AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION v TERRA INDUSTRIES INC [1999] FCA 525 | Case summary

Findings 29 The issued capital of Coms 21 was 100,162,858 ordinary shares of which 51,167,115 were restricted securities which were held in escrow and were not available to be sold onto the market prior to 5 February 1999. Accordingly, although Terra Industries' purchase of the four parcels represented approximately 12.9% of the issued capital of Coms 21, the parcels represented approximately 25% of the shares in Coms 21 available to be traded at the time they were purchased. 30 Gray became involved in the Terra Industries' transactions at the request of Favretto. Both Favretto and Gray had extensive experience as stockbrokers and were generally aware of the obligations of shareholders in respect of substantial shareholding notices. 31 Gray was a stockbroker used by Coms 21 and, as a consequence, he had a close association with Coms 21 and Favretto. During 1998, a major shareholder in Coms 21, Felscot, made a cash bid of 70c per share but the Coms 21 board and the market did not appear to take the bid seriously. The prevailing view appeared to be that Felscot did not have sufficient funds for the bid. As a consequence the shares remained well below the bid price. Another company, Atlantic International Entertainment Inc ("Atlantic"), also made a takeover bid for Coms 21 but, after acquiring about 12% of the issued capital pursuant to its bid, Atlantic was frustrated by the Felscot bid and its bid lapsed. 32 By December 1998 Coms 21 was significantly short of capital and its Chairman, Favretto, was endeavouring to secure a takeover bid in order to solve its capital shortage. In that context Favretto, who had been dealing with Ajegbo during 1998, informed Gray that Ajegbo was interested in organising a takeover offer for Coms 21. Favretto requested that Gray act as the stockbroker for the initial acquisitions that were to form the platform for the proposed takeover which was expected to be a $55 million cash bid for the issued capital in Coms 21. 33 On 22 December 1998 Favretto arranged for a private placement with Terra Industries of 10,000,000 convertible notes in Coms 21 for 40c each. The amount of the subscription was to be $4 million. Favretto also arranged for the crossing on the Stock Exchange floor of the first parcel from Universal International Limited to Terra Industries, with Gray acting as the broker for Terra Industries. Ajegbo used Gwin as his Australian agent to deal with Gray. The transaction was to be a pre-arranged market crossing of 4,500,000 shares at 30c each. Favretto then arranged for a second market crossing from Atlantic to Ajegbo of 8,500,000 shares at 45c each. 34 Gray agreed to act as the purchaser's broker in the transactions notwithstanding that he had no prior contact with, or knowledge of, Ajegbo or Terra Industries. On 22 December 1998 Gray was informed by Gwin, acting on behalf of Terra Industries, that the first parcel was to be purchased for the account of Terra Industries "for benefit of its client" with Merrill Lynch as the settlement address. On the same day Ajegbo, acting as "Project Manager" of Terra Industries, sent a facsimile transmission to Gray confirming that Gray could act on the instructions given to him by Gwin. Settlement details were also given in the facsimile transmission in relation to payment for the shares by Merrill Lynch. On 23 December 1998, Ajegbo was informed by Gwin that the ASX and ASIC required that PG Intercapital be informed of the "beneficial owner of the shares and name & address of contact". At no time thereafter was that information sought again by PG Intercapital nor was it ever provided by Ajegbo. Thus, at the conclusion of the trial the identity of the ultimate beneficial owner and of Ajegbo's "client" (if it existed) remained undisclosed. 35 On 24 December Ajegbo, falsely identified himself to officers of Merrill Lynch in Sydney as a representative of the retail sales office from Merrill Lynch Los Angeles. Ajegbo claimed he was having problems settling a trade for one of Merrill Lynch's client accounts, Terra Industries. The outcome of the relevant conversations was a payment on 24 December 1998 by Merrill Lynch of $1,241,607.85 to PG Intercapital for the first parcel. Early in January 1999 Merrill Lynch, after it realised that it had not been placed in funds in respect of the payment, informed PG Intercapital that it would not be funding any further trades by Terra Industries. 36 After the acquisition of the first and second parcels Gwin, acting for Terra Industries, confirmed with Gray the orders for the purchase of the second and third parcels in the name of Lost Ark "for account of Terra Industries for benefit of its client". I am satisfied that Gray treated Terra Industries as purchasing on behalf of an unnamed client and as therefore entitled to nominate the client but, pending that nomination, he treated Terra Industries as liable for the purchase of the respective parcels. 37 On 8 January 1999 Merrill Lynch made demand for the payment of the amount due from Ajegbo on behalf of Terra Industries but the demand was ignored. Merrill Lynch then commenced selling the first parcel of shares which had been registered in the name of Merrill Lynch Equity. Thus, as a result of Ajegbo's fraud, PG Intercapital was paid by Merrill Lynch for the first parcel. No payments were made by Terra Industries in respect of the second, third or fourth parcels. 38 It is not clear why Gray was prepared to take such an extraordinary risk in respect of the four parcels purchased by PG Intercapital for Terra Industries. He made no inquiry as to the creditworthiness or background of Ajegbo, Gwin or Terra Industries prior to committing PG Intercapital to the purchases on their behalf. Elementary inquiries would have put Gray on notice of the serious risk involved in acting for or on the instructions of Ajegbo and Gwin. It would not have been difficult to ascertain that Gwin was an undischarged bankrupt and that Ajegbo had been involved in securities fraud in the United States. Further, the "Terra Industries" with which Ajegbo was connected, did not appear to have any recognised status or assets. These matters were ascertained by Gray in the first half of January 1999 when he first commenced to make inquiries about the persons on whose behalf PG Intercapital had incurred a liability to pay almost $6 million in respect of the four parcels. 39 Terra Industries defaulted in its obligation to subscribe $4 million for the convertible notes and to pay for the first, second, third and fourth parcels. Further, when Gray became aware on or about 8 January 1999 that Merrill Lynch was "dumping" on the market the shares it held in Coms 21, it was apparent to him that Merrill Lynch had also not been paid. Thus, by mid January 1999 at the latest, it was plain to Favretto and to Gray that they had been seriously deceived by Ajegbo and Gwin. Despite this fact, Gray and Favretto both claimed to have had some expectation that Terra Industries might still meet its obligations. That evidence is difficult to accept given that by about mid January 1999 all of the promises of payment had been broken, no prospect of payment was in sight and the dubious background of both Gwin and Ajegbo was known to Favretto and Gray. 40 Gray and Favretto could not offer any "rational explanation" for the conduct of Terra Industries, Ajegbo or Gwin and accepted that the sequence of events involving Terra Industries was unprecedented. Neither Favretto or Gray could recall any instance where there had been a default in respect of the acquisition of a substantial shareholding in a public company leaving the broker in the situation of having to dispose of the shares to be recouped for the monies paid. 41 By 13 January 1999 Gwin informed Ajegbo that many brokers had been requesting the lodgment of substantial shareholding notices in respect of the trading that had occurred and that the brokers were proposing to lodge a formal complaint with ASIC. On the same day, PG Intercapital made demand on Terra Industries for payment of the amount due to it in respect of the third and fourth parcels and informed it that if payment was not made by 14 January 1999 PG Intercapital intended to sell the shares and report the default to the relevant authorities. On 14 January 1999 Atlantic belatedly gave notice of its cessation to be a substantial shareholder. 