The Adler-Williams cases on appeal Law Reporter

A powerful vindication of harsh penalties for directors breaching the Corporations Act.  The Adler-Williams cases on appeal.

A powerful vindication of harsh penalties for directors breaching the Corporations Act

When Justice Kim Santow handed down his monumental judgment in the first instance decision in the initial HIH litigation (Australian Securities and Investments Commission v Adler & Four Others (No 3) (2002) 20 ACLC 576); [Law Reporter, April 2002] he indicated to the commercial community (and more importantly the legal community) in Australia that our judiciary, when faced with the challenge, could deal with quite an enormous amount of evidence in a very short period of time in evaluating important issues arising out of the operations of the Corporations Act (the Act). In another note in this month's Law Reporter dealing with the decision of French J in Australian Gas Light Company v Australian Competition and Consumer Commission (the Loy Yang Case) ([2003] FCA 1525) I will again be extolling the virtues of our judiciary. But not only did Santow J show that the court was able to handle vast amounts of information and evidence, and deliver a judgment that would be telling and quite significant, but that the court could issue judgments that would stand up to an appeal in the context of important issues of law that were interpreted in that short time frame.

The trial judgment

In his monumental judgment, Santow J, particularly at paragraph 372, summed up in a very significant fashion the way in which the courts would examine the statutory duties of directors in the context of obligations to behave with reasonable care and diligence (see in particular para 372). That assessment has now been shown to be appeal proof (although no doubt there will be other appeals sought by the appellants) in the equally monumental judgment of the New South Wales Court of Appeal in Adler & Anor v ASIC and Williams v ASIC reported in (2003) 46 ACSR 504; 21 ACLC 1810.

However, not all of the rulings of Santow J survived the appeal. But the one major ruling that did not survive was, arguably, one that was not unreasonable for the judge to have concluded in the way in which he had.

More importantly, however, the Court of Appeal confirmed his major rulings in relation to the successful prosecution by ASIC of various directors of their duties of care and diligence, their duties to act in good faith, and their duties not to improperly use their position.

The only piece of good news for Adler was the finding that he had not breached section 183 of the Act – he had not improperly used information to his advantage or the disadvantage of the relevant company.

Facts

The litigation in this case surrounded a set of facts which have been admirably summarised in the Butterworths Law Report. That summary set out in the headnote has been slightly adapted here.

ASIC instituted civil prosecution proceedings for breaches of the Act against a number of directors of the relevant company including Adler and Williams. Another defendant was a company associated with Adler. The allegations arose out of a payment in June 2000 of $10 million by a company HIH Casual and General Insurance Company Limited (HIHC), a wholly owned subsidiary of HIH Insurance Limited (HIH). That payment had been made to Pacific Eagle Equity Pty Ltd (PEE) and related also to subsequent investments by PEE using that $10 million. Adler was the sole director of PEE and the associated Adler company (Alder Corp) was its only shareholder. Another business enterprise was duly constituted and, without going into the details, the following transactions occurred. Approximately $4 million of the $10 million was used to purchase HIH shares and (as held by Santow J at first instance); this was to prop up the price of those shares; certain venture capital investments in highly speculative companies were acquired and loans were made to entities associated with that and his company.

The $10 million payment was made in such a way that it did not come to the attention of the directors of HIH other than Adler, Williams and a couple of other directors. There was no proper contemporaneous documentation in relation to the payment. There was no collective disclosure – either of the payment or to the investments that were finally made – to the board of HIH or to the investment committee of HIH which was responsible for overseeing the investment decisions of the HIH group of companies. None of the investments were ratified or approved by the board or appropriate committees.

The company suffered some significant losses from those investments. ASIC brought proceedings against Adler, Williams, the other corporation and others for alleged breaches of the Act.

Santow J had ruled that Adler had contravened sections 180, 181, 182 and 183 of the Act. Williams was held to be guilty of breaches of section 180 and 182. And other convictions were entered into against associated persons. Orders of compensation were made in the amount of nearly $8 million. Pecuniary penalties were subsequently ordered against Adler and Williams. Furthermore orders of disqualification from acting as a director were made against Adler (a period of 20 years) and against Williams (a period of 10 years).

