Keybridge Capital Ltd v WAM Active Ltd

BATHURST CJ: On 13 December 2019, the respondent, WAM Active Limited (WAM) announced an intention to make an off-market takeover bid (the Offer) for all the shares in the applicant, Keybridge Capital Limited (Keybridge), at 6.5 cents per share and lodged its bidder statement with the second respondent, the Australian Securities and Investments Commission (ASIC), and ASX Limited (ASX). Section 10.5 of the Offer dealt with acceptances of the Offer. Section 10.5(a)(i) and (ii) were in the following terms:

The Offer, which opened on 3 January 2020, was a conditional offer. The Offer was subject to a number of defeating conditions, including a 50.1 per cent minimum acceptance provision. Section 10.7(c) of the Offer set out a number of prescribed occurrences as defeating conditions. Of relevance are the following:

Section 10.8 of the Offer is also relevant. It provides as follows:

Section 10.9 of the Offer dealt with freeing the Offer from conditions. It is in the following terms:

Section 10.2 of the Offer provided for the Offer to remain open until 3 February 2020, subject to any extension. On 24 January 2020, WAM gave notice pursuant to s 630(2) and s 650D of the Corporations Act 2001 (Cth) (the Act), extending the Offer period to 17 February 2020. On 10 February 2020, it announced a further extension of the Offer up until 7.00pm on 3 March 2020. The announcement confirmed that the Offer was subject to defeating conditions.

On 12 February 2020, Keybridge announced to the market that it had agreed to issue 22 million ordinary shares to sophisticated investors at an issue price of 6.9 cents per share (the Placement). On 17 February 2020, the Placement was completed. In a supplementary target statement of 19 February 2020, Keybridge announced the issue of shares and noted that WAM had yet to advise its shareholders whether it would waive the defeating conditions which had occurred in the Offer period.

The effect of the Placement was to trigger the bifurcating clause in s 10.8(c), such that the defeating condition in s 10.7(c)(iv) became two conditions, one relating to the placement of shares by Keybridge (the Placement Condition) and the other expressly excluding the Placement Condition. Relevantly, it empowered WAM, subject to the provisions of the Act, to free one of the two bifurcated provisions from the defeating conditions but not the other.

On 24 February 2020, WAM announced an increase in the Offer price to 6.9 cents per share and gave notice that its Offer was free from all the conditions in s 10.7, except s 10.7(c). It stated that at the time, WAM’s voting power in Keybridge was approximately 21.88 per cent. On 25 February 2020, WAM issued a notice under s 630(3) of the Act, stating that the Offer remained subject to the condition in s 10.7(c) and was free from all other conditions. The notice was sent to ASX, which forwarded it to Keybridge. It was sent by WAM directly to Keybridge on 26 February 2020.

On 2 March 2020, one day prior to the close of the Offer period, WAM issued a notice said to be issued pursuant to s 650F of the Act that the Offer was free of the conditions set out in s 10.7(c), and the Offer was then unconditional. It stated that its voting power in Keybridge was approximately 50.6 per cent.

On the same day, it issued a notice under s 650D of the Act extending the Offer until 3 April 2020.

On 6 March 2020, WAM commenced processing acceptances of the Offer and acquired a substantial interest in Keybridge. Mr Jesse Hamilton, the Chief Financial Officer of the parent company of WAM, stated that he was aware by 9.30pm on 5 March 2020 that Keybridge had made submissions to the Takeovers Panel alleging WAM’s offer had closed subject to defeating conditions. This was on the basis that s 650F of the Act required that to free the bid from the Placement Condition, notice be given not less than seven days prior to the end of the Offer period. Notwithstanding, he did not issue instructions to cease processing the transfer of the shares.

On 11 March 2020, Keybridge made an application to the Takeovers Panel against WAM, seeking a declaration of unacceptable circumstances. Also on 11 March 2020, the Acting President of the Panel made interim orders prohibiting WAM from taking steps to process acceptances received under, or any transfers in relation to WAM’s bid for Keybridge: Keybridge Capital Ltd 04, 05 & 06 [2020] ATP 6.

On 7 April 2020, the Panel made a declaration of unacceptable circumstances. On 9 April 2020, it made the following orders:

On 20 May 2020, a review Panel of the Takeovers Panel affirmed the initial Panel’s decision: Keybridge Capital Ltd 08R, 09R and 10R [2020] ATP 9. The review Panel gave its reasons on 25 June 2020. I have dealt with the Panels’ reasoning subsequently in this judgment.

It appears that as a consequence of the initial Panel’s order, processed shares totalling 6.7 per cent of the capital of Keybridge are the subject of the proceedings, although the actual number of shares held by WAM is greater as a result of some of the holders of the processed shares selling their shares to WAM following a subsequent takeover offer made by it for the shares in Keybridge.

By an originating process filed on 1 June 2020, Keybridge sought orders under s 1325 of the Act, including a declaration that the transfer of the shares the subject of Order 3 of the Panel’s orders, namely, those shares which had been registered in WAM’s name as a result of the processing of the acceptances of the Offer (the Processed Shares), was void. It also sought an order that the shares be vested in ASIC.

By an interlocutory process filed on 16 July 2020, WAM sought a declaration that the notice under s 650F of the Act of 2 March 2020 freed the WAM bid of all defeating conditions and that condition 10.7(c)(iv) was fulfilled at the end of the Offer period. Alternatively, it sought relief under s 1322(4)(d) of the Act that the time for declaring offers to be free of conditions in s 10.7(c)(i) and 10(c)(iv), in conjunction with s 10.8, be extended to 3 March 2020.

