In recent years, the Takeovers Panel has seen a significant decline in the proportion of applications for which it gives a full hearing. While speedy disposal of matters by an expert commercial panel is to be applauded, this trend increases the risk that the Panel could fail to afford an applicant procedural fairness.

Summary

Johnson Winter & Slattery has conducted a review of the proportion of applications that the Takeovers Panel has afforded a full hearing in recent years.

We have observed a significant decline, illustrated by the following:

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By rejecting such a large proportion of applications on the basis of preliminary submissions only, the Panel risks assessing (or at least being seen to assess) the substance of applications without having afforded the applicant a fair hearing. This is a particular risk if a respondent raises an issue in their preliminary submissions, or the Panel identifies a line of reasoning itself, and the applicant is not given an opportunity to respond. The requirement for ‘procedural fairness’ is one of the cornerstones of administrative law and can be a ground for judicial review of a Panel decision.

The issue explained

The Panel’s consideration of applications involves two stages. The first stage is for the Panel to assess whether to conduct proceedings (i.e. progress to the second stage). The Panel usually makes this decision within a week of the application being made, meaning that the Panel ‘weeds out’ inappropriate applications early, avoiding delaying transactions that do not raise regulatory issues. This decision is based on an application of up to ten pages (which can be quite limiting in complicated factual scenarios) and a preliminary response of no more than two pages. The second stage involves more fulsome submissions on the merits of the application and typically lasts a further one to three weeks.

Parties sometimes render applications redundant by taking steps to address the circumstances complained of. For instance, if those circumstances relate to inadequate disclosures to the market, the Panel may decide it is unnecessary to conduct proceedings if the relevant information is disclosed during the first stage described above. However, our observations above are not explained by an increase in the number of such concessions. Rather, the Panel’s increased willingness to decline to conduct proceedings seems to stem from an increased willingness to decline conduct proceedings without any concessions being made:

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When deciding whether to conduct proceedings, the Panel’s practice is to assess, based solely on the application and limited preliminary submissions in reply, whether there is no reasonable prospect that the Panel would make a declaration of unacceptable circumstances. The figures above suggest that the Panel is increasingly ready to conclude that a reasonable prospect does not exist.

In our view, the Panel should not draw this conclusion unless the law and policy relevant to the conclusion is entirely uncontentious; including in relation to the way the Panel should apply the law or policy in the relevant circumstances. Otherwise, for the Panel to decline to conduct proceedings may require it to take a view on a matter of substance that is open to argument without having heard that argument in full, potentially denying the applicant the procedural fairness to which it is legally entitled. This may be grounds for judicial review; a successful application for which would typically result in the Panel’s decision being set aside.

The Procedural Rules

The ‘no reasonable prospect’ test seems be a summary way for the Panel to describe those matters listed in the Panel’sProcedural Rules as being the factors the Panel considers when deciding whether to conduct proceedings. Those factors go beyond to the statutory test for a strike-out (which requires that the application is frivolous or vexatious),1 and include matters such as the strength of the preliminary evidence and the remedies available.2 The Procedural Rules do not expressly refer to questions of whether law and policy are uncontentious, although we consider this is implicit in another factor that is listed: whether the claims would give rise to unacceptable circumstances if established. That is, if it is clear that even if the claims were established, they could not under any analysis give rise to unacceptable circumstances, then the Panel should not conduct proceedings.

It should not be forgotten that section 195 of the Australian Securities and Investments Commission Act 2001 (Cth) states that the Panel’s Procedural Rules cannot trump the need for procedural fairness.3 So, while the Panel can apply a ‘no reasonable prospect’ test based on the factors listed in the Procedural Rules, it can only do so if it affords the applicant a fair opportunity to adduce evidence and make submissions on the relevant issues. That may not always be possible in an applicant’s ten page application, especially if the law or policy is contentious, or if the respondent (or the Panel itself) raises a line of reasoning that was not contemplated by the applicant in its application. This could be cured by the applicant being invited to make further preliminary submissions, but the Panel might choose to commence proceedings instead.

Conclusion

One would expect that with the growing body of Panel decisions (nearly 400 at the time of writing), the range of contentious questions would slowly shrink. However, the speed of the changes shown above instead suggests that the Panel may well be applying its ‘no reasonable prospect’ test more liberally than in the past. The Panel must ensure that this approach does not come at the cost of procedural fairness. Perhaps the Panel could consider further developing its Procedural Rules, to ensure that applicants are afforded procedural fairness.