, I agree with Priestley JA that in determining what is required by the equity and fairness to which s 123 of the Companies (NewSouth Wales) Code directs the attention of the court, it is entitled to take into account the principle, reflected in the Acquisition of Shares Code, that the buyer of shares seeking to gain control of a company should ordinarily, as a matter of fairness, give all members of that class the opportunity of sharing equally whatever premium the rights attached to that particular class of shares brings into existence. Preferential shareholders are not merely secured creditors of a company. They are also members of the company. The cancellation of their shares is not just the termination of their investment. It is also their expulsion from the company. The company is entitled to achieve that expulsion. But only if the resolution for that purpose secures the confirmation of the Court. And the Court will not give that confirmation if, in all of the circumstances, the result would be to work an inequity or unfairness upon the preferential shareholders affected. See discussion S Lindsay, 'The Position of Preferential Shareholders in a Reduction of Capital' [1987] Companies and Securities L J 77 , 90. Particular care must be taken in applying earlier observations of the courts concerning the rights of the company with respect to preferential shareholders where such observations were made before the beneficial enactment of the Acquisition of Shares Code. Against this background, it is not difficult to see why a preferential shareholder, such as the appellant, knowing that the respondent was willing to pay $4 a share to securecontrol over the right of such shareholders to elect a director, should consider that it was unfair (that objective having been attained) soon thereafter to proceed effectively to acquire the remaining preferential shares at but $2.78 each. Indeed, the unfairness of such a result seems perfectly obvious, at least within the relatively short time frame involved in this case between the respective offers and absent any other acceptable extraneous explanation for the large shortfall. The law reserves most corporate decisions to the directors. It is particularly slow to disturb a scheme of capital reduction which has commended itself to those directly concerned financially. Re Chatterley-Whitfield Collieries Ltd [1948] 2 All ER 593 at 604-5. But this is one decision in respect of which the law interposes the necessity of securing the confirmation of the court. It does so precisely for the reason of ensuring fairness and equity to all concerned. In giving content to those unfathomable words, I believe that the Court should look to all of the relevant circumstances which surround and precede the proposed reduction of capital. When I do that in the present case, I am not convinced that the terms of the proposed reduction offered by the respondent were fair and equitable. On the contrary, in my opinion they were not. I am authorised to substitute my opinion in this regard for that of Cohen J because, in approaching the question posed by s 123 of the Code, I consider that his Honour unnecessarily narrowed hisattention to the suggested market price of the shares. He failed to give adequate weight to the course of events which had preceded the proposed reduction of capital, which are fully outlined by Rogers A-JA and recapitulated by Priestley JA. I therefore come to the same conclusion as their Honours. URJ CATTO v AMPOL LIMITED (Kirby P) 5 Intervention of the NCSC In several recent cases I have referred to the desirability, in matters involving questions of importance for company law, and particularly where the construction of the Codes is involved, that the National Companies and Securities Commission (NCSC) should intervene to assist the Court. See eg North Sydney Brick and Tile Co Limited v Darvall (1986) 5 NSWLR 681 , 684; Advance Bank Australia Limited & Ors v FAI Insurances Limited & Anor (1987) 9 NSWLR 464 , 470; Hurst & Ors v Vestcorp Limited (1988) 12 NSWLR 394 , 402; Darvall v North Sydney Brick and Tile Co Limited & Ors, Court of Appeal, unreported, 23 March 1989, p 5. See also M D Kirby, 'The Impact of Legislation and Regulation on Business — A Discussion of Recent Court of Appeal Decisions' (1988) 12 Butterworths Company Law Bulletin 234 , 238-9. Cf R Tomasic and B Pentony, 'Litigation Strategies in the Company Takeover Process', First Report, Summary, 1989, 13. Within this Court opinions have differed concerning the utility and desirability of the intervention in litigation of third parties, particularly where the intervenor represents a manifestation of the Executive Government. See eg thecontrasting views of the Court in Corporate Affairs Commission v Bradley [1974] 1 NSWLR 391 and of Street CJ in Rushby and Anor v Roberts & Anor [1983] 1 NSWLR 350 , 353. However, entirely different considerations are raised where legislation specifically provides for such intervention. One example is the Judiciary Act (Cth) s 78B. See University of Wollongong v Metwally (1985) 1 NSWLR 722 , 727. Another illustration is to be found in s 540 of the Companies (New South Wales) Code. That section provides (relevantly): 540(1) The Commission may intervene in any legal proceedings relating to a matter arising under this Code. (2) Where the Commission intervenes in any proceedings referred to in subsection (1) the Commission shall be deemed to be a party to the proceedings with all the rights, duties and liabilities of such a party. The enactment of this provision was clearly designed to facilitate the participation of the Commission in cases involving important questions of company law, particularly those affecting the interpretation of the Code. The Commission declined to accept the Court's invitation to intervene in the earlier Darvall case, the Advance Bank case and Hurst v Vestcorp. It ultimately participated in the second Darvall case. In the High Court of Australia, it intervened in Hamilton v Oades, High Court, unreported, 12 April 1989 although not in this Court. See Oades v Hamilton (1988) 11 NSWLR 138; (1989) 34 A Crim R 235. The desirability of intervention in the present appeal was particularly clear. The preferential shareholder which had carried the burden of the litigation before Cohen J and was there represented by senior counsel, did not appeal. The Court therefore had before it an appellant who was unrepresented. Although it should be said that he rose to the occasion and presented detailed written submissions which were of greater assistance to the Court than is usual in such a case, necessarily the refinement of the issues, in dialogue between the Court and experienced counsel, was highly desirable in a case such as this. Decisions of this kind may be followed in other States. Appeals to the High Court of Australia lie only by special leave of that Court. Because of the cumbersome machinery for amending the Codes, it is difficult to overcome a