The primary judge concluded that the notice of 2 March 2020 was effective to free the offer from the condition in s 10.7(c)(iv): In the matter of Keybridge Capital Ltd [2020] NSWSC 1917 (the primary judgment). Her Honour also concluded that if she had reached a contrary view, she would have granted WAM relief under either s 1322 or s 1325D of the Act.

Keybridge has sought leave to appeal against the decision. The draft notice of appeal raises the following grounds:

Prior to dealing with the reasoning of the primary judge and the parties’ submissions, it is convenient to set out the relevant legislation and the legislative history. It is also necessary to make some reference to the two decisions of the Takeovers Panel dealing with the issues the subject of the appeal.

Chapter 6 of the Act regulates takeovers. Section 602 describes the purpose of the Chapter. It is in the following terms:

Section 630 deals with what are described as defeating conditions. Defeating conditions are defined in s 9:

Section 630, as amended by ASIC Class Order [CO 13/521] (Australian Securities and Investments Commission, ASIC Class Order [CO 13/521] (CO 13/521, 18 September 2018) (the ASIC Class Order), is in the following terms:

Prior to the amendment by the ASIC Class Order, s 630(4) was in the following terms:

Section 650F deals with freeing off-market bids from defeating conditions. As amended by the ASIC Class Order, it provides as follows:

Section 650F(1)(a), as originally enacted, was in the following terms:

Section 650G provides that contracts resulting from acceptances of offers are void if defeating conditions are not fulfilled. As amended by the ASIC Class Order, it is in the following terms:

Section 650G(b), as originally enacted, provided as follows:

Section 652C(1) is in the following terms:

The modifications to s 630(4) made by the ASIC Class Order were stated in the Explanatory Statement which accompanied the ASIC Class Order for the purpose of clarifying its operation (the Explanatory Statement). The Explanatory Statement stated that the modification to s 650F(1)(a) was made because, as enacted, it referred to conditions that a bidder may withdraw unaccepted offers, which could cause confusion because a defeating condition does not allow a bidder to withdraw unaccepted offers. The Explanatory Statement stated that s 650G(b) was modified to correct the erroneous reference to s 630(1) and s 630(2). Thus, as senior counsel for the applicant correctly pointed out, the modifications were intended to clarify the provisions rather than to alter their scope and purpose.

Remedial powers of relevance are s 1322 and s 1325 of the Act. So far as relevant, s 1322 is in the following terms:

The following provisions of s 1325 are relevant:

Remedial orders are defined in s 9 of the Act. The orders include a power to vest shares in ASIC.

Provisions of the nature of those the subject of the present proceedings have had a lengthy history in corporations law in this country. The Second Interim Report of the Company Law Advisory Committee to the Standing Committee of Attorneys-General (the Eggleston Committee Report) dated February 1969 outlined the purpose of the takeover provisions in the form which now finds expression in s 602 of the Act: Company Law Advisory Committee to the Standing Committee of Attorneys-General, Parliament of the Commonwealth of Australia, Second Interim Report – Disclosure of Substantial Shareholdings and Takeover Bids, (Parliamentary Paper No 43, February 1969). As the applicant has pointed out in its written submissions, at the time of the Eggleston Committee Report, cl 4 of Pt A of the 10th Schedule of the Uniform Companies Acts allowed for minimum acceptance provisions, so long as the offer specified the latest date on which the offeror could declare the offer to become free of the condition and a further period of not less than seven days during which the offer would remain open for acceptance. As the Eggleston Committee Report pointed out, the object was to ensure that shareholders in a target company knew whether the bid was unconditional prior to the close of offers. However, the Eggleston Committee Report identified a difficulty in that the existing provisions failed to provide what would occur if no notice was given. The Eggleston Committee Report concluded that in those circumstances, the offer should be deemed to have elapsed at the end of the offer period. It commented as follows:

As a consequence of the Eggleston Committee Report, significant amendments were introduced into the Uniform Companies Acts. They included s 180N, which provided that an offeror may not declare a takeover offer to be free of particular conditions unless it is a term of the offer that it may do so not less than seven days before the end of the period during which the offer was open. It provided in s 180N(3) that the offeror was required to publish on the date specified in the takeover offer a notice stating whether the offeror has declared the offer free of conditions and whether the condition was fulfilled or not. It stated in s 180N(8) that where a condition had not been fulfilled and a notice not provided in accordance with s 180N(3), all contracts resulting from acceptance of the offer were void.

The provisions extended the previous provisions, first by providing that acceptance of offers subject to unfulfilled conditions are void. It also extended the notification provisions beyond the minimum acceptance provisions. The provision was considered by Needham J in Repco Ltd v Commissioner for Corporate Affairs [1978] 1 NSWLR 350 who concluded (at 354-355) that the provisions extended to other conditions apart from the minimum acceptance condition imposed by the offeror in respect of which the offeror reserved the right to free the bid from them. His Honour concluded that it was not limited to conditions in respect of which it was possible to say, as at the time the notice under s 180N(3) was required to be given, that they had been fulfilled.

Equivalent provisions were inserted into the Companies (Acquisition of Shares) Act 1980 (Cth) (CASA) by the Companies and Securities Legislation Miscellaneous Amendment Act 1985 (Cth). This followed the decision of Tadgell J in Gerrard Co of Australasia Ltd v Johns Perry Ltd (1982) 7 ACLR 699. At that time, s 28(1) of CASA provided that where an offer was subject to a prescribed condition, the offeror may only declare the offer free of conditions not less than seven days before the end of the offer period, and at the same time, declare other offers (made under the takeover scheme) free of conditions. Justice Tadgell held that declaring an offer free of conditions involved an alteration of the offer and did not prevent waiver of conditions subsequent.