42 Meanwhile Gray, who was in serious financial difficulty over the transactions, had been compelled to make arrangements with Intercapital Ltd in the United Kingdom (which indirectly, had a proprietary interest in PG Intercapital) to borrow the monies necessary to enable him to complete the transactions. Intercapital Ltd lent the necessary amounts to Gray to enable him to discharge his obligations to PG Intercapital. As explained earlier $2.7 million was lent on 8 January and about $1.27 million was lent later in January 1999. Gray, who was aware of his right to dispose of the shares to recoup the moneys paid by him under his indemnity, secured repayment of the loans by a mortgage of his interest in the shares. 43 Favretto and Gray had become extremely concerned about the consequences of what had occurred. They were aware that Atlantic had filed a notice of cessation of shareholding but that no substantial shareholding notice had been lodged by the new shareholder. I am satisfied that they were well aware of the concerns of brokers that no notice had been filed. Gray appreciated that he was entirely reliant upon the market price of the shares in Coms 21 to recoup the funds he was required to outlay. By 15 January 1999 it was clear to Gray that selling the Coms 21 stock on the market was not "a practical alternative" as the size of the parcel would result in the sale taking "several months assuming that we were the only large seller" and "would severely decrease the price". 44 On 15 January 1999 Favretto and Gray agreed that it was appropriate for Coms 21 to give PG Intercapital a secondary notice pursuant to s 719(3) of the CL in respect of the shares. Favretto and Gray were aware that the response to the secondary notice would be published by Coms 21 to the Stock Exchange. It was plain to Gray and Favretto that the market was uninformed as to what was occurring and that this was particularly serious given the market's expectation that a further takeover bid was in the offing by a new substantial shareholder who remained unidentified. Remarkably, although Gray would have been conscious of the fact that a contravention of s 709 by Terra Industries could have had serious consequences for the Coms 21 shares which were his only security for repayment, he did not seek any legal advice as to his situation or as to how PG Intercapital should respond to the secondary notice. 45 On 19 January Favretto, Gray and Gwin had a meeting at Coolangatta Airport. Gwin's report of the meeting to Ajegbo states that Gray and Favretto "appeared concerned when they realised that I know very little about Terra Industries Inc". Gwin stressed the importance of Ajegbo lodging the substantial shareholders notice. 46 In these extraordinary circumstances, without legal assistance or advice, Gray responded to the secondary notice on behalf of PG Intercapital. The responding notice of 20 January 1999 set out the brief factual history of the acquisitions and stated that the Atlantic parcel had been purchased by PG Intercapital "on behalf of Terra Industries Inc Account client" and that PG Intercapital "has no relevant interest in the shares". The identity of Terra Industries and of Gwin and Ajegbo as the persons giving relevant instructions concerning the shares was published. However, the market was not informed of the true situation concerning the purchaser and the purchases as the response failed to disclose that no payment had been made by Terra Industries for any of the shares or that control over the disposition of the shares rested with Gray as a consequence of the default by Terra Industries. 47 Gray endeavoured to explain why he regarded his responding notice as accurate. I am satisfied that by 20 January 1999 Gray and Favretto were seriously concerned about the effects disclosure of the true situation would have on the market value for Coms 21 shares and the associated capital raising which they were seeking to complete. 48 Gray's response to the secondary notice was a half truth; it was accurate in respect of what it disclosed but was misleading for what it failed to disclose that is, the true situation concerning, and resulting from, Terra Industries' default. Gray's interest in the relevant shares, and how it was derived, would have disclosed the true situation to the market. The statement that PG Intercapital had no relevant interest, without stating that Gray did have a relevant interest, was also likely to be misleading. In summary, the responding notice of 20 January 1999 presented to the market the extraordinary transactions of Terra Industries, including its default, as ordinary market transactions and did nothing to disabuse the market of its expectation of a takeover offer arising from the acquisitions. 49 By late January 1999 Ajegbo was contending that Terra Industries did not have any interest in the shares until it had paid for them. He said that it was Lost Ark's responsibility to lodge a substantial shareholding notice. On 28 January 1999 Gray sent a facsimile transmission to Ajegbo and Gwin still stating that "Terra Industries Inc account client" was required to lodge a substantial shareholder notice pursuant to s 709. There was an air of unreality about Gray's continuing request to Ajegbo and Gwin, having regard to the knowledge he had of their unreliability by late January 1999. Notwithstanding the obvious significance and complexity of the situation concerning who held, and was required to disclose, relevant interests in the Terra Industries shareholding, Gray still failed to seek legal advice. By late January 1999 Gray was working with Favretto to raise capital for Coms 21 and a further takeover offer from Atlantic was expected. In my view, during the second half of January 1999 it was likely that Gray was looking to minimise his losses rather than to his legal obligations in relation to the shares. 50 Gray was obviously hoping the situation might be rectified by the Coms 21 capital raising or a new takeover offer by Atlantic and did not wish to disclose his circumstances for fear of the deleterious effects on the market for, and value of, Coms 21 shares. A serious drop in the value of Coms 21 shares was likely to lead to Gray's financial ruin as he had over-extended himself financially. That situation continued into February 1999. In that context, I find that: · Gray did not want to make a full disclosure as to do so would have had deleterious and untoward consequences for the value of the shares he held as security for Terra Industries' indebtedness; · Gray thought that by insisting on Terra Industries' complying with s 709 he would appear to be acting responsibly; · Gray omitted to enquire as to his legal obligations in relation to the disclosure of his interest in the shares and compliance with s 709; · Gray was aware of the complexity of the obligations to disclose relevant interests in relation to a shareholding in excess of 5% and of the unprecedented situation that had arisen concerning the Terra Industries' transactions; · Gray's omission to seek legal advice was deliberate. 51 On 29 January 1999 Gwin finally lodged what purported to be a substantial shareholding notice for "Lost Ark Nominees Pty Ltd Account Terra Industries Inc, client". The notice was signed by Gwin's wife, who was the director of Camellia Investments International Pty Limited, a Gwin family company with a paid up capital of $2.00. To confuse matters further, Mrs Gwin signed the notice as director for "Camellia Investments International Pty Limited for the benefit of its client Terra Industries Inc". 