determination later found to be inconvenient. This is why the intervention of the NCSC was particularly necessary here. 6 UNREPORTED JUDGMENTS Consistent with its case, the respondent denied that there was any relevant question of the inter-relationship of the two Codes. Nor did it concede that any question of general importance arose in the construction of s 123 of the Companies (New South Wales) Code. But this was precisely the issue to be elucidated by argument. It was for that reason that the Court suggested that the NCSC be informed of the proceedings and invited to consider whether it should intervene. When the NCSC proved reluctant to exercise its powers under s 540 of the Code, the Court caused a notice tobe given to the Crown Solicitor to secure the assistance of the Crown, as ultimate protector of the public interest in litigation. In the result, the Solicitor General announced his appearance for the NCSC. His assistance was of considerable value to the Court. As stated on previous occasions, I fully realize that budgetary restraints press upon the NCSC, as upon other agencies of government. It is necessary for the NCSC to make choices concerning the use of its scarce resources. But Parliament has provided the facility in s 540 of the Code for an obvious purpose. This appeal illustrates clearly the value to the Court, the administration of justice and the interpretation of the Codes of the participation of the NCSC. Additional orders. The Court did not hear full argument concerning the order for costs which should follow the earlier orders disposing of the appeal. Clearly, to the extent that the law provides, the appellant should have his costs and expenses. See Cachia v Isaacs & Ors, Court of Appeal, unreported, 23 March 1989; (1989) NSWJB 46. Those costs and expenses should be paid by the respondent. As to whether any additional order for costs should be made by or against the NCSC, I would be disposed, if any party wishes to argue for such an order, to allow the matter to be restored to the list for argument on a date to be appointed by the Registrar. Accordingly, to the orders made by the Court 0n30 March 1989 I would add: 4. Grant leave to appeal to Robert John Charles Catto; and 5. Order the respondent to pay the appellant's costs. Priestley JA. I agree with Rogers AJA'S evaluation of the facts in this case, and also the way in which he supports the conclusion expressed in the Court's orders of 30 March last. However, I wish also to state in my own way my reasons for agreeing that those orders should be made. The section of the Companies (NSW) Code which brought Ampol Limited ('the company') to court was s 123. Subsection 1 of that section permits a company, if authorised by its articles, by special resolution to reduce its share capital in any way. This provision, in a substantially similar form, has been part of the legislation regulating companies in Australian jurisdictions and in the United Kingdom for many years. The way in which the Court should deal with applications for confirmation has been more extensively dealt with in England than in Australia, so far as reported decisions at appellate level go. Australian courts have used English authorities in their own approach to administration of the section, and they provide a useful store of experience. The House of Lords discussed the way courts should administer the corresponding section of the United Kingdom Companies Act 1948, (s 66), in Ex parte Westburn Sugar Refineries Limited (1951) AC 625. Lord Normand said that the reduction must safeguard 'a just and equitable treatment of shareholders' (at 629); Lord Reid said, 'In considering a reduction the interests of shareholders, among other interests, have to be considered' (at 632); and Lord Radcliffe said, URJ CATTO v AMPOL LIMITED (Priestley JA) 7 'The court should only refuse its confirmation if what is proposed to be done is somehow unfair or inequitable; and the consideration of what is unfair or inequitable cannot well extend beyond consideration of the interests of creditors, shareholders and the general public' (at 635). Lord Radcliffe also indicated that if the reduction worked 'no injustice to creditors or to shareholders', he saw no purpose in the court looking closely into the details of the proposal (at 636). The English authorities give examples of refusals of confirmation by the court. In Old Silkstone Collieries Ltd (1954) 1 Ch 169, the English Court of Appeal reversed Vaisey J's confirmation of a reduction both on a technical ground, and on the merits. On the latter aspect Lord Evershed said the criterion was whether the proposal was 'shown to be unfair or inequitable' (at 188). Jenkins LJ, referring to previous representations by the company, said it would not beconsistent with good faith to confirm the reduction (at 198). Morris LJ adopted the view that the court had the 'duty of satisfying itself that the scheme is fair and equitable between the different classes of shareholders' (at 200). In Holders Investment Trust Ltd (1971) 1 WLR 583, Megarry J refused to confirm a reduction of capital on the alternative bases that it had not been shown to be fair and had been demonstrated to be unfair. The reason for the alternative bases was that it had been in dispute before him whether the onus lay on the company to show the reduction was fair or on the opponents of confirmation to show it was unfair. The two ways of stating the matter are apparent in the above citations from Evershed MR and Morris LJ in Old Silkstone Collieries. Megarry J in Holders Investment Trust, although his decision was based on both ways of looking at the question of onus, indicated early in his reasons, (at 586), that where a reduction concerned the modification of class rights and a sufficient majority of the holders of shares of a class voted in favour of the modification in the bona fide belief they were acting in the interests of the general body of members of that class, then it was for those opposing the confirmation by the court to prove the reduction unfair; on the other hand if that condition was not fulfilled, the court would confirm the reduction only if proved to be fair. There does not seem to me to be much to be gained by trying to approach confirmation cases by reference to the onus of proof. The company, in seeking confirmation of the reduction, is asking the court to make an order which the court has powerto grant or withhold. In the ordinary case the company begins with the advantage of a resolution duly made under the relevant statute and in accordance with the company's own constitution. If nothing more than that appears in an unopposed case, there will ordinarily be no reason why the court should not grant the company's application. Speaking in terms of onus, to say that in the ordinary example just referred to, if an opponent of confirmation had suddenly appeared, the onus would have been on the opponent to show the reduction was unfair, as if that were a complete