News Corporation Ltd, Re

(1987) 15 FCR 227
(1987) 70 ALR 419

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(Judgment by: Lockhart J.)

Re: In the matter of a reference to the Federal Court of Australia by the Australian Broadcasting Tribunal pursuant to Section 22B of the Broadcasting and Television Act 1942 in relation to applications to the Australian Broadcasting Tribunal for approval of transactions relating to the ownership and control of radio and television licences by The News Corporation Limited, Network Ten Holdings Limited and others.

Court:

Judges: Bowen C.J.

Lockhart J.Beaumont J.

Judgment date: 20 January 1987

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Judgment by:
Lockhart J.

This is a reference by the Australian Broadcasting Tribunal pursuant to s. 22B of the Broadcasting and Television Act 1942 ("the Act"). The reference relates to applications made to the Tribunal for approval of transactions relating to the ownership and control of radio and television licences by The News Corporation Limited ("TNCL"), Network Ten Holdings Limited ("NTHL"), Network Ten Investments Limited ("NTIL") and others.

I have had the advantage of reading the reasons for judgment of the Chief Judge. His Honour has set out the relevant paragraphs of the Special Case and the statutory provisions so I need not repeat them.

Nine questions have been referred for determination by the Court, the most important of which is the first question which is as follows:

"Whether, in considering whether TNCL has a shareholding interest such that it would be deemed to be in a position to exercise control of TNHL and its subsidiaries pursuant to sections 90E and 92B of the Act, the premiums paid on the shares referred to in paragraphs 9(b) and 10(b) above (of the Special Case) are to be included in the calculations of:

(a)

'an amount equal to the value of the shares', or

(b)

'an amount equal to the value ... of the person's interest in the shares',

within the meaning of paragraphs 90(3)(b) and 91(3)(b) of the Act."

I agree with the conclusion of the Chief Judge that question (i) should be answered "yes" and with his reasons for that conclusion. I shall make some observations of my own.

Division 2 of Part IV of the Act is concerned with the limitation of ownership or control of commercial broadcasting stations. Division 3 of Part IV deals with the limitation of ownership or control of commercial television stations. The two divisions are substantially the same. The most important sections for present purposes are ss. 90E and 90(3)(b) which appear in Division 2 relating to commercial broadcasting stations and ss. 92B and 91(3)(b) in Division 3 relating to commercial television stations. Although the reference concerns both radio and television licences, and therefore Divisions 2 and 3 of Part IV of the Act, I shall for convenience refer to the sections in Division 3 relating to television stations as they were the provisions most frequently referred to in argument.

The Act is concerned to ensure, amongst other things, that foreign persons are not, during the currency of a television licence, in a position to exercise control, directly or indirectly, of the company holding the licence: s. 92D. The Act defines "control" very widely as including "control as a result of, or by means of, trusts, agreements, arrangements, understandings and practices, whether or not having legal or equitable force and whether or not based on legal or equitable rights": sub-s. 91(1).

The Act fastens upon voting power and financial interest in the licensee company as the determinants of control: ss. 92B and 91. The expression "financial interest" is defined in sub-s. 91(1) as meaning a "shareholding interest" or a "loan interest". Each of those expressions is further defined. A "shareholding interest" is defined, so far as is presently relevant, in para. 91(3)(b) of the Act as follows:

"(3) For the purposes of this Division -

...

(b)

the amount of the shareholding interest is an amount equal to the value of the shares, or of the person's interest in the shares, as the case requires, on the basis that the value of the shares is equal to the amount paid on the shares."

A person holds a "loan interest" in a licensee company if he is beneficially entitled to moneys payable by the company being moneys, other than interest, payable under debentures of the company or otherwise by way of repayment of moneys lent to or deposited with the company or moneys payable under negotiable instruments where the instrument is in respect of or the liability to pay the moneys is in substitution for the liability to pay moneys of the kind to which I have just referred: sub-s. 91(4).

