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[2009] FCA 1236
Federal Court of Australia
2009-11-02
McKerracher J
Original judgment source is linked above.
REASONS FOR JUDGMENT 1 The plaintiff (Chalice) applies today under s 1322 of the Corporations Act 2001 (Cth) (the Act) for remedial curative orders to overcome Chalice's non-compliance with s 708A(6) of the Act.
BACKGROUND FACTS 2 Chalice is a company listed on the Australian Stock Exchange (ASX). On 10 September 2009, 16,300,000 fully paid ordinary shares in Chalice were issued. That issue arose as a result of Chalice entering into an agreement with Southern Cross Equities Limited (Southern Cross), the holder of Australian Financial Services Licence 247027 under which Southern Cross was required to raise $4.4 million of new equity by way of placement of 16,300,000 fully paid ordinary shares to institutional and sophisticated investors at a price of 27 cents per share. The funds from that placement were to be used to fund general working capital requirements, principally in relation to a project in Eritrea, north eastern Africa. 3 On the following day, Southern Cross advised it had agreements in place with institutional and sophisticated investors to subscribe for 16,300,000 fully paid ordinary shares in Chalice. There were 22 investors who participated in that placement to varying degrees but some of them, quite extensively (the Placees). At the same time, Chalice made an announcement to the ASX concerning the placement. Chalice advised that it had raised $4,401,000 before issue costs to fund the ongoing development of the Zara Project in Eritrea through the placement of the 16,300,000 shares at 27 cents per share to be made pursuant to the 15 per cent allowance under the ASX listing rules and to be completed on or around 10 September 2009. On 10 September 2009, all of the placement shares were issued and allotted to the Placees. 4 Shortly before the placement, Chalice had completed a merger via a scheme of arrangement with Sub-Sahara Resources NL (Sub-Sahara) also listed on the ASX. On 12 August 2009, the scheme of arrangement was Court approved under s 411 of the Act. That scheme of arrangement became effective on 26 August 2009. The principal asset of Sub-Sahara is a 68.8 per cent participating interest in the gold exploration project in Eritrea called the Zara Project. 5 Mr Richard Keith Hacker is the Company Secretary of Chalice. Part of the duties of Mr Hacker as Company Secretary of Chalice was to oversee the successful integration of Sub-Sahara and its business with Chalice following completion of the scheme of arrangement. This was a particularly busy time and his workload increased substantially once the merger became effective at the end of August 2009. He had primary responsibility for implementing the merger with Sub-Sahara in relation to accounting systems, staff and overseeing many of the other administrative issues associated with the absorption of the business of Sub-Sahara into Chalice and the relocation of its corporate records to the offices of Chalice. At the same time, in September 2009, he was heavily involved in the completion of Chalice's annual report to its shareholders which was lodged with the ASX on 24 September 2009 and was also fulfilling duties as Company Secretary to other ASX listed companies. Although Mr Hacker is assisted on accounting matters by one other person, he remains solely responsible for all secretarial and associated administrative functions within Chalice. Therefore, it was his responsibility to attend to the documentary requirements in connection with the placement which included the lodgement of an Appendix 3B in relation to the placement with the ASX. This was lodged with the ASX on 7 September 2009. He was also responsible for liaising with Chalice's Share Registrars concerning the issue and allotment of the placement shares to the 22 Placees. 6 On the morning of 20 October 2009, Mr Hacker realised, when it was brought to his attention by Southern Cross, that a notice complying with s 708A(6) of the Act had not been given in relation to the placement as required in accordance with s 708A(5)(e) of the Act (the Notice). He has issued such notices in the past and is familiar with their function and purpose. 7 On this occasion, due to his increased workload and involvement in overseeing the implementation of the recently completed merger between Chalice and Sub-Sahara, he inadvertently omitted to give the Notice in respect of any of the placement shares. 