Reported Decision : (1999) 32 ACSR 582 New South Wales Supreme Court CITATION : Cleary v Australian Co-operative Foods [1999] NSWSC 973 CURRENT JURISDICTION : Equity FILE NUMBER(S) : 3968/99 HEARING DATE(S) : 20 and 21 September 1999 JUDGMENT DATE : 21 September 1999 Patrick Cleary and Maxwell Cochrane (P) PARTIES : Australian Co-operative Foods Limited (D1) Ian A Langdon; Phillip J Bruem; Alan R Tooth; Jamie G Alison; Jeff E Ballon; Trevor R Connor; Thomas J Girgensohn; Wilf J Jarrett; Mal E Lanham; John J Mcaulay; Duncan A McInnes; Rowan R Moore; John J Reynolds; Michael D Ross; Charlie R Shearer; Ian H Zandstra (being the board of D1) (D2 Geoffrey D Boxsell (being the 'returning officer' and an employee of D1) (D3 JUDGMENT OF : Austin J S Rares SC with S Emmett (P) COUNSEL : M Oakes SC (D) P McKee (Sol) for Registrar of Co-operatives Corrs Chambers Westgarth (P) SOLICITORS : Addisons (D) I V Knight, Crown Solicitor (Registrar of Co-operatives) CATCHWORDS : CORPORATIONS - co-operatives - scheme of arrangement - allegations of misleading of deceptive conduct and breaches of duty by co-operative and its directors - whether appropriate to grant relief prior to decisions by members and creditors to approve schemes - whether application for relief should be expedited - relevant considerations; TRADE PRACTICES - misleading and deceptive conduct - spheres of application of Trade Practices Act, Fair Trading Act, Australian Securities and Investments Commission Act and Corporations Law Australian Securities and Investments Commission Act 1990 (Cth), ss 5(3), 12DA, 12GE Co-operatives Act 1992 (NSW), ss 193, 194, 266, 316, 354 ACTS CITED : Corporations Law, ss 9, 66A, 92, 411, 995, 1022 Fair Trading Act 1987 (NSW), s 42 Trade Practices Act 1974 (Cth), ss 51AF, 52, 80 Australian Electoral Commission v Towney (1994) 51 FCR 250 CASES CITED : Chanter v Blackwood (No.2) (1984) 1 CLR 121 Fraser v NRMA Holdings Limited (1994) 4 ACSR 656 Pettit v Atkinson (1994) 50 FCR 174 DECISION : Application for expedition granted THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION AUSTIN J TUESDAY 21 SEPTEMBER 1999 3968/99 - PATRICK CLEARY & ANOR V AUSTRALIAN CO-OPERATIVE FOODS LIMITED JUDGMENT (Delivered ex tempore on 21 September 1999 and revised on 22 September 1999) HIS HONOUR: The Proceedings 1 This matter commenced on 14 September 1999 when the plaintiff filed a summons seeking various orders with respect to a postal ballot and meetings which had been convened to consider a proposal ('Restructure Proposal') put forward by the directors of Australian Co-operative Foods Ltd ('Dairy Farmers') under Pt 13 of the Co-operative Act 1992 (NSW) ('Act') and ancillary resolutions. 2 The plaintiff has foreshadowed amendments to the summons and in its amended form the summons will seek orders and declarations along the following lines: (1) an order avoiding or declaring void the postal ballot, or cancelling the postal ballot process; (2) an order restraining the defendants (they being Dairy Farmers, its directors and the returning officer) from counting the postal ballot or publishing the result; (3) an order that the Court-ordered meeting of the Dairy Farmers be adjourned or vacated; (4) declarations that Dairy Farmers and its directors have engaged in misleading or deceptive conduct in trade or commerce by reason of their receiving and not adequately disclosing a merger proposal ('Parmalat Proposal') from Parmalat Finanziaria S.p.A. ('Parmalat') in various ways which I shall specify; (5) declarations that by so doing the directors or one or more of them breached their fiduciary duty to make a full and fair disclosure of material to members and the holders of co-operative capital units called 'Members' Capital Units' or 'MCUs'; (6) declarations that by so doing Dairy Farmers and its directors or one or more of them breached the duty set out s 354(3)(b) of the Act to provide, in the two-volume explanatory statement for the Restructure Proposal ('the Restructure Booklet'), information that is material to the making of a decision by members and MCU holders whether to agree to the Restructure Proposal; (7) declarations that by so doing Dairy Farmers and its directors or one or more of them breach a duty arising under s 266 of the Act and s 1022 of the Corporations Law to provide such information as investors and their professional advisers would reasonably expect to find in the Restructure Proposal; (8) a declaration that the directors are obliged to consider the Parmalat Proposal and inform members and MCU holders of the result of their consideration; (9) declarations that the refusal by the directors to consider the Parmalat Proposal and to put the Parmalat Proposal to a ballot without full and frank disclosure is invalid and involves breach of fiduciary duty, misleading or