52 The notice did not reveal the information of greatest relevance to a properly informed market being, the identity of the "client" and the fact that it had not paid for the shares. In the notice the nature of the relevant interest is stated to be that of the unidentified "client". Further, the notice sets out the acquisitions that had occurred and the consideration paid. It was true that the consideration had been paid - not by the purchaser but by its broker upon the purchaser's default. In my view, the notice maintained the misleading representation to the market that the purchase of the four parcels had been completed in the usual course and all that, relevantly, remained unstated was the identity of the client who had paid for the shares. Significantly, neither Gray nor Favretto took any step to inform the market of the true situation. 53 Favretto justified his inaction by saying he had serious concerns about the transactions but still had some hope that payment would be made. There is an air of unreality about that evidence as by late January 1999, on the basis of the evidence they gave neither Gray or Favretto had any reasonable basis for expecting that payment would be made by Terra Industries for the shares it purchased. 54 On 17 February 1999, after carrying out investigations and ascertaining that the shares had not been paid for, ASIC wrote to PG Intercapital indicating its concern that the market for Coms 21 shares was uninformed about the failure by Terra Industries to pay for the shares and the consequences if PG Intercapital exercised its right to dispose of the shares in an uninformed market. Written undertakings were sought by ASIC from PG Intercapital and Merrill Lynch not to dispose of the shares. Merrill Lynch responded on 18 February 1999 by giving the required undertakings but informing ASIC that it only held a balance of 672,541 Coms 21 shares on behalf of Terra Industries. 55 Gadens Lawyers, acting for Gray, responded on 18 February 1999 saying that Gray had "provided finance to the transaction and accordingly…has rights to deal with the shares". Gadens informed ASIC that Gray would be lodging a substantial shareholding notice that day and had undertaken not to dispose of the shares until a notice had been lodged. Gadens also responded to ASIC on behalf of PG Intercapital indicating that PG Intercapital had been paid in full for the shares and had no relevant interest. On 19 February 1999 Gray gave a substantial shareholding notice which was dated 18 January 1999 (which, presumably, was intended to be 18 February 1999). The notice stated that Gray's relevant interest was as "Finance Provider". The person stated in the notice to be entitled to be registered as holder was "Lost Ark Nominees Pty Ltd A/C Client". The date of the acquisition of Gray's interest was stated to be 8 January 1999. 56 After Gray finally obtained legal advice in respect of his obligations he lodged a further notice of substantial shareholding on 25 February 1999. The notice contained the prescribed particulars, including an explanation as to how Gray came to acquire his relevant interest in respect of the shares. ASIC accepted the notice as complying with the requirements of the CL. Whilst I am prepared to proceed on that basis I observe that in the notice Gray treated Terra Industries, rather than its client, as the person entitled to be registered as the holder of the shares upon payment of the price and also as the "client" who had purchased the shares. 57 Some reliance was placed on the fact that when the true situation was disclosed to the market on 25 February 1999 it had little effect on the price of the shares. It is not to be inferred from that fact that the disclosure of the true situation was not price sensitive information prior to that date. I am unable to explain why the market reacted as it did on that day. It may be that it had become aware of, or suspected problems with, Terra Industries or any takeover offer by it by that date. It is unnecessary to form a conclusion on such matters as I am satisfied that prior to that date the information concealed from the market was price sensitive and led to it being seriously misinformed and inadequately informed as to the true situation concerning Terra Industries. Gray, with the benefit of hindsight, agreed with that conclusion. I would add that in this context I regard "price sensitive" information as information which has the capacity, or is likely to, affect price. 58 Thus far I have proceeded on the basis that Terra Industries purchased, but did not pay for, its substantial shareholding in Coms 21 and, as a consequence, Gray was left with the liability to pay the purchase price. However, it is difficult to accept that no rational explanation can be given for Ajegbo's extraordinary conduct and that there was not something more involved in these transactions. As no evidence was given by Gwin or Ajegbo it is not possible to form any conclusion as to who was intended to be the ultimate beneficial owner or "client" in respect of the four parcels of shares. Nevertheless, in my view the only reasonable explanations for the apparently unprecedented series of transactions involving Terra Industries are that: · a third party was seeking to gain the option of obtaining a platform of up to 20% for a potential takeover but, for reasons of its own, intended to conceal its true identity in order to keep its options open, one of those options being whether it would pay for the notes and shares; or · a third party wanted, for its own reasons, to give to the market a false appearance of a potential takeover bid unfolding; or · for unexplained reasons there was a rigging or manipulation by a third party of the market in Coms 21 shares. These explanations are of relevance to the relief that is appropriate in respect of the contraventions. As I later explain, the Court should be astute to ensure that the third party involved in the conduct to which I have just referred is not, directly or indirectly, able to obtain the fruits or benefits of that conduct. 59 It was common ground that the acquisition of approximately 12.9% of the shares in Coms 21 by a new entrant would clearly signal the likelihood of a new takeover offer for Coms 21. In those circumstances, public identification of the likely offerer and any other persons having relevant interests in the shares is at the heart of the rationale for the disclosure of substantial shareholdings under the CL. Yet the disclosures required by the CL have still not been made by Terra Industries and were not made by Gray until 25 February 1999, when this proceeding by ASIC had already been commenced. 60 The consequence of my findings is that the contraventions of s 709 by Terra Industries and Gray are serious and, inevitably, led to an inadequately informed and misinformed market for Coms 21 shares until at least 25 February 1999. I say "at least" as I am still not satisfied that the full truth has emerged in respect of the Terra Industries' transactions. 61 The question then arises as to Gray's culpability in not giving his substantial shareholding notice until 25 February 1999. As discussed above, he provided two explanations. First he said that he believed a relevant interest related only to the right to exercise voting power and that right remained with Terra Industries. Secondly, he was not aware of any prior situation where a broker had acquired a "relevant interest" in shares as a result of a defaulting purchaser. 62 Thus, it was said, Gray's contravention was innocent and inadvertent. There are two fundamental difficulties with the submission made on Gray's behalf. First, I do not accept Gray's explanation that he believed that a "relevant interest" merely related to the power to vote and not to the power to dispose of a share. The simplest enquiry by him would have revealed that under s 31 of the CL that was not so. Although I am prepared to accept that Gray might have believed that relevant interests related primarily to ownership or even voting control, I do not accept his evidence that he believed that a power to dispose of shares did not give rise to a relevant interest. Also, I do not accept that after mid January 1999 Gray believed that he was necessarily obliged to act on the instructions of Terra Industries concerning the voting of the shares in respect of which no payment had been made by Terra Industries. In my view, it is unlikely that Gray formed any view as to that matter at the time. Whilst I do not go so far as to conclude that Gray was deliberately untruthful about these matters, I am satisfied that he turned a "blind eye" to his obligations under s 709 as it was in his interest to do so. Consequently, although Gray may have thought that ownership of shares and the power to vote were the important aspects of an entitlement, I do not accept that he had an affirmative belief that he was not obliged to lodge a substantial shareholding notice or that he had no relevant entitlement in respect of the shares. 