Australian Securities and Investments Commission v Australian Mines Limited

Federal Court of Australia|2023-01-13|Before: Colvin J

In the period following the first defendant's announcement to the Australian Securities Exchange (ASX) on 19 February 2018, the first defendant contravened s 674(2) of the Corporations Act 2001 (Cth) by failing to notify the ASX of the existence and quantum of a buyer's discount of 15% on the base price to be paid for cobalt and nickel in the Offtake Agreement with SK Innovation Co Ltd (SKI) dated 9 February 2018 (Offtake Agreement), conditional upon SKI exercising an option to acquire 19.9% of the first defendant's shares, at 0.12 AUD per share (Buyer's Discount), in circumstances where this was information that was material and not generally available, within the meaning of ASX Listing Rule 3.1 and Chapter 6CA of the Corporations Act.
The first defendant contravened s 674(2) of the Corporations Act: (a) between 23 April 2018 and 27 June 2018 by failing to notify the ASX that the first defendant: (i) had not secured finance for the construction of its processing plant for the Sconi project, a cobalt, nickel and scandium resource in North Queensland (Sconi Project); and (ii) SKI had not committed to funding construction of the processing plant, where this was information that was material and not generally available, within the meaning of ASX Listing Rule 3.1 and Chapter 6CA of the Corporations Act, in circumstances where, at presentations given at conferences in Hong Kong on 23 April 2018 and London on 17 May 2018, the first defendant made false representations to the contrary that: (iii) it had secured finance for the construction of the processing plant; and (iv) SKI had committed to funding construction of the processing plant; and (b) between 17 May 2018 and 27 June 2018 by failing to notify the ASX that: (i) it was not a condition of the Offtake Agreement that SKI commit to funding construction of the processing plant for the Sconi Project; and (ii) SKI did not have any other obligation to fund construction of the processing plant, where this was information that was material and not generally available, within the meaning of ASX Listing Rule 3.1 and Chapter 6CA of the Corporations Act in circumstances where, at a presentation given at a conference in London on 17 May 2018, the first defendant made false representations to the contrary that it was a condition of the Offtake Agreement that SKI commit to funding construction of the processing plant.

The first defendant pay to the Commonwealth of Australia a pecuniary penalty in the amount of $450,000, of which $225,000 is to be paid within 60 days, and the balance within 180 days of the making of these orders by the Court.
The first defendant contribute to the plaintiff's costs of these proceedings in the agreed amount of $55,550, to be paid within 60 days of the making of these orders by the Court. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

COLVIN J: 1 Australian Mines Limited (AML) is a listed public company. By operation of Part 6CA of the Corporations Act 2001 (Cth), it had a continuous disclosure obligation that required it to tell the Australian Securities Exchange (ASX) as soon as it became aware of any information concerning AML that a reasonable person would expect to have a material effect on the price or value of its securities. AML has admitted that in 2018 it contravened s 674(2) of the Corporations Act on three occasions by failing to perform its continuous disclosure obligation. 2 The Australian Securities and Investments Commission (ASIC) seeks declaratory orders in respect of each of the contraventions and orders for the payment of a pecuniary penalty and a contribution to ASIC's legal costs. AML consents to the making of the orders. For the following reasons, the orders should be made. 3 The relevant conduct was engaged in by Mr Benjamin John Bell. At the time of the conduct he was the managing director of AML. ASIC has also brought proceedings against Mr Bell. Although AML admits the contraventions and its responsibility for the conduct of Mr Bell, the fact that it has done so does not deprive Mr Bell of his right to defend the claims. Although it will be necessary to refer to certain of the conduct of Mr Bell, nothing in these reasons should be treated as a finding as against Mr Bell of any contravention. The claims against him are yet to be determined. These reasons concern only the liability of AML. 4 The factual matters which much exist for the continuous disclosure regime to apply to AML have all been admitted.

Factual context 5 The relevant events concern a cobalt, nickel and scandium resource in North Queensland known as the Sconi Project. The Project was acquired by AML in December 2017. In February 2018, a buyer entered into an agreement with a subsidiary of AML to purchase cobalt offtake from the Project (Offtake Agreement). The Offtake Agreement was subject to the satisfaction of a number of conditions precedent, including a condition that the subsidiary obtain finance for the development and construction of the Project (Finance Condition). Material terms of the Offtake Agreement included (a) the buyer assisting in the development, construction and financing of a processing plant for the Project by recommending a financial advisor who would work globally on securing financing (Financing Mandate); (b) if the buyer exercised an option to acquire 19.9% of the shares in AML then it would be entitled to a discount of 15% on the base price for cobalt and nickel supplied by the Project (Buyer's Discount); and (c) the share option would expire three months after the issuance of a bankable feasibility study (Share Option).