deceptive conduct and failure to comply with the duty under ss 266 and 1022, and that their conduct in failing to supplement the explanatory statement for the Restructure Proposal with adequate material concerning the Parmalat Proposal was misleading or deceptive conduct and was in breach of s 354 of the Act; (10) an order that the Court-ordered meeting for approval of the Restructure Proposal (made in proceedings 2882/99) was procured ex parte in breach of an obligation to disclose all material information with respect to the Parmalat Proposal; (11) an order that Dairy Farmers and its directors be restrained from proceeding without the leave of the Court with any business at the Court-ordered meeting or any adjournment of it other than taking steps that may be necessary to give effect to an adjournment. 3 The plaintiff has produced a statement of issues according to which some eight matters arise in these proceedings: (A) whether the dispatch of the Restructure Proposal involved breach of fiduciary duty by one or more of the directors, or failure to give adequate disclosure under s 354 of the Act, or misleading or deceptive conduct, or failure to give adequate disclosure under s 266 of the Act and s 1022 of the Corporations Law; (B) whether the information provided to members and MCU holders by a circular dated 24 August 1999 involved any deficiencies of the same kinds; (C) whether the information provided to members and MCU holders by the material sent to them on 6 September 1999 involved any deficiencies of the same kinds; (D) whether the directors had a fiduciary duty or a statutory duty to consider and decide whether to accept or reject the Parmalat Proposal and if so, whether they breached their duty by deciding to defer consideration; (E) whether any of the defendants engaged in misleading or deceptive conduct in respect of their discussions referred to in Mr Cochrane's affidavit; (F) whether the arrangements set out in the materials sent to members on 6 September 1999, which permit postal votes to be recalled and replaced, are valid; (G) whether there was a failure to make full and frank disclosure to the Court prior to the orders which I made on 30 July 1999 in proceedings 2882/99; (H) whether the plaintiffs are entitled to the relief claimed in the summons. The present applications 4 On 20 September 1999 the plaintiffs applied to me for an order for an expedited final hearing of the present proceedings. However, in the course of submissions the plaintiffs conceded that it may be appropriate to seek a final determination of only some of the issues and suggested that this could be achieved by defining some separate questions for determination under Part 31 of the Supreme Court Rules. 5 On the same day the defendants, pursuant to leave, filed in Court a Notice of Motion in which they sought orders having the effect that the present proceedings be heard concurrently with the hearing of any motion to approve the schemes of arrangement in proceedings 2882/99. 6 The purpose of the present judgment is to deal with these two applications. 7 I have set out the relief which is sought, and the issues raised, in so much detail so that I can make to make two points at the outset. First, the relief sought implies that there are some very serious allegations raised against Dairy Farmers and its directors which will require careful consideration in due course. Secondly, it can be seen that the allegations are broadly divisible into two categories: first, allegations of breach of duty with respect to what has occurred in the past; and secondly, allegations as to whether sufficient information has been placed before the members and MCU holders for them to make the decisions on the Restructure Proposal which they have been invited by the directors to make, and whether the voting procedure which is in train is valid. There seems to me to be a stronger case for urgent determination of the latter than the former issues. The Restructure Proposal 8 Dairy Farmers is a co-operative which carries on the business of manufacturing, marketing and distributing dairy and other food and beverage products under the business name 'Dairy Farmers' and other well known names. It has approximately 5,600 members of whom approximately 5,000 are dairy farmers who operate approximately 3,700 dairy farms in east coast States. 9 By the application brought before me in July this year in proceedings 2882/99, Dairy Farmers sought to convene a meeting to consider a scheme of arrangement between itself and certain of its creditors, being the MCU holders. There is also a scheme of arrangement between Dairy Farmers and its members explained in the same explanatory material as the creditors' scheme, namely the Restructure Booklet. 