63 Before turning to the consequences of these findings it is necessary to consider the relevant provisions of the CL. The Legislative Scheme 64 Section 709(1) provides that a person who is a substantial shareholder in a listed company shall give a written notice to the company in accordance with the section. Sub-section (3) provides for the form and content of the notice and subs (4) provides that the person required to give the notice under s 709(1) shall give the notice before the end of two business days after the day on which that person becomes aware of the relevant interest or interests. 65 A substantial shareholder is defined in s 708(1) as a person entitled, inter alia, to not less than the prescribed percentage, which in the present case is 5% of the voting shares in the listed company. Section 712 requires that the notice under s 709 state the circumstances because of which the person has a relevant interest in voting shares. 66 A person who has power to vote in respect of a voting share or power to dispose of a share has a relevant interest in the share: see s 31. Power to vote in respect of the share is power to exercise, or to control the exercise of, the right to vote attached to the share and power to dispose of a share includes a reference to power to exercise control over the disposal of the share: see ss 30(2) and 30(3). Section 30(4) extends the meaning of "power" and "control" to include direct or indirect power or control including power or control that can be exercised as a result of a "relevant agreement" which is given an expansive definition in s 9. 67 Section 34 provides for a deemed relevant interest to be acquired in advance of performance of an agreement whose performance will give rise to a relevant interest. Whilst there is no real dispute as to the relevant interests acquired by Terra Industries and Gray in the present case, the extended definitions of a "relevant interest" are such that both prudence and common sense require resort to legal advice in any case where a person may directly or indirectly have rights in respect of voting shares which exceed 5% of the issued capital of a listed company. 68 There are a number of exclusions from the relevant interest provisions but the only exclusion relevant to the circumstances of the present case is s 39 which provides that: "A relevant interest of a person in a share shall be disregarded if the share is subject to a trust, the person has the relevant interest as a trustee of the trust and: (a) a beneficiary under the trust is by section 34 deemed to have a relevant interest in the share because the beneficiary has a presently enforceable and unconditional right referred to in paragraph 34(b); or (b) the person is a bare trustee." 69 Section 34 provides: "Where a person: (a) has entered into a relevant agreement with another person with respect of an issued share in which the other person has a relevant interest; (b) has a right enforceable against another person in relation to an issued share in which the other person has a relevant interest, whether the right is enforceable presently or in the future and whether or not on the fulfilment of a condition; or (c) has an option granted by another person or has granted to another person an option, with respect to an issued share in which the other person has a relevant interest; and, on performance of the relevant agreement, enforcement of the right, or exercise of the option, as the case may be, the first-mentioned person would have a relevant interest in the share, the first-mentioned person shall be deemed for the purposes of this Division to have that relevant interest in the share." 70 In the present case Lost Ark, which acted as a bare trustee, was not required to lodge a substantial shareholding notice. Terra Industries, as the beneficiary under the bare trust, was recognised and accepted by Lost Ark and Gray as the person entitled to exercise power or control in respect of the voting and disposition of the shares acquired in the first, second, third and fourth parcels. Thus, although Terra Industries may not have been the ultimate beneficiary, it is clear from the provisions to which I have referred that it had a relevant interest in the shares which was not one which is excluded by reason of s 39. In my view, there is insufficient evidence as to the existence or nature of any legal relationship between Terra Industries and any third party to justify a finding to that Terra Industries was itself also a bare trustee. 71 Accordingly, as explained above, Terra Industries was in breach of s 709 by failing to lodge a substantial shareholding notice within two business days of its acquisition of the third and fourth parcel of shares and Gray was in breach of s 709 by failing to lodge a substantial shareholding notice within two business days of his acquisition of a relevant interest in the shares on 8 January 1999. 72 In these circumstances the main issue arising at trial related to whether the Court should exercise its power to order that the shares vest in ASIC. In that regard s 741(1) provides, inter alia, that where a substantial shareholder has contravened s 709 the Court on application of ASIC, whether or not the contravention continues, may make such order or orders "as it thinks just", including a remedial order. A remedial order is defined in s 613(1) as including: "(a) … (b) … (c) an order restraining the acquisition or disposal of, or of an interest in, shares; (d) an order directing the disposal of, or of an interest in, shares; (e) an order vesting in the Commission shares or an interest in shares; (f) … …" 73 Section 744 relevantly provides: "(1) In this section: 'relevant provision' means section 729, 736, 737, 738, 739, 740, 741, 742, or 743. (2) The Court shall not make an order under a relevant provision if it satisfied that the order would unfairly prejudice any person. (3) … (4) … (5) … (6) An order under a relevant provision may include such ancillary or consequential provisions as the Court thinks just and reasonable. (7) Without limiting the nature of the orders that may be made by the Court under a relevant provision directing the disposal of, or of an interest in, shares in a company, such an order may include one or more of the following provisions: (a) a provision that the disposal shall be made within such time and subject to such conditions (if any) as the Court thinks just, including, if the Court thinks fit, a condition that the disposal shall not be made to a particular person or persons or to a particular class or classes of persons; (b) a provision that a specified person is liable to pay to the company any profit made by the person as a result of, or in connection with, the disposal of, or of an interest in, the shares; (c) a provision that a specified person shall, for all purposes connected with the disposal of, or of an interest in, the shares, be deemed to hold the shares or interest as a trustee for the beneficial owner of the shares or interest. (8) The Court may direct that, where a share or an interest in a share is not disposed of in accordance with an order of the Court under a relevant provision, the share or interest shall vest in the Commission. (9) Where a share or an interest in a share vests in the Commission by an order under a relevant provision or by a direction under subsection (8): (a) the Commission may, subject to any directions of the Court, get in, sell or otherwise dispose of, or deal with, the share or interest as it sees fit; and (b) section 601AE (other than paragraph 601AE(2)(a)) applies in relation to the share or interest as if: (i) the share or interest were vested in ASIC under subsection 601AD(2); and (ii) a sale, disposal or dealing with the share or interest under paragraph (a) of this subsection were a disposal or dealing under paragraph 601AE(2)(a). (c) … (10) …" 74 Section 601AD (which is incorporated by s 744(9)) deals with the effect of deregistration of a company which, under s 601AD(2) results in all the property of the company vesting in a liquidator. Sections 601AD(3) and (4) provide: "… 601AD(3) Under subsection (2), ASIC takes only the same property rights that the company itself held. If the company held particular property subject to a security or other interest or claim, ASIC takes the property subject to that interest or claim. 