Re: QIW RETAILERS LIMITED

And: DAVIDS HOLDINGS PTY LIMITED; CAMPBELLS CASH N CARRY PTY LIMITED; DAVIDS

HOLDINGS GROUP STAFF SUPERANNUATION FUND PTY LTD; AUSTRALIAN LIQUOR MARKETERS

PTY LIMITED; DAVIDS-V.G.D. PTY LIMITED; RETAIL MERCHANDISE SERVICES PTY

LIMITED; DAVIDS DISTRIBUTION PTY LIMITED; CLANCY'S FOOD STORES PTY LTD and

DAVIDS EXPORT SERVICES PTY LTD

No. G3012 of 1992

FED No. 480

Corporations - Trade Practices

(1992) 8 ASCR 245 / (1992) 10 ACLC 1158 / (1992) 14 ATPR 41-178

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

GENERAL DIVISION

Heerey J.(1)

CATCHWORDS

Corporations - takeover - dispatch of Part A statement and offers - interim injunction - general principles to be considered - whether serious issue to be tried - whether financial position of offeror and funding of subsequent merger material information - s.750 Corporations Law - balance of convenience.

Trade Practices - takeover - alleged contravention of s.50(1)(a) Trade Practices Act 1974 - interim injunction - jurisdiction - whether limited to cases where application made by Minister or Trade Practices Commission - Ss.80(1),(1A) and (2)

Corporations Law: s.750, cll.17 and 20 and s.995

Federal Court of Australia Act 1976: s.23

Trade Practices Act 1974: Ss.50(1)(a), 80(1), (1A) and (2)

Australian Consolidated Investments Ltd v Rossington Holdings Ltd (1992) 10 ACLC 600

Brisbane Gas Company Ltd v Hartogen Energy Ltd (1982) 60 FLR 343

George MacGregor Auto Service Pty Ltd v Caltex Oil (Aust) Pty Ltd (1980) 35 ALR 72

Hiero Pty Ltd v Somers (1983) 47 ALR 605

Jones v Dunkell (1959) 101 CLR 298

Rifki v Minister for Immigration, Local Government and Ethnic Affairs (1983) 46 ALR 301

St Justins Properties Pty Ltd v Rural Holdings Pty Ltd (1980) 40 ATPR 146

Thomson Australian Holdings Proprietary Limited v Trade Practices Commission (1981) 148 CLR 150

QIW Retailers Limited v Davids Holdings Pty Limited and Ors (QG 3012 of 1992)

HEARING

BRISBANE

#DATE 3:7:1992

Counsel for the applicant: Mr A.J. Myers QC with Mr J. Sheahen and Mr T. Morri

Solicitors for the applicant: Clarke and Kann

Counsel for the respondents: Mr P. Morrison QC with Mr P. O'Shea

Solicitors for the respondents: Blake Dawson Waldron

ORDER

Upon the applicant through counsel giving the usual undertaking as to damages, IT IS ORDERED THAT:-

1. The first respondent Davids Holdings Pty Limited be restrained until judgment or earlier order from sending or dispatching to any member of QIW Retailers Limited the document lodged with the Australian Securities Commission on 17 June 1992, which purports to be a Part A statement and from sending or dispatching any offers to any members of QIW Retailers Limited under or pursuant to that purported Part A statement.



2. Three quarters of the applicant's costs be the applicant's costs in the cause and the applicant pay one quarter of the respondents' costs. Costs otherwise reserved.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules

JUDGE1

The applicant QIW Retailers (QIW) applies for an interloc injunction to restrain the dispatch of a Part A statement and offers by the first respondent, Davids Holdings Pty Limited (Davids). QIW is a listed company engaged in the grocery wholesale trade in Queensland, northern New South Wales and the Northern Territory. Its principal customers are independent grocery stores. Davids is a private company. It competes with QIW in the areas mentioned as well as operating in other parts of the country.