The appeal confirmed the vast number of issues. I will only deal with those arising out of the duties of directors.

Improper use of information

It is first appropriate to deal with the one major area where Adler was successful in overturning the judgment – the alleged breach of section 183 of the Act. That section in effect provides that a person (a person includes directors, other officers and employees) who obtained information by virtue of them having been a director etc of the relevant corporation, must not improperly use the information to either:

1. gain an advantage for themselves or someone else; or

2. cause detriment to the corporation.

In essence the allegation against Adler was that he had used certain information concerning the way in which the investment committee operated and the investment guidelines, and the susceptibility of Mr Williams who was the CEO of the company, to persuade him (Williams) that certain investments described above should be made.

In essence the allegation was that Adler had intentionally used his knowledge of the way in which the investment guidelines operated and ignored those guidelines, while persuading Williams to, in effect, disregard those guidelines in making the relevant investments.

Adler was able to persuade the New South Wales Court of Appeal (with Giles JA delivering the judgment on behalf of himself, Mason P and Beazley JA) that Santow J was incorrect in his ruling. The conclusions of the Court of Appeal were stated by Giles JA in these words:

"[Was the] disregard of the investment committee guidelines and procedures ... an improper use of information [?] I do not think that, in the present case, [it was]. It may be that information as to corporate procedures is improperly used if, from the knowledge of the procedures, a person is able to devise a way of using the procedures to gain an advantage or cause detriment, or to devise a way of evading protections against advantage or detriment. But straightforward disregard of guidelines and procedures is a different matter. The trial judge's explanation of his finding ... did not go beyond failure to advise the board or the investment committee of [certain investments that were made]. Insofar as he considered that the failure was improper use of the investment committee guidelines and procedures, I am respectfully unable to agree. To this extent, therefore, the basis for the finding of a contravention of section 183 is in my opinion unsound." (para 601)

The Court of Appeal then made a very interesting ruling in relation to Adler's clever use of the perceived susceptibility of Williams to a proposal for less conservative investments.

"It was said that Mr Adler openly maintained that HIH's investment policy should be less conservative, that to the extent to which HIH had engaged in more speculative investment it had outperformed its benchmarks, .... It was said that there was room for legitimate debate over investment policy, and that there was no evidence of an amenability peculiar to Mr Williams to investment proposals [that may have been outside the parameters of the guidelines]. Even if there was, it was said, there was nothing improper in any use of that information." (para 603)

Giles JA then looked at some further facts and concluded that perhaps this evidence showed a susceptibility, on the part of Williams, to be guided by appropriate persons on relevant investments. He noted:

"In my view the inference is no more than assent to an investment proposal outside HIH's normal guidelines and prudential procedures; I have difficulty in seeing any 'information' obtained by Mr Adler falling within section 183(1). Further, while it could be said that the by-passing of the investment committee and the board [of HIH] was evidence of Mr Adler taking advantage of a susceptibility, I have difficulty in seeing agreement between Mr Adler and Mr Williams upon the investment proposal and its implementation as improper use of Mr Williams' side of the agreement." (para 604)

All in all the court felt that Santow J had perhaps drawn too long a bow in holding that a breach of section 183 had been established.

Duty of care

Of course, however, the failure to follow the proper procedures and the other evidence that this illustrated was "dynamite" in terms of other provisions of the Act that were breached – namely the breaches of duty of care and diligence in particular.