As a consequence, s 28(9) was inserted into CASA, providing that where a prescribed condition had not been fulfilled and a notice had not been provided under the section, all contracts formed by acceptance of the offer under the relevant takeover scheme were void. The Explanatory Memorandum in respect of the Companies and Securities Legislation (Miscellaneous Amendments) Bill 1985 (Cth) stated at paragraph 71 that the intent of CASA was that if at the end of the offer period a condition was not fulfilled, the takeover scheme should not proceed and acceptances received under the scheme should be returned to offerees. It also stated that CASA sought to ensure that the only way an offeror may treat a conditional offer as being free from conditions was by making a declaration under s 28.

Equivalent sections to s 28 are now found in s 630, s 650F(1)(b) and s 650G of the Act. However, in 1994, the Legal Committee of the Companies and Securities Advisory Committee (CASAC) Report entitled “Anomalies in the Takeovers Provisions of the Corporations Law” (the CASAC Legal Committee Report) identified a difficulty arising by reason of the fact that a bidder might want to retain the protection of the prescribed occurrence condition until the close of the offer to take account of the fact that the event the subject of the condition might occur in the final seven days of the offer period: Legal Committee of the Companies and Securities Advisory Committee, Anomalies in the Takeovers Provisions of the Corporations Law (Report, March 1994) 74. The CASAC Legal Committee Report (at 74) contained the following comments on the question:

Provisions equivalent to s 630, s 650F and s 650G of the Act were introduced into the Corporations Act 1989 (Cth) by the Corporate Law Economic Reform Program Act 1999 (Cth). The Explanatory Memorandum in respect of the Corporate Law Economic Reform Program Bill 1999 (Cth) stated that the amendments took into account the recommendation of the CASAC Legal Committee in its March 1994 Report.

As I indicated, Keybridge successfully sought a declaration that the conduct of WAM in purporting to declare the bid free of conditions within the seven day period prior to the closure of the Offer constituted unacceptable circumstances. This was essentially for two reasons. First, the initial Panel concluded that ss 10.7(c)(i) and 10.7(c)(iv) did not fall within the happening of an event or circumstance falling within s 652C(1) or (2) because the provisions include references to “Controlled Entities” in s 10.7(c)(i) and “subsidiary” in s 10.7(c)(iv): Keybridge Capital Ltd 04, 05 & 06 at [65]. The Panel also concluded (at [71], [72]) that, despite WAM being informed of the contention by Keybridge that the bid had closed subject to a defeating condition on 4 March 2020, they commenced processing acquisitions on 6 March 2020.

In the circumstances, the Panel made the orders to which I have referred at [13] above. In doing so, the Panel made the following comments:

As I indicated, the review Panel affirmed the initial Panel’s decision: Keybridge Capital Ltd 08R, 09R and 10R. In the course of reaching their conclusion, the review Panel made the following remarks:

The review Panel (at [109]) concluded that, applying their commercial judgment, “a combination of a voting freeze and reversal rights, rather than a vesting order, is a more appropriate solution in the circumstances having regard to the requirements in s 657D(2).” The review Panel stated (at [115]) that they agreed “with the initial Panel that the legal status of the registration of the Processed Shares is more appropriately adjudicated by a Court.”

In dealing with the question of whether WAM was entitled to declare the Offer free of conditions within the seven day period of the close of the Offer, the primary judge (at [170]) first rejected the argument that the words “or any of the Controlled Entities” in s 10.7(c)(i) meant that the condition was not one which related to the happening of an event or circumstance within s 652C(1)(a). Her Honour concluded correctly that there was no evidence to suggest that the condition was not fulfilled because there was no evidence to suggest that there was any conversion of shares.

This conclusion does not seem to be challenged on the appeal.

Her Honour (at [172]) accepted that the effect of the bifurcating clause in s 10.8 was that, as a result of the Placement, the condition became two separate conditions: first, a Placement Condition (that Keybridge or its controlled entities makes an issue of shares, which is what actually occurred); and second, the general condition that Keybridge makes any other issue of shares (excluding the Placement). Her Honour stated that the latter condition, which she described as the general condition, was fulfilled.

I agree with her Honour’s analysis except to say that, in my view, the Placement Condition which arose as a result of the bifurcation would more accurately be described that Keybridge makes an issue of its securities. This is because it was Keybridge itself which made the Placement, and it is the actual placement which is the subject of the bifurcated provision. Although it is not material, it should also be noted that s 10.7(c)(iv) refers to a “subsidiary” rather than “Controlled Entities”.

The primary judge concluded that the Placement Condition fell within s 652C(1). Her Honour stated (at [185]) that she saw “no warrant for reading a qualification into s 652C(1) to exclude from its operation a condition relating to an event that, at the time that the condition springs into existence, has actually occurred.” Her Honour stated that it was still a condition that related to the happening or occurrence of an event within the period. In dealing with the argument that it could be said to give the bidder an election whether or not to waive a condition that it knows has already occurred (something her Honour described as a “free ride”), the primary judge pointed out that it must be borne in mind that the bifurcating clause, and the potential for its operation, must have been known at the outset of the bid. In those circumstances, Her Honour stated that the concept of a “free ride” seemed to be inapt.

The primary judge stated (at [186]) that “[i]f the legislature wished to limit the conditions in s 652C along the lines suggested by Keybridge, it would have been open for the legislature to have done so expressly.” Her Honour stated (at [186]) that she did “not regard the tense used in s 652C as requiring the condition to be a forward-looking condition at the time that the condition springs into existence, at least where it was a forward-looking condition in its original or “unbifurcated” form.”