statement in regard to onus, would be to ignore the fact that in the example the company, by putting material before the court, upon which the court in the absence of opposition would have decided to confirm the reduction, had been discharging the ordinary onus that a person seeking the making of an order by a court must discharge to obtain the order. In a case where confirmation is opposed, the court must make up its mind, on the evidence before it, whether or not it will confirm. I find it hard to imagine a case so evenly balanced that a court will need to fortify itself by considerations of the onus of proof before being able to decide what to do. 8 UNREPORTED JUDGMENTS In the present case, the central facts appear to me to be very plain. In 1987 the primary value of the preference shares was that they entitled the holders to regular dividends at 6%, and the holders could be reasonably confident that their capital was secure. An investment in 1987 of $2 at 6% per annum was not the best available. Investments equally secure were at that time yielding much better interest returns in Australia. Nodoubt that is why, when the events arguably relevant to this case began, in February 1987, the market price for the preference shares was less than $2. It was then that the company proposed two Schemes of Arrangement, one of which concerned the preference shares. Under this Scheme the preference shares were to be cancelled and the holders would be paid $2 per share. The preference shareholders did not approve this Scheme. Then, in April 1987, Pioneer, which as holder of more than 75% of the ordinary shares, was in effective control of the company bought 61% of the preference shares, paying $4 each for them. It seems that Pioneer's broker was instructed to obtain more than 50% of the shares, but not all of them, at the price of $4 because, after reaching the 61% mark he told further prospective sellers that Pioneer had given him no instructions for further purchases. The only explanation apparent on the materials in the case for Pioneer's payment of $4 for each of the preference shares it bought is that article 7(9) provided that the preference shareholders could elect a director to the company's board, and that Pioneer wished to obtain a sufficient preference shareholding to ensure that any director elected pursuant to article 7(9) was a director of its choice. To ensure this result it was prepared to pay $4 per share, an amount significantly greater than the shares were otherwise worth. A year later Pioneer offered, pursuant to the Companies (Acquisition of Shares) Code to acquire all outstanding interests in the company; the part of the offer dealing with thepreference shares was at $2.75 per share. Enough of the holders of outstanding preference shares accepted this offer to take Pioneer's holding of preference shares to approximately 82%. This meant that, pursuant to article 7(10) Pioneer could now pass or defeat any resolution proposed to a separate meeting of the preference shareholders. Shortly after this position was reached, notices were sent out by the company (November 1988) of an extraordinary general meeting of the company and of a separate meeting of the preference shareholders to approve a resolution to reduce the company's capital by returning $2.78 per share to the preference shareholders and cancelling their shares. Some of the remaining preference shareholders other than Pioneer opposed the resolution at the separate meeting of preference shareholders, but it was of course carried at both meetings. Some few preference shareholders opposed the application for confirmation of the reduction before Cohen J, who granted it. One preference shareholder appealed from Cohen J's decision. Cohen J's decision was based on the view that the amount to be paid to the preference shareholders pursuant to the reduction resolution was sufficiently close to their market value as to be fair. I agree with him that the amount was close to market value at the time of the reduction resolution. Indeed, I find it difficult to see why the value of the preference shares, objectively appraised would have been as high as $2. The only value the shares had at the time, so far as I can see, greater than the present value of $2 (which the investor couldnot recover without the agreement of the company) at 6% per annum, was whatever additional value lay in the fact that the continued existence of a tiny rump of non Pioneer holders caused administrative expense to the company and made it necessary for the company to comply with more accounting and auditing URJ CATTO v AMPOL LIMITED (Priestley JA) 9 requirements than would otherwise be the case. The additional value would thus be whatever it was worth to Ampol/Pioneer to reduce administrative expense and not to have to comply with the accounting and auditing requirements. The issue upon which attention was concentrated before Cohen J was whether the amount to be returned to the preference shareholders was fair in light of current market value. If that were the only question, I would agree with his decision. However, before this Court a different issue came into clearer focus than it was before Cohen J. This was the issue whether the resolution for reduction was fair in light of the history from February 1987 to the time of the calling of the meetings to consider the reduction resolution in November 1988. Counsel for Ampol agreed that before Cohen J the argument had been relied on that he should take into account on the question of fairness the full sequence of events from February 1987 to November 1988. Counsel did not contend that this Court would be deciding a point not argued at first instance if the Court considered the point on the basis of the materials before it. It seems to me that this issue should be decided and is in fact the critical issue in the appeal. In regard to this question, the first answer raised bythe company was that it was not right for the Court to consider the period from February 1987 to November 1988 as the relevant one. The only question, it was argued, was whether at the date of the resolution the proposal was fair. The company's second answer was that even if the suggested period be relevant, the resolution was in any event fair. What the relevant period was seems to me to be the main question in the case. In my opinion the February 1987 to November 1988 period is relevant and should be taken into consideration in evaluating the fairness of the reduction resolution. The events of that period seem to me to be sufficiently connected with the passing of the reduction resolution to make it necessary to consider them when evaluating its fairness. Ampol/Pioneer wanted to cancel all the preference shares in February 1987; when that could not be done and it was decided that Pioneer should buy a majority of the shares, it was discovered that in order to secure sufficient of them to ensure Pioneer would for practical purposes have the