8 Immediately after the oversight was brought to his attention, he contacted Chalice's solicitors and sought advice as to the steps available to Chalice to rectify the position. 9 Mr Hacker was advised by Chalice's solicitors that the Australian Securities Investments Commission (ASIC) would not provide a 'modification of law' to allow Chalice to issue the Notice out of time and that the only avenue available to Chalice was to seek an order from this Court under s 1322(4) of the Act to enable the Notice to be given out of time. 10 Accordingly, on the next day, 21 October 2009, Chalice made an announcement to the ASX indicating the situation and foreshadowing the making of this application and instructed the solicitors to write to ASIC notifying ASIC of the circumstances. The solicitors complied with that instruction on the same day. 11 On the next day, Chalice wrote to each of the Placees notifying them of the position and the fact that a Notice in relation to the shares had not been given and of the proposed application. 12 On the same day, Mr Hacker examined a copy of the Share Register of Chalice from which he was able to determine that six of the Placees had sold all of the shares that were issued to them totalling 1,954,584 shares and another four Placees had also sold shares after the placement but in each case the number sold was less than the number held by the relevant Placee prior to the placement and accordingly it is unclear whether the shares sold were part of the placement or shares held prior to the placement. 13 Shortly put, the arguments for Chalice mirror the legislation. They are that the failure to give the Notice was due to inadvertence, not through any act of dishonesty or wilful intention; the placement shares were in a class of securities of Chalice that were quoted securities at all times in the three months before the day on which the placement shares were issued (that being, 10 September 2009); trading in that class of securities in the ASX was not suspended for more than a total of five days during the period of 12 months before the day on which placement shares were issued; no exemption under s 111AS or s 111AT of the Act covered Chalice or any person as director or auditor of Chalice at any time during the period of 12 months before the day on which the placement shares were issued; no order under s 340 or s 341 of the Act covered Chalice or any person as director or auditor of Chalice at any time during the period of 12 months before the day on which the placement shares were issued; at all material times, Chalice has complied with the financial reports and audit provisions under Ch 2M of the Act and the continuous disclosure provisions under s 674 of the Act; and finally, that there was no excluded information as that term is defined in s 708A(7) of the Act which would have required disclosure had the notices under s 708A(5)(e) of the Act been given within five business days of the day on which the placement shares were issued. There is no such excluded information which would now be required to be disclosed if such a notice was now given.
THE LEGISLATION 14 Section 1322(4)(a) and s 1322(4)(d) of the Act respectively provide: 1322 Irregularities (4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation; … (d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding; and may make such consequential or ancillary orders as the Court thinks fit.
NOTICE PROVISIONS - THE STATUTORY FRAMEWORK 15 Chapter 6 of the Act deals with takeovers. The purpose of the Chapter is to ensure that the acquisition of control of shares in the circumstances of takeovers, takes place in an efficient, competitive and informed market. The provisions aim to achieve reasonable and equal opportunities on the part of shareholders within a relevant class to participate in any benefits accruing to holders through any proposals for which a person would acquire a substantial interest in a company, body or scheme. Appropriate procedures are to be followed. 16 To the extent relevant to this application, the Act restricts the on-sale of shares issued without disclosure under Ch 6D unless the sale is exempt under s 708 or s 708A of the Act. The current sale was exempt but it was still necessary to give a Notice to investors (the Placees in this instance) of the matters prescribed in s 708A(6) within the time set out in subs (6). 