New South Wales Supreme Court CITATION : Re James Hardie Industries Limited [2001] NSWSC 741 revised - 28/08/2001 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 3967/01 HEARING DATE(S) : 10/08/01, 13/08/01, 15/08/01, 20/08/01,23/08/01 JUDGMENT DATE : 23 August 2001 In the matter of JAMES HARDIE INDUSTRIES LIMITED (ACN 000 009 263) and the Corporations Act 2001: PARTIES : JAMES HARDIE INDUSTRIES LIMITED (ACN 000 009 263) (Applicant) JUDGMENT OF : Santow J COUNSEL : N C Hutley, SC (Applicant) K Cuneo/A Rich (ASIC) SOLICITORS : Allen, Arthur Robinson (Applicant) CATCHWORDS : CORPORATIONS — Scheme of Arrangement — Exchange into CUFS in Dutch company — Takeover protection in Articles — Disclosure — Classes — Divergent interest — Help centres. LEGISLATION CITED : Corporations Act 2001 s1109DA CASES CITED : Re Chevron (Sydney) Ltd [1963] VR 249 DECISION : Scheme meeting convened. REVISED — 28 August, 2001 IN THE SUPREME COURT OF NEW SOUTH WALES IN EQUITY SANTOW J No. 3967/01 In the matter of JAMES HARDIE INDUSTRIES LIMITED (ACN 000 009 263) and the Corporations Act 2001 JAMES HARDIE INDUSTRIES LIMITED (ACN 000 009 263) Applicant JUDGMENT — ex tempore 23 August 2001 INTRODUCTION 1 The proposed Scheme of Arrangement for which I am asked to make convening orders essentially involves the exchange of shares presently held in James Hardie Industries Limited ("JHIL") for shares in a new Dutch holding company ("JHI NV"). 2 The new shares in JHI NV are in the majority of cases to be held via a depository. This in turn provides the mechanism for those former shareholders in JHIL to hold the beneficial interest in the JHI NV shares via a security with the acronym CUFS. Those CUFS are tradeable on the ASX, though it is the shares which are, technically, thereby listed on the ASX. This mechanism permits paperless transfers, which would not be permitted in Holland. 3 There are only these matters to be noted: 1. The Articles of Association of JHI NV incorporate a regime which, mutatis mutandis, attempts to replicate so far as possible the requirements of Australian takeover law, adapted to the requirements of Dutch law. One attribute of that regime will be that the Board of JHI NV may enforce the sale of either the underlying shares or enforce against the holders of the CUFS, in the event that the 20% requirement is contravened. A modification to s1109DA of the Corporations Act 2001 is being made by ASIC to facilitate this; see 3 below. The board must either obtain appropriate legal advice or obtain orders from the Dutch court before selling the excess shares over 20%. 2. This has necessarily involved careful disclosure of the differences between the regime now applicable and the regime previously applicable under Australian takeover law. 3. ASIC has granted a modification to the Corporations Act 2001 by inserting a new section, s1109DA, which deems the holders of JHI NV CUFS to be bound by the terms and conditions of JHI NV's Articles of Association. That will in turn need to be replaced, once the Financial Services Reform Bill is passed into law, though no difficulty is anticipated in getting a fresh modification at that time. 4. There are two matters of significance reflected in the Short Minutes. The first, in order 9, reflects the need to notionally "tag' the shares held outside of Australian, New Zealand, United States and the United Kingdom whose holders will receive the cash equivalent of the JHI NV shares rather than the shares themselves. This is because of the complications of foreign securities laws. The number of that group ("the foreign group") is small, under 1%. The intention is to apply the approach by Adam J in Re Chevron (Sydney) Ltd [1963] VR 249, in assessing the outcome of the voting. That is to say, to recognise an intermediate position where the members of a class are not so differentiated as to make it impossible for them to consult together as a single class with a view to their common interest, yet having sufficiently divergent commercial interests as would have the court look with special care at the size and composition of the approving majority over and above the requisite 75%. That would include the foreign group as a sub-category but not a special class, whose voting result would be separately identified. 4 The other matter is reflected in order 13 which I quote below: "13. The Plaintiff shall, at or before the hearing on Tuesday 2 October 2001, cause an affidavit to be filed by an employee or partner of an appropriate independent body ( the Auditor ), stating that: (a) each person who answered calls to the James Hardie Information Line (as referred to in the Information Memorandum) was provided with a copy of the script that is exhibit PX1 in these proceedings ( the Script ); (b) all Calls received or made under paragraph (a) or paragraph (d)(iii) ( Calls ) were recorded; (c) the Auditor monitored a specified sample of Calls; and (d) on the basis of that monitoring, in so far as questions were asked by members: (i) which were equivalent to those in the Script, the answers given were substantially in accordance with the Script; (ii) which were not equivalent to those in the Script, the responses given were to the effect that the particular question could not be answered by the person handling the call and would be referred to the Plaintiff for a response by an employee of the Plaintiff or an employee of the share registry of the Plaintiff; (iii) in respect of any calls made by employees of the Plaintiff or of the Plaintiff's share registry in response to questions under paragraph (ii) above, such responses given were not materially inconsistent with the Script or the Information Memorandum; and (e) no instance has come to the Auditor's attention of any communication by or on behalf of the Plaintiff to seek to influence or advise individual members to vote on the Scheme or as to how they should vote on the Scheme by the provision of information which is materially inconsistent with the Script or the Information Memorandum." 5 It will be observed that this regime reflects the need to ensure that the scheme documentation speaks for itself and is not supplanted by advocacy in favour of the Scheme, nor by potentially misleading information. The regime set out in order 13 is a model for how this matter can be safeguarded. ********** Last Modified: 08/29/2001 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.