The Act is thus directed to ensuring that foreign persons are not in a position to exercise control of the licensee company through voting power or a power exercisable through their financial stake in the company. It is "shareholding interests" with which this reference is concerned.

It is plain that questions of control, whether through voting power or financial interests, are to be determined by practical and commercial considerations rather than highly refined legalistic tests. The relevant provisions of the Act are not directed to or concerned with subtleties of company law.

Paragraph 91(3)(b) does not measure the "amount equal to the value" of the relevant shares with reference to the nominal value or the par value or the capital paid up on the shares. The paragraph is concerned with the "amount" of the shareholding interest in the sense of the size of the shareholding and defines it as being an amount "equal to the value of the shares". The "value" attributed to the shares is not their market value, but "the amount paid on the shares". That expression (and the similar expression in sub-s. 92B(1) "the total of the amounts paid on all shares") is, I must confess, a curious use of language and the source of the problem in this case. If the legislature had desired to define the value of shares with reference to the capital paid up on the shares it could easily have said so; but it chose instead to use more general, though regrettably more elliptical, words.

It would be strange if Parliament intended that the size or amount of a person's shareholding in a licensee company is to be determined by juggling with the finer intricacies of company law when the critical words of the statutory provision are themselves not the true or accepted language of the company lawyer.

I cannot accept that Parliament intended that foreign persons could escape the legislative net by holding shares in a company, the paid up value of which is a mere scintilla of its total paid up capital, yet in fact have a huge financial stake or interest in the company through the payment of premium for the shares. As I discern the purpose of the legislation, both through the language of the Act, in particular Divisions 2 and 3 themselves, and the purpose underlying the Act, it would make a nonsense of it to hold that large amounts paid by way of premium for shares with a minimum par value fell outside the test of valuing the shares for which para. 91(3)(b) and sub-s. 92B(1) provide. I agree with the reasons given by the Chief Judge for his conclusion that the expressions "the amount paid on the shares" (sub-s. 91(3)) and "the total of the amounts paid on all shares" (sub-s. 92B(1)) are capable of applying both to amounts paid by way of capital and by way of premium on the shares.

The view that share premium is in essence capital or should at least be assimilated with capital has become increasingly and widely held in more recent years: see Courtaulds Investments Ltd. v. Fleming (1969) 1 WLR 1683 per Buckley J. at 1692 -4 and the Report of the Cohen Committee on Company Law, Cmd. Paper 6659 para. 108. However, whether strictly part of share capital or not, the relevant words in para. 93(1)(b) and sub-s. 92B(1) encompass amounts paid by way of share capital and by way of premium on the shares.

15. Question (ii) "Whether sub-sections 90E and 92B exhaustively define the meaning of 'being in a position to exercise control, directly or indirectly, of a company' within the meaning of sub-sections 90G(1) and 92D(1) and with the consequence that the Tribunal is bound to find that the foreign persons are not in a position to exercise control, directly or indirectly, of the licensee companies."

I agree with the view of the Chief Judge that this question should be answered in the negative and with his reasons for that conclusion.

17. Question (iii) "Whether, as at 5 September 1985, by reason only of:

(a)

Article 98(2)(b) of the Articles of Association of NTHL; and/or

(b)

Clause 4 of the Memorandum of Association of NTHL and Article 8 of the Articles of Association of NTHL;

TNCL was in a position to exercise control of NTHL."

I agree with the opinion of the Chief Judge that this question should be answered "yes" and with the reasons which he has given therefor.

In view of the answers to these three questions it is unnecessary in my view to consider the remaining questions. Indeed, the answers to certain of those questions turn to some extent upon assumptions of hypothetical facts which it is generally undesirable to deal with in considering a Special Case.

I would stand over the remaining questions so that the Tribunal may consider the Court's answers to the first three questions and then deal with the applications before it. If it becomes necessary for the Court to consider the remaining questions, or any of them, the Tribunal or the parties may restore the matter to the list. I agree with the order for costs proposed by the Chief Judge.