- The application for judicial review of the decision of the Takeovers Panel (the Panel) in CMI Limited has today been dismissed by the Federal Court.
- That case involved a finding by the Panel of an association between a father and his daughter in relation to the acquisition of a 9.22% stake in CMI Limited (CMI), where an entity controlled by the father already held a 36.8% stake in CMI.
- CMI is the first of a couple of Panel cases that are headed to the Brisbane Registry of the Federal Court, the other being run by an entity associated with Clive Palmer in relation to The President’s Club Limited.
The Federal Court has today dismissed the application of Tinkerbell Enterprises Pty Ltd (Tinkerbell) for judicial review of the decision on association between Raymond and Leanne Catelan in relation to CMI.
The case demonstrates that while for constitutional reasons the Australian M&A landscape can never rid itself of formal litigation, judicial review is far from an automatic avenue of success for parties aggrieved by Panel decisions. This was particularly so in CMI, where the Court found that the great bulk of the arguments run by Tinkerbell were erroneously based on principles that apply to an appellate Court’s review of a lower Court’s decision in civil proceedings, as opposed to administrative law principles that apply to a review of an administrative body like the Panel.
Briefly, the facts were as follows.
Raymond Catelan was the Managing Director of CMI. A trustee wholly owned by Raymond Catelan had a relevant interest in 36.8% of CMI, with the relevant trust being a discretionary trust. The beneficiaries included Raymond Catelan and his daughter Leanne Catelan.
The main transaction question in question was the acquisition by Tinkerbell, as trustee for the Leanne Catelan Trust, of 9.22% of the ordinary shares in CMI. The purchase was paid for with a $2.3 million gift provided by Raymond Catelan. The Leanne Catelan Trust was also a discretionary trust and again, the identified beneficiaries included Leanne Catelan and Raymond Catelan.
Other links between Raymond Catelan and his daughter were that she resided in a property owned by a company ultimately controlled by Raymond Catelan and did not pay rent. Leanne Catelan was also employed by CMI and worked for her father as his personal assistant. The Panel had no evidence that Leanne Catelan had ever held a position other than with another company in which her father was the Managing Director. It was submitted by Leanne Catelan that she made the decision to acquire the shares prior to learning that Raymond Catelan would provide her with a gift of over $2.3 million to enable her to undertake the purchase.
There was also a lack of clarity around the actual conduct of the negotiations with the seller of the 9.22% stake. It’s clear that directors of CMI were involved, including one director of CMI who was a lawyer.
An application was made to the Panel by shareholders in CMI. The Panel considered whether Raymond Catelan and Leanne Catelan were associates either because of a relevant agreement for the purpose of controlling or influencing CMI’s board or the conduct of its affairs or because they were acting in concert in relation to CMI’s affairs (noting that relevantly, ‘affairs’ of CMI under the statutory definition includes the acquisition and ownership of shares).
The Panel noted that the submissions of Raymond and Leanne Catelan sought to establish that each had acted independently of the other in their investment affairs.
The Panel did not share this view. It focused on the following matters:
- aspects of the purchase of the 9.22% stake were not conducted at arm’s length but between family members who were heavily involved in the operations of CMI, with their behaviour not being consistent with the actions of persons acting independently;
- it was unusual that other directors of CMI were participants in the discussions and negotiations on the sale if Leanne Catelan, who was not a director of CMI, had been acting independently;
- similarly, the Panel found it unusual that Raymond Catelan’s solicitor, also a director of CMI, would communicate with the seller of the 9.22% stake;
- the vague and indeed almost non-existent information that was forthcoming from all the parties in relation to the negotiations on the sale of the stake was unusual; and
- the $2.3 million gift to acquire the stake would be provided to Leanne Catelan by her father.
As noted in previous cases, the Panel stated that in association cases, inferences will often need to be drawn as clear evidence that two parties have an agreement or are acting in concert will simply often not exist.
The Panel also considered the following factors in Viento Group Limited:
“Circumstances which are relevant to establishing an association include:
(a) a shared goal or purpose;
(b) prior collaborative conduct;
(c) structural links;
(d) common investments and dealings;
(e) common knowledge of relevant facts; and
(f) actions which are uncommercial.”
Having inferred from the matters above that Leanne and Raymond Catelan were associates, the Panel made an order that Tinkerbell divest the 9.22% stake.
The Review Panel
The Review Panel did not commence proceedings on the basis that there was no reasonable prospect that a review application would result in a different outcome to that in the initial Panel.
Broadly, the Panel agreed with the approach and reasoning of the initial Panel. It also had to consider some other grounds of review, the main points of which were covered in the judicial review proceedings, discussed below.
The Review Panel also noted the pertinent observations of the Barrett J (as he then was) in Bateman v Newhaven Park Stud Limited in 2004 where, in relation to association matters and family, his Honour said:
“A point to be made at once in relation to these questions is that the mere fact of family relationship should be left to one side. King George V and Kaiser Wilhelm II were first cousins. They did not act in concert between August 1914 and November 1918 and probably at other times as well. In the absence of agreement or dependency or actual influence implying commonality of action, family relationships, like the personal friendships considers in Elders IXL case (above), of themselves prove nothing relevant to an inquiry such as the present.”