nomination of the preference share director, it was expedient to pay $4 a share; Pioneer thereafter waited until it had control of the preference shareholders" meeting to have the reduction resolution passed. I do not think any of these matters should be left out of account, simply because of the length of time it took Pioneer to get into the position it eventually reached. The events were all connected, and part of a continuous sequence. I can see no intelligible basis for drawing a line at any point between February 1987 and November 1988 and saying that only events after the dateline maybe considered by the Court. Once the position is reached that events from February 1987 to November 1988 should be taken into account, the conclusion that the Court should not confirm the reduction seems to me to be a clear one. Pioneer was prepared to pay $4 a share in order to get control of the preference shareholders" right to elect a director. It has become generally accepted in Australia that buyers seeking to obtain, by purchase within a limited period, the advantages that go with the control of a particular class of shares in a listed public company should, during that period, as a matter of fairness, give all members of that class the opportunity of sharing equally whatever premium the rights attached to that particular class of shares bring into existence. The Companies (Acquisition of Shares) Code, in force in substantially the same terms in all Australian jurisdictions, shows parliamentary adoption of this generally accepted idea. On the footing that this Code nevertheless does not deal with the particular situation that arose in the 10 UNREPORTED JUDGMENTS present case, I do not think that that circumstance can be used to support an argument that the various legislatures intended any areas not covered by the Code to be dealt with by the courts in an exactly opposite way. It seems to me to be safe, and proper, for this Court to act on the basis that in applying notions of fairness in the present case, what I have called the generally accepted view, as exemplified in the Code, should be taken into account. Taking it into account, I do not think the Court should confirm the reduction. In reaching this conclusion I have considered the situation following from non confirmation. The preference shareholders" success will not, again so far as I can see, be of much benefit to them. There is no way they can compel the company to pay them $4 for their shares. The company (or more factually, the decision makers in Ampol/Pioneer) may decide to let them remain as preference shareholders indefinitely, suffering whatever inconvenience and expense that situation brings. Or, the company may eventually buy out remaining preference shareholders either at some figure they agree upon or, if the reduction method is again to be attempted in the future, on conditions the Court, in all the circumstances then pertaining, may approve. Notwithstanding that the result seems to me to be an unsatisfactory one from the point of view of all relevant parties, this does not seem to me to bear upon the question of the fairness of the proposed reduction. In my opinion it would be more unsatisfactory for the Court to confirm an unfair resolution. I agree with the further orders proposed by Rogers AJA and with his suggestion about the costs of the Solicitor-General. Rogers AJA. Before Cohen J, Ampol Limited ('the company') sought orders confirming special resolutions for the reduction of its capital and share premium account. The resolutions provided for the cancellation of the | million issued preference shares in the company and reduction of the share premium account by $780,000. Cohen J made the orders sought. He subsequently delivered his reasons for judgment on which I have drawn heavily and gratefully in what follows. It is right to say at the outset that His Honour was placed in an extremely difficult position by the haste with which the company's plans were implemented and the decision of the Court was required to be made. Notices of an Extraordinary General Meeting of the company and of a separate meeting of the preference shareholders were sent out on 16 November 1988. The meetings were held on 9 December 1988 and it was resolved that the amount of $2.78 per share be paid on 31 December1988. The Summons to confirm the resolutions was filed two days before the notices of the meetings were sent out to shareholders and, indeed, before the directors had formally resolved to call the meetings. Although the Summons was returnable in the last week of term, it could not be dealt with then and was heard as an urgent matter during the vacation. In order to enable the matter to be disposed of before 31 December 1988, it was agreed by the counsel who appeared that, to save time, there would be no cross examination of any of the deponents of affidavits. Unfortunately, this had the effect of leaving unresolved a number of important questions thrown up by the evidence and the material on the basis of which a decision has to be made is in a rather unsatisfactory state. The consequences of the evidence being left in this state, will have to be borne by the company whose haste brought about this situation. URJ CATTO v AMPOL LIMITED (Rogers AJA) 11 Prior to the passing of the special resolutions, the issued share capital of the company was made up as follows: 1. 1,000,000 fully paid cumulative non-participating 6% non redeemable preference shares of $2 each; 2. 328,277,829 fully paid ordinary shares of 50 cents each; 3. 22,500,000 issued and fully paid 'B' ordinary shares of 50 cents each. There were also issued 14,560,200 convertible unsecured notes of $1.30 each. The whole of the ordinary share capital and 99.6% of the convertible unsecured notes were held by Pioneer Concrete Services Limited ('Pioneer'). Pioneer also held approximately 82.4% of the 1,000,000 preference shares. The remaining 17.6% of the shares were held by 166 shareholders. Article 5 of the company's Articles of Association provides that the rights attached to any class of shares may be varied or abrogated with the sanction of a special resolution, passed at a separate general meeting of the holders of the shares of that class. The rights attaching to the preference shares are set out in Article 7. Briefly, holders are entitled to a preferential dividend at the rate of 6% per annum, payable half-yearly. On a winding up, the holders of preference shares are entitled to payment in priority to all arrears of preferential dividend to the date of commencement of the winding up. They are entitled in priority to other shareholders to repayment of paid-up capital. Holders are not entitled to any other rights in the profits and assets of the company. They are entitled to notices of annual general meetings and extraordinary general meetings and copies of the profit and loss accounts, balance sheets and directors" reports and to attend at the annual and extraordinary general