In turning to the assessment of whether a breach of duty of care and diligence had been established Giles JA on behalf of the Court of Appeal did not mince his words. Again a fairly lengthy quote from his judgment is warranted because of the significance of this case. He noted that even though prior approval of the investment committee may not have been a matter of prescription, it did not mean that it was not called for in this case. This was particularly so because of the large sum of money that was being given to the sole control of a director of HIH without adequate documentation having been followed. He added:

"It was known that [the money] was being used in the purchase of HIH shares; it was known that the director's aversion to risk in investment was not that of HIH; and the director stood to gain personally if the money was used profitably. Disclosure beyond Mr Williams and Mr Adler, [not just directions and discussions to and with other directors], but disclosure to the investment committee and the board, was necessary, and that necessity was later acknowledge by Mr Adler and Mr Williams. They did not cause disclosure after the event, and the disclosure only came about through [the intervention of another person]. In my opinion, the trial judge was entitled to infer that there was the intentional side-stepping or by-passing, and more important to consider that in what was not done there was a departure from the standard of a reasonable careful and diligent director in the position of Mr Adler." (para 450)

Giles J dismissed assertions by Adler in relation to the interpretation of section 180 of the Act. The Judge noted that these comments by Adler were intended to "negate the trial judge's conclusions that, in relation to the payment of the $10 million and the purchase of the shares in HIH, there was contravention by Mr Adler of section 180 of the Act was to no avail. It is necessary to consider the circumstances of the transactions as a whole, with an eye to reality (emphasis added)." (at para 458)

In the view of Giles JA (which of course was the view of the court), "the trial judge's conclusion has not been shown to be in error."

Business judgment rule

Before turning to deal with section 182 (which does raise some interesting legal issues) it is appropriate to deal briefly with Williams' arguments that if he had breached section 180 he should be excused by virtue of the operation of the business judgment rule. The Court of Appeal was completely unconvinced by his arguments that no breach of the section had occurred.

There was no attempt to properly document the terms under which the $10 million was paid. Williams' neglect at the time of payment "should be seen in the light of his failure to question what had occurred when provided with the unreasonable terms [for the establishment of the new investment unit to make the various investments]." (para 520) And the court held that it was very difficult to suggest that Williams did not know that the payment would directly or indirectly benefit Adler.

None of the information put to the Court of Appeal in any way supported the disturbing of the trial judge's finding that Williams had been in breach of his duties of care.

But, Williams argued had a further string to his bow – the business judgment rule. The trial judge gave a number of reasons for rejecting Williams' reliance on the business judgment rule. In the trial judge's view Williams had not acted in good faith and for a proper purpose in the context of the investment decision that were taken. In fact Williams did have a personal interest in the transactions notwithstanding the fact that Adler was gaining significantly.

Giles JA agreed that simply because Williams had sold shares in HIH did not necessarily mean that he was not entitled to the business judgment defence. But, this was only one aspect of the issue and was not sufficient to carry the day.

Williams relied heavily on the argument that he was dependent on the advice and influence of others in relation to various decisions he was taking, and that in this context (and this can also be seen in the light of other amendments to the corporations legislation at the time that the business judgment rule came in). This fact should have been given greater weight. Williams argued that it was not unreasonable to grant relief unless the director's conduct showed "something more than an error of judgment or naivety on the part of the director in relying on others".

Santow J found that it was not sufficient for Williams to simply argue that he relied on others where this was unreasonable. Reliance "would be unreasonable where directors know, or by the exercise of ordinary care should have known, any facts that would deny reliance on others" (Santow J at first instance at para 372 quoting from Daniels v Anderson (1995) 37 NSWLR 438 at 665 (quoted by Giles JA at para 529)). In the view of Giles JA there was no error on the part of Santow J in denying the operation of the business judgment rule in this case.

Improper use of position

The Court of Appeal's discussion of the breaches of section 181 and 182 was quite interesting and fairly technical. There was little doubt, that the contravention by Adler of section 181 had been established. This section requires a director to exercise powers in good faith and for a proper purpose. In particular the Court of Appeal was influenced by the fact that Adler's intention was to stabilise and maintain the price of HIH shares for his own benefit. There was little doubt that Adler's intention was to benefit himself and his company and that these were the major influences driving him.

In particular, it is appropriate to discuss section 182 of the Act. This provides that relevantly a director shall not improperly use his position to:

1. gain an advantage for himself or someone else; or

2. cause detriment to the corporation.