The primary judge stated that if she was incorrect in her conclusion, she would have granted relief under s 1322(4) of the Act. Her Honour noted (at [193]) WAM’s submission that the authorities recognise that the provision “is to be exercised liberally so as not unreasonably to stifle corporate and financial activity by restricting such activity merely on technical grounds.” Her Honour also noted (at [193]) with WAM that the provision reflected “a long-standing legislative recognition that mistakes will happen in corporate governance and that it is not in the public interest that the validity of such decisions, that do not occasion substantial injustice to third parties, should be undermined.”

The primary judge stated (at [220]) that had the question of remedial relief arisen, she would have concluded that there was power to grant it and that it was “appropriate to do so in circumstances where the breach was not deliberate and there is no substantial injustice to any of the shareholders of the Processed Shares.”

Although her Honour did not expressly state this to be the case, it seems that although she was primarily referring to s 1322 of the Act, she would also have granted relief under s 1325D. Her Honour stated (at [222]) that the two powers to grant relief were distinct despite the practical consequences of their exercise in a particular case may be the same.

In dealing with the question of whether s 650G rendered the transfers of the shares void, her Honour stated (at [254]) that she considered there was a “distinction between a finding that a contract is void (and that a takeover acceptance pursuant to such a contract must not be registered) and the consequences if (inadvertently or otherwise) registration takes effect.” Her Honour stated (at [254]) that “[u]nless and until the register is rectified (on an application by a relevant party), the register records who is the legal or beneficial holder of the shares.”

The primary judge further concluded (at [255]) that she did not accept that a contravention of the section meant that a Court was deprived of the remedial powers provided for under the Act.

Senior counsel for Keybridge described the issue as a question of how s 650F(1) and s 650G, as modified, apply when a bifurcating clause, such as the one in the present case, is triggered, and particularly whether a bidder can validly retain an option to rely on the specific condition, concerning an event which arises in the course of the takeover period, to free the bid from that condition up to three business days after the end of the Offer period.

Senior counsel for Keybridge submitted that s 10.7(c), as set out in the bidder’s statement, did not contain defeating conditions within the meaning of the definition of that expression in s 9, as it did not entitle WAM to rescind the bid; rather, it triggered two other terms having that potential coming into effect. However, he accepted that s 10.7, absent the bifurcating clause, was a condition which fell within s 652C(1), entitling WAM to free the bid from it three days after the end of the Offer period by virtue of s 650F(1)(a). He submitted that the bifurcating clause was entirely different to one with which s 650F(1)(a) is concerned. He submitted that the Placement Condition, specific to a particular event, is not a section to which s 652C(1) was directed. He accepted, however, that the two conditions were, individually, defeating conditions.

Senior counsel for the applicant emphasised that it was not simply a question of waiving the condition, stating that for a bid to become unconditional it was necessary for the bidder to free itself from the condition. He submitted that the object of the bifurcating clause was a tactical desire of the bidder to want to go into the marketplace in the last seven days to deter, “for example, what used to be called ‘white knights’, or counterbids, and things like that”, whilst retaining the benefit of the substance of the condition.

Senior counsel for Keybridge described subparagraph (a) of the definition of “defeating condition” (see at [22] above) as having two elements. First, it has to be a condition entitling the bidder to rescind, and second, it has to be in the circumstances referred to in the condition.

Senior counsel for the applicant accepted, as found by the primary judge, that on 17 February 2020, the date of completion of the Placement, the Offer became subject to a defeating condition. He pointed out that to free the Offer from that condition, notice had to be given in accordance with s 650F not less than seven days before the end of the Offer period, unless the event or circumstance fell within s 625C(1) or (2). He stated that these events were “generic events that may happen at any time during the bid period including importantly in the last seven days of the bid period”. He submitted that the conditions were “forward looking”, particularly looking to the last seven days of the bid period. He submitted that an event or occurrence which has occurred prior to or simultaneously with the creation of the condition does not fall within the exception because of its specificity. He submitted that the words in s 650F(1)(a) “relate only to the happening of an event referred to in subsection 652C(1) or (2)” and do not relate to an individual or particular incident of such occurrences. He submitted that the relevant provisions of s 652C(1) refer to an issue of shares, rather than a particular issue of shares. He submitted that the construction contended for by WAM would read into s 650F(1)(a) the words “if the condition specifies or states that it is triggered by occurrences as set out in those provisions”.

He submitted that the construction for which he contended was reinforced by the definition of defeating condition. He submitted that the words “referred to” are used to signify the circumstances specified in the condition.

Senior counsel for the applicant also submitted that the construction for which he contended was supported by the legislative history. He submitted that the purpose of s 650F(1)(a) was to provide protection for an event which fell within the circumstances described in s 652C, occurring in the last seven days of the bid, and the bidder being stuck with a company whose structure is materially altered in those seven days.

He submitted that it had to be asked whether s 10.7(c) could in fact be described as a defeating condition because it may never give a right to terminate by virtue of the operation of s 10.8. He stated that having regard to the way it operated, the only thing that gave a right to terminate was the specific condition which arose as a result of the operation of s 10.8. He accepted, however, that the question of whether the general condition was a defeating condition was not material in the present case.

Senior counsel for the applicant also submitted that there was a profound difference between simply s 10.7(c), and s 10.7(c) coupled with the bifurcating clause contained in s 10.8. He submitted that the whole point of the takeover provisions was to get an informed market and a level playing field. He submitted that the object of the bifurcating clause was to get “a march on the market” in relation to the present situation because it was possible to tell the market that “I’m giving up the right”, but still have a condition to protect yourself against a defence by a target company during the last week. Whether it be the object or not, in the present case WAM did not seek to free itself from s 10.7(c) in its announcement to the market on 24 February 2020. Further, the proposition assumes that the market was unaware of the bifurcating clause or its potential as a defence.