17 The text of s 708A of the Act relevantly provides as follows: 708A Sale offers that do not need disclosure Sale offers to which this section applies (1) This section applies to an offer (the sale offer) of a body's securities (the relevant securities) for sale by a person if: (a) but for subsection (5), (11) or (12), disclosure to investors under this Part would be required by subsection 707(3) for the sale offer; and (b) the securities were not issued by the body with the purpose referred to in subparagraph 707(3)(b)(i); and (c) a determination under subsection (2) was not in force in relation to the body at the time when the relevant securities were issued. … Sale offer of quoted securities - case 1 (5) The sale offer does not need disclosure to investors under this Part if: (a) the relevant securities are in a class of securities that were quoted securities at all times in the 3 months before the day on which the relevant securities were issued; and (b) trading in that class of securities on a prescribed financial market on which they were quoted was not suspended for more than a total of 5 days during the shorter of the period during which the class of securities were quoted, and the period of 12 months before the day on which the relevant securities were issued; and (c) no exemption under section 111AS or 111AT covered the body, or any person as director or auditor of the body, at any time during the relevant period referred to in paragraph (b); and (d) no order under section 340 or 341 covered the body, or any person as director or auditor of the body, at any time during the relevant period referred to in paragraph (b); and (e) either: (i) if this section applies because of subsection (1) - the body gives the relevant market operator for the body a notice that complies with subsection (6) before the sale offer is made; or (ii) if this section applies because of subsection (1A) - both the body, and the controller, give the relevant market operator for the body a notice that complies with subsection (6) before the sale offer is made. (6) A notice complies with this subsection if the notice: (a) is given within 5 business days after the day on which the relevant securities were issued by the body; and (b) states that the body issued the relevant securities without disclosure to investors under this Part; and (c) states that the notice is being given under paragraph (5)(e); and (d) states that, as at the date of the notice, the body has complied with: (i) the provisions of Chapter 2M as they apply to the body; and (ii) section 674; and (e) sets out any information that is excluded information as at the date of the notice (see subsections (7) and (8)). …
INTEREST OF OTHERS 18 Chalice has given notification by way of an announcement to the ASX of the application for this order and has also notified the ASIC and the Placees in relation to the intention to apply for relief to issue a late but valid Notice under s 708(5)(e) of the Act. 19 Subsequent to those events occurring, it has been confirmed on behalf of Chalice that none of the parties notified in respect of the relief which Chalice now seeks, has expressed a desire to appear or oppose the granting of the relief. 20 Mr Hacker, the Company Secretary and Chief Financial Officer of Chalice refers to the fact that as at the time of swearing his affidavit in support of the originating process, the Placees have on-sold 1.9 million of the shares that were issued.
FAILURE TO ISSUE NOTICE WAS DUE TO INADVERTENCE 21 The failure on the part of Chalice to issue the Notice was due to inadvertence and not through any act of dishonesty or wilful intention not to issue the Notice. I accept the explanation as to the other extraordinary activities at the time which gave rise to the oversight. Inadvertence has its normal meaning as suggested in the authorities, for example, Blaze Asset Pty Ltd v Target Energy Limited [2009] FCA 698 per Barker J (at [35]). On the basis of the evidence and applying some common sense, it is plain that the oversight in failing to give the requisite Notice was caused by inadvertence. 22 In addition, at all material times Chalice has complied with the provisions of Ch 2M (financial reporting requirements) and s 674 of the Act (continuous disclosure requirements) as they applied to Chalice; there was and is no excluded information as defined in s 708A(7) of the Act which would have been required to be disclosed or now requires disclosure and, accordingly, no injustice will have been caused to any person by reason of the Notice not having been lodged within five business days of the shares being issued.