The court held that both Williams and Adler were liable. Williams, however, ran some interesting arguments suggesting that the trial judge had misunderstood the operation of this provision in relation to his role in the context of the advantages that had been gained by Adler as a result of the investment decisions taken. Williams in effect argued that the language of the section should be examined word for word to determine whether a breach had occurred. In his view Santow J had made "a generalised finding of contravention of section 182(1) without detailed analysis". The section talks about the director acting in such a way "in order to gain an advantage". It was suggested that those words needed to be looked at subjectively rather than objectively. Santow J had been correct in noting that the most recent High Court decision on the equivalent provision of the section in the earlier Corporations Law, the case of R v Byrnes (1995) 183 CLR 501, had pointed out that there was a difference between impropriety in the use of position and the purpose (or intention) with which the position was improperly used. It was argued that improper use was to be found objectively, and did not depend upon the alleged offender's consciousness of impropriety. Williams argued that ASIC had failed to establish that even though Mr Williams knew that the $10 million was being paid to be used in part to purchase HIH shares, that showed "no more than that he knew of the advantages his conduct would or might bring to Mr Adler. It was said that it fell short of establishing that he had acted in order to gain the advantages for Mr Adler" (see paras 567-568 of the Court of Appeal decision).

Giles JA admitted that the distinction between knowing that conduct will or might advantage another person and intending by the conduct to advantage the other person can be elusive. On the facts in this case it was hardly discernible. He added:

"The point of the payment of the $10 million was that Mr Adler should have unfettered discretionary control over it, including ... that it might be used to purchase venture capital investments with which Mr Adler was associated. At the least, if there were profits Mr Adler ... would take consent [and as shown earlier authority] it is not necessary that there were profits. Mr Williams could not but have intended that the advantages of having the money, if things went well of making the 10 per cent, and of maybe selling the venture capital investments with which Mr Adler was associated, should be gained." (at para 569)

The fact that the trial judge had not spelt this out in his judgment was irrelevant. The judge's reasoning in reaching this view was sound when read as a whole; he had approached the provision in a commonsense way in the view of the Court of Appeal. The trial judge "plainly found that the intention was to gain an advantage for Mr Adler, and no error in his doing so has been shown."

A number of other breaches of the Act were found as being correctly found by Santow J – in particular to the related party transactions provision of the Act (section 209(2)) and also in relation to section 260A of the Act (the use of financial assistance). Other breaches were also held to have been correctly established.

Penalties

The final aspect of the judgment, which it is necessary to comment on, is on the question of penalties.

As noted above, the trial judge had ruled that Adler should be disqualified for 20 years, Williams for 10 years and that a significant amount of compensation should be paid as well as fines. The Court of Appeal confirmed these orders.

In the Court of Appeal's view the trial judge had not erred at all in assessing penalties. Up to nine episodes or transactions of contravention had been argued. Even if section 183 had not been found to have been breached (which the Court of Appeal said was the case) there was still sufficient basis for the penalties that the judge ordered.

The judge made his orders globally in relation to both the pecuniary and penalty orders and the disqualification order. He had taken into account a number of matters in relation to the way in which these cases had been established and the behaviour of the relevant directors.

After examining some of the background to the penalty provisions of the relevant legislation, which it is unnecessary to go into in detail here, the court made these important comments on the penalties and in particular the disqualification orders that had been made.

"For both pecuniary penalty and disqualification, the task [of the court] is normative, and the nature of the conduct of the person found to have contravened the civil penalty provisions is relevant. That a director fails to exercise care and diligence through neglectful inattention is one thing: it is another thing if a director fails to exercise due care and diligence with knowledge that he is acting wrongly, contrary to the interests of the company, and in his own interests. Providing procedural fairness is afforded, there is no error in characterising the director's conduct as dishonest, if it fairly bears that characterisation, when it comes to deciding whether a pecuniary penalty should be imposed and if so in what amount, or to deciding whether disqualification is justified and if so for what period. It would be nonsense if that could not be done."

