Dual listed companies: understanding conflicts of interest for directors



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VII CONCLUSION


This article has examined the conflict of interest issues that arise in connection with the management of dual listed companies. It has aimed to identify the unique conflicts of interest that relate to the directors of dual listed companies. These arise due to the directors’ duties to act in the best interests of each of the companies within the dual listed company structure, and in the best interests of the dual listed companies as a whole, while all the time avoiding a breach of the ‘no conflict’ rule of equity. It has been argued that in practically all cases where a real and substantial possibility of conflict exists, the conflict may be overcome by the application of principles that courts have developed in response to the special position of directors of companies within corporate groups. However, in the rare case where one dual listed company seeks to resile from its obligations under the dual listed company structure, it is concluded that new principles may need to be developed notwithstanding protections built into the dual listed company structure, having regard to the utility of dual listed companies preserving their form in frontier cases. This may eventually occur through legislation, as happened when the CLERP saw the introduction of s 187 of the Corporations Act. Alternatively, it might be for the courts to continue their tradition of relaxing the equitable rules relating to fiduciary obligations, in order to recognise rapidly changing commercial realities that often run far ahead of the law.
Endnotes

* BA (Hons), LLB (Hons) (Melb), BCL (Oxon). Barrister and Solicitor of the Supreme Court of Victoria; Lecturer in Law, University of Melbourne.

1 The European origins of the dual listed company structure can be traced to two mergers between British and Dutch companies: the merger of Shell and Royal Dutch in 1903, and the merger of Unilever (UK) and Unilever (Netherlands) in 1930. See Jau-Shi Liew, ‘Two Heads are Better than One: An Overview of the Dual Listed Company Structure’ [2001] Australian Mining and Petroleum Law Association Yearbook 457, 458 (fn 1). In the United States, the dual listed company structure has not received much attention, although see the brief discussion of ‘Siamese twins’ in Amir Licht, ‘Genie in a Bottle? Assessing Managerial Opportunism in International Securities Transactions’ [2000] Columbia Law Review 51, 69.

2 For the history of this case and a detailed account of the structure used, see Peter King, Neil Radford and Simon Read, ‘RTZ/CRA: The Mining Merger’ (1996) 7(1) PLC 1; Derek Heath and Rupert Weber, ‘A New Form of International Merger’ (1996) 8(6) Asia Law 29.

3 For a detailed account of the structure of the BHP Ltd/Billiton plc transaction, see Anna Styles and Charles Jacobs, ‘BHP Billiton’ (2001) 6(10) Global Counsel 57; Anna Styles and Charles Jacobs, ‘BHP Billiton: A Dual Listed Companies Merger’ (2001) 12(9) PLC 27.

4 For instance, the financial reporting requirements of dual listed companies have been the subject of recent attention. See Australian Securities and Investments Commission, Practice Note 71, Financial Reporting by Australian Entities in Dual Listed Company Arrangements (2001); Graham Peirson, ‘Accounting: Dual Listed Companies’ (2002) 20 Company and Securities Law Journal 114. Peirson notes (at 116) that the International Accounting Standards Board is due to consider the question of financial reporting for dual listed companies in the near future.

5 Liew, above n 1, provides an explanation of dual listed company equalisation arrangements.

6 Liew, above n 1, 462.

7 For Australian companies, this is the Corporations Act 2001 (Cth). Section 201A(2) outlines the requirement that public companies maintain a board of at least three directors, two of whom ordinarily reside in Australia.

8 These three types of dual listed company structure are discussed in the recent consultation paper of the Code Committee of the United Kingdom’s Panel on Takeovers and Mergers, Dual Listed Company Transactions and Frustrating Action (2002). That consultation paper considers whether the procedures for establishing dual listed company structures should be brought within the purview of the United Kingdom’s City Code on Takeovers and Mergers, having regard to the problems created where a takeover offer is made for a company that is considering bringing itself within a dual listed company structure. The particular problems that arise during the period when a company is contemplating a dual listed company structure are beyond the scope of this article, which focuses on conflicts of interest once the dual listed company structure is in place.

9 The combined entities structure was adopted in the case of Reed Elsevier: Tim Jones and Richard Baker, ‘The Reed Elsevier Merger: Preserving Separate Identities’ (1993) 4(1) PLC 15.