meetings. They are not entitled to vote at the annual general meeting orany extraordinary general meeting of the company, except at meetings convened for the purpose of reducing the capital or sanctioning a sale of the undertaking or winding up of the company or at which a resolution is to be submitted that would affect the rights and privileges of holders of preference shares. If dividends are in arrears for more than six months, the preference shareholders are entitled to vote. Subclause 9 provides, in part, as follows: In order to provide representation on the Board of Directors for the holders of Preference Shares the following provision shall take effect: (i) At the annual general meeting in 1967 and in each third year thereafter the Director in office under this clause shall retire and a Director in his place shall be elected by the holders of Preference Shares. (ii) If the Director in office for the time being under this clause ceases to hold office pursuant to Article 97 or dies the holders of Preference Shares shall elect in his place a Director who shall hold office for the period for which he would have held office. (iii) Whenever a Director is required to be elected under this Article the Director (sic) shall convene a meeting of the holders of Preference Shares to be held immediately after the annual general meeting if the election is held pursuant to subparagraph (i) or if the election is held pursuant to subparagraph (ii) then within two months after the vacation of office. Subclause 10 provides as follows: Notwithstanding the provisions of the Memorandum and these Articles no alteration whatsoever in the rights and privileges of the class of Preference Shareholders and no reduction of Preference capital shall be made nor shall any of the rights and privileges attached to such class of shares be altered modified or abrogated (subject to Section 125 of the Code) without thesanction of a resolution passed by majority consisting of the holders of at least three-fourths of the issued shares of that class at a separate general 12 UNREPORTED JUDGMENTS meeting of the holders of shares of that class convened for the purpose. The provisions in these Articles as to general meetings shall mutatus mutandis apply to every such meeting provided always that if at any such meeting the necessary majority shall not be obtained then and in such case the consent in writing of the holders of at least three-fourths of the issued shares of the class to the alteration modification or abrogation shall if obtained within two months from the date of such meeting have the same force and effect as a resolution duly passed in accordance with this Article. Article 50 provides as follows: The Company subject to the provisions of the Code may by special resolution reduce its share capital, any capital redemption reserve fund or any share premium account in any way and without limiting the generality of the foregoing may do all or any of the following: (a) extinguish or reduce the liability of any of its shares in respect of share capital not paid up; (b) cancel any paid up capital which is lost or unrepresented by available assets; or (c) pay off any paid up share capital which is in excess of the needs of the company and may so far as necessary alter the Memorandum reducing the amount of share capital and of the shares accordingly. The special resolutions passed by the Extraordinary General Meeting and by the separate meeting of preference shareholders on 9 December, provided that there should be a cancellation of all of the issued preference shares with a payment of $2, being their paid up value, together with 75 cents from the premium reserve and 3 cents representing interest for three months from end of September to end of December 1988. The reasons givenfor the reduction in the explanatory statement sent out with notices of the meetings were that it would eliminate the costs of the share registry for preference shareholders and the servicing of preference shareholders. The resolutions having been passed, the company sought confirmation by the Court, pursuant to the provisions of s 123 of the Companies (New South Wales) Code. When the Summons came before Cohen J, a notice of intention to appear had been filed by three shareholders. One was Batoka Pty Ltd, the holder of 37,337 preference shares. Second was Mr R.J.C.Catto, a director of Batoka Pty Ltd and a holder of 1,432 preference shares and the third was Dr G.B.Elkington, the holder of 133 shares. Batoka Pty Ltd was represented by Mr Bathurst QC, the other two gentlemen appeared in person. They all opposed the making of an order confirming the resolutions. The only appellant from the decision of Cohen J confirming the reduction of capital was Mr Catto. Before us also he appeared in person. This gave us considerable concern. It appeared that the appeal could involve difficult questions of company law on which the Court would need the assistance of counsel. The Court directed the Registrar to notify the National Companies and Securities Commission of the hearing so that it might consider whether to exercise its power to intervene. When the appeal was called on, a solicitor employed by the Commission informed us that there had been insufficient timefor the Commission to make a decision whether to retain counsel and to intervene. As it happened, the appeal could not be reached that day and the Registrar was directed to ask the Crown Solicitor to brief counsel to assist the Court. At the hearing, the Court had the great benefit of argument from the Solicitor-General, Mr Mason QC, who announced his appearance for the NCSC. The Court is much indebted for that assistance. For myself, I am bound to say URJ CATTO v AMPOL LIMITED (Rogers AJA) 13 that, whilst I fully appreciate that the NCSC must keep to its priorities in the allocation of limited resources, it makes the proper development of company law very difficult when on important questions a Court has to reach its conclusion on the basis of argument from one side only. At the commencement of the hearing, Mr Emmett QC, for the company, submitted that because no formal order had been made by Cohen J making Mr Catto a party, notwithstanding that Mr Catto had appeared before the judge and was, in all respects, treated as a party, he required leave to appeal. The suggestion appeared to be that Mr Catto should have been added as a defendant, pursuant to Pt 80 r 5. That rule is in the following terms: (1) In any proceedings under the Code, the Court may, on terms, grant to any person who is, or claims to be, a creditor, contributory or officer of the company or an officer of a creditor or contributory of the company, leave to be heard in the proceedings without becoming a party, and may at any time revoke leave so granted. (2) In any proceedings under the Code, the Court may, on terms, order that any person who is or claims to be a creditor, contributory or officer of the company be added as a defendant, and make orders