The first contravention 6 On 19 February 2018, AML made an announcement that described the Offtake Agreement, including the Share Option and the Finance Condition. In doing so, it did not disclose the terms of the Financing Mandate or the existence of the Buyer's Discount. However, it is agreed that: The existence of a potential commercial in confidence price premium or adjustment was referred to at footnote 2 of the … Announcement, a similar notation was also made in [another document] dated 21 February 2018. The existence of the Buyer's Discount was subsequently disclosed in [AML's] announcement dated 6 March 2018.

The second contravention 7 During a presentation at a 121 Conference held in Hong Kong on 23 April 2018, Mr Bell stated that (a) AML had secured finance for the construction of the Plant and the buyer had committed to funding construction of the Plant; and (b) the value to AML of the Offtake Agreement based upon the production volume in the Offtake Agreement was $5 billion. 8 The representation about the funding commitment for construction of the Plant was false because AML had not secured finance for the construction of the Plant and the buyer had not committed to funding the construction of the Plant. 9 The representation about the value of the Offtake Agreement was materially misleading without disclosure of the Buyer's Discount because the Buyer's Discount applied but was not factored into the calculation. 10 AML did not take steps at the time nor for some time thereafter to disclose to the market the errors in the representations.

The third contravention 11 During a further presentation at a 121 Conference held in London on 17 May 2018, Mr Bell made the same representations he had made in Hong Kong concerning finance for construction of the Plant and the value of the production volume being $5 billion. 12 In addition, Mr Bell stated that it was a condition of the Offtake Agreement that the buyer commit to funding construction of the Plant. 13 The London presentation was released on YouTube on or about 15 June 2018 where it remained until about 9 July 2018 when it was taken down at the request of AML. On 15 June 2018, a link to the YouTube video was posted on the website https://hotcopper.com.au. 14 The representations that were repeated in London were false or materially misleading for the same reasons as applied to the representations made in Hong Kong. In addition the representation to the effect that it was a condition of the Offtake Agreement that the buyer commit to funding the construction of the Plant was false because there was no such obligation. 15 As was the case for the representations made at the 121 Conference in Hong Kong, AML did not take steps at the time nor for some time thereafter to disclose to the market the errors in the representations.

Subsequent conduct 16 The representation about the $5 billion value was retracted on 27 June 2018. At that time, AML also released to the ASX a response to an ASX query in which it disclosed the true position as to funding for the Plant. It is agreed that the disclosure was 'in line with all previous announcements made by [AML] to the ASX dated 13 April 2018, 30 April 2018 and 30 May 2018 that project financing negotiations were in progress'. 17 It is agreed that: On 28 June 2018, the ASX reinstated the securities of [AML] to official quotation. The [AML] share price fell from its closing price on 19 June 2018 of 10 cents to an intra-day low of 8.1 cents (19% fall) and a closing price on 28 June 2018 of 9 cents (10% fall). On 28 June 2018, 44 million shares were traded with a total value of $3.985 million, which was 5 times greater than the average volume and value of shares traded in the 5 days prior. [AML] market capitalisation also fell from $273.14 million on 19 June 2018 to $241 million on 28 June 2018.41. 18 However, ASIC does not take the further step of alleging that actual loss was suffered as a result of the representations that were made. Senior Counsel for ASIC accepted that there would need to be 'quantitative evidence and the exclusion of confounding information and other types of information in the market' for loss to be established. ASIC does not advance such a case.

Formal admissions and consent by AML 19 By way of joint submission, ASIC alleges and AML admits, in effect: (1) Having made the announcement on 19 February 2018, AML was obliged to disclose the Buyer's Discount. Whilst it disclosed the existence of the Buyer's Discount on 6 March 2018, it failed at that time to disclose the quantum of the Buyer's Discount. (2) Mr Bell having made the representations about funding at the 121 Presentations, AML was obliged to disclose the true position which it did not do until 27 June 2018. (3) Mr Bell having made the representations about the $5 billion value, AML was obliged to disclose the effect of the Buyer's Discount on the information and it did not do so. 20 AML admits that it contravened s 674(2) of the Corporations Act on each of the three occasions by failing to notify information to the ASX. 21 AML also admits that each of the contraventions were 'serious' within the meaning of s 1317G(1A)(c)(iii) of the Corporations Act as it applied at the relevant time. 22 AML consents to declaratory relief to reflect the above admissions and to the imposition of penalties. It has agreed to pay a pecuniary penalty of $450,000. ASIC and AML submit jointly that a penalty in that amount should be imposed. 23 AML consents to an order that it pay ASIC's costs in the amount of $55,550 within 60 days.