10 The stapled stock structure was used in the merger of SmithKline and the Beecham Group in 1989. However, for a variety of reasons, SmithKline Beecham decided in 1996 to abandon the stapled stock structure: ‘SmithKline Beecham Replaces Dual Share Structure’ (1 996) 7(2) PLC 12.

11 See above, 594, for the details of these cases.

12 Liew, above n 1, 460.

13 As a corporation with individual legal personality, an Australian company that brings itself within a dual listed company structure will be governed by the Corporations Act 2001 (Cth). The Corporations Act 2001 (Cth) requires that such a company keep its own minute books in which proceedings and resolutions of directors’ meetings are recorded: s 25 1A. These minute books will ordinarily be kept at the company’s registered office. Note that a company can dispense with the requirement that a notice of directors’ meeting always be sent: s 248C. However, s 248C is a replaceable rule which can, under s 135, be displaced or modified by a company’s constitution. Nonetheless, if notices of directors’ meetings are sent in respect of one dual listed company, then good corporate governance would seem to dictate sending notices of directors’ meetings in respect of the other dual listed company within the dual listed company structure in question.

14 Note that the company secretary of each dual listed company may also be the same person.

15 It will be assumed throughout this article that the directors of a foreign company that is within a dual listed company structure with an Australian company will be subject to duties as directors of that foreign company that are substantially the same as the duties to which they will be subject as directors of the Australian company.

16 Corporat ions Act 2001 (Cth) s 18 1(1). See below Part IV.

17 This might be done directly, in which case the company’s constitution will itself require the directors to take into account the interests of the company and its dual listed counterpart as a whole when making decisions in their capacity as directors of the company. It might also be done indirectly, in which case the company’s constitution will require the directors to take into account certain objectives and principles that are set out in the contracts governing the dual listed company structure. Those objectives and principles will include the principle that the interests of the dual listed companies as a whole are to be taken into account by the directors of each company when making decisions in their capacity as directors of that company.

18 (1998) 27 ACSR 737. It is clear that breaches of directors’ common law and equitable duties can be ratified prospectively, but there is doubt as to whether Pascoe Ltd (in liq) v Lucas stands for the proposition that breaches of directors’ statutory duties can be so ratified: Robert Baxt and Timothy Lane, ‘Developments in Relation to Corporate Groups and the Responsibilities of Directors — Some Insights and New Directions’ (1998) 16 Company and Securities Law Journal 628, 640. However, this may not be of great significance where shareholders prospectively ratify the ‘no conflict’ rule (which is discussed further in Part IV), as this rule is an equitable rule and has no expression in the Corporations Act 2001 (Cth).

19 The general rule is that fiduciary obligations will differ from case to case depending upon what has been consented to by those to whom the fiduciary obligations are owed: Hospital Products Ltd v US Surgical Corporation (1984) 156 CLR 41, 97, 102 (Mason J).

20 Section 185 of the Corporations Act 2001 (Cth) provides that s 181 (as well as the other sections of the Corporations Act dealing with directors’ duties) has effect in addition to, and not in derogation of, other rules of the common law and equity relating to directors’ duties.

21 Paul Finn, ‘The Fiduciary Principle’ in Timothy Youdan (ed), Equity, Fiduciaries and Trusts (1989) 1, 33. See also Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 348; Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261; Permanent Building Society (in liq) v Wheeler (1994) 14 ACSR 109.

22 (1726) 2 Eq Cas Abr 741; 25 ER 223. See also Aberdeen Railway Co v Blaikie Bros [1854] 1 Macq 461. 23 (1984) 154 CLR 178 (Deane J).

24 [1942] 1 All ER 348.

25 (1996) 19 ACSR 606. See also R v Byrnes (1995) 130 ALR 529. For a short history of the ‘no conflict’ rule in the context of directors’ duties, see Michael Christie, ‘The Director’s Fiduciary Duty Not to Compete’ (1992) 55 Modern Law Review 506, 507–13.

26 Keech v Sandford (1726) 2 Eq Cas Abr 741; 25 ER 223; Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 348; Boardman v Phipps [1967] 2 AC 46.

27 (1928) 164 NE 545.

28 Ibid 464.

29 Boardman v Phipps [1967] 2 AC 46, 124 (Lord Upjohn); Hospital Products Ltd v US Surgical Corporation (1984) 156 CLR 41, 103 (Mason J); Clay v Clay (2001) 178 ALR 193, 207–8; Pilmer v The Duke Group Ltd (in liq) (2001) 180 ALR 249, 271.