Judicial review in the Federal Court
The grounds for judicial review raised by Tinkerbell in the Federal Court were, in summary, that:
- Inferences - the drawing of an inference that is not a reasonable and definite inference available from the evidence is reviewable as an error of law. Tinkerbell argued that by way of example, inferring an association because directors of CMI were involved in the negotiations was not an inference from reasonable and definite material;
- No oral hearing - Tinkerbell was denied natural justice as adverse credit findings were made against Raymond and Leanne Catelan and others, where the evidence was incomplete and where the relevant parties were not afforded an oral hearing; and
- Panel should not have used its experience – in a somewhat surprising submission, Tinkerbell alleged that the Panel members should not have used their collective experience to reach conclusions about what was or was not uncommercial or usual.
The Court found that Tinkerbell had erroneously based its arguments on inference on principles that apply to an appellate Court’s review of a lower Court’s decision in civil proceedings, as opposed to administrative law principles that apply to a review of an administrative body like the Panel.
The relevant administrative law principle is that as long as the particular inference is reasonably open to the administrative body, then even if that inference appears to have been drawn from illogical reasoning, there is no place for judicial review because there is no error of law.
At any rate, the Court found there was sufficient material to draw the relevant inferences.
No oral hearing
The legislation establishing the Panel makes it clear that the Panel is to conduct proceedings informally and not necessarily on the basis of an oral hearing. This is consistent with general administrative law principles. The Court found that this, along with the repeated attempts of the Panel to get further evidence from the relevant people, meant there was no denial of natural justice.
The fact that both Tinkerbell and Raymond Catelan had indicated to the Panel that they were satisfied that matters could be dealt with by submission only was also mentioned.
No use of experience
In short measure, the Court dismissed any suggestion that Panel members ought not draw on their experience. Clearly, that is the very function Parliament intended Panel members to play. The Court noted:
“To accept the applicant’s submission that the Panel should not be [entitled to draw on their skill knowledge and experience] would be to strip the Panel in large part of its effectiveness as a specialist body established to resolve takeover disputes, as mandated by the legislation.”
The President’s Club
The other matter that has headed to the Federal Court for judicial review involves the President’s Club Limited (TPC), a listed entity. There, entities associated with Clive Palmer effectively indirectly acquired all of an entity (CDLI) that held over 41% of a listed entity, TPC.
CDLI had previously entered into a revocable deed poll with ASIC, for purposes pertaining to managed investment scheme rules, not to vote more than 10% of the shares in TPC.
Subsequent to the acquisition, CDLI revoked the deed poll with ASIC, giving it unfettered voting rights in TPC. One of the Clive Palmer entities then announced a takeover bid for TPC.
The upstream acquisition gave the Clive Palmer entity a relevant interest in excess of 20% without going through a permitted gateway.
It was argued in the Panel that the revocable deed poll meant CDLI’s voting power was limited to 10% at the time of the upstream acquisition (even though it was subsequently revoked).
If that argument was the cornerstone of a deliberate and considered plan, Sir Humphrey Appleby may have described it as courageous. The Panel had no hesitation in finding that the revocable deed poll had nothing to say in relation to CDLI’s voting power in TPC.
There were various other matters associated with these circumstances including that the Clive Palmer entities had made a bid for TPC. There was also a debate around the nature of ‘villa interests’ (these matters relating to the Palmer Coolum Resort).
The orders made by the Panel were that CDLI could not exercise any voting rights attached to CDLI’s entire stake in TPC and must not dispose of those shares until a bid, broadly on terms no less favourable than those in the original takeover offer, was made and no less than 50% of offers for shares of independent shareholders accept.
Application for judicial review
On 21 September, the Clive Palmer entities filed an application for judicial review in the Brisbane Registry of the Federal Court.
Among the grounds for review were that the time for an application to be made under s657C to the Panel must be 2 months after the relevant circumstances have occurred or a longer period determined by the Panel. It was argued that circumstances were not ongoing and that the application was therefore out of time. Further, the argument ran that if the Panel had extended the time for the application, it did not provide its reasons for doing so and did not afford natural justice in allowing parties to make submissions in relation to this point.
The argument that the downstream acquisition was not in breach of s606 because of the revocable deed poll, and that therefore the Panel made an error of law, formed part of the application.
There is also an application around the ability of the Panel to make orders relating to the villa interests, with the consequence that orders were sought that the Panel improperly exercised its power because its orders were so unreasonable that no reasonable person could have so exercised the powers.
The Clive Palmer entities also made a claim of apprehended bias against the Panel with the consequence that its decision should be quashed. This was on the basis that the President of the Panel was a partner of a law firm where that law firm, in a completely unrelated matter, was involved in acting for a company who was in turn suing a company controlled by Clive Palmer.
Where to from here?
The prospect of judicial review has clearly excited some parties to Panel proceedings. But as CMI Limited demonstrates, judicial review is a disciplined body of law that cannot simply be called upon without good reason. Not every application to the Court will have a fairytale ending.