Senior counsel for Keybridge referred to the expression, “relates only to the happening of an event”. He submitted that the relevant “happening” must be of an event referred to in s 652C. He submitted that all the events in that section are expressed in the present tense and were all generic. He submitted that because of their generic character, it was reasonable to give bidders additional time to consider whether they wished to rely on a right to rescind upon the occurrence of such an event. He submitted in contrast that where a bidder chooses to insert a condition into its bid relating to a specific event, it purposely does so knowing its significance.

He also submitted that the legislative history to which I have referred supported his contentions. He submitted that since the early 1970s, Australian takeover law has regulated takeover bids. Referring to the CASAC Legal Committee Report to which I have referred at [39] above, he submitted that the carve out from the seven day rule was to address a specific problem, namely bidders being forced to elect whether to free the bid of an important defeating condition when there was a possibility that it could be triggered in the last seven days. He submitted that it was important to recognise the exception was directed to generic conditions, and that there was nothing to suggest it was contemplated that a specific condition addressed to a specific event should be excepted. He referred to the fact that the Committee rejected broader exceptions.

Senior counsel for the applicant submitted that WAM’s construction was less likely to result in an informed market because the legislature never intended specific conditions to be able to be maintained. He submitted that the market was entitled to know for at least seven days whether the condition would be relied upon.

In his submissions in reply, senior counsel for the applicant submitted that the “constructional choice” in s 650F(1)(a) is not governed by the words “relate only” but by the expression “happening of an event or circumstance”. He submitted it was central to the purpose that the happening could occur in the last seven days.

Counsel for WAM submitted that the phrase “relates only to the happening of an event or circumstance” referred to in s 650F(1)(a) means, in the present case, that the condition is breached by something that is an issue of shares in the bid period. He submitted that it did not matter if it was a specific issue of shares or a general issue of shares. He pointed out that the section could relate to an issue of shares to specific persons or entities, or the issue of a particular percentage of shares in the capital of the company. He submitted that the condition was still a condition which falls within s 652C. He submitted that the condition is designed to provide certainty, and a construction which opens up uncertainty every time the bidder strays from the precise words of s 652C is not a construction which commends itself, particularly where there is an obvious natural meaning of the words used.

Counsel for WAM also pointed out that the bid was always conditioned on there being no issue of shares, and that Keybridge accepted that if s 10.7(c)(iv) stood on its own and there were one or more share issues in the bid period, the bidder could wait for three days after the bid period, saying nothing of its intention, and then freeing itself of the conditions for any reason it thought fit. He submitted that the separation out of the Placement Condition did not do anything that could not otherwise have been done and it was not detrimental to the market. He accepted, however, that a bidder could not rid itself of a condition related to a specific event unless the specific event was in the bid at the outset or there was no bifurcating clause. He submitted that if the bidder freed itself of the specific condition early, that would improve the informed nature of the market because the market would know that the offer would not fall over for breach of the specific condition. He submitted that if the condition was not freed early, the market would be in no different position than it otherwise would have been had s 10.7(c)(iv) applied without a bifurcating clause.

He submitted that there was nothing in the legislation that the event to which the condition applied had to arise only after the condition is created. He also emphasised that the bifurcating clause was always a term of the Offer, and that the bifurcating clause arose as a matter of contractual mechanics.

Counsel for WAM referred to the CASAC Legal Committee Report. He referred, in particular, to the submissions of ASIC to the Committee that it would be contrary to the policy of the legislation that offerees should have to accept offers without knowing of the status of the defeating condition, and then have to wait for up to three days to know of the outcome of the Offer. He noted the rejection of this submission by the Committee on the basis that it ignored the unwarranted advantage to offerees if the conditions are lifted, and the uncertainty and unsatisfactory consequences which may follow if they are not. He also noted the Committee’s conclusion that an offeror should have sufficient time to consider all relevant events concerning prescribed occurrences up to the end of the offer period. He submitted that the CASAC Legal Committee Report showed that the regime reflected a deliberate balancing of the competing interests between bidders on the one hand, and shareholders and the market on the other.

He emphasised that it was immaterial whether s 10.7(c)(iv) in conjunction with s 10.8 was a defeating condition, noting that there was no dispute that the Placement Condition was a defeating condition. He submitted there was nothing anomalous in that s 10.7(c) and s 10.8 read together answer the description of a defeating condition.

Apart from helpfully referring to the explanatory material relating to this issue, ASIC made no submissions.

The principles surrounding the construction of the provisions in question are not in dispute in the present case and were correctly summarised by the primary judge. In Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) (2009) 239 CLR 27; [2009] HCA 41, the plurality stated at [47] that the task of statutory construction must begin with a consideration of the text itself, although the meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it seeks to remedy.

It has been subsequently emphasised that context in its widest sense should be considered at the first stage of the construction process and not at some later stage. The principles were stated by the plurality in SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362; [2017] HCA 34 in the following terms (at [14]):

In R v A2; R v Magennis; R v Vaziri [2019] HCA 35; (2019) 93 ALJR 1106, Kiefel CJ and Keane J emphasised the importance of considering context at the first stage of the process, stating that “[a] literal approach to construction, which requires the courts to obey the ordinary meaning or usage of the words of a provision, even if the result is improbable, has long been eschewed by this Court”: 93 ALJR 1106 at [31]-[34] (footnotes omitted); see also Bell and Gageler JJ at [124].

The purpose of the provisions contained in Ch 6 of the Act is set out in s 602 of the Act and its provisions should be construed by reference to those purposes. Of particular importance is the need for an acquisition to take place in an “efficient, competitive and informed market” (s 602(a)) and that holders of shares in the target company “have a reasonable time to consider the proposal” (s 602(b)(ii)).

