Chevron (TAPL) Pty Ltd v Chevron Australia Pty Ltd, in the matter of Chevron

Federal Court of Australia|2023-03-17|Before: Mr AJ, Smith J

Introduction 2 On 9 January 2023 Essential Metals Limited announced that it had executed a scheme implementation agreement (SIA) with Tianqi Lithium Energy Australia (TLEA) under which TLEA will acquire the entire issued capital of Essential by way of a Scheme of arrangement. Under the Scheme, shareholders of Essential will receive cash consideration of $0.50 for every share that is held on the record date. 3 It is well recognised that such a share acquisition transaction can be implemented by way of a scheme of arrangement approved under s 411 of the Corporations Act.

The parties 4 Essential is an Australian public company limited by shares and is listed on the Australian Securities Exchange (ASX). It was incorporated on 17 January 2003 and is based in West Perth, Western Australia. It is a lithium explorer, with its key project being the Pioneer Dome Project located in the Eastern Goldfields region in Western Australia. 5 TLEA is incorporated in England, and is a foreign registered company. It owns an integrated lithium business in Western Australia.

Key documentation 10 In addition to the SIA, key documents relevant to the Scheme include a Deed of Variation by which the SIA was amended by the parties; and a Deed Poll in favour of each shareholder executed by a director of TLEA, by which TLEA covenants and undertakes in favour of each of the shareholders to fulfil its obligations and provide the consideration required by the Scheme. 11 The Court and the Australian Securities and Investments Commission (ASIC) have received iterations of a draft Scheme Booklet, which in turn includes an Independent Expert's Report.

Evidence relied upon 12 Essential read the following affidavits: (a) affidavit of Timothy Spencer, the managing director of Essential, which relevantly provides details of the securities, corporate structure and business of Essential, the structure and securities of TLEA, attaches the draft Scheme Booklet and the SIA, explains the verification process undertaken for the Scheme Booklet and discloses information relevant to matching rights, reimbursement fees and exclusivity provisions under the SIA; (b) affidavit of Craig McGown, a non-executive director of Essential, as to his willingness to act as alternate chairperson; (c) affidavit of Warren Hallam, a non-executive director of Essential, as to his willingness to act as alternate chairperson; (d) affidavit of Raj Surendran, the chief executive officer of TLEA, which relevantly addresses TLEA's corporate structure, the provision and execution of the Deed Poll, the verification process for the Scheme Booklet insofar as it relates to the obligations of TLEA and other matters relevant to the SIA; (e) affidavit of Sherif Andrawes, director and authorised representative of BDO Corporate Finance (WA) Pty Ltd, who, with Adam Myers of BDO, had overall responsibility for providing an independent expert's report as to the Scheme dated 24 February 2023 (Report), attaching and verifying the Report; (f) affidavit of Nino Odorisio, a partner of HopgoodGanim, solicitors for Essential, which relevantly addresses communications with ASIC; (g) affidavit of Gregory Fitzgerald, the company secretary of Essential and a chartered accountant, which relevantly addresses shareholder communications, including the engagement by Essential of Morrow Sodali, a professional proxy solicitation firm to provide shareholder engagement services, and attaches copies of historic and future scripts and emails about such communications with ASIC; (h) affidavit of Samantha Myers, partner at the London office of law firm Gowling WLG (UK) LLP, which provides an opinion as to the proper execution of a contract or instrument by a company incorporated in England and Wales, an issue relevant to the execution of the Deed Poll; (i) second affidavit of Nino Odorisio which relevantly addresses updated communications with ASIC, communications with TLEA about the Foreign Investment Review Board (FIRB) and updated proposed Morrow Sodali outbound and inbound shareholder call scripts; (j) second affidavit of Gregory Fitzgerald sworn 17 March 2023 as to Mr Fitzgerald's willingness to act as alternate chairperson at the scheme meeting; and (k) third affidavit of Nino Odorisio sworn 17 March 2023 as to service of documents on and conferral with ASIC, and as to his willingness to chair the scheme meeting. 13 The factual matters in these reasons are based upon information provided by way of these affidavits. 14 I note that the affidavits of Mr McGown and Mr Hallam as to their potential roles as chairperson or alternate chairperson at the proposed scheme meeting were superseded by the second affidavit of Mr Fitzgerald and the third affidavit of Mr Odorisio, but I include them for completeness.