for the further conduct of the proceedings. (3) Leave may be granted to a person under subrule (1) and an order may be made adding a person under subrule (2) on application by the person or by any party or of the Court's own motion. (4) This rule does not affect the powers of the Court under Part 8 rule 8. The need for such an order to have been made by Cohen J was not argued and I express no view on it. In so far as Mr Catto may require leave to appeal, Mr Emmett did not resist it and an order to that effect should be made. In order to put the dispute between Mr Catto and the company in proper context, it is necessary to paint the background. In February 1987, Pioneer held 79% of the ordinary shares issued and all of the 'B' ordinary shares. It also held 87.9% of the convertible notes but none of the preference shares. In that month the company proposed a Scheme of Arrangement which involved the payment to preference shareholders of $2 per share. The scheme was not approved by the preference shareholders. In fairness to the company, it should be mentioned that the preference shares were languishing on the market below $2. In April 1987, Pioneer made purchases, both on market and off market, of preference shares. In the result, it acquired 61.4% of those shares. Mr Emmettconceded before us that all of these preference shares were acquired at the price of $4 each. An affidavit from Batoka's stockbroker, Mr Cooper, stated that on 30 April 1987, he became aware of Pioneer's purchases. On instructions, he immediately contacted the broker for Pioneer to sell Batoka's preference shares in the company for $4. He was told that the order had been filled and subsequently informed that the broker for Pioneer had no instructions for further purchases. In April 1988, an offer was made by Pioneer in accordance with the provisions of the Companies (Acquisition of Shares) Code ('CASC'), for the balance of the ordinary shares, convertible notes and preference shares issued by the company and not already held by Pioneer. So far as the preference shares were concerned, the offer was $2.75. 460 of the holders of preference shares, other than Pioneer, accepted, for some 208,000 shares, being approximately 21% of the preference shares on issue. Between July and the end of November 1988, Pioneer purchased 3,595 preference shares from 20 holders. That left approximately 176,000 preference shares, being 17.6% of the issued preference shares, in the hands of 14 UNREPORTED JUDGMENTS 166 other shareholders. The purpose of the reduction of capital clearly enough was to eliminate these remaining outside shareholders. The practical result of the acquisition of the 61.4% of the preference shares at $4 each in April 1987 was that thenceforth, Pioneer could determine the identity of the nominee of the preference shareholders to serve as a director, pursuant to the provisions of Article 7. In other words, although, in a legal sense, the acquisition by Pioneer left undisturbed all the rights of the remaining preference shareholders, including the right to participate in the election of the preference shareholders" nominee director, in a commercial sense, the minority shareholders could no longer make their wishes effective in the face of the monolithic majority shareholder. In a real commercial sense, the preference shares held by the minority shareholders suffered a depreciation in value. A valuable right attaching to them was no longer practically viable. It was accepted by the parties before Cohen J and again in this Court, that the CASC did not, in terms, apply to the acquisition by Pioneer of the 61.4% of the preference shares in 1987. This was said to be for a number of reasons. Firstly, s 11 of the CASC, which put in place the prohibition on acquisition of shares otherwise than in accordance with certain detailed procedures, applied only to voting shares. The parties accepted that the rights which attached to the preference shares did not suffice to make them 'voting shares' within the meaning of the CASC, although at one point in hisoral submissions (p 43), Mr Emmett seemed to concede that they were 'voting shares'. Secondly, because of Pioneer's total shareholding, s 15 of the CASC made the restriction inapplicable even if s 11 otherwise applied. It is unnecessary to consider whether a cancellation of shares may constitute a 'takeover' for the purposes of the CASC because, in the absence of argument to the contrary, I am content to proceed on the basis that the CASC had no direct application to the subject of the special resolutions. It may be that the Parliament took a deliberate decision that the CASC and the obligation of equal treatment of shareholders which underlies it should not apply to a reduction of capital in any case. This view may have been taken because of the accepted principle that a court will only confirm a reduction of capital pursuant to s 123 of the Companies Code if its terms are fair and equitable (cf Bannatyre v Direct Spanish Telegraph Co [1886] 34 Ch D 247; Poole v National Bank of China Ltd [1907] AC 229; Ex Parte Westburn Sugar Refineries Ltd (1951) AC 625; Re Holders Investment Trust Ltd [1971] 2 AER 289; Gower's Principles of Modern Company Law 4th Ed p 708). However, there is a profound difference between, for example, the statutory right of a dissenting minority to require the purchase of its shares at the offer price [CASC s 43(3)] and relying on the court's discretion under s 123 of the Code based on fairness. It is perhaps appropriate to note that rights are conferred on the holders of non-voting shares as well inthe event that, by a takeover offer, an offeror becomes entitled to 90% of the voting shares. Section 43(6) of the CASC provides: Where a notice is given under subsection (4) to the holder of any non-voting shares, renounceable option or convertible note — (a) the holder of the shares, option or note may, within 3 months after the giving of the notice to him, require the offeror or on-market offeror to acquire the shares, option or note; and (b) if a holder of shares or of an option or note so gives notice with respect to the shares, option or note, the offeror or on-market offeror is entitled and bound to acquire those shares or that option or note on such terms as are agreed or URJ CATTO v AMPOL LIMITED (Rogers AJA) 15 as the Court, on the application of the offeror, on-market offeror or holder of the shares, option or note, thinks fit to order. It may be argued that there should be no difference in principle between requiring that all owners of voting shares have equal opportunities to participate in benefits in a takeover and providing for equal treatment of the owners of shares carrying valuable and important rights affecting the company where the subject of the acquisition is only shares in the latter cases. Taking an extreme example, on the view adopted by the parties, CASC s 11 would not apply even if the non-voting shares the subject of the acquisition carried