Declaratory relief 24 At the relevant time, s 1317E provided that if the Court is satisfied that a person has contravened a civil penalty provision (which included s 674), it must make a declaration of contravention. 25 On the basis of the admissions by AML, I am satisfied that AML has contravened s 674 on each of the three occasions identified. Therefore, there should be declarations of contravention in the terms proposed.

Pecuniary penalties 26 At the relevant time, s 1317G(1A) provided that the Court may order a person to pay the Commonwealth a pecuniary penalty of the maximum amount if a declaration of contravention had been made under s 1317E, the contravention was of a specified kind of financial services provision (which is admitted in this case) and: the contravention: (i) materially prejudices the interests of acquirers or disposers of the relevant financial products; or (ii) materially prejudices the issuer of the relevant financial products or, if the issuer is a corporation or scheme, the members of that corporation or scheme; or; or (iii) is serious. 27 At the time of the admitted contraventions, 'the relevant maximum amount' for a pecuniary penalty for each contravention by a body corporate was $1,000,000: s 1317G(1B). 28 The Court may act upon the admission of fact that the conduct in the present case is serious: Australian Securities and Investments Commission v Hochtief Aktiengesellshcaft [2016] FCA 1489 at [98] (Wigney J); and Australian Securities and Investments Commission v Newcrest Mining Limited [2014] FCA 698 at [57] (Middleton J); but see Australian Securities and Investments Commission v Lindberg [2012] VSC 332 at [131]-[132] (Robson J). In any event, the relevant announcements and transcripts of the 121 conference presentations as well as the Offtake Agreement are before the Court and they provide the factual basis for the admission that the conduct is serious. The failure to conform to the disclosure requirements concerned matters of considerable significance to the affairs of AML. They concerned matters of evident importance for shareholders. In particular, a claim that funding had been secured for what was a major project when it had not was hardly trifling. The representations involved the managing director of the company. I accept the joint submission that the contraventions were serious. 29 In the alternative to the claim that the contraventions were serious, it was submitted that a pecuniary penalty should be imposed on the basis that the contraventions materially prejudiced the interests of acquirers or disposers of shares in AML. In my view, the admitted evidence falls short of demonstrating actual prejudice. The evidence in that regard was confined to the evidence that there was a decline in the price of AML shares after they came out of suspension following corrective disclosure the previous day. However, as has been noted, there was no evidence to support any finding that the decline was attributable to the contravening failures to disclose. There was no basis for establishing a causative link. The joint submission was to the effect that those shareholders who purchased shares before the disclosure 'may have purchased shares at a price higher than what they would have done had [AML] disclosed [the information] at the time that it was obliged to'. Therefore, I do not accept the alternative submission. 30 As there is an agreed penalty, the question for determination is whether the agreed figure falls within the range of possible appropriate penalties for the conduct: Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482. I summarised the principles in Australian Energy Regulator v EnergyAustralia Pty Ltd [2022] FCA 644 at [4]-[10]. 31 Determining an appropriate penalty involves an instinctive synthesis of relevant factors: Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20 at [54] (Keane CJ, Finn and Gilmour JJ). The purpose of a civil penalty of the kind sought to be imposed in the present case is primarily, if not solely, the promotion of the public interest in compliance with the provisions of the legislation by deterrence of further contraventions: Australian Building and Construction Commissioner v Pattinson [2022] HCA 13 at [15]-[16]. 32 The following propositions concerning the approach to be adopted in assessing the quantum of an appropriate penalty where a civil penalty provision in Commonwealth legislation is primarily concerned with deterrence may be drawn from the joint reasons of Kiefel CJ, Gageler, Keane, Gordon, Steward and Gleeson JJ in Pattinson: (1) The maximum penalty is not to be reserved for the most serious cases and there is no place for the notion that the penalty must be proportionate to the seriousness of the conduct that constituted the contraventions (at [10], [49], [51]). (2) The required relationship between the statutory maximum and the penalty in a particular case is established where the penalty as imposed does not exceed what is reasonably necessary to achieve general and specific deterrence (at [10]). (3) Neither retribution nor rehabilitation has any part to play in economic regulation where civil penalties are to be imposed where there is a failure to comply with the regulatory requirements (at [15], [39]). (4) Factors pertaining to the character of the contravening conduct and the character of the contravenor may