The court also considered whether disqualification orders were warranted. In the judgment the Court of Appeal did not mince words at all. In its view the orders made by Santow J were justified. The disqualification applied to all corporations including the private companies of which Mr Adler was a director.

The Court of Appeal decision, like that of Santow J, is a monumental one. Whether there will be appeals to the High Court on aspects of this case only time will tell. There are likely to be further prosecutions following the collapse of HIH. Some of these will be criminal prosecutions. The question of double jeopardy (Adler is likely to be prosecuted criminally as well as having to face these civil penalties) is an issue that may warrant further debate in due course.

There are a number of clear messages from this decision. The court will take into account all circumstances in evaluating the exercise of the business judgment rule in appropriate circumstances; it will be necessary to spell out in fine detail the different aspects of breaches of sections 182 and 183 which contain rather specific language in establishing improper use of position and information. But, courts will not be too fussed if not every "i" is dotted and every "t" crossed in establishing breaches of the law provided the substance of the finding established in evaluation by the trial judge. It will be interesting to see how future prosecutions in this area are pursued in light of this decision and a number of other decisions that were handed down in 2003.

Watershed in trade practices law

The Federal Court delivers a body blow to the ACCC in the AGL-Loy Yang case

The decision just before Christmas 2003 by French J in Australian Gas Light Company & Anor v Australian Competition and Consumer Commission ([2003] FCA 1525) has been seen by many as a watershed decision in trade practices law.

AGL, together with a Japanese company and certain Australian organisations with a financial interest, formed a joint venture company (GEAC) to acquire the Loy Yang A assets from the current owners. AGL's interest in the power stations in Victoria was set at 35 per cent. Under the relevant Victorian legislation, it could not increase that level of ownership.

Nevertheless, as a major purchaser of electricity, the Australian Competition and Consumer Commission, perceived that AGL would be able to control GEAC and as a significant buyer of electricity would have an unfair advantage in being able to use its ownership (joint ownership in fact) of Loy Yang Power (arguably the largest electricity generator in Victoria) in a way which would significantly impact on competition.

The ACCC refused to provide an informal clearance to the purchasers that the transaction would not breach section 50 of the Trade Practices Act. It instead indicated that, if the purchase went ahead, the ACCC would reserve its rights to seek divestiture.

Under the TPA the ACCC is the only body that can seek to enjoin the purchase of a business (or an appropriate merger) if it believes that the relevant transaction breaches section 50 of the TPA. But the ACCC and others who can establish an interest, can seek divestiture (or break up) of the combined organisations once the merger has occurred.

With this sword of Damocles hanging over its head AGL needed to know whether the ACCC would seek injunctions on other orders. When this was not forthcoming, AGL sought a declaration from the Federal Court under section 163A of the TPA that the acquisition would not breach section 50 of the TPA.

When the acquisition was proposed to the ACCC, AGL offered a range of undertakings which were directed to blunt its ability to enjoy a heavy involvement in GEAC which would run Loy Yang.

The ACCC felt that these undertakings, which were behavioural in nature, would not be sufficient to enable it to ensure that AGL did not control the way in which the new owners would run the Loy Yang business in particular electricity and the bidding for contracts in the relevant markets.

French J held that the transaction would not lead to a substantial lessening of competition in the market in breach of section 50 of the TPA. He examined various factors relating to market and the structure of the relevant market.

It is not that aspect of the case which is so important. Of greater importance is the fact that he felt that the undertakings which were offered to the ACCC, and were now in fact offered to the court, did impose sufficient constraints on AGL to ensure that it did not go beyond its 35 per cent share, would not interfere with the day to day running of the relevant business and in particular the important transactions relating to the electricity markets, bidding contracts and other appropriate arrangements.

It is interesting to examine the way in which the court dealt with these issues because this was the first time, to my knowledge, that behavioural undertakings involving a potential conflict of interest and the rights of joint venturers within an organisation, had been evaluated in the context of a merger case.

The undertakings – their factual impact

AGL's main argument was that the structure and ownership of Loy Yang meant that AGL would be constrained by the shareholding of the other joint venturers and their membership of GEAC.