The provision must also be considered in the context of the broad powers of the Takeovers Panel to make declarations of unacceptable circumstances, contained in s 657A of the Act. In exercising those powers, the Panel is required by s 657A(3) to have regard to “the purposes of the Chapter as set out in section 602”. The power extends to actions which are authorised by the express provisions of Ch 6. Thus, in Re Multiplex Prime Property Fund 01 and 02 [2009] ATP 18; (2009) 74 ACSR 248, the Panel chaired by Professor Ian Ramsay held that a bidder’s withdrawal of an on-market bid under s 652C(1)(h) on the basis that the target resolved to be wound-up, constituted unacceptable circumstances because the bidder had stated in its bidder statement that it intended to wind-up the target if the bid was successful. In those circumstances, the Panel stated (at [29]) that one of the policy bases of s 652C was the preservation of market integrity, referring to s 602(a). The Panel described the withdrawal of the bid as at odds with basic principles and policies underlying takeover regulation.

That is not to say that the construction of the provisions should be undertaken without regard to the legislative purpose and the history of the legislation, leaving it to the Panel to determine what particular conduct is unacceptable. Rather, it is simply to acknowledge that the legislature recognised that in some circumstances, literal compliance with the provisions of the legislation could still produce results contrary to the purposes of Ch 6.

Section 10.7(c), in my opinion, is a defeating condition. It operates in such a way that on the occurrence of any of the events referred to in that section (relevantly, for present purposes, s 10.7(c)(iv)), the bidder will be entitled to rescind the takeover contracts. The bifurcation does not affect that condition as the bifurcated condition in this case, the Placement Condition, entitled WAM to rescind if it was not freed. In that sense, the position is not materially different to the position which would have existed had there been no bifurcating clause. In both scenarios, WAM had a right to rescind as a result of the issue of shares. If there were no other defeating conditions, that would remain the only basis it could rescind, irrespective of the bifurcation.

Senior counsel for the applicant accepted that the Placement Condition was a defeating condition. Whilst he also accepted that, absent s 10.8, WAM would have been entitled to free itself from that condition up to three days after the close of the Offer, he contended that because the right to rescind after the operation of s 10.8 only arose because of the Placement Condition, if WAM wished to free itself of that condition, it had to do so outside the seven day period referred in s 650F(1)(b).

The critical question is whether the Placement Condition “relates only to the happening of an event or circumstance referred to in subsection 652C(1)”.

On its face, the Placement Condition relates to the happening of an event in s 652C(1). However, senior counsel for the applicant submitted that on its correct construction the issue did not fall within s 652C(1), at least for the purpose of s 650F(1)(a), essentially for two reasons. First, s 652C(1) refers to issues of shares generally and not to a specific issue of shares. Second, the expression “happening of an event or occurrence” in s 650F(1)(a) is forward looking and does not relate to an event arising simultaneously with the creation of the condition.

There are a number of difficulties with this submission. First, and not conclusively, it is contrary to the literal meaning of the provision. The relevant event which occurred or happened during the bid period was an issue of shares. On its face, that would fall within s 652C(1) and enliven s 650F(1)(a).

Second, the fact that s 652C relates to what might be called generic events is not in my opinion of particular assistance in the present case. The subsection, although expressed generally, can only operate on the happening of a particular event, in this case, a particular issue of shares.

Thus, whilst I agree that s 650F(1)(a) is limited to the happening of an event which occurs during the bid period, the issue of shares in the present case did so. The real criticism made by the applicant is that the Placement Condition was said to be created simultaneously with the issue of the shares. However, that ignores the fact that the Placement Condition arose as a result of the terms of the Offer itself. The Placement Condition became a separate condition as a result of s 10.8(c) of the Offer. That does not alter the position that the happening of the event, irrespective of the bifurcation, was an event which occurred during the course of the bid and to which s 10.7(c) applied.

The question must be considered in context and with regard to the purpose of the legislature, particularly s 650F(1)(a). I have set out the relevant portions of the CASAC Legal Committee Report at [39] above and I agree that its purpose was to protect offerors against a prescribed occurrence occurring during the last seven days of the offer period. However, as was properly conceded by Keybridge, the legislature did not choose to limit s 650F(1)(a) to events occurring in the seven days prior to the close of the offer.

Nor do I consider what might be described as the literal meaning of the provisions as contrary to the purposes of Ch 6, as summarised in s 602. Undoubtedly, as senior counsel for the applicant pointed out, it would have been open to the bidder to take advantage of the bifurcation, permitting it to announce that the Offer was free from the general provision whilst preserving the right to rescind against any other eventualities by virtue of the retention of the Placement Condition. Minds might differ as to whether this was acceptable. It is difficult to see why it affected an informed market as the market would be aware of the bifurcating clause and its effect. Senior counsel for the applicant also submitted that it altered a level playing field. That also is a matter on which minds might differ. Suffice to say, the Panel found the conduct unacceptable and its orders have not been challenged. It does not in my opinion impact on the question of construction.

It follows that the primary judge was correct in her conclusion that WAM was entitled to declare the Offer free from the Placement Condition on 2 March 2020.

Senior counsel for Keybridge, contrary to the grounds of appeal and the written submissions, accepted that the power conferred on the Court under s 1322(4) of the Act extended to making remedial orders in respect of a contravention of Ch 6 of the Act. As he correctly pointed out, that was made clear by the provisions of s 659C(1)(f).

It should be noted that it was not suggested that s 659C prevented the bringing of these proceedings. That, in my opinion, was correct. Section 659C imposes a limitation on the powers of the Court when the Panel has refused to make a declaration in respect of particular conduct. It does not limit the Court’s jurisdiction after the end of the bid period, but rather limits its powers in the particular circumstances set out in the provisions. The section has no application in the present case.