10 Under s 344 of the Act a scheme between a co-operative and its creditors requires two Court hearings, namely, a hearing at which the Court orders the convening of a meeting of the creditors and after the meeting, a hearing at which the Court considers whether to approve the scheme. However, in the case of a scheme between a co-operative and any of its members the same section requires Court approval after the members have voted on the proposal but not a Court order for the convening of any meeting. The procedure which is prescribed for voting by members is a procedure by special postal ballot as defined in ss 193 and 194 of the Act. The Restructure Proposal also involves a special resolution by special postal ballot under s 316 of the Act approving an application during the ensuring three years for Dairy Farmers to become incorporated as a company under the Corporations Law. 11 The purpose of the Restructure Proposal, according to the explanatory documents to which I shall refer, is to permit capital flexibility and sustained growth of Dairy Farmers' operations. There are two stages in the restructure. 12 In Stage 1 the schemes of arrangement for members and MCU holders will interpose a new co-operative referred to as the 'Supply Co-operative' between them and Dairy Farmers, by cancelling 75% of their shares and MCUs in exchange for 100% ownership of the Supply Co-operative, which will in turn hold a controlling interest in Dairy Farmers. After this stage of the restructure has been completed milk will initially be supplied to the Supply Co-operative rather than to Dairy Farmers, and Dairy Farmers will acquire the milk from the Supply Co-operative for processing and selling purposes. These arrangements will be reflected in a milk supply agreement. 13 Stage 2 involves the conversion of Dairy Farmers from a co-operative to a company incorporated under the Corporations Law. By virtue of the approval by members of the Restructure Proposal, the directors of Dairy Farmers will have a discretion to determine the exact date for conversion, although their discretion will be required to be exercised within three years from the date of implementation of Stage 1. Conversion will facilitate the raising of external capital and will permit Dairy Farmers to list on the stock exchange. 14 The Restructure Proposal, which I have described only in broad outline, involves many issues of legal and factual complexity. It was necessary for the Court to consider Dairy Farmers' application over several hearing days before being satisfied that the orders which were sought for the convening of a meeting of MCU holders and, more generally, the Restructure Proposal as a whole were appropriate, so that the Court would be in a position, should there be no opposition to the schemes, to make orders approving them. I made the orders sought by Dairy Farmers on 30 July 1999, and the Restructure Booklet and other materials were sent to members and MCU holders on about 6 August 1999. The Parmalat Proposal 15 The evidence before me shows that the Restructure Proposal emerged as a result of extensive discussions between management and members, at 'ward' level within Dairy Farmers, in New South Wales and in the other States where its members are located. One of the key issues in those discussions was the maintenance of farmer control of the business, to the extent that control could be maintained comparable with the achievement of capital flexibility. Farmer control will be preserved by the Restructure Proposal because in Stage 1 the Supply Co-operative, 100% owned by the members and MCU holders, will hold 75% of the shares in Dairy Farmers; and in Stage 2, control will be maintained by provisions of the constitution which Dairy Farmers will adopt as a company under the Corporations Law, which will include a 15% shareholding limitation, and by arrangements made in principle with the Australian Stock Exchange which will allow listing to occur even though the Supply Co-operative retains a controlling interest in Dairy Farmers. 16 An indication of the importance placed upon the issue of control emerges in the Restructure Booklet. Thus, in paragraph 5.9 of Volume 1 of the Restructure Booklet there is a reference to the main competitors of Dairy Farmers, who are said to be National Foods and Parmalat Australia, the latter being a wholly-owned subsidiary of Parmalat. The document notes that both competitors have the flexibility to make large capital raisings and that Dairy Farmers does not. A further reference to the competitive positions of Dairy Farmers and Parmalat may be found in paragraph 4.2 of Volume 2. 17 The message appears to be that farmer control will permit Dairy Farmers to remain independent of its competitors, while the Restructure Proposal will help it to compete effectively. The discussions between Parmalat and Dairy Farmers, to which I shall now turn, must be seen in this context. 