be considered, but there is no legal checklist and the task is to determine the appropriate penalty in the circumstances of the particular case (at [19], [44]). (5) The discretion to assess the appropriate penalty must be exercised fairly and reasonably for the purpose of protecting the public interest by deterring future contraventions (at [40], [48]). (6) The penalty must not be oppressive by being greater than is necessary to achieve the object of deterrence and, in that particular sense, must be proportionate (at [40]-[41]). (7) Concepts from criminal sentencing such as totality, parity and course of conduct may be usefully deployed in the assessment of what is reasonably necessary to deter further contravention (at [45]). (8) It will be appropriate to consider whether the conduct involves a deliberate flouting of the law, whether the person responsible was aware of the law and whether they have been disciplined for their conduct (at [46]). (9) The penalty that is appropriate by way of general deterrence may be moderated by factors of the kind adverted to by French J in Trade Practices Commission v CSR Ltd [1991] ATPR 41-076 to the extent that they bear upon an assessment of what is required to deter future contraventions (at [47]). 33 Therefore, it is not appropriate to approach the task of assessing penalty on the basis of the application of a yardstick of seriousness concerning the conduct. The seriousness of the conduct has only indirect significance in the sense that conduct that is less serious may be conduct that may be deterred by a lesser penalty than more serious conduct. However, a persistent and wilful contravenor may require a high penalty to deter future contraventions even if the conduct itself is not assessed as being at the highest level of seriousness. Therefore, I do not accept those submissions which directed attention in an unqualified way to where the conduct may be thought to lay on a spectrum of possible seriousness of the contravening conduct. 34 Finally, as to matters of overall approach, it has been accepted that the absence of evidence of loss or damage to those affected by the conduct will usually constitute a factor in mitigation of penalty: Australian Competition and Consumer Commission v MSY Technology Pty Ltd (No 2) [2011] FCA 382 at [79] (Perram J); approved in Singtel Optus v Australian Competition and Consumer Commission at [58]. 35 In the present case, the following matters have significance in determining whether the proposed penalty is appropriate: (1) the period of the contravention was from 19 February 2018 to 27 June 2018; (2) the contraventions involved AML's most senior executive who had been primarily responsible for the negotiation of the Offtake Agreement and had actual knowledge of the position concerning the terms of the agreement and the circumstances as to financing for the Project; (3) the information that was not disclosed was information that was uniquely in the knowledge of AML and the buyer that was unlikely to be otherwise disclosed; (4) the contraventions are serious; (5) there was no involvement on the part of other executives in the conduct; (6) AML made corrective disclosure; (7) AML has cooperated and has admitted the contraventions early in the conduct of the proceedings; (8) there is no evidence to suggest that the conduct involved a deliberate flouting of the disclosure laws; (9) there is no evidence to suggest that there was an intention to mislead by failing to disclose; (10) there is no suggestion of past contraventions; (11) AML is a relatively small listed company; (12) Mr Bell has resigned as managing director of AML and his employment has been terminated; (13) since the investigation by ASIC, AML has adopted a new continuous disclosure policy; (14) although there are three contraventions, there are in substance two courses of conduct, namely the release of the announcement on 19 February 2018 and the statements at the 121 conferences; (15) ASIC does not lead evidence of actual loss or damage; and (16) there is no evidence of the extent of actual profit or benefit to AML from the contraventions. 36 Synthesising these factors, I consider that the proposed penalty though at the lower end of the range, is reasonable and appropriate to achieve both specific and general deterrence. Of considerable significance in reaching that view is the absence of evidence of the extent of the financial consequences of the conduct. This is not a case where the financial consequences demonstrate a need for a particular price to be placed upon the contravention. Also of significance is the fact that the steps taken by AML in making corrective disclosure, revising its disclosure policy, terminating the employment of Mr Bell and in admitting the conduct are all matters which support an expectation of future compliance by AML. As a matter of general deterrence, recognising the significance of remediating conduct of that kind encourages self-disclosure and supports a general culture of compliance.

Costs 37 There being consent to the making of the proposed order as to costs and it being accepted that the other agreed orders should be made, the proposed order as to costs should be made. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin.

Corporations Act 2001(Cth)ss 674, 1317E, 1317G, Part

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