There was no incentive for the other members who controlled the relevant bidding company to engage in a policy which would favour AGL (which was also a customer of Loy Yang) at the expense of other customers, as this would not maximise the profitability of Loy Yang.

The court was told that these contractual arrangements should be disregarded by it (and indeed by the ACCC if it was accepting these undertakings) because as contractual provisions they could be altered by an agreement by the parties representing 90 per cent of the voting rights in the joint venture.

It was further argued that AGL had not produced evidence to suggest that the agreements would not be altered in the future. AGL promised that it would not move to amend these undertakings.

There followed a detailed consideration of various clauses of the relevant agreements which the ACCC argued showed that AGL was able to impact on the arrangements within the joint venture.

Justice French summarised the following arguments put by the ACCC which pointed out:

"... AGL is entitled to participate in the preparation and approval of the risk management policy which will set limits and controls on the exposure of the business to specific categories of business risk, including trading risks. Those limits and controls may be quantitative or qualitative and could operate to limit or control the total level of risk which a specific business activity or division may incur. So a trading risk, by reference to price and volume, may be subject to limits on the proportion of financial budget forecasts which can be put at risk as a consequence of the contract portfolio exceeding available plant capacity or disproportionate exposure to spot prices. Credit risk would be subject to limits on the financial exposure to counter-parties of various categories of creditworthiness." (at para 360)

Furthermore, it was argued that AGL had an effective power of veto because a 75 per cent majority voted directors was required on certain matters. These were:

1. changing the risk management policy;

2. adopting a budget approving the financial statements or any material deviation from a budget; and

3. capital expenditure or budget variations which exceeded $10 million required for an approval.

It was suggested that the ability to veto certain resolutions would confer upon AGL:

"a significant practical role in determining and approving budgets and policies for [Loy Yang]. Moreover, it was submitted, that the GEAC Board will receive from the management of [that company or the marketing company] an annual updated five years business plan budget and annual budgets, and will set the five year plan and annual business plans and budgets. AGL was able to actively participate in decision making in respect of those matters affecting the operation of [Loy Yang], and has a veto right over their approval." (at para 362)

It was also argued that AGL had practical influence over the operations of Loy Yang by virtue of the Agency Deed in favour of the marketing company. The ACCC further argued that AGL was the only shareholder in Loy Yang that had electricity industry experience and expertise – the others were merely financial investors or passive investors. Evidence was provided from certain individuals which tended to support some of these broad assertions.

On the basis of these various matters, the ACCC asserted that AGL would not be a passive investor in Loy Yang but would play an important part, if not a pivotal role, in the formulation of risk management policies and financial decisions.

Constraints on directors

AGL in its turn argued that it was limited by its shareholding and the Victorian legislation to one generator. If AGL tried to buy more shares in other companies (for example, tried to extend its percentage of the joint venture or the marketing companies, etc) these acquisitions could be examined and enjoined under section 50 of the TPA.

It was further argued by AGL that its directors would have to vote in favour of Loy Yang and would have to prefer the joint venture's position to that of AGL. In that context, counsel for AGL referred to decisions such as Whitehouse v Carlton Hotel Property Pty Ltd (1987) 162 CLR 285 where, at page 290, the majority said that directors of a company had no business to favour one shareholder or group of shareholders over another – they had to act in the best interests of the company.

On the issue of the duties of directors the ACCC pointed to a number of decisions in which the courts had held that a director representing an interest in a joint venture company could act solely in that person's interests, rather than in the interests of the company (in particular, see Levin v Clark (1962) NSWR 686 and other cases).

In my view these cases only represent the position at common law. They do not represent the statutory position which has been recently interpreted quite rigorously by courts including the New South Wales Court of Appeal in Adler & Anor v ASIC and Williams v ASIC reported in (2003) 21 ACLC 1810 (discussed in this Law Reporter).

Section 187 of the Act permits directors of wholly owned subsidiaries to disregard the interests of the subsidiary and act in the interests of the holding company. But unlike the New Zealand position no similar right has been given to directors of partly owned subsidiaries or joint venture companies.