18 The evidence before me indicates that discussions had begun between Parmalat and Dairy Farmers by no later than 4 May 1999. By facsimile of that date the Chief Executive of Dairy Farmers (Mr Tooth) wrote to the Regional Director of Parmalat for Australia/Asia (Mr Ferraris) setting out some items which he wished to discuss in the following week including the question: 'What structure can facilitate the ongoing participation of farmers in the downstream value-adding processes of processing and distribution?' 19 In evidence is a set of presentation notes prepared by Salomon Smith Barney, Parmalat's financial advisers, setting out in some detail a merger proposal described as 'Project Kangaroo', dated 15 June 1999. It appears from the evidence that this material was made available, at least, to Mr Tooth. On 30 June 1999 Mr Tooth wrote to Mr Ferraris referring to a meeting on 15 June and to the Salomon Smith Barney document, and indicating that in his opinion the issues raised by the document could not be addressed at that time for a number of reasons which he then set out. On 28 July 1999 Mr Ferraris wrote to Mr Tooth referring to the letter of 30 June and the previous meeting, reiterating Parmalat's belief that the merger proposal outlined in the Salomon Smith Barney document would offer significant benefits including cash to members of Dairy Farmers and could be combined with the Restructure Proposal, expressing an understanding of Mr Tooth's wish not to permit an alternative proposal to divert attention from the restructure process, and looking forward to progressing the merger discussions at the earliest appropriate time. 20 Mr Cochrane, one of the plaintiffs, deposes to some conversations which he had with a director, Mr Zandstra, on 5 and 6 August 1999 when Mr Zandstra denied rumours that Parmalat had made an offer to acquire an interest in Dairy Farmers. 21 On 11 August 1999 the plaintiffs, and other members, wrote to the directors of Dairy Farmers setting out their understanding that Parmalat had made an offer, referred to as an 'indicative proposal and correspondence', and seeking an assurance that all information relevant to the members' decision on the Restructure Proposal, including matters relating to Parmalat, had been properly evaluated by the board. On 18 August 1999 the Secretary of Dairy Farmers, on behalf of Mr Langdon, the Chairman, replied broadly to the effect that all that had been received from the Parmalat was an indicative concept insufficiently developed to warrant further consideration at that stage. 22 Some members of Dairy Farmers, including the plaintiffs, purported to requisition a special general meeting by requisitions sent to the Company Secretary under cover of a letter of 24 August 1999, with the objective of suspending the postal ballot and meeting process and requiring directors to review Parmalat's indicative proposal. By letter dated 27 August 1999 Mr Robinson, the General Manager (Finance and Administration) of Dairy Farmers, responded to the effect that the requisitions were not binding and that a meeting would not be convened, but the members would receive a statement indicating the attitude of Dairy Farmers to the purported requisition. That statement was in a letter to members dated 24 August 1999, which referred to Parmalat and 'the Parmalat concept', saying it did not represent an offer and was insufficiently developed to warrant further consideration. 23 On 31 August 1999 Parmalat transmitted to the directors of Dairy Farmers a letter of 11 pages including attachments which purported to set out a proposal for a merger broadly in conformity with Salomon Smith Barney's document of 15 June 1999, but giving specific figures. For present purposes the document may be summarised in this way: (i) the merger would be effected by the sale of Pauls Ltd, a dairy company owned by Parmalat, to Dairy Farmers in consideration of the issue of approximately 107 million shares by Dairy Farmers; (ii) an enterprise value of $676 million was placed on Dairy Farmers for the purposes of the proposal and after deducting debt Parmalat valued the equity in Dairy Farmers at $471 million or $4.02 per share; (iii) the valuation of Dairy Farmers was derived by applying a multiple of 13.5 times EBIT (earnings before interest and tax) for the year to 30 June 1998; (iv) on the same basis Parmalat assessed the enterprise value of Pauls at $561 million and the equity in Pauls at $431 million; (v) Parmalat's proposal was to make a cash payment of $4.02 a share in respect of a minimum of 25% of the Dairy Farmers shares held by each of the members; (vi) a share sale facility would be established for the balance of Dairy Farmers shares which would enable the members to sell shares at $4.02 each until 31 December 2000, and thereafter for a cash consideration calculated by using a formula; (vii) a new Supply Co-operative would be formed with each farmer member being eligible for membership and holding one share each, and the Supply Co-operative would enter into a supply agreement with Dairy Farmers similar to the one proposed in the Restructure Proposal; (viii) after the merger Parmalat would own a minimum 60.9% of the equity of the merged entity. 