the exclusive entitlement to nominate the whole of the Board of Directors and to the whole of the surplus in a winding up. It may be accepted that, in terms, the intention of the CASC to afford equality of treatment to all shareholders does not apply to a reduction of capital where the shares are non voting. Nonetheless, it seemed a possible view that in determining what is fair for the purposes of s 123 of the Companies Code it is proper to have regard to the principle which informs the CASC. This appeared to the Court to raise important and fundamental questions. It is for this reason that we sought the assistance that was provided to us by the Solicitor-General. The determination of what is fair is not made any easier by what appears to be a cleavage between the market and the Parliament in the context of takeover offers. A commercial person will maintain that shares which deliver control are entitled to and call for the payment of a premium. Commercially, there is nothing wrong with paying such a premium to a shareholder, who, by transferring shares, delivers control. However, the whole spirit which animates the Companies Code and the CASC is an attempt to ensure that those who are in a minority get equality of treatment. It is not for the courts to debate whether that is appropriate or not. Parliament's intention is quite clear. Because the market reflects not the Parliamentary intention but the commercial assessment of the value of remaining minority shareholding interests after control has passed, is it an appropriate yardstick by which to measure the fairness of an offer? Is it an appropriate measure of fairness for the purposes of s 123?The opposition to the reduction was mustered before Cohen J under four headings. First, it was said that it was not fair on the minority shareholders. Secondly, the Court could not be satisfied that the terms of the offer were fair and reasonable. Thirdly, the voting in favour of the resolution by Pioneer was a fraud on the power held by it. Fourthly, s 123 of the Companies Code was being used for wrong purposes and the Court should not permit that. It is fair to say that His Honour's judgment is devoted principally to a consideration whether the reduction and, in particular, the terms of the offer, were fair and reasonable. The argument before us also focused on that question. Courts have long accepted that, generally speaking, the affairs of companies should be left to the commercial judgment of shareholders. Obviously qualifications to this generalisation are required. As Cohen J pointed out, where the majority of a class voted because of their interests as shareholders of another class, the determination of fairness has to be made by the Court. There having been no cross examination, it was difficult to form an opinion whether Pioneer voted because of its interest as the sole ordinary shareholder. Cohen J said: There has not been anything put to me from which I could deduce that Pioneer did not consider the benefits to all of the preference shareholders. I have little doubt however that with the history of its attempts at acquisition of the shares it is likely that it hasconcerned itself with the benefits to be obtained by it. That does not necessarily result in its not acting in a bona fide belief that the cancellation of the preference shares 16 UNREPORTED JUDGMENTS was for the benefit of the holders of those shares as well as for Ampol. Nevertheless I will assume that the onus is on Ampol in the circumstances to show that the offer made to the shareholders is fair. Even though there was no cross examination, I would have had no difficulty in concluding that Pioneer was driven simply by its interests as the sole holder of the ordinary share capital of Pioneer. As its repeated attempts by way of scheme of arrangement and takeover illustrate, it was determined to get rid of any other shareholder in the company. The evidence makes clear that there were considerable advantages available to Pioneer in obtaining 100% ownership and control of the company. Mr Richardson, the expert retained by the company, in his report to the directors of 2 December 1988 refers, only to eliminate from consideration for valuation purposes, to benefits to Pioneer of grouping for income tax purposes. Other benefits to Pioneer were identified by Mr Banks, retained by Batoka Pty Ltd in his report of 20 December 1988 (par 3.6). These benefits could be obtained only by elimination of outside shareholders. I am satisfied that they were to the forefront of Pioneer's consideration of the desirability of the proposal. It was precisely considerations of the same kind which presumably led Pioneer to offer $4 a share for the preference shares it acquired in April 1987. The price of $4 a share represented the fair price at that time. What then was the basis on which Cohen J concluded that the company had discharged the onus which he assumed lay on it 'to show that the offer made to the shareholders is fair'? The crux of His Honour's reasoning seems to me to appear from the following passage of his judgment: Tam satisfied from the evidence that on what market there has been over the past two years the sum of $2.75 (or $2.78 with the proportionate amount of interest added) is a reasonable price to be paid for these shares. The $4 which was paid by Pioneer to secure control of the preference shares and to give it a right of election of a director has not been matched since that offer. The purchase of a reasonable quantity of the shares in late 1987 for a little over $2 suggested that this was the then market price available. In my opinion it is reasonable to take the market price in the way done by Mr Richardson, that is that although the number of shares sold in 1988 was small, such sales as there were might be regarded as being arm's length transactions, producing a price which at the best was only a few cents over the amount now proposed to be paid. With very great respect to His Honour, this approach is insufficiently supported by the evidence. It is certainly indisputable that after Pioneer paid $4 on market and off market in April 1987, the price of the shares on the market was between a low of $2.40 and a high of $3. Only 6,900 shares were traded. The thin market and the lower price is, however, hardly surprising. As Bryson J pointed out in Kingston v Keprose Pty Ltd (No 2) 1988 6 ACLC 111, when considering theapplication of s 43(6)(b) of the CASC to options issued by Base Resources Ltd, the market is not always a fair indicator. His Honour said (p 114): After the close of the offer period on 15 December 1986 shares in Base Resources continued to be listed and at least in theory available to be traded on the Stock Exchange but only a very small proportion of such shares were not in the defendant's hands and trading was suspended on 15 January 1987 and remains suspended. By that time the holders of options had not had an opportunity to exercise their options, the available