601AD(4) ASIC has all the powers of an owner over property vested in it under subsection (2)." 75 Sections 601AE(2), (3) and (4) provide: "601AE(2) If the company did not hold the property on trust, ASIC may: (a) dispose of or deal with the property as it sees fit; and (b) apply any money it receives to: (i) defray expenses incurred by ASIC in exercising its powers in relation to the company under this Chapter; and (ii) make payments authorised by subsection (3). ASIC must deal with the rest (if any) under Part 9.7. 601AE(3) The property remains subject to all liabilities imposed on the property under a law and does not have the benefit of any exemption that the property might otherwise have because it is vested in ASIC. These liabilities include a liability that: (a) is a charge or claim on the property; and (b) arises under a law that imposes rates, taxes or other charges. 601AE(4) ASIC's obligation under subsection (3) is limited to satisfying the liabilities out of the company's property to the extent that the property is properly available to satisfy those liabilities. …" 76 Section 743, which allows for a contravention to be excused in certain circumstances, provides as follows: "(1) Where a person has contravened a provision of this Chapter and, on application by any interested person, the Court is satisfied that, in all the circumstances the contravention ought to be excused, the Court may make an order declaring any act, document or matter not to be invalid because of the contravention and to have effect, and at all times to have had effect, as if there had been no such contravention. (2) If the Court is satisfied that in all the circumstances a contravention of section 615, 709, 710, 711, 722 or 723 ought to be excused, the Court shall not make an order under section 737, 741, 742, as the case may be, other than: (a) an order restraining the exercise of voting or other rights attached to shares; or (a) an order that an exercise of voting or other rights attached to shares be disregarded. (3) The circumstances to which the Court may have regard in deciding whether or not a contravention of a provision by a person ought to be excused include the contravention having been due to the person's inadvertence or mistake, to the person not having been aware of a relevant fact or occurrence or to circumstances beyond the control of the person. (4) …" 77 Section 610 provides: "In determining for the purposes of a provision of this Chapter, whether or not a person's contravention of the provision was due: (a) to the person's inadvertence or mistake; (b) to the person not being aware of a relevant fact or occurrence; or (c) to circumstances beyond the person's control; the person's ignorance of, or a mistake on the person's part concerning, a matter of law shall be disregarded." 78 Gray's inadvertence is said to be his erroneous view of what constitutes a "relevant interest". That appears to fall within s 610 as ignorance of or a mistake on Gray's part concerning a matter of law. However, it is unnecessary to so confine my decision not to exercise the power to excuse Gray's contravention under s 743 as I am satisfied that, given the findings I have made, the contravention by Gray was not due to inadvertence or mistake and was such that, in any event, it ought not to be excused under s 743. 79 I turn now to consider the primary claim of ASIC that the shares purchased in the first, second, third or fourth parcels, which are currently registered in the names of Lost Ark and Merrill Lynch Equity, vest in ASIC. Vesting orders under the CL 80 At the outset it is necessary to consider a submission made on behalf of Gray that the power of the Court to order that shares or an interest in shares vest in ASIC, and that the shares or the interest therein be disposed of by ASIC, is subject to the rights of third parties, including Gray, to dispose of the shares. Senior counsel for Gray submitted that the rights of Gray, as a third party in respect of the shares, prevail over any competing right of disposition of ASIC under a vesting order. Thus, so it is said: · Gray, as a third party, has the right to dispose of the shares the subject of the second, third and fourth parcels which takes priority under the statutory scheme over any competing right of ASIC under a vesting order; · the Court has no power to make a vesting order, or any other order, which would forfeit or suspend Gray's rights of disposition in respect of the shares other than an order directing that Gray dispose of the shares or of his interest in the shares: see ss 613(1)(d) and s 744(7)(a). 81 The submission suggests a significant limitation on what has previously been regarded as a broad power conferred on the Court to make orders under a relevant provision (as defined in s 744(1)), including remedial orders, and orders vesting shares in ASIC for the purpose, inter alia, of the disposition of those shares. The requirement that such orders shall not be made if the Court is satisfied under s 744(2) that the order would "unfairly prejudice any person" is generally regarded as the only substantive restriction on the Court's powers in relation to the relief it may grant in respect of a contravention that has not been excused under s 743. 82 The submission on behalf of Gray raises the issue as to the property rights in shares that might be the subject of a remedial order. The submission is primarily founded upon s 744(9) of the CL which provides that where a share or an interest in the share vests in ASIC by reason of an order under a relevant provision, or by direction under s 744(8), s 601AE applies as if the share or interest were vested in ASIC under s 601AD(2) and a sale or disposal or dealing with the share or interest under s 744(9)(a) were a disposal or dealing under s 601AE(2)(a). The relevant provisions of ss 601AE and 601AD, in effect, provide that where there is a deregistration of a company under s 601AC, the rights that vest in ASIC are only the same property rights that the company itself held and the property remains subject to all security interests or claims in respect of the property (s 601AD(3)). It was also contended that as the relevant provisions, including those relating to vesting orders, are not punitive, they should not be construed as forfeiting property rights or interests. 83 The submission is critical to ASIC's claim for a vesting order to enable it to dispose of the shares on the market. If the submission made on behalf of Gray is correct then it may be futile to make the order, as ASIC's power of disposition under the CL would be subject to Gray's power of disposition over the shares. 84 The submission requires consideration of the relevant statutory provisions. Remedial orders are intended to be the primary vehicle under the CL for remedying the consequences of contraventions of the takeover and substantial shareholding provisions in Ch 6 of the CL. In the present case the power to make appropriate orders arises under s 741 which confers power on the Court in respect of a contravention of a relevant provision to make such order as the Court "thinks just", including a remedial order. A remedial order is defined in s 613 and includes an order vesting in ASIC shares or an interest in shares as well as an order directing the disposal of or an interest in shares: see s 613(d) and (c). Section 1336 provides for the manner in which property (which is given a wide definition in s 9) vests in law and equity in a person where a vesting order is made. Plainly, it is the intent of s 1336 that a vesting order operates in rem to vest property in the person in whose favour the order is made. 85 The only express limitation imposed upon the broad powers conferred on the Court under s 741(1) is that imposed under s 744(2); the power shall not be exercised if the court is satisfied that the order it proposes to make would "unfairly prejudice" any person. As a matter of construction s 741(1) and (2) suggest that any third party interests in respect of the shares, or any interest in the shares, that might be the subject of an order under a relevant provision are properly considered and, where required, protected under s 744(2). 