24 Two things appear from this proposal, which I have called 'the Parmalat Proposal'. The first is that an integral component is that control of Dairy Farmers will pass to Parmalat and, therefore, the Parmalat Proposal represents a different vision for the future of the Co-operative than the Restructure Proposal. Secondly, it would appear to be open to Dairy Farmers to accept the Parmalat Proposal, were it to remain open, after implementation of Stage 1 of the Restructure Proposal, though the respective roles of the directors and members in any such decision would need to be considered. 25 On 6 September 1999 Dairy Farmers' directors issued a press release in which they purported to 'reaffirm their commitment to the restructure proposal', and by documents bearing the same date they communicated with members and MCU holders. The documents sent to members and MCU holders were a letter from Mr Langdon, a document headed 'Restructure Proposal to Continue in the Best Interests of Members and MCU Holders' and the full text of Parmalat's letter of 31 August 1999, which sets out the Parmalat Proposal. Mr Langdon's letter announced that the board had decided to extend the closing date for the postal ballot to 23 September 1999 and to permit voters to recall and replace their postal votes, and to adjourn the meetings of members and MCU holders to 29 September, and in the meantime to defer consideration of the Parmalat Proposal. The Relationship between the scheme procedure and the issues raised in the present proceedings 26 Counsel for the defendants submitted with some force that it is inappropriate for the Court to permit questions about the adequacy of procedures and disclosure in a scheme approval process to be raised and agitated in separate proceedings. The scheme of arrangement procedure under the Act, which bears some close analogies with the scheme procedure under s 411 of the Corporations Law is, according to the defendants, a special procedure for judicial review, not unlike the electoral procedure in which a court of disputed returns is responsible for protecting the integrity of the franchise, after voting has taken place (citing Australian Electoral Commission v Towney (1994) 51 FCR 250, 255 (Foster J); Pettit v Atkinson (1994) 50 FCR 174, 180 (Gray J); and more generally, Chanter v Blackwood (No.2) (1984) 1 CLR 121, 123 (Griffith CJ)). The scheme of arrangement procedure contemplates that the adequacy of the disclosure made and procedures followed to obtain the approval of the members or creditors concerned in the scheme should be raised and determined after the decision of the members or creditors has taken place, at the hearing at which an application is made for the Court to approve the scheme. It is said to be inappropriate to expose the proponents of the scheme to multiple suits by allowing questions of these kinds to be raised in separate proceedings. 27 I regard that submission as having considerable weight. To the extent that it can, the Court should try not to allow collateral proceedings to be used in a manner which may de-rail the process which has been ordained by the statutory scheme provisions of the Act or the Corporations Law, as the case may be. However, it cannot be right that the procedure for Court approval of a scheme is an exclusive code which prevents a party from seeking vindication of legal rights which arise in some other fashion. In my view the defendants' submission identifies a weighty matter to be taken into account by the Court in the exercise of its discretion, particularly with respect to balance of convenience, when an application is made for discretionary relief during the process for approval of a scheme of arrangement. 