2. The Part A statement was registered by the Australian Securities Commission on 18 June 1992. Absent any injunction, Davids will dispatch offers after 3 July. The offer has the following essential elements:
   
   

- $6.75 cash per share;



- conditional on 50.1 per cent acceptance; - subsequent disposal (sell-down) of QIW shares in excess of 55 per cent;



- subsequent purchase of "Davids Queensland", defined in the Part A statement as Davids' "existing Queensland grocery and liquor distribution and cash and carry operations" on terms to be negotiated and then approved by QIW shareholders in accordance with ASX listing rules;



- the merged business of QIW and "Davids Queensland" to form an independent grocery distribution group in Queensland.

3. On 27 May 1992, an earlier Part A statement was registered. The essential elements were the same as those of the present offer. QIW commenced proceedings in the Queensland Supreme Court. On 12 June White J granted an interlocutory injunction restraining the dispatch of that statement. In essence, her Honour held that there was a triable issue that the Part A statement omitted certain material information, namely, (i) the value Davids put on "Davids Queensland", (ii) Davids' intentions for the period between the close of the take-over offer and the completion of the merger or, if the merger should not take place, its intentions thereafter and (iii) details about its proposed bank loan.
   
   Trade Practices Act

4. QIW allege that the takeover would involve a contravention of s.50(1)(a) of the Trade Practices Act 1974. For jurisdictional reasons, this claim was not raised in the Supreme Court proceedings.

5. Affidavit material was filed by both sides on this issue and in particular, as to whether there was a "market" within the meaning of the Act for the wholesale supply of groceries to independent retailers in Queensland. Davids' contention is that there is no such separate market and that the relevant market is grocery wholesaling.

6. I would have no difficulty in finding that there was a triable issue as to this and other issues under s.50, such as dominance. However, Davids argued that there was no jurisdiction to grant the injunction sought, because of the terms of s.80 of the Act, and in particular, subsections (1), (1A) and (2) thereof.

7. Those provisions are as follows:
   
   

(1) Subject to sub-sections (1A) and (1B), where, on the application of the Minister, the Commission or any other person, the Court is satisfied that a person has engaged, or is proposing to engage, in conduct that constitutes or would constitute -



(a) a contravention of a provision of Part (IV) or (V); ... the Court may grant an injunction in such terms as the Court determines to be appropriate.



(1A) Subject to sub-section (1B), a person other than the Minister or the Commission is not entitled to make an application under sub-section (1) for an injunction by reason that a person has contravened or attempted to contravene or is proposing to contravene, or has been or is proposing to be involved in a contravention of, section 50 or 50A.



(2) Where in the opinion of the Court it is desirable to do so, the Court may grant an interim injunction pending determination of an application under sub-section (1).

8. I uphold this submission. In my opinion, the jurisdiction to grant an injunction against a contravention of s.50 is limited to cases where the application is made by the Minister or the Trade Practices Commission. Section 80 (2) provides that an interim injunction (which expression includes what would be called in some parts of Australia an interlocutory injunction) can be made pending determination of "an application under subsection (1)". Where a contravention of s.50 is alleged, s.80(1A) has the effect that the only application which can be lawfully made under subsection (1) is one by the Minister or the Trade Practices Commission; note the opening words of s.80(1) "Subject to subsections (1A) and (1B)".

9. On their ordinary reading, subsections (1A) and (2) manifest an intention to restrict very specifically the right to seek injunctive relief by a person complaining of a breach of s.50. Such a person must persuade the Minister or the Trade Practices Commission to take action. Where the Minister and the Commission are not so persuaded, that person may suffer loss and damage as a result of a breach of s.50, but that seems to be an eventuality clearly accepted by Parliament as not outweighing the perceived ill-effects of unrestricted court intervention in merger proposals, perhaps on the initiative of parties with commercial motives having little to do with the maintenance of competition.

10. This view is confirmed by the second reading speech at the time subsection (1A) was introduced in the Act (Hansard, House of Representatives, 3 May 1977, p 1478):
    
    

"Some changes have also been made to Part VI of the Act - that is, remedies - in relation to remedies available following contravention of the merger provisions. The remedy of injunction is now to be available in these cases only upon the application of the Minister or the Trade Practices Commission. The availability of the injunctive remedy on the application of private persons and companies gave a powerful tool to opponents of the merger. It has been used as a device to defeat mergers, during the tactical battle between the parties, for reasons quite unrelated to competition."