Beyond this, it is unnecessary and undesirable to consider the hypothetical question of what relief might be given had it been concluded that the bid closed subject to a defeating condition and the transfer of the processed shares was a contravention of the Act. This is particularly the case where the Panel has made remedial orders which have not been challenged.

In paragraph 8 of its interlocutory process, WAM sought relief under s 1322 of the Act in respect of its failure to give notice that the defeating condition had been fulfilled in the manner prescribed by s 630(5)(a) and s 630(5)(c) of the Act.

Keybridge did not oppose the making of these orders if the judge found against it on the question of whether the bid closed subject to defeating orders.

It seems to me that in those circumstances, Keybridge should not have been ordered to pay WAM’s costs of that particular application.

Because the matter is of general importance, I would grant Keybridge leave to appeal. However, the appeal should be dismissed.

In the result, I would make the following orders:

WHITE JA: I agree with Bathurst CJ.

EMMETT AJA: These proceedings arise out of an off-market takeover bid made by WAM Active Limited (the Offeror) for all the issued shares in the capital of Keybridge Capital Limited (the Company). The offers made by the Offeror were conditional upon, amongst other things, a number of specified occurrences not happening during the period before the expiry of the period during which the offers were to remain open. One of the occurrences was the Company or a subsidiary of the Company making an issue of or granting an option to subscribe for any of its securities or agreeing to make such an issue or grant such an option (the Share Issue Occurrence).

On 2 March 2020, the Offeror issued a notice declaring, relevantly, that its offers were free of the condition that the Share Issue Occurrence not happen during the relevant period. Accordingly, from that date, the share registry for the Company began to process transfers of shares from shareholders of the Company who had accepted the offers. Substantial numbers of shares in the Company were subsequently registered in the name of the Offeror.

However, the Company contends that, notwithstanding the notice of 2 March 2020, the offers made by the Offeror remained subject to the condition that the Share Issue Occurrence not happen (the Share Issue Condition) and that the Share Issue Condition was not satisfied. Accordingly, the Company contends, all contracts resulting from the acceptance of offers made by the Offeror and all acceptances that did not result in binding contracts were void, with the consequence that transfers of shares based on such contracts or acceptances were prohibited by s 650G of the Corporations Act 2001 (Cth) (the Corporations Act).

By originating process filed on 1 June 2020, the Company sought declarations that the Offeror had contravened s 650G of the Corporations Act and that the transfers of shares to the Offeror was void. The Company also sought an order that the shares transferred be vested in the Australian Securities and Investments Commission (the Commission) pursuant to the Corporations Act and that the Commission undertake a sale process in relation to the shares.

By amended interlocutory process filed on 15 October 2020, the Offeror sought, relevantly, a declaration that the notice of 2 March 2020 freed all offers of the relevant condition. Alternatively, the Company sought an order under s 1322(4)(d) or s 1325D of the Corporations Act that the time for declaring its offers to be free from the relevant condition be extended to 2 March 2020.

On 24 December 2020, for reasons published on that day, the Chief Judge in Equity (the primary judge) dismissed the Company’s originating process with costs and extended to 26 February 2020 the time for compliance by the Offeror with s 630(3) of the Corporations Act in respect of the giving of notice to the Company of the status of the Share Issue Condition. The primary judge also ordered the Company to pay the Offeror and the Commission their costs of the interlocutory process filed by the Offeror on 16 July 2020. By summons filed on 24 March 2021, the Company seeks leave to appeal from the orders made by her Honour. A direction has been given that the application for leave, and the appeal if leave be given be heard concurrently. The Offeror and the Commission are the respondents to the summons and the proposed appeal.

Section 630(1) of the Corporations Act relevantly provides that offers under an off-market bid may be made subject to a defeating condition only if the offers specify a date for giving a notice on the status of the condition. If the offer period is extended by a period, the date for giving the notice is taken to be postponed for the same period. On the date determined under those provisions, the bidder must give a notice that states whether the offers are free of the condition and whether, so far as the bidder knows, the condition was fulfilled on the date the notice is given. Under s 9 of the Corporations Act, a defeating condition is a condition that, relevantly, will, in circumstances referred to in the condition, result in the rescission of, or entitle the bidder to rescind, a contract resulting from acceptance of an offer made under, relevantly, an off-market bid (takeover contracts). Section 630(4), as amended by a Commission class order, relevantly provides that, if, during the offer period but before the date for giving the notice on the status of the defeating condition, the defeating condition is fulfilled and the offers become free of the condition, the bidder must as soon as practicable give a notice that states that the condition has been fulfilled.

Next s 650F(1) of the Corporations Act relevantly provides that, if the offers under an off-market bid are subject to a defeating condition, the bidder may free the offers, and the takeover contracts, from the condition only by giving to the company whose shares are the subject of the off-market bid (the target) a notice declaring the offers to be free from the condition in accordance with s 650F. If the relevant condition relates only to the happening of an event or circumstances referred to in s 652C(1) or s 652C(2), the notice must be given no later than three business days after the end of the offer period. In any other case, the notice must be given not less than seven days before the end of the offer period. Section 652C(1) refers to eight events and s 652C(2) refers to a further five events. The only event relevant for present purposes is that referred to in s 652C(1)(d) in the following terms:

Section 650G, as amended by a Commission class order, relevantly provides that all takeover contracts, and all acceptances that have not resulted in binding takeover contracts, for an off-market bid are void if:

By the offers made under the Offeror’s off-market bid on 3 January 2020, the Offeror offered to purchase shares in the Company for 6.5 cents per share. The offers were made on terms specified by the Offeror (the Terms). The offers were open for acceptance until 3 February 2020. On 24 January 2020, the Offeror extended its offers so that the closing date for acceptance was 7pm Sydney time on 17 February 2020 unless otherwise extended or withdrawn. On 10 February 2020, the offers were further extended to 7pm Sydney time on 3 March 2020.