28 In the present case the application for relief, if the entire proceedings are expedited, will seek to enforce statutory duties alleged to arise under the Act and the general law fiduciary duty of directors, and to invoke a statutory regime dealing with misleading and deceptive conduct. As I have mentioned, some aspects of the plaintiffs' complaints relate to past events, as to which the case for expedition does not seem to me to be pressing. But some relate to the quantity and quality of the information now available to members, whose decisions may not yet have been made. There would be a case for intervention if there were defects in that information which could be overcome in time to permit better-informed decisions. It seems to me that the expeditious resolution of issues (A), (B), (D), (E) and (G) would be unlikely to improve the quality and quantity of material information in a sufficiently timely way to justify the urgent hearing of those matters. However, a review of the information provided to members and MCU holders on 6 September 1999 might lead to some remedial action, if specific defects are found, which would give members and MCU holders access to adequate information before their final decisions were made. 29 To the extent that the question of the adequacy of the information dispatched on 6 September 1999 is to be assessed under the Act (especially ss 354 and 266), the contention that the question should be deferred until completion of the voting is strengthened (as a matter of discretion) by the consideration that the scheme procedure is set out in the very same legislation. To the extent that the question is to be assessed by the application of fiduciary principles, some intricate issues of standing and the appropriateness of relief against Dairy Farmers itself could well arise. But to the extent that the question is to be assessed under a statutory regime dealing with misleading and deceptive conduct, the impediments to intervention in the scheme process are less compelling, since the duty to avoid misleading or deceptive conduct is an 'overarching duty', even during the scheme of arrangement process: see Ford's Principles of Corporations Law (Butterworths, looseleaf), p24,120. Allegation of misleading and deceptive conduct by the distribution of 6 September 1999 30 This case bears some analogy with Fraser v NRMA Holdings Limited (1994) 4 ACSR 656 (Gummow J); 55 FCR 452, (Full Federal Court). There are obvious differences. In the NRMA case the companies concerned were a newly formed holding company and companies limited by guarantee rather than co-operatives; the procedure which the plaintiffs sought to enjoin was the convening of meetings to consider proposals for the adoption of new corporate constitutions, coupled with a prospectus in respect of potential acquisition of shares, whereas in the present case the procedure is a scheme under special co-operatives legislation which involves a postal ballot and decisions at meetings, together with constitutional amendments and other decisions to be taken at a meeting. Nonetheless, it seems to me that the observations of Gummow J at page 685 are a useful guide with respect to discretionary matters. His Honour found that there had been misleading or deceptive conduct for the purposes of s 52 of the Trade Practices Act and noted that the Court may grant an injunction under s 80 of that Act. He observed that the contravention by the new holding company which had issued the prospectus was directed to encouraging a course of conduct by members of the two companies limited by guarantee in relation to general meetings which at the time of his judgment were due to be held within a few days. For the companies limited by guarantee to proceed with those meetings would be for them to become parties to and knowingly concerned in the misleading or deceptive conduct. He stated that injunctive relief should be granted to restrain those companies from proceeding with any business at the meetings. 31 In the present case the Restructure Proposal involves a postal ballot, the result of which was at first intended to be declared on 15 September 1999, and meetings of members and MCU holders which would be held on the same day. The dates were extended on 6 September 1999, to 23 September 1999 for the close of the postal ballot - two days from now - and 29 September 1999 for the meetings. It seems to me that if there is misleading or deceptive conduct for the purpose of an applicable statutory regime, to allow the postal ballot to continue and to permit the meetings to take place would involve continuation of that unlawful conduct. In those circumstances, given that the alleged deficiencies of information are of a serious kind, it seems to me that in the exercise of my discretion I ought, if possible, to take steps to enable these issues to be addressed while there is time to consider them prior to the closing of the postal ballot and the conduct of the meetings, provided there is sufficient substance in the allegations. The plaintiffs' complaints about the disclosure of 6 September 1999 32 The essential complaints made at the hearing on 20 September 1999 are of two kinds. 