It is very arguable, in my view, that the Australian courts would be directed by the statutory provisions, as well as a strong body of common law cases that do not necessarily agree with the approach taken in Levin v Clark, to impose an obligation on the directors of AGL not to behave in the fashion that the ACCC argued that they would behave because of the conflict that would arise.

Perhaps in the absence of the arguments based on these statutory provisions, French J accepted the submission that the AGL directors in the joint venture organisation would not be legally constrained of their duties as directors to disregard the interests of AGL and board decisions.

In his opinion, a powerful constraint against AGL directors "acting in their own interests and contrary to those of other shareholders arises from the presence of the representatives of those other shareholders on the board and the nature of those other shareholders" (at para 372). He referred to the facts that he had examined which showed that the other companies recognised this fact.

Justice French also noted that a further constraint upon any possible actions by AGL were the supervisory limits likely to be placed by the external financiers on Loy Yang's operations. Furthermore, he did not accept that the negative aspects of AGL's power of veto would be

"capable of being effectively deployed in such a way as to advantage it in respect of the detailed decision-making that must be taken in the day to day bidding and pricing functions which will be in the hands of the [marketing company]. Even absent the undertaking, I am inclined to regard the hypothesis that [Loy Yang] somehow becomes hostage to AGL's interest as unlikely. I am reinforced by the undertaking in the conclusion that it will not. The directors of AGL would have to be aware that any procuring by them of a breach of the undertaking by AGL would be capable of amounting to a contempt of court on their part. In my opinion, such influence as AGL has in relation to the [Loy Yang] operations will not extend to allow to control or influence the detailed marketing decision-making of [Loy Yang] nor provide it with access to confidential information about that detailed conduct or about its retail competitors" (at para 373).

In his view the Loy Yang management would never accommodate interests of AGL which might result in an anti-competitive outcome but which would be beneficial to AGL. There was no evidence in his view to support such an unlikely event. Nor would he accept the suggestions put forward by the ACCC that AGL would co-ordinate certain bidding and dispatching of different plants that it controlled so as to gain advantages for itself as against some of its competitors.

The decision is a very comforting one in some respects although, as noted above, I do not believe that the judge was correct in evaluating the duties of directors in this context.

The decision has also certain other consequences for the ACCC. This particular action on the part of AGL was in effect challenging the "decision" of the ACCC not to clear the relevant merger.

If the Dawson Committee's recommendations (accepted by the Federal Treasurer in April 2003) are put into effect in legislation in the future what AGL and its partners would face, would be a situation of ensuring that they could "appeal" to the Australian Competition Tribunal (the Tribunal) in the event that the ACCC would behave in this fashion. In other words the denial of a clearance "application" would open up the door to an appeal to the tribunal.

The ACCC has apparently seen this decision as a very clear indication how the future of merger regulation would operate in difficult matters. Parties would seek a formal clearance from the ACCC giving them direct access to the tribunal to overturn negative ACCC "decisions". However, this is unlikely to occur in more than a dozen mergers a year as most people want the speed and efficiency of the ACCC clearance process which operates very effectively in a great majority of mergers.

On the basis of speeches by the ACCC members, it appears that the ACCC will be using this decision as an argument to amend the Dawson recommendations on merger regulation which are being introduced into Parliament soon.

2004 promises to be an interesting year for the ACCC in the merger area. Many companies will be heartened by the AGL decision and will no doubt challenge the ACCC's "decision-making" process for mergers.

What is encouraging as well from the decision is the speed with which French J (with the assistance and co-operation of the parties) was able to deal with the whole matter. It emphasises the fact that these matters can be dealt with speedily if necessary, when mergers or takeovers are of public importance and speed is required such a process can and should work for the benefit of all concerned.

The ACCC has decided not to appeal the Loy Yang Decision (as was largely anticipated to be the case). The implications of this for the assessment of mergers by the ACCC will be commented on later this year when the Dawson Committee recommendations are tabled in Parliament.

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