dates for exercise being in June and in December 1987. Trading in options was not suspended on 15 January and continues. A large proportion of the transactions in options which have taken place since 15 December 1986, both on-market and off-market, have been transactions in which the purchaser was the defendant or some URJ CATTO v AMPOL LIMITED (Rogers AJA) 17 person closely associated with the defendant, it being remembered that the defendant could have been called on by all holders of options as of 15 December, if they chose to do so, to acquire their options. For a significant number of options the vendors were also closely associated with the defendant. The prices at which dealings in options have taken place since 15 December, whether on the Stock Exchange or off-market, are not in my finding a fair indication of value because it is a fair certainty that behaviour in the market has been affected by and indeed dominated by the stark fact of the defendant's having acquired nearly all the shares, and by the defendant's obligations, when called on to do so, to acquire options. It can be observed that the plaintiffs as well as calling on the defendant as they have to acquire the options shares have at all times had the opportunity to sell the options on the Exchange, where trading has continued; however, I do not think that it would be realistic to give any weight to this consideration. The legislation gives the holders of options the lengthy period of three months from notification within which to consider their position and call upon the on-market offeror to acquire their options. Plainly it would usually happen that during such a period there would be changes in the value of options. Where, as the plaintiffs contend happened in this case, the value of the options increased by 11 March 1987 it appears to me that it is not correct to leave out of account whenexercising my discretion the fact that the value of the options has increased. If the value had fallen, it would not be correct to leave that out of account either, although consideration of its weight would have to be accompanied by consideration of the fact that the defendant had given practically all shareholders better terms and the holders of options were not able to participate in those terms because the on-market offer did not extend to them.' (emphasis added) His Honour's further observations are of considerable relevance in the present case. He said (p 117): To treat two different people with similar but not identical interests in a similar way where there was a long interval of time between acquisitions could well be far removed from equal or fair treatment; fairness does not require changes in economic circumstances or other known facts to be disregarded but on the contrary requires them to be regarded and adjustments made in respect of them. In the present case, the market was undoubtedly affected by the fact that 87% of the preference shares were resting in the hands of Pioneer and unavailable to trade. Further, the valuable right to participate fully in the election of the nominee director had disappeared. It had disappeared because Pioneer had purchased that commercial right at the price of $4 per share. Was there any other reason for the fall in price? There is no satisfactory evidence in this regard. Mr Richardson, in his report, seemed to suggest (par 26) that the decline in share prices following 20 October 1987 accounted for the fall in market price. This was strongly disputed by Mr Banks. He said (par 5.2) that: ... it is our opinion that the data as presented in Appendix 2 clearly demonstrates that the stock market realignment in October 1987 had no apparent detrimental effect on the preference share market as a whole, in fact the overall trend was for the market prices to increase. I prefer Mr Banks" opinion, supported, as it is, by evidence he has marshalled against Mr Richardson's generalised assertion. In the event, I am not satisfied that the market price fell from $4 to $2.80 or $2.40 simply in line with general market behaviour in preference shares. In the circumstances, the basis on which Cohen J proceeded is, in my respectful view, not available. I should mention that Mr Emmett told the Court that this approach to the problem had not been debated 18 UNREPORTED JUDGMENTS before Cohen J. Of course, I accept implicitly what Mr Emmett says. At the same time, I must say that Mr Emmett could not know on what particular basis confirmation of the resolutions would be opposed until the time for addresses. As the evidence was left, I am not satisfied that the terms for reduction of the capital are fair. I should say that it seems to me to be a surprising result that an offer in the same amount as constituted the takeover offer in April 1988, which was rejected by a large percentage of shareholders and which fell far short of calling for the compulsory acquisition of the shares of the dissentients under s 42, should be held to be fair in circumstances where no change in market conditions has been demonstrated. In the circumstances here, it does notappear fair that by reduction of capital by returning the same amount of money as had been previously offered and rejected, a majority of shareholders should circumvent the provisions of CASA. This, of course, is not necessarily so in every case but, coupled with the objectives of and advantages to the majority shareholder of the proposed reduction, I remain, at the very least, unconvinced that what is proposed is fair. For the foregoing reasons, I agreed to the orders pronounced on 30 March. In the course of the hearing the court reserved for further argument, after delivery of the reasons for judgment, if the parties so desired, the question of the costs of the intervenor. If the Solicitor-General desires to seek an order for costs, the appeal may be restored for argument by arrangement with the Registrar. In the meantime, I propose the following further orders, in addition to the orders made on 30 March 1989: 1. Grant leave to appeal to Robert John Charles Catto. 2. Order the respondent to pay the appellant's costs. (As pronounced on 30 March 1989). 1. Appeal allowed; 2. Orders of Cohen J made on 29 December 1988 and entered on 5 January 1989: set aside; 3. In lieu thereof: order that the summons for confirmation of the reduction of capital of Ampol Limited be dismissed. (As added on 28 April 1989). 4. Grant leave to appeal to Robert John Charles Catto; and 5. Order the respondent to pay the appellant's costs of the appeal. 6. Add to order 3 above: 'the plaintiff Ampol Limited to pay the costs of Batoka Pty Limited of the proceedings before Cohen J'. Counsel for the appellant: IN PERSON Solicitors for the appellant: IN PERSON Counsel for the respondent: A R EMMETT QC / M B OAKES Solicitors for the respondent: ALLEN ALLEN AND HEMSLEY: SYDNEY Counsel for the intervenor (NCSC): K MASON QC SOLICITOR GENERAL / S REEVES Solicitors for the intervenor: STATE CROWN SOLICITOR