33 First, attention is drawn to a statement in the materials of 6 September 1999 to the effect that the Parmalat Proposal is based on a valuation approach which is flawed in favour of Parmalat, including calculations on financial information 15 months out of date, thus failing to recognise the substantial changes in the market place during that period. The plaintiffs complain that the directors, in putting forward that statement, acted in a misleading way because they failed to communicate any view as to the true worth of that for which Parmalat had made its bid. The plaintiffs say that, given Parmalat was offering $4.02 cash per share in contrast to a specified maximum possible payment under the Restructuring Proposal for only 25% of the interests of members and MCU holders, the subject matter which was omitted was of fundamental materiality to the recipients. 34 The second complaint focuses on a statement in the 6 September material in respect of the Dairy Farmers' expert, Ernst & Young Corporate Finance Pty Limited. The statement is as follows: 'Ernst & Young Corporate Finance Pty Limited, the independent expert on the restructure proposal has been provided with a copy of the Parmalat proposal. While it has not performed an evaluation on the Parmalat proposal it has reviewed its Independent Expert Report in light of the Parmalat proposal. Ernst & Young Corporate Finance Pty Limited has advised the Board that its opinion that `the proposed restructure is fair and reasonable and in the best interest of existing ACF [Dairy Farmers] members and MCU holders' is not altered by the Parmalat proposal'. 35 The plaintiffs say that on the expert evidence which they propose to adduce, a proposal such as the Parmalat Proposal may materially change an expert's assessment of the likely advantages and disadvantages of a proposal such as the Restructure Proposal. Further, they say that the statement set out above is misleading because it fails to incorporate qualifications which Ernst & Young Corporate Finance have imposed on the opinion which the statement sets out. In evidence before me is a facsimile letter by Ernst & Young Corporate Finance, dated 6 September 1999, which on its face appears to me to support the plaintiffs' contention. It is not appropriate for me to determine the matter at this stage. But as at present advised, my view is that there is at least a very serious question for consideration as to whether the statement in the material of 6 September 1999 with respect to Ernst & Young Corporate Finance is misleading, in view of the explanations and qualifications contained in that company's letter of 6 September. 36 This leads me to conclude that there is one matter which should be considered and determined at the earliest possible time, namely whether the materials which were sent on 6 September 1999 together with the press statement of that date are misleading or deceptive for the purposes of an applicable statutory regime. Retrieval and replacement of postal votes 37 There is another matter which, it seems to me, should be dealt with on an expedited basis, given my conclusions on the question of the adequacy of the disclosure of 6 September 1999. That is the allegation (issue (F)) that the procedure adopted on 6 September 1999 for retrieval and recasting of postal votes by members is an invalid procedure. 38 Section 193 of the Act states that a postal ballot may be held as provided by the rules of a co-operative and must be conducted in accordance with the Regulations. Section 194 then imposes some additional requirements with respect to a special postal ballot which are not presently in issue. 39 The Rules of Dairy Farmers are unhelpful in the sense that they merely purport to adopt the provisions in the Regulations (Rule 36B). The Co-operatives Regulation 1997, Schedule 2, paragraph 3 deals with the preparation of ballot papers. When read together with paragraph 7, it seems to envisage that a vote is cast when the ballot paper is completed, placed in an envelope and dispatched. Paragraph 4 empowers the returning officer to send a duplicate ballot paper to any voter if the returning officer is satisfied that the voter has not received a ballot paper, or the ballot paper has been lost, spoilt or destroyed and that 'the voter has not already voted' (emphasis supplied). There is at least a plausible contention that Schedule 2, and in particular paragraph 4, imply that a duplicate ballot paper is not to be sent except in the circumstances there set out. 40 In the present case the materials of 6 September 1999 include the following: ' Change of Vote or Proxy Members who wish to change their minds in the postal ballot ... may do so by calling [a specified telephone number]. A new voting paper... will be sent to you, and on receipt of your instructions, your previous vote ... will be cancelled'. Having regard to what I have said about the Regulation there is an issue as to whether that procedure is permissible. 