DISCRETIONARY FACTORS 23 A relevant factor to take into account in exercising discretion to give relief as is sought in this proceeding is the promptness with which the applying corporation seeks to regularise the position. There is no doubt in the present case that Chalice has taken steps very promptly once the failure to lodge the Notice was identified. There has been no undue delay. 24 Also central to the relief sought by this application is the fact that Chalice would have been exempt in respect of the requirements under s 708A(5) of the Act in respect of the on-sale of the shares had it given a Notice for the purpose of s 708A(5)(e) of the Act within five business days of the issue of the shares. 25 Chalice was then and has at all material times been able to issue a Notice under that paragraph as: (a) the shares concerned are in a class of securities that were quoted securities at all times in the three months before the day on which the shares were issued; and (b) trading in that class of securities on a prescribed financial market on which they were quoted was not suspended for more than a total of five days during the shorter of the period during which the class of securities were quoted and the period of 12 months before the day on which the shares were issued; and (c) no exemption under s 111AS or s 111AT of the Act related to Chalice or any person as director or the auditor of Chalice at any time during the relevant period referred to in (b) above; and (d) no order under s 340 or s 341 of the Act related to Chalice or any person as director or auditor of Chalice at any time during the relevant period referred to in (b) above. 26 The declaratory relief sought by Chalice under s 1322(4)(a) of the Act to the effect that a Notice given under s 708A(5)(e) of the Act within the extended period be deemed to take effect as if it had been given within the period of five business days from 10 September 2009, that is, within the required five business day period, is consistent with relief granted in the matters of Charter Hall Limited, in the matter of Charter Hall Limited [2007] FCA 1316, Diversified, in the matter of Diversified United Investment Limited ACN 006 713 177 [2008] FCA 720 and In the Matter of Chameleon Mining NL [2009] NSWSC 660. It also gives clarity for those affected shareholders (the Placees) who on-sold the relevant securities prior to the lodgement of a Notice which complies with the section and thereby to any purchaser from them. 27 Section 1322(6)(a) of the Act provides that the Court must not make an order under s 1322(4)(a) unless it is satisfied: (i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature; (ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or (iii) that it is just and equitable that the order be made. 28 Even though these elements are expressed disjunctively, for the reasons discussed above, I am satisfied as to each of the elements of s 1322(6)(a) of the Act. 29 Further, s 1322(6)(c) of the Act provides that the Court must not make an order under s 1322(4)(a) unless it is satisfied that no substantial injustice has been or is likely to be caused to any person. 30 I am satisfied that no substantial injustice has been or is likely to be caused to any person. It is not evident that any injustice at all will be occasioned by granting the relief sought. Indeed, the contrary may be the case if relief is refused. It seems there was no excluded information which should have been but was not disclosed that could have altered the information base of those concerned if the time limits had been met. If that is wrong, a purchaser who is able to prove that there was excluded information which should have been disclosed would presumably have an independent cause of action available and certainly by the granting of liberty to apply, will have additional relief in respect of the orders to be made in this proceeding. There is no reason to think that compliance in the circumstances would have improved the position of a purchaser (Charter Hall Ltd at [5]). 31 Given the requirements for notice and advertising of the proposed orders, the granting of liberty to apply to vary or discharge the orders within a limited time would appear to accommodate any presently unforeseen potential for injustice (Chameleon Mining NL (at [12])). 32 Generally speaking, apart from the merger described in [4] the circumstances and reasoning in this application are very similar to those in which I granted similar relief earlier this month in RCR Tomlinson Ltd (ACN 008 898 486); In the matter of RCR Tomlinson Ltd (ACN 008 898 486) [2009] FCA 1130 (6 October 2009) 33 The following orders will be made: 1. In respect of the 16, 300, 000 fully paid ordinary shares in the plaintiff issued on 10 September 2009 (the Relevant Securities) the period of five business days referred to in section 708A(6) of the Corporations Act 2001 (Act) be extended to the second business day after the day on which these orders are entered. 2. The notice under section 708A(5)(e) of the Act given to ASX Limited (ASX) in respect of the Relevant Securities within the period provided for in Order 1 be deemed to take effect as if it had been given to ASX within five business days of 10 September 2009. 3. These orders be entered forthwith. 4. A sealed copy of these orders be served on ASIC, ASX, and each person named in the schedule which is annexure RKH-2 to the affidavit of Richard Keith Hacker sworn on 23 October 2009 within two business days of the date of these orders. A copy of these orders also be placed on the website of the plaintiff as soon as practicable and remain there for at least 28 days. 5. Any interested party have liberty to apply within 28 days of the entry of these orders to revoke or vary the orders. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.
Associate: Dated: 2 November 2009 Counsel for the Plaintiff: S Salter
Blaze Asset Pty Ltd
Target Energy Limited