86 Thus, under the primary statutory provisions conferring power on a court in respect of a breach of a relevant provision, no limitation is imposed upon the exercise of the power of the court in relation to claims or interests of third parties in respect of the shares the subject of an order, other than the "unfair prejudice" limitation imposed in s 744(2). 87 It is significant that the power conferred on the Court is to make orders in respect of property, that is "shares" or an "interest" in shares, and is conferred in exceptionally wide terms without words of limitation. The power is not conferred in terms that limit the exercise of power to the interest actually held by the person contravening the relevant section or held by the legal or equitable owner. It seems to me that it was the intention of the legislature to confer wide power on a court under s 741 to make such order as "it thinks just", subject only to the limitation in s 744(2) to which I have referred. Whilst, in general, a power conferred in such terms, is to be exercised judicially it is subject to such limitations as are expressly stated (for example, s 744(2)) and those that might be determined by implication from the subject matter, scope and purpose of the Act: see for example Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 39-40 per Mason J. 88 In my view, upon a vesting of shares in ASIC under an order, interests in the shares of third parties, to the extent they are inconsistent with the interest of ASIC, cannot prevail over ASIC's interest. Any other conclusion would render nugatory the broad powers of relief conferred on the courts under the relevant provisions. Thus, the property interests protected under ss 601AD and 601AE are subject to ASIC's interest in the property under a vesting order which prevails to the extent of any inconsistency. There are a number of reasons for that conclusion. 89 Where a contravention occurs in respect of a substantial shareholding in a listed company, the shareholding acquired is acquired subject to the provisions of the CL that operate in respect of the contravention. The shares Terra Industries acquired and the interest in those shares acquired by Gray when they became "entitled" to a substantial shareholding, were acquired subject to the power of the Court, inter alia, to make a vesting order in relation to the shares, or to direct their disposal, under s 741. Thus, a vesting order and an order directing the disposal of the shares vested will operate in priority to, and prevail over, property rights of Gray and Terra Industries to the extent they are inconsistent with the order of the Court. 90 The argument put on behalf of Gray primarily depends on s 744(9) which deals with the situation of where a share or an interest in a share vests in ASIC. If Gray's submission were accepted it would only be upon a vesting in ASIC that a prior right of disposal prevails over the right of disposal conferred on ASIC as it is solely by reference to the deregistration provisions (ss 601AD and 601AE) that the vesting is subject to other existing property rights in the shares. In so far as the limitation imposed by ss 601AD and 601AE arises only where there is a vesting order it produces an odd result. The oddity is plain from the provisions of s 744(7) as, if a Court makes an order directing the disposal by a person of shares or an interest in shares under s 744(7), there will be no need for an order vesting the shares in ASIC and the power of disposition in accordance with the order is not subject to other interests under ss 601AD or 601AE. 91 The response on behalf of Gray to the anomaly was that it was implicit that any Court order for the disposal of a share or an interest in a share is limited to the property rights of the person holding the share. However, I have concluded that the primary provisions conferring power on the Court where there has been breach of a relevant provision, are not so limited. 92 The question is one of construction. Section 744(9) only applies where a share vests in the Commission. Section 744(9)(a) confers express power on the Commission, subject to any directions of the Court, to get in, sell or otherwise dispose of or deal with the share or interest as it sees fit. Section 744(9)(b) incorporates the deregistration provisions excluding s 601AE(2)(a). The obvious reason for the exclusion of s 601AE(2) under s 744(9)(b) is that, as the Commission has a general power of disposition under s 744(9)(a) there is no need for that power to be conferred under s 601AE(2). In my view, it is implicit in the statutory provisions to which I have referred, including the exclusion of s 601AE(2)(a), that the relevant deregistration provisions apply to the claims or interests persons may have in the share or interest, the subject of a vesting order and an order for disposition, but subject to the exercise by ASIC of its primary power under the vesting order to get in, sell or otherwise dispose of the share or interest. Put another way, in a case where a vesting order and a direction for the sale of shares is made the provisions of ss 601AD and 601AE do not restrict ASIC's power of sale; they operate primarily in relation to rights to the proceeds received by ASIC after its sale of the shares. 93 The conclusion I have reached is consistent with a purposive construction of the relevant provisions which are intended to confer upon ASIC a general power of disposition over any shares or interests in shares which vest in it. Thus, to the extent there is any conflict between the literal construction contended for by Gray and a purposive construction it is appropriate to resolve the conflict in favour of the purposive construction: see s 15AA(1) of the Acts Interpretation Act 1901 (Cth) and Fox v Commissioner for Superannuation (Black CJ, Branson and Sackville JJ) 1999 FCA 372 at paras 12-16 and the authorities there cited. 94 An alternative path to the same conclusion is to regard the statutory power conferred upon the Court to order the vesting of shares in ASIC and for the disposal of the shares under ss 741(1), 613 and 744(9)(a) as the leading provisions, which are to prevail over the subordinate provision being s 744(9)(b) (which incorporates ss 601AD and 601AE). As was observed in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 153 ALR 490 at 509-510 by McHugh, Gummow, Kirby and Hayne JJ: "A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals. Where conflict appears to arise from the language of particular provisions, the conflict must be alleviated, so far as possible, by adjusting the meaning of the competing provisions to achieve that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions. Reconciling conflicting provisions will often require the court 'to determine which is the leading provision and which the subordinate provision, and which must give way to the other'. Only by determining the hierarchy of the provisions will it be possible in many cases to give each provision the meaning which best gives effect to its purpose and language while maintaining the unity of the statutory scheme." (Footnotes deleted) See also Kazar v Duus (1998) 29 ACSR 321 at 327-328. 95 For these reasons I do not accept Gray's submission that if a vesting order is made his right to dispose of the shares prevails over that of ASIC. Should the Court make vesting orders? 