The Takeovers Panel has made costs orders in two recent decisions, Minemakers Limited  ATP 8 and Austock Group Limited  ATP 12. This represents a significant break from its longstanding practice of not awarding costs, which had resulted in the Panel being considered by M&A practitioners as a “no costs jurisdiction”.
If these two recent decisions mark a shift in the Panel’s approach to costs, market participants will need to take account of the increased likelihood of costs orders in Panel proceedings. In this article, we test this proposition and suggest high level strategies to minimise adverse costs orders.
Prior to the decisions in Minemakers Limited and Austock Group Limited, the Panel had not made any costs orders since 2004. Although the amount of costs ordered in these decisions were not themselves significant ($13,704 and $35,384 respectively), the making of any costs orders is highly unusual. In addition, while the conduct of the parties the subject of the costs orders was not exemplary, in neither case was it particularly egregious in the context of the many matters that have not attracted costs orders in recent years. For these reasons, we read the decisions as indicating a change in the Panel’s underlying policy application. That change could well see far larger costs orders in appropriate matters in the future.
The Panel’s historical costs policy
The Panel’s Guidance Note 4: Remedies – General states that a costs order is the exception, not the rule, and that a party should not be exposed to a costs order provided it presents a case of reasonable merit in a businesslike manner. The policy also states that the Panel will generally only award costs where a party to proceedings has caused other parties to incur unnecessary costs by its time wasting or delay, or by hindering or obstructing proceedings.
Historically, the Panel awarded costs in very specific circumstances, such as where a party:
- knowingly engages in questionable behaviour and puts the other party to considerable expense to prove the actions were unacceptable;
- fails to provide new evidence to a review Panel or generally hinders the review process by lodging unsolicited submissions; or
- engages in behaviour that predictably constitutes unacceptable circumstances.
Since the Panel’s decision in Skywest Limited 04  ATP 26, the Panel has retreated from making any costs orders at all. In the following sections, we look at whether the two recent decisions demonstrate a renewed willingness to award costs.
The first indication of change – Minemakers Limited
Minemakers was subject to a takeover bid from UCL. It made an application to the Panel that UCL’s bidder’s statement contained material deficiencies and omissions.
Minemakers raised its concerns with UCL prior to making the application, but UCL refused to address them. Once the application had been made, UCL conceded virtually all of the disclosure issues raised and provided a draft replacement bidder’s statement to the Panel.
Minemakers sought an order that its costs in relation to the proceedings be paid by UCL. The Panel was not initially persuaded to make a costs order, but said that it was prepared to revisit the issue depending on how promptly UCL provided a draft replacement bidder’s statement and addressed the information deficiencies.
The replacement bidder’s statement required a number of rounds of amendments before it sufficiently addressed the deficiencies. The Panel was satisfied that Minemakers was put to additional expense as a result of having to review multiple versions of the replacement bidder’s statement before the disclosure was satisfactory. The Panel required UCL to pay Minemakers’ legal costs of reviewing the multiple versions.
While the Panel noted that “UCL failed to conduct itself in a professional and businesslike fashion...”, UCL’s failure to efficiently produce replacement documentation is not the worst conduct to come before the Panel. As the first costs order after such a long hiatus, its significance is only amplified by the comparative triviality of the conduct giving rise to the order.
A confirmation of the change – Austock Group Limited
Mariner Corporation announced that it intended to make an offer to acquire Austock. Subsequently, Austock announced that it had entered into an agreement for the sale of one of its main subsidiaries, which contained a break fee.
Mariner made an application to the Panel submitting that the sale amounted to a frustrating action and gave rise to unacceptable circumstances.
ASIC threatened a second Panel application to stop the bid, citing concerns regarding Mariner’s ability to fund it. The following day, Mariner withdrew its proposed bid and also sought to withdraw its Panel application. The Panel declined to consent to the withdrawal, as it may do if there is any reason to suspect that unacceptable circumstances will occur or continue.
Arguing there can be no frustrating action without a bid or a genuine potential bid, the Panel considered whether Mariner had any reasonable basis for believing that it could fund a bid. Mariner’s CEO was quoted as saying: “we just wanted to put a flag out into the market, and see what happened.” The Panel concluded that Mariner’s announcement of its bid without a reasonable basis for believing it could fund it gave rise to unacceptable circumstances.
The Panel ordered that Mariner pay all of the costs claimed by ASIC and Folkestone (the counterparty to the Austock subsidiary sale agreement, who was also a party to the proceedings) and two thirds of the costs claimed by Austock. The amounts awarded were calculated by reference to costs actually incurred in the course of proceedings, but with 50 per cent discounts to the awards in favour of Austock and Folkestone because the application resulted in a benefit via a modification to the break fee.
Mariner made a number of errors in formulating the initial announcement of its bid, including failure to account for the minimum bid price rule and regulatory restrictions precluding it from acquiring more than 15 per cent of Austock without approval. Together with the failure to make adequate arrangements to fund its bid (or make the bid conditional on such arrangements), Mariner’s bid was both premature and incapable of proceeding. The Panel noted that while a party is entitled to make an application of reasonable merit without exposure to a costs order, the proposition did “not extend to an application to restrain a transaction merely because it frustrated a proposed bid which could not be completed.”
Mariner’s multiple, fundamental errors in compliance with takeovers regulation, ahead of itself bringing a Panel application to support a bid that could not proceed are more obviously deserving of an adverse costs order than Minemakers’ conduct. However, as with Minemakers, at least on the published reasons, the conduct does not stand out in the history of recent Panel matters as more worthy of costs orders. We therefore believe the decisions signify a shift in the Panel’s costs policy.
Avoiding costs orders in Panel proceedings
If we are correct that costs orders will be a more frequent incident of Panel applications, we recommend commercial actors consider these ideas to reduce the possibility of costs being awarded against them:
- Resolve the dispute before going to the Panel
The Panel supports parties resolving issues amongst themselves if it will address any unacceptable circumstances. The Panel need not make orders to achieve this. Parties should be encouraged to engage as soon as potential unacceptable circumstances are brought to their attention, not simply when the Panel states that it is minded to make a declaration.
- No time wasting
Once proceedings are before the Panel, parties should ensure that they are responsive to requests from the Panel and cooperative in assisting the Panel to remedy any unacceptable circumstances.
- Clean hands
Parties should look at the acceptability of their own behaviour before bringing a Panel application. While having ‘higher moral ground’ in proceedings technically shouldn’t affect the ultimate outcome, it may have a bearing on where costs lie.
- Offer undertakings
The Panel must find unacceptable circumstances before it is empowered to make a costs order. Accordingly, if unacceptable circumstances have ceased or the Panel accepts an undertaking in lieu of making a declaration, the Panel will not be empowered to make a costs order. Parties may wish to consider offering undertakings to avoid the Panel ordering costs.