30 Miller v Miller (1995) 16 ACSR 73, 89 (Santow J).

31 Thus, in Warman International Ltd v Dwyer (1995) 182 CLR 544, the High Court recognised that liberal remuneration should be paid to a fiduciary who, in dishonest breach of the ‘no conflict’ rule, developed a business in competition with the company to which his fiduciary obligations were owed and was therefore liable to an account of profits. See also Boardman v Phipps [1967] 2 AC 46 (although there the breach was honest). In Pilmer v The Duke Group Ltd (in liq) (2001) 180 ALR 249, the majority of the High Court has arguably relaxed the ‘no conflict’ rule in connection with the provision of professional advice, by demanding a ‘real and substantial’ possibility of conflict and by maintaining the proscriptive approach to the scope of fiduciary obligations that was forcefully affirmed by the Court in Breen v Williams (1996) 186 CLR 71. Justice Kirby’s dissent in Pilmer stands as evidence that relaxation of the ‘no conflict’ rule to accommodate the realities of modern commerce is not without its critics.

32 The CLERP reforms, including s 187, were introduced in the Corporate Law Economic Reform Act 1999 (Cth). Prior to its introduction, s 187, which was based on s 13 1(2) of the Companies Act 1993 (NZ), was discussed at length in Companies and Securities Advisory Committee (‘CASAC’), Corporate Groups, Discussion Paper (1998). Chapter 2 of the CASAC Discussion Paper contains much valuable analysis of the general law treatment of directors of companies within corporate groups prior to the introduction of s 187. There is a large literature on corporate groups generally: see, eg, Tom Hadden, ‘The Regulation of Corporate Groups in Australia’ (1992) 15 University of New South Wales Law Journal 61; the collection of essays in Michael Gillooly (ed), The Law Relating to Corporate Groups (1993); Karen Yeung, ‘Corporate Groups: Legal Aspects of the Management Dilemma’ [1996] Lloyd’s Maritime and Commercial Quarterly 208; John Farrar, ‘Legal Issues Involving Corporate Groups’ (1998) 16 Company and Securities Law Journal 184; Baxt and Lane, above n 18.

33 (1976) 137 CLR 1.

34 Ibid 6–7 (Mason J).

35 Industrial Equity Ltd v Blackburn (1977) 137 CLR 567; Qintex Australia Finance Ltd v Schroders Australia Ltd (1990) 3 ACSR 267.

36 (1993) 11 ACSR 370.

37 Ibid 376, although note that President Kirby’s judgment was in dissent. Kirby P reiterated his strict approach to the ‘no conflict’ rule as it applies to corporate groups in his dissenting judgment in Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 11 ACSR 642, 682–4.

38 Walker v Wimborne (1976) 137 CLR 1, 6.

39 Judicial recognition of ‘derivative benefits’ in the context of wholly-owned groups can be found, after Walker v Wimborne, in Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146; Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 11 ACSR 642.

40 [1970] 1 Ch 62 (‘Charterbridge’).

41 Ibid 74.

42 In his dissenting judgment, Kirby P explicitly recognised that the Charterbridge principle extends to the recognition of ‘consequential effect[s]’: Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 11 ACSR 642, 684.

43 Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483, 493 (Barwick CJ, McTiernan and Kitto JJ); Howard Smith v Ampol Petroleum Ltd [1974] AC 821, 832 (Privy Council); Wayde v New South Wales Rugby League Ltd (1985) 3 ACLC 799, 805; Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 11 ACSR 642, 675.

44 (1993) 11 ACSR 642.

45 In re Asiatic Electric Co Ltd [1973] NSWR 603 (Street CJ in eq). See also Baxt and Lane, above n 18, 632.

46 Reid Murray Holdings Ltd (in liq) v David Murray Holdings Pty Ltd (1972) 5 SASR 386; Rolled Steel Products (Holdings) Ltd v British Steel Corporation [1986] 1 Ch 246; Spedley Securities Ltd (in liq) v Greater Pacific Investments Pty Ltd (in liq) (1992) 30 NSWLR 185; Australian National Industries Ltd v Greater Pacific Investments Pty Ltd (in liq) (1992) 7 ACSR 176; Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 11 ACSR 642; Farrow Finance Co Ltd (in liq) v Farrow Properties Pty Ltd (in liq) (1997) 26 ACSR 544; Japan Abrasive Materials Pty Ltd v Australian Fused Materials Pty Ltd (1998) 16 ACLC 1172.
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