11. There is to my mind no good reason why the reference to "the injunctive remedy" in that indication of parliamentary intention should be taken as confined to permanent injunctions. On the contrary, having regard to the relatively low threshold that an applicant for an interlocutory injunction has to establish, the delay involved in the trial of complex commercial actions and the appeals they generate, and the potential for commercial settings to change rapidly, interlocutory injunctions must have been primarily contemplated as the sort of tactical weapon which Parliament had in mind.

12. The basis of the Federal Court's jurisdiction to grant injunctions against contravention of the Trade Practices Act has been authoritatively considered by the High Court in Thomson Australian Holdings Proprietary Limited v Trade Practices Commission (1981) 148 CLR 150. The issue in that case was whether the Federal Court could grant an injunction or accept undertakings extending to conduct which was not a breach of the act. The majority, Gibbs C.J. and Stephen, Mason and Wilson JJ. said, (at 160):
    
    

"The Commission's case is that the power to grant injunctions is not limited to s.80. It is extended by ss.22 and 23 of the Federal Court of Australia Act. Those two sections provide:



(22) The Court shall in every matter before the Court grant, either absolutely or on such terms and conditions as the Court thinks just, all remedies to which any of the parties appears to be entitled in respect of a legal or equitable claim properly brought forward by him in the matter, so that, as far as possible, all matters in controversy between the parties may be completely and finally determined and all multiplicity of proceedings concerning any of those matters avoided.



(23) The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate."

Their Honours continue:

"In substance the Commission's case is that the two sections arm the Federal Court with general powers to grant relief by way of injunction and that s.80 of the Trade Practices Act is designed to provide for the application of this general power to particular situations, notably situations in which it might have been doubted that the general power was available for one reason or another. The Commission's argument, if correct, would lead to the conclusion that there is no limitation on the Court's power to grant injunctions under the Trade Practices Act and that the exercise of the power is qualified only by the principles of general law governing the grant of injunctions and by discretionary considerations.



The Federal Court of Australia Act sets up the Federal Court and arms it with certain powers, e.g. ss.22 and 23. But generally speaking, and apart from s.32, the Act does not invest the Court with jurisdiction. It leaves it to the Parliament to do so by other statutes, (s.19). This the Parliament has done by other statutes, such as the Trade Practices Act.



When a specific statute which invests the Court with jurisdiction in matters of a particular class does so in such a way as to limit the power of the Court to grant relief of a particular kind, there is no basis for transcending that limitation by recourse to the general provisions of the Federal Court of Australia."

13. After pointing out (at 161) that the Federal Court Act does not empower the Court to grant injunctions in restraining contraventions of the Trade Practices Act, "in situations falling outside the boundaries drawn by s.80 of the Act," the majority continued (at 162):
    
    

"A final answer to the Commission's argument on this point is that s.80 proceeds upon the footing that it constitutes the Federal Court's exclusive charter to grant injunctions restraining or relating to, contraventions of the Trade Practices Act. In various sub-sections of s.80 references are made to injunctions granted "under" the section or a particular sub-section and to applications for injunctions "granted" under the section or a sub-section - see sub ss.(1A),4(a) and (b), 5(a) and (b) and (6). Section 80 makes special provision in several respects for the grant of injunctions under the section - see sub-ss.(4), (5) and



(6). It is scarcely to be supposed that the Parliament intended to draw a distinction in these respects between two classes of injunctions, one class of injunctions granted under s.80 and another class granted under ss.22 or 23 of the Federal Court of Australia Act. The inference is irresistible that Parliament looked upon s.80 as a complete and comprehensive statement of the circumstances in which injunctions might be granted in respect of relief sought under the Trade Practices Act."