96 ASIC is not seeking orders that deprive any person of an interest that person has in respect of the shares or the proceeds of sale of the shares, other than the right to dispose of the shares which will, in effect, be at an end upon an order being made vesting the shares in ASIC and directing their disposition by ASIC. 97 The principles governing the exercise of the power to make the orders sought in the present case are well established. Those principles may be summarised as follows. (a) One of the primary objectives of Ch 6 is to ensure that the acquisition of shares in listed companies takes place in an efficient, competitive and informed market: see Gjergja v Cooper [1987] VR 167 at 215 per Ormiston J and Australian Securities Commission v Mt Burgess Gold Mining Co NL (1994) 62 FCR 389 at 394-395 per Lee J. The primary purpose of the substantial shareholder provisions is to maintain an informed market in the shares of listed companies: see Australian Securities Commission v Bank Leumi Le-Israel (Switzerland) (1996) 69 FCR 531 at 535 per Lehane J and Re North Broken Hill Holdings Ltd (1986) 10 ACLR 270 at 282-283 per Fullagar J. (b) The legislative intention to maintain an informed market for listed shares is so fundamental that the Court was conferred with power in the widest of terms to make such order as "it thinks just" whenever there has been a contravention of any of the relevant provisions, including the substantial shareholding provisions: see s 741. The Court is empowered to make any order "calculated to conduce to the attainment of purchases on an informed market or calculated to set aside now and discourage in the future purchases made on an uninformed market": see Re North Broken Hill Holdings Ltd at 286 per Fullagar J. (c) A failure to comply with the substantial shareholding provisions results in a lack of information and therefore, an uninformed market. That, of itself, is a "grave disadvantage" arising from the contravention of the provisions and is enough for the Court to determine the orders that are appropriate without the it being bound "to decide whether anyone in the market (or potentially in it) has otherwise suffered loss or damage": see Re North Broken Hill Holdings Ltd at 284 per Fullagar J. (d) The orders to be made in respect of a contravention are, in general, remedial rather than punitive. However, the discretionary power to make such orders as the Court "thinks just", although conferred in very wide terms, has been construed as a power to make orders which advance the principal objectives of the statutory scheme: see Australian Securities Commission v Bank Leumi Le-Israel (1995) 134 ALR 101 at 152 per Sackville J at first instance and on appeal at 545 per Lehane J. In a different but analogous context, the majority in Metals Exploration Ltd v Samic Ltd (1994) 181 CLR 109 at 127-128 referred to the seriousness of the contravention and of the consequences which flowed from it as relevant considerations in granting relief which advances the objects of the relevant provisions. (e) Orders that ensure that those who contravene the provisions do not enjoy the benefits of their contravention or orders which render their efforts fruitless are within the objects of the statutory scheme: see National Companies and Securities Commission v Monarch Petroleum NL [1984] VR 733 at 741 per Nicholson J and Mt Burgess Gold Mining Co NL at 395 and Gjergja at 216 per Ormiston J. (f) The main restriction on the Court's powers to make remedial orders is contained in s 744(2) which provides that the order cannot be made if the Court is satisfied that it would unfairly prejudice any person. Although the Court will determine each case according to the justice and equity of the circumstances, the fact that a person is prejudiced by an order does not, of itself, establish that the order is unfair: see Waldron v MG Securities (Australasia) Ltd [1975] VR 508 at 532; Gjergja at 173-174 per McGarvie J, at 218-219 per Ormiston J and Bank Leumi Le-Israel at 152 per Sackville J at first instance. Even in circumstances where an "innocent person" is prejudiced by an order, such prejudice may not necessarily be unfair: Gjergja v Cooper at 174. Sackville J observed in Bank Leumi Le-Israel (at 152), the classification of prejudice as "unfair" "may depend upon whether the order is essential to give effect to the relevant legislative policy and whether evidence is presented as to the precise nature of the prejudice said to have been suffered". (g) The exercise of the Court's discretion requires it to consider a range of possible remedies and select the appropriate one in the circumstances of the case: see Bank Leumi Le-Israel at 545 per Lehane J on appeal. Whilst orders made in respect of contravention are generally remedial rather than punitive, in considering whether an order is unfairly prejudicial and whether the Court should exercise its power in a particular case, it is appropriate to take into account the degree of culpability of persons whose interests are affected by the orders, including whether those persons have acted dishonestly or in a manner that can be characterised as reckless: see Bank Leumi Le-Israel at 154 per Sackville J at first instance and at 545 per Lehane J on appeal. 98 As the relief in the present case is sought in respect of "the shares" the subject of the s 709 contraventions, it is necessary to consider the relief that is appropriate as a consequence of the contraventions of both Terra Industries and Gray, rather than approach the issue of relief separately in respect of each contravention, subject, of course, to the issue of unfair prejudice under s 744(2). In that context, and applying the above principles, my conclusions in respect of the contraventions of s 709 can be summarised as follows. 99 The contravention by Terra Industries of s 709 was wilful, contumelious and, as explained earlier, led to a seriously uninformed and misinformed market for Coms 21 shares. The market was, and remains, uninformed as to the identity of the person or persons constituting the "client" on whose behalf Terra Industries acquired a substantial shareholding in Coms 21. 100 The market was misinformed in respect of the substantial shareholding as participants in the market were likely to believe that there was a takeover being planned by a bona fide offeror who had acquired a substantial shareholding of 12.9% as a platform for the takeover, when in fact that was not the case. The purchase was a "phantom" purchase in the sense that the shares had not been paid for, nor, it appears, were they intended to be paid for when they were acquired other than if it suited the ultimate purchaser's convenience to do so. Those facts, which demonstrated the lack of bona fides of the purchaser in respect of the acquisition of its substantial shareholding and the prospective takeover, were concealed from the market by "the client" and its agent, Terra Industries. The contraventions on the part of Terra Industries are continuing, as a substantial shareholding notice which complies with the requirements of s 709 has still not been given by Terra Industries or its "client". 101 In the above circumstances, the objectives of Ch 6 are appropriately met by orders vesting the shares in ASIC for the purpose of their disposition by sale. The sale will result in the proceeds being payable in accordance with the statutory scheme set out in ss 601AD and 601AE to all persons having an entitlement to share in the proceeds. The order vesting the shares in ASIC will result in the deprivation of disposal rights in respect of the shares on the part of Terra Industries and its so-called "client". It is appropriate that they be deprived of those rights so that they cannot be exercised, directly or indirectly, to assist or further a takeover of Coms 21 or any other purpose Terra Industries or its client might have had. It is relevant to observe that although Gray may presently have the right of disposition, that can be terminated at any time by payment by Terra Industries. Whilst that prospect may be remote, if it occurred, it could enable Terra Industries or its client to enjoy the fruits of their contravention. Such an outcome is at odds with the objects of the relevant provisions. 