Clause 10.7 of the Terms relevantly provided that the offers and the contracts that resulted from acceptance of offers were each subject to the fulfilment of a number of conditions. Under cl 10.7(c)(iv), one of the conditions was that the following did not happen during the period commencing on 13 December 2019 and ending on the expiry of the offer period:

Clause 10.8(a) of the Terms also relevantly provided that each sub-clause of cl 10.7 was a condition subsequent and operated only for the benefit of the Offeror. Clause 10.8(b) relevantly provided that the conditions did not prevent a contract for the sale of shares resulting from acceptance of the offer but breach of a condition or non-fulfilment of a condition at the end of the offer period would entitle the Offeror to rescind the contract. Critical for present purposes was cl 10.8(c) of the Terms, which was relevantly in the following terms:

On 12 February 2020, the Company announced that it had agreed to place 22 million shares to “sophisticated investors” at an issue price of 6.9 cents per share to raise the sum of $1,518,000. On 17 February 2020, the Company completed the placement of those shares (the February Placement). The February Placement was an event referred to in cl 10.7(c)(iv) of the Terms. Accordingly, cl 10.8(c) of the Terms became operative, with the consequences referred to below.

On 18 February 2020, the Offeror lodged an application with the Australian Takeovers Panel (the Panel) seeking a declaration of unacceptable circumstances by reason of the February Placement. The Offeror submitted that the February Placement was a frustrating action on the part of the Company that had the effect of denying the Company’s shareholders their right to consider and choose between competing transactions.

On 24 February 2020, the Offeror increased its offer price from 6.5 cents to 6.9 cents per share and announced that it had elected to waive the majority of the defeating conditions in the Terms. The Offeror announced that its offers were now only subject to the condition set out in cl 10.7(c).

As the result of the extension of the offers by the Offeror on 10 February 2020, the date by which the Offeror was required to give notice of the status of conditions to its bid was 25 February 2020. On that day, the Offeror issued a notice to the effect that the offers remained subject to the condition in cl 10.7(c) but had been freed of all other conditions set out in cl 10.7. Although the notice was given to the Australian Securities Exchange on 25 February 2020, the Offeror inadvertently failed to give the notice directly to the Company until 26 February 2020. On the other hand, the Company accepted that it received the notice of 25 February 2020, albeit that it was not given notice directly by the Offeror on that date.

On 2 March 2020, the Offeror issued a notice stating that its bid was free of the conditions set out in cl 10.7(c) and declaring that its bid was unconditional. On the same day, the Offeror announced that its bid was extended to 7pm Sydney time on 3 April 2020.

The primary judge began by observing that, if a defeating condition is not satisfied, the bidder is entitled to rescind any contract made as a result of accepting an offer. Her Honour observed that cl 10.8(c) of the Terms provided for the bifurcation of defeating conditions in certain circumstances and that the “bifurcation” of the condition referred to in cl 10.7(c)(iv) brought into existence two separate conditions. Thus, if there was an issue of shares such as occurred with the February Placement, which fell within cl 10.7(c)(iv), then the condition constituted by that clause became two separate conditions. The first condition was that the Company not make the February Placement (the specific condition). The second condition was that the Company, or a subsidiary of the Company, not make an issue of, or grant an option to subscribe for, any of its securities or agree to make such an issue or grant such an option, other than the February Placement (the general condition). Her Honour found that there was no evidence that the general condition was not satisfied within the relevant period.

The primary judge characterised the issue as being whether the fact that the February Placement had already occurred meant that the condition was one that could never be fulfilled and, hence, was not a condition falling within s 652C(1). Her Honour saw no warrant for reading a qualification into s 652C(1) so as to exclude from its operation a condition relating to an event that, at the time the condition “springs into existence”, had already occurred. Her Honour considered that it was still a condition that related to the happening or occurrence of an event within the relevant period. Her Honour noted that the bifurcation provision was in the Terms at the outset of the bid and the potential for its operation must be taken to have been known. Her Honour concluded that the specific condition satisfied s 652C(1) in its terms and, hence, it was open to the Offeror validly to waive the specific condition at the time when it did. That is the primary conclusion challenged by the Company in the proceedings in this Court.

The effect of reading cl 10.7(c)(iv) and cl 10.8(c) together is, in one sense, that there was a very large number of events specified as occurrences, namely, the Company or a subsidiary of the Company making an issue of or granting an option to subscribe for any different number of its securities to any person or agreeing to make an issue or grant an option of any number of its securities to any person. One of those events occurred, namely, the February Placement. That and every other possible issue of or granting of an option to subscribe for securities was a specified occurrence. I would not characterise the effect of the provisions as a new condition “springing” into existence as did the primary judge. Rather, that large number of events was always inherent in the language of cl 10.7(c)(iv) as read in conjunction with cl 10.8(c). Each of those events was an event referred to in s 652C(1)(d).

The primary judge did not err in concluding that it was open to the Offeror to declare its offer free of the defeating conditions that none of the events referred to in cl 10.7(c)(iv) happen. Further questions would arise if her Honour erred in that conclusion. In the circumstances, it is unnecessary to deal with those further questions. I have had the advantage of reading in draft form the reasons and proposed orders of the Chief Justice, with which I agree. I consider that, to the extent that leave is required, leave to appeal should be granted but that the appeal should be dismissed with costs.