14. The facts of Thomson concerned injunctions and undertakings on a permanent and not interlocutory basis. Counsel for QIW relied on the following passage (at 165), where the majority, in the context of dealing with the (successful) argument that acceptance of undertakings was limited to the same extent as the grant of injunctions, said:
    
    

"Limitations which affect the court's jurisdiction or power to grant a final injunction must be observed in the acceptance of an undertaking when it is offered as a substitute for a final injunction. The court cannot escape such limitations by the expedient of accepting an undertaking in lieu of an injunction. The court cannot put itself in the position of enforcing conduct which it has no capacity to command or compel. No doubt the Federal Court has power to accept an undertaking at an interlocutory stage when the undertaking is reasonably related to the orderly procedure of the Court or to the subject matter of the litigation, as Deane and Fisher JJ. observed, even though it is not in a form which falls within s.80. But, with great respect to their Honours, this does not justify the conclusion that the Court has power to accept an undertaking by way of final deposition of the case when the Court lacks power to make a final order in that form and the effect of the undertaking is to restrain conduct which the court has no power to restrain."

15. But I do not think that this passage avails QIW. The majority of the High Court was not there considering the specific mandate of Parliament in relation to interim (or interlocutory) injunctions contained in s.80(2).

16. In the present case, QIW claims by way of permanent relief a declaration that Davids' takeover would contravene s.50. In substance, QIW seeks relief from this court which would prevent Davids' takeover on the grounds that it contravenes s.50. As QIW's counsel said in argument, if there were a trial and QIW gained the declaration sought, it is to be assumed that Davids would not act unlawfully.

17. The present interlocutory application is not to preserve the subject matter of litigation. There is nothing in existence at the moment which QIW seeks to preserve. Rather, it seeks to prevent temporarily what it hopes ultimately to prevent permanently, namely, the dispatch of offers by Davids.

18. In Brisbane Gas Company Ltd v Hartogen Energy Ltd (1982) 60 FLR 343, Fitzgerald J considered this question. Because in the circumstances it came before his Honour as a strike-out application, he only had to consider whether the claimed jurisdiction was sufficiently arguable to preclude the dismissal of the application on a preliminary point.

19. In the present case, it is accepted that I am obliged to decide as a matter of law whether the jurisdiction exists. There will not be any later stage in this case where the question of the jurisdiction to grant an interlocutory injunction to restrain a contravention of s.50 will arise.

20. I would respectfully disagree with Fitzgerald J's view (at 348) that:
    
    

"... s.23 of the Federal Court of Australia Act empowers interlocutory relief, incidental to an application for an order for divestiture, which is necessary to prevent any judgment for the substantive claim for divestiture being a mere brutum fulmen."

21. I think this conclusion is inconsistent with the way the High Court analysed s.23 of the Federal Court of Australia Act and s.80 of the Trade Practices Act in Thomson. Moreover, and perhaps more importantly, his Honour's reasoning does not advert to s.80(2).

22. The other cases which were relied on by counsel for QIW do not, in my opinion, compel a different conclusion. In Rifki v Minister for Immigration (1983) 46 ALR 301, Toohey J, when a member of the Federal Court, followed Brisbane Gas, but the decision itself dealt with the Administration Decisions (Judicial Review) Act and the question whether the power to restrain deportation was implied limited by the power to stay conferred by s.15 of that Act. There was, in my opinion, no equivalent to the "exclusive charter to grant injunctions" contained in s.80 of the Trade Practices Act; see Thomson at p 162.

23. St Justins Properties Pty Ltd v Rural Holdings Pty Ltd (1980) ATPR 40,146 predated the decision of the High Court in Thomson as did George MacGregor Auto Service Pty Ltd v Caltex Oil (Aust) Pty Ltd (1980) 35 ALR 72. Hiero Pty Ltd v Somers (1983) 47 ALR 605, concerned the jurisdiction to grant a Mareva injunction in a claim under s.52. Section 50 was not involved.

24. I conclude therefore, that insofar as the claim for an interlocutory injunction is based on a threatened alleged contravention of s.50, I have no jurisdiction to grant it.
    
