The Takeovers Panel is now an established feature of the Australian corporate landscape. While it is widely considered to have made a substantial contribution to the efficient conduct of control transactions, its decisions haven’t always been free of controversy, and have recently produced another application for judicial review under the Administrative Decisions (Judicial Review) Act.
In Eastern Field Developments Limited v Takeovers Panel  FCA 311 (Finders) the Federal Court considered and rejected an application by Eastern Field Developments Limited (Eastern Field) for judicial review of the Takeovers Panel's decision in Finders Resources Limited 03R  ATP 11.
The proceedings have their genesis in an application to the Panel by ASIC in March 2018 after Eastern Field made an off-market takeover bid for Finders Resources Limited (Finders) at a price of $0.23 per share. Taurus Funds Management Pty Ltd (Taurus), an 11.31% shareholder, and two directors of Finders, released intention statements indicating that they would not accept the takeover bid. Three months later, contrary to these unqualified intention statements, Taurus and the directors accepted the takeover bid. Eastern Field claimed that it acted in reliance on the intention statements to its detriment, among other things, because it had calibrated its financing arrangements on the assumption the shareholders would not accept.
The Initial Panel made a declaration of unacceptable circumstances based on a contravention of the so-called “Truth in Takeovers Policy” (discussed below) and gave orders cancelling Taurus’ acceptance of the takeover bid. The Review Panel affirmed the decision on unacceptable circumstances but significantly departed from the Initial Panel’s orders.
The Review Panel was not satisfied that the consequences of Eastern Field acquiring voting power of 90% or more should be attributed to the unacceptable circumstances rather than to Eastern Field’s own decisions to declare the offer price final and the takeover bid unconditional. The fact that Eastern Field was forced to acquire the Taurus shares was always a possibility when Eastern Field made its takeover bid for Finders.
2 ASIC’s “Truth in Takeovers” Policy
ASIC’s “Truth in Takeovers” policy requires market participants who make a last and final statement to be held to the statement, as with a promise. A last and final statement is an expression by a market participant that it will or will not do something in the course of the takeover bid. If market participants want to change their position, they must expressly reserve their right to do so. Taurus, failing to clearly qualify its intention statement, did not reserve a right to depart from this intention and later accepted the bid. This ultimately led to the declaration of unacceptable circumstances by both the Initial and Review Panels.
This “Truth in Takeovers” policy is thought to strengthen the fundamental principle of an efficient, competitive and informed market, by holding market participants to public statements regarding their intentions. While that is a simple proposition to state, the Panel’s practice in applying it has varied widely.
Part of the reason for that lies in the fact that while it is relatively easy to identify unacceptable circumstances where a party acts contrary to a public statement, it is much more difficult to formulate an adequate remedy. Broadly, the Panel’s task, once it has found that “unacceptable circumstances” exist, is to try to place the parties in the position they would have been in the absence of such circumstances. That requires a great deal of commercial judgment, the formulation and testing of counterfactual arguments, and a fair measure of informed guesswork by the Panel.
Add to this the fact that Finders was the first case to consider the application of the Truth in Takeovers policy to a bidder rather than target shareholders (who are the main concern of the policy) or market participants generally, and you have the makings of a complex fact set that was ripe for judicial review.
3 Federal Court Decision
On 8 March 2019, the Federal Court upheld the Review Panel’s orders, finding that no jurisdictional error was established. The Court emphasised the legislature’s conferral of a wide discretion on the Panel to decide whether unacceptable circumstances exist and what relief to award. The decision follows the trend, since the Glencore decisions, in which courts have given a broad interpretation the Panel’s jurisdiction.
(a) Relevance of Panel Expertise
McKerracher J concluded that the Review Panel reached their finding of no reliance by Eastern Field on the intention statement in a legally rational and reasonable manner. McKerracher J relied on the Review Panel’s expert judgement, based on the experience of its members, and broad decisional freedom. Rather than reviewing the merits of the decision, courts will be satisfied that the Panel provided an “evident and intelligible justification” in reaching its conclusion.
(b) The Panel and the Rules of Evidence
Although the Panel is not bound by the rules of evidence, McKerracher J held that the Review Panel had not erred by considering the lack of contemporaneous evidence that Eastern Field had relied on the intention statement. In other words, Eastern Field could not hold the Review Panel’s selective application of the rules of evidence against it.
McKerracher J emphasised that the intent of the Panel’s statutory regime is not to preclude the Panel from applying rules of evidence, but to ensure the Panel adopts a commercially viable and expeditious process. In other words, the Panel can choose to apply evidentiary principles should that facilitate such a process and ignore them should it not.
(c) The Role of ASIC Policy
McKerracher J observed that ASIC’s “Truth in Takeovers” policy does not have the force of law and is not binding on the Panel. The policy outlines what is appropriate in general cases and indicates what action ASIC might take if the policy is breached. However, the Panel is not obliged to ensure compliance with the object of the policy.
4 Implications for Market Participants
Legislative changes following a series of judicial review applications in 2007 substantially broadened the Panel’s remit to consider the effects, or potential effects, of “unacceptable circumstances”, on a range of market participants in determining their orders. The trend towards endorsement of the Panel’s expertise and jurisdictional freedom continues with the Federal Court decision in Finders.
As Kirby J observed in the High Court proceedings in Attorney-General (Cth) v Alinta Ltd (2008) 233 CLR 542, takeover disputes require prompt resolutions from decision makers who must have regard not only to the letter of the Corporations Act, but also to its spirit. They must reach outcomes according to considerations of practicality, policy, economic impact and market factors.
Herein lies the challenge for any party now seeking judicial review of Panel decisions. Markets – particularly equity markets – are dynamic systems, and in trying to “unpick” conduct thought to be unacceptable, the Panel is essentially asking the question, “What if?”. Unlike most exercises of administrative power, that is an inherently speculative endeavour, and not well suited to the fairly rigid rules governing judicial review.
McKerracher J’s threshold requirement for an “intelligible justification” for a Panel’s orders, while consistent with the apparent policy of Corporations Act, is an extremely low one for a body which has such broad ranging and impactful powers.
Does this mean the Panel is effectively “above the law”? Not quite, but the judicial review decisions to date confirm the Panel has very broad decisional freedom, unbound by the rules of evidence or even the views of the regulator. It may be time for the legislature to consider whether a more bespoke “appeal” process for Panel decisions, rather than the merits review that currently applies, would encourage greater uniformity in decisions and assist in the development of more consistent policy.