- The Takeovers Panel’s guidance note states that costs orders are the exception and not the rule. However, the Panel’s ordering of costs against parties to three recent proceedings may signal a significant shift in the Panel’s attitude towards making costs orders.
- Prior to these recent matters, the Panel had only ordered costs on four occasions, the last one being in 2004.
The Takeovers Panel has recently made three costs orders against parties to proceedings. This occurred in Minemakers (July), Austock (August) and IFS Construction (August). This appears to signal a significant shift in the Panel’s attitude towards making costs orders, which previously had been few and far between.
Minemakers – dilly dallying
In Minemakers, the Panel declared unacceptable circumstances against UCL for several disclosure deficiencies in UCL’s bidder’s statement in relation to its proposed takeover for Minemakers.
The Panel initially indicated that it was not inclined to make a costs order, but would revisit the issue depending on how promptly UCL provided a satisfactory draft replacement bidder’s statement for consideration by the Panel and the parties that addressed the relevant deficiencies.
In fact, the replacement bidder’s statement required several rounds of amendments, which took a considerable amount of time, before the Panel was satisfied with the disclosure.
The Panel was satisfied that Minemakers was put to additional expense and ordered that UCL pay part of Minemakers’ costs (being $13,704), which represented the costs actually, necessarily, properly and reasonably incurred in taking steps that might have been avoided.
Austock – unacceptable takeover proposal
In Austock, Mariner had announced a proposed bid for Austock. Austock then announced that it had reached an agreement with Folkestone for the sale of Austock’s principal business, subject to shareholder approval.
Mariner brought an action in the Panel against Austock, alleging the sale of the business was intended to frustrate Mariner’s bid, and that the break fees agreed with Folkestone were uncommercial (the Panel agreed with the latter). Mariner subsequently announced that it had decided to withdraw its proposed bid for Austock and sought to withdraw its Panel application.
The Panel declared unacceptable circumstances against Mariner. Amongst other things, the Panel said that Mariner’s application should not have been made because the proposed bid could not be implemented as no finance had been arranged. It was revealed that Mariner had no binding agreement to finance the bid and Mariner was only seeking finance for acceptances of 65% of Austock.
The Panel said that its policy on costs orders does not extend to an application to restrain a transaction merely because it frustrated a proposed bid which could not be implemented.
The Panel ordered that Mariner pay all of ASIC’s and Folkestone’s costs, and two-thirds of Austock’s costs. However, given that Mariner’s application led to a 50% reduction in the break fee payable to Folkestone, the Panel discounted the costs payable by Mariner of ASIC and Folkestone by 50%. Total costs payable by Mariner were $22,500 to Austock, $8,500 to Folkestone and $4,384 to ASIC.
IFS Construction – egregious behaviour
In IFS Construction, the Panel declared unacceptable circumstances in an action by some shareholders concerning the lengthy adjournment of a meeting they had convened to remove all the current directors of IFS Construction and to appoint proposed independent directors, and IFS Construction’s rejection of proxies covering approximately 38.3% of issued shares in the context of a proposed bid announced by a major shareholder.
The Panel sought submissions on the question of costs. The applicants sought costs from IFS Construction from the date of adjournment, submitting that a Panel application was the only means available to them to resolve the matter. ASIC also submitted that it was appropriate to order costs against IFS Construction, which should also cover ASIC’s costs.
The Panel said that the whole exercise by IFS Construction was a delaying tactic to avoid the inevitable and that none of the expenses of the applicants, nor of ASIC, ought to have been necessary. Further, IFS Construction failed to comply with the Panel’s orders and offered no explanation or excuse for doing so. IFS Construction was therefore ordered to pay $37,000 to the applicants and $7,000 to ASIC.
Where to now?
The Panel guidance makes clear that costs orders are the exception and not the rule and that a party is entitled to make, or resist, an application without exposure to a costs order, provided it presents a case of reasonable merit in a professional and businesslike way. The Panel has always said that where there is time-wasting or delay, or the obstruction of proceedings, it is open to make a costs order.
However, before these three latest matters, the Panel had only made costs orders in four matters, the last being in 2004. It appears that the Panel’s attitude to ordering costs might be shifting.
It will be interesting to see whether the Panel might, in the future, make costs orders against a party where that party has been successful in its application for unacceptable circumstances in relation to only part of its arguments but not successful with others, where those other arguments are considered frivolous or without merit.
One final interesting point is that the Panel has, in each case of the recent matters, asked the relevant parties the quantum of their costs, and made a definitive order as to costs. That avoids the scope for the party against whom costs are ordered being able to dispute the quantum (as often occurs in court supervised costs orders).