    Corporations Law

25. I bear in mind the following general principles: first, QIW only has to show there is a serious issue to be tried and that the balance of convenience favours the grant of an injunction; secondly, the fact that the take-over offers are usually made by public companies who therefore will have made available to the public much more financial information about themselves than a private company like Davids should not of itself result in the creation of mandatory requirements for Part A statements beyond those found in the Corporations Law itself. Thirdly, there is a distinction between information which might be useful and relevant for a shareholder in the offeree company and information which is in fact known to the offeror at the date of the Part A statement. Fourthly, the framework of the takeover legislation assumes that criticism of the commercial desirability of the offer will be dealt with in the offeree's Part B statement. Fifthly, the disclosure of speculation is not required and, indeed, is to be avoided: Australian Consolidated Investments Ltd v Rossington Holdings Ltd (1992) 10 ACLC 600 at 602.

26. Turning to the Law itself, QIW alleges a triable issue in relation to alleged non-compliance with the following clauses of s.750:
    
    

"17. The statement shall set out any other information material to the making of a decision by an offeree whether or not to accept an offer, being information that is known to the offeror and has not previously been disclosed to the holders of shares in the target company.



20.(1) The statement shall set out particulars of the offeror's intentions regarding:



(a) the continuation of the business of the target company;



(b) any major changes to be made to the business of the target company, including any redeployment of the fixed assets of the target company; and



(c) the future employment of the present employees of the target company.



20.(2) Without limiting the generality of subclause (1), if the offeror has not made a decision on a matter referred to in paragraph 1(a), (b) or (c), but is considering a possible course of action, or 2 or more possible courses of action, in relation to that matter, the statement shall set out that fact and specify the course of action or courses of action concerned and the reason why the offeror has not made a decision on the matter."

27. Reliance is also placed on the prohibition of misleading and deceptive conduct in s.995. Many points were raised and I stress again that I am only dealing with the question of whether they raise a serious issue to be tried.

28. The funding of the merger I think that it is at least arguable that the plans Davids has for the financing of the acquisition by QIW of "Davids Queensland" is material information for a QIW shareholder to consider. The Part A statement shows the indicative value of "Davids Queensland" to be in the vicinity of $50 to $55 million. This is about half of Davids' indicated value of QIW. The shareholders' equity in QIW is less than $40 million, that is, less than the suggested acquisition value of "Davids Queensland." QIW would need to consider very carefully the funding for such a purchase and whether it is to be by equity or loan capital and whether loan finance is to be external or obtained elsewhere within the Davids Group, or any combination of the above. There would be implications for QIW's future profitability and share price.

29. The Part A statement says nothing about funding of the merger. It does state in par.12.1.2 that it
    
    

"has not yet formulated a detailed merger plan."

30. But in the context I think that is referring to the actual combining of the two businesses. It appears under the heading "Implementation of the Merger."

31. If it can be inferred on the evidence that there does exist some present intention of Davids as to this question, such intention would be a matter within cl.20(1)(b), even if a decision had been not made as between a number of possible courses; see cl.20(2). I think that such an inference can be made, at least at the stage of raising a triable issue.

32. Counsel for Davids put in written submissions:
    
    

"11. It is clear from the Part A Statement and Beerworth's affidavit that no detailed plans have been made as to precisely how the merger will take place, how it will be funded, what precise assets will be transferred, etc. None can be because QIW is necessarily involved in that process. No discussions have yet been held."

33. The qualifying adjective "detailed" and adverb "precisely" rather suggests that there are plans, albeit not detailed. Since the whole point of this takeover is to achieve a long-held ambition to have QIW buy "Davids Queensland", it seems inherently unlikely that consideration has not been given by Davids to an essential step in the plan.

34. In fact, in September 1991 Davids had discussions with the then chief executive officer of QIW, Mr John Keller, concerning the possible purchase of Davids Queensland. A document was produced by Davids, which is exhibit RCK8 to the affidavit of Mr Robert Krohn, which shows working figures for the proposal. Those figures include QIW sales figures for financial years actual 1991, budget 1992 and merged 1992 and details of funding the acquisition with a payment of $12 million cash and $35 million in QIW shares. It is not suggested that this necessarily represents Davids' current thinking, but if such proposals were prepared for last year's discussions it is the more likely that there is in Davids possession information in the form of proposals for funding the present merger, or at least alternatives.