102 I am of the view that the orders are appropriate, and are not unfairly prejudicial to Terra Industries, when regard is had to my findings concerning its continuing contravention of the CL. Terra Industries should not be placed in a position where it could become entitled to receive, directly or indirectly, any benefit whatsoever from its contravention nor should it hereafter be entitled to exercise any voting or dispositive power in relation to the shares so as to influence or affect the market for Coms 21 shares, including any takeover or other offer that might be made for the shares. That outcome is consistent with the legislative intent of ensuring a fair, efficient, competitive and informed market for Coms 21 shares. 103 The situation in respect of Gray is more complex. I am satisfied that the vesting orders in respect of the Terra Industry contraventions are not unfairly prejudicial to Gray. The following considerations are relevant in that regard. 104 At all material times Gray was aware that: · the shares were being acquired by an unidentified "client"; · the acquisition was an acquisition of a substantial shareholding; · pursuant to the CL the client was required to give notice of the acquisition of its interest within two business days. 105 Apart from the initial request of PG Intercapital for the identification of the beneficial owner, no proper enquiry was made thereafter as to the identity of the beneficial owner by Gray who knew that that owner was ultimately responsible for the giving of the substantial shareholding notice. 106 By 8 January 1999, when Gray acquired his interest in the shares (albeit by reason of the indemnity agreement), he was fully aware of the contravention of s 709 by Terra Industries and its "client" in respect of the shares in question. I accept that Gray's acquisition occurred in discharge of an existing obligation to indemnify PG Intercapital in respect of the loss suffered by it as a result of the default by Terra Industries. However, I do not accept that the vesting order can be unfairly prejudicial to Gray when viewed, inter alia, in the context of his knowledge of the existing contravention when he acquired the shares. 107 Gray was also aware that the factors I have described above resulted in an uninformed and misinformed market in relation to the Coms 21 shares as a consequence of the contravention of s 709 by Terra Industries. Yet Gray omitted to take steps to rectify that situation prior to the issue of these proceedings. Further, Gray deliberately refrained from taking the obviously prudent step of seeking legal advice concerning his obligations in the situation that had arisen. In refraining from making appropriate enquiries as to his obligations, Gray effectively turned a "blind eye" to those obligations in the hope that somehow all would work out well in the long run. The contravention of s 709 by Gray contributed to maintaining the uninformed and misinformed market to which I have referred. 108 Thus, Gray's contravention of s 709 was, itself, a serious contravention which furthered Gray's pecuniary interest. 109 In the above circumstances I am not satisfied that the vesting orders sought are unjust, inequitable or unfair in relation to Gray or that the orders would unfairly prejudice him. It was not contended that any person other than Gray would be unfairly prejudiced by the orders sought by ASIC. In any event, in all the circumstances, including the fact that Gray is the person entitled to exercise dispositive power over the shares I am not satisfied that the orders sought would unfairly prejudice any person. Thus, whilst a vesting order will be prejudicial to Gray, Terra Industries and possibly its "client", I am not satisfied the prejudice is unfair. 110 Thus far, I have approached the issue of relief on the basis of Terra Industries' contraventions and have concluded that the orders sought do not unfairly prejudice Gray. However, I would make the same orders on the basis of Gray's contravention. 111 An additional factor is relevant to the orders that are appropriate in respect of Gray's contraventions. The additional factor is Gray's close association with Favretto, Coms 21 and the market in Coms 21 shares. The Terra Industries' purchases were "friendly" purchases arranged by Favretto. As pointed out above, the market in Coms 21 shares had been volatile and subject to considerable takeover speculation. In my view, the shares may yet be of significant strategic importance and there remains a real risk that the shares may, directly or indirectly, be used to benefit Terra Industries or the third parties involved in the contraventions if the power of disposition over the shares remains with Gray. 112 In all the circumstances the objects of the statutory scheme are appropriately served by the power of disposition in respect of the shares being placed in the hands of an independent third party such as ASIC. Such an outcome will ensure that the disposition of the shares will not unfairly benefit any particular person or operate so as to hinder an efficient, competitive and informed market. In arriving at this conclusion I do not find that Gray is associated with the persons involved in the contravention by Terra Industries. However, his close association with Favretto or Coms 21 might lead him to become involved, albeit unwittingly, with such persons and thereby assist them in fulfilling the objectives of their original plan. That is an outcome which the Court should be astute to prevent. I am also influenced by the fact that Gray's power of disposition is only held as security for payment of the amount due by Terra Industries which, according to his evidence, still has ultimate power over the shares if it pays the amount due and, in any event according to Gray, can exercise voting power in the meantime. Thus, in all the circumstances vesting orders would also be appropriate in respect of Gray's contravention notwithstanding that since 25 February, as required by s 709, he has informed the market of his interest. 113 I do not accept Gray's contention that, rather than a vesting order, he should be ordered to dispose of the shares. Gray relied upon the fact that ASIC had consented to varying the injunctions to allow him to dispose of the shares. However, the consent was prior to the hearing and before ASIC was fully aware of the situation. In any event, for the reasons set out above, I am satisfied that the vesting orders sought by ASIC at trial are appropriate. Conclusion 114 Accordingly, for the above reasons it is appropriate to make the vesting orders sought by ASIC with appropriate directions for the disposition of the shares. 115 I am satisfied that Merrill Lynch should be entitled to receive its costs of the proceeding from Terra Industries. The costs may be paid out of the surplus (if any) arising from the proceeds of sale of the shares held by Merrill Lynch Equity for Terra Industries after any claims under the CL in respect of the proceeds have been satisfied. 116 ASIC's costs of the proceeding are also to be paid by Terra Industries and Gray. ASIC is to be entitled to have those costs recouped out of the surplus (if any) of the proceeds of sale after all other claims under the CL have been satisfied. No order should be made in respect of the costs of PG Intercapital or Lost Ark Nominees. 117 The costs orders that are appropriate are: (a) Terra Industries pay the taxed costs of Merrill Lynch and Merrill Lynch Equity, which costs may, subject to claims under the CL, be paid by ASIC out of the proceeds of the sale of the shares held by Merrill Lynch Equity which have vested in ASIC; (b) Terra Industries pay the taxed costs of ASIC, which costs may, subject to claims under the CL, be recouped by ASIC out of the proceeds of the sale of the shares vested in ASIC under this order; (c) Gray pay the taxed costs of ASIC; (d) No order be made in respect of the costs of PG Intercapital and Lost Ark Nominees.

AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION v TERRA INDUSTRIES INC

At a glance

Court

Decision date

Before

Source

Judgment (17 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (6)

Cited By (2)