41 The plaintiffs also contend that the procedure is incompatible with the secrecy of the ballot voting process, a requirement which (they say) is implied by Schedule 2 of the Regulation. It seems to me that this contention, too, is not without substance. 42 The consequence of the plaintiffs' being right about the retrieval of postal votes might arguably go to the integrity of the vote. There is every reason to expedite the hearing of that issue while it is not too late for remedial action, if any such action is shown to be needed and feasible. 43 It is true that this issue, like the issue about defective information, might be raised and considered at the second scheme hearing. However, at that point the principal matter before the Court is to approve the scheme or to deny approval. By considering both matters at an earlier time, there is a prospect, either by consent of the parties or by the exercise of the Court's relevant powers, that the situation may be sufficiently retrieved that members and MCU holders will be given adequate opportunity to express their opinions on the Restructure Proposal in a valid way while in possession of all relevant material information. It may be possible to salvage something of the process which has been embarked upon, even if the information or procedure is found to be defective. The applicable statutory regime regarding misleading and deceptive conduct 44 I have referred somewhat elliptically to the applicable statutory regimes dealing with misleading and deceptive conduct, so that the parties may have the opportunity to consider the matter and make appropriate submissions. I should set out my present thinking on that matter very briefly so that the issue is exposed for consideration. 45 By virtue of amendments which took effect on 1 July 1998, s 52 of the Trade Practices Act was subjected to an exception which applies in relation to financial services (s 51AF). Section 12DA of the Australian Securities and Investments Commission Act 1990 (Cth) (as amended) states that a corporation must not in trade or commerce engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive. If the claim based on misleading and deceptive conduct relates to conduct 'in relation to financial services', then s 12DA applies and s 52 does not. Section 42 of the Fair Trading Act 1987 (NSW) does not appear to have been similarly amended. 46 One significance of the amendments is that the relevant regulator under s 12DA is the Australian Securities and Investments Commission rather than the Australian Competition and Consumer Commission. The Commission has the power to apply for relief, including an order for publication of corrective information under s 12GE. 47 'Financial service' is defined in s 12DA to mean, inter alia, a service supplied in relation to a financial product. 'Financial product' is defined to include a security. Section 5(3) of the Australian Securities and Investments Commission Act adopts the definition of 'security' contained in the Corporations Law. Section 92 of the Corporations Law defines 'security' by reference to a 'body', defined in s 9 in very broad terms which would appear on their face to encompass a co-operative. While a NSW co-operative is 'an exempt body' for the purposes of s 66A, it does not appear that the concept of exempt body has any relevance to the issue before me. 48 Section 995 of the Corporations Law deals with misleading and deceptive conduct in connection with any dealings in securities. As far as I can see, s 995 is not confined to dealing in the securities of any particular kind of body, and so for the purposes of that section it appears that securities of a co-operative are encompassed. The word 'deal' is defined in s 9 in a manner which appears to encompass acquiring or disposing of securities under a scheme. It seems to follow that s 995 and s 12DA, as well as s 42 but not s 52, would have a potential application to a case such as the present. There may be an issue as to whether, for the purposes of s 12DA, there is any relevant conduct in trade or commerce, but that issue does not arise under s 995. 49 Given these considerations, which could have significant ramifications for other cases, I have thought it appropriate to direct that these proceedings be brought to the attention of the Commission, in case it sees any need to intervene. Conclusions 50 I propose to grant leave to the plaintiffs to apply under Part 31 of the Supreme Court Rules for the determination of separate questions, formulated in conformity with my reasons for judgment. I also propose to grant the plaintiffs' application for an expedited hearing of the separate questions. I shall adjourn until 3.30pm today to give the parties the time to consider these reasons and draft appropriate orders for me to make at that time. * * * * * * * * * * Last Modified: 09/23/1999 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.