35. I think I can rely on drawing this inference on Jones v Dunkell (1959) 101 CLR 298. Davids did not file an affidavit from any person within its organisation responsible for the present takeover. There was no affidavit evidence denying the existence of a plan for funding the merger. Davids did file an affidavit by a merchant banker adviser, Mr William Beerworth. His evidence on this point is of doubtful admissibility since it does not identify who provided him with information as to the matter. In any case it seems carefully worded. The only relevant part is in par.15(b) where he deposes:
    
    

"Davids explained to me that ...



(b) It has no preconceived ideas about the merger but that the merger of the two businesses would produce cost savings and synergistic advantages."

36. The absence of "preconceived ideas" is not inconsistent with the existence of a number of proposed courses, as envisaged by cl.20(2).
    
    Financial position of Davids

37. Because it is likely that as a result of the 55 per cent sell-down a substantial minority shareholding will continue, I think it is arguable that the financial position of Davids is material information within the meaning of cl.17.

38. Counsel for Davids stressed the clear distinction drawn in s.750 between cash and scrip offers. Only in the latter case is there a requirement for the material which would appear in a prospectus. There is much force in this and in his point that a straight 90 per cent conditional acceptance cash offer may also leave minority shareholders. However, for present purposes I think there is a triable issue. The primary intention of Davids is that QIW will remain listed but minority shareholders will retain 45 per cent. The financial standing of the majority shareholder in such circumstances may well affect the share price of QIW. In this regard I would add that an answer which Davids quite effectively made to many of QIW's complaints - namely, that criticism could be made in the Part B statement - does not apply here because this information will still not be available at that stage. I should also add that QIW did not argue that the relevant information was necessarily as extensive as would be required for a prospectus.
    
    Other matters

39. The other matters raised did not seem to me to amount to triable issues. I think the business of "Davids Queensland" is adequately described for commercial purposes in cl.12.1.4 of the Part A statement. I agree that if Davids does not have a formal valuation of "Davids Queensland", it is not obliged to obtain one. The term "financial debt" I think is adequately explained as meaning debt other than trade creditors. I think the question of listing on the ASX is adequately dealt with by the statement in cl.11.1 that Davids "would prefer QIW to remain a listed company". Continued listing cannot, of course, be guaranteed, but the Part A statement does not say that it is.

40. As to Davids' intentions should the merger not take place, I think that is stated clearly enough in the first sub-paragraph 12.1.7 "During that time" includes the time (extending indefinitely) from the time of the takeover if the merger does not proceed. There will be, as one might have expected, the same situation as existed prior to a merger, if that did take place, namely "Davids Queensland" and QIW operating as independent and autonomous units. As to whether that is a good idea, the shareholders will no doubt take into account QIW's comments in the Part B statement.

41. The effect of the sell-down of the shares is, I think, a matter of speculation. Nor is there any reasonable basis on the evidence for fearing that Davids is insolvent or likely to become so. As to misleading and deceptive conduct, I think the reference to the Trade Practices Commission's letter in par.11.4, where it is stated that the Commission would not oppose the takeover "on its current understanding of the situation" was a fair representation of the purport of that letter.

42. I do not think the effect of White J's judgment was misrepresented. The Part A statement clearly refers to it (see par.11.1.5) as an interlocutory injunction which "will remain in force until judgment is given or until the court makes an earlier order." The Part A statement fairly quotes the only parts of the judgment where her Honour held there was a triable issue as to defects in the Part A statement.
    
    The balance of convenience

43. I think the balance of convenience favours the grant of an injunction. Were an injunction not granted, and QIW succeeded at trial, third party rights would have intervened by the acceptance of offers. On the other hand, if an injunction is granted and QIW fails at trial, its undertaking as to damages will meet the only suggested loss suffered by Davids, namely interest and other financial loss. I will therefore grant the injunction on the usual undertakings as to damages and I will hear counsel as to directions.