Legal framework for the approval of a scheme 15 Section 411 envisages three steps: the calling of a meeting as ordered by the Court; a vote by members; and a further application to the Court for approval of the arrangement. 16 Section 411(1) of the Corporations Act relevantly provides that, where an arrangement is proposed between a Part 5.1 body and its members, the Court may, on the application of the body in a summary way, order a meeting of the members to be convened in such manner and to be held in such place as the Court directs. 17 Section 412(1)(a) of the Corporations Act relevantly provides that where a meeting is convened under s 411, the Part 5.1 body must, with every notice convening the meeting, send a statement explaining the effect of the arrangement. The statement must set out such information as is prescribed and any other information that is material to a member's decision to agree or not agree to the arrangement. It is usual for a scheme booklet to include the explanatory statement information. 18 Where the Court makes an order convening a meeting, the Court may also approve the explanatory statement required by s 412(1)(a) to accompany the notice of such a meeting. 19 This application concerns only the convening of the first meeting and the approval of the Scheme Booklet, which incorporates the explanatory statement. Section 411 threshold matters 20 There are many authorities in which the principles have been summarised. For convenience, I adopt the summary I provided in Chevron (TAPL) Pty Ltd v Chevron Australia Pty Ltd, in the matter of Chevron (TAPL) Pty Ltd [2022] FCA 220 at [17]-[20]. 21 Section 411 does not set out the criteria that must be satisfied before a meeting is ordered. However, the authorities establish that the Court should order the convening of a scheme meeting and approve the despatch of an explanatory statement if satisfied of the following matters: (a) the plaintiff is a Part 5.1 body (defined in the Corporations Act); (b) the scheme is an arrangement in respect of which the Court may order a meeting of the members or creditors; (c) the explanatory statement (that is, the scheme booklet) provides adequate disclosure and contains the prescribed information; (d) the proposed scheme is bona fide and properly proposed; (e) that there is no apparent reason why the scheme should not, in due course, receive the Court's approval if the necessary majority of members' votes is achieved; and (f) any other procedural requirements have been met. 22 As to other statements of the principles, see in particular Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341 at [9] (McKerracher J); EcoBiotics Limited, in the matter of EcoBiotics Limited [2017] FCA 643 at [20] (Gleeson J); SRG Limited, in the matter of SRG Limited [2018] FCA 1092 at [11] (Banks-Smith J); Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308 at [46]-[78] (Vaughan J); and In the matter of Ovato Print Pty Ltd [2020] NSWSC 1683 at [19] (Black J). 23 The principles as to the nature of the review at the first court hearing are also summarised elsewhere: for example, Programmed Maintenance Services Limited, in the matter of Programmed Maintenance Services Limited [2017] FCA 1265 at [11]-[14] (McKerracher J); and Signature Gold Ltd, in the matter of Signature Gold Ltd [2017] FCA 1481 at [22]-[23] (Markovic J). 24 In summary, the standard of review is whether the proposed scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members. It is not necessary for the Court to descend into the commercial merits of the proposed scheme. If the proposed arrangement is one that seems fit for consideration by a meeting of members and is a commercial proposition likely to gain the Court's approval if passed by the necessary majority, then leave should be given to convene the meeting.

Consideration - threshold matters 25 The following are relevant in this proceeding.

Part 5.1 body 26 Section 411 of the Corporations Act confers jurisdiction on the Court in respect of a Part 5.1 body. The term 'Part 5.1 body' is defined in s 9 to mean, relevantly, a company. Essential is a company duly incorporated in Australia.

Arrangement 27 The proposal before the Court is an arrangement. It concerns a change in the rights of members in their capacity as members of Essential.

Explanatory statement - the Scheme Booklet 28 I have considered the Scheme Booklet in the final form in which it was provided to ASIC on 16 March 2023. It is a detailed document which includes sections dealing with important dates and notices; an outline and overview of the Scheme; additional key information including the directors' recommendations; information as to any effect on creditors and other regulatory matters; a summary of the conclusion of the expert reflected in the Report; information about both Essential and TLEA; a summary of the key risks and implications; disclosure of directors' interests; and voting information. 29 The Scheme Booklet also has a number of schedules and annexures, including the proposed Scheme, the SIA, the Report and the proposed notice of scheme meeting. 30 The explanatory statement provided to shareholders must provide proper disclosure as required by s 411(3) of the Corporations Act. I have reviewed the affidavit evidence to ensure that the matters which must be disclosed have been properly disclosed (including the prescribed matters referred to in s 412(1)(a) of the Corporations Act and Schedule 8 of the Corporations Regulations 2001 (Cth)) and I consider that is the case. I had the assistance of a compliance schedule provided with the written submissions.

Independent expert 31 As noted, BDO provided the Report. The preparation of the Report included consideration of how the value of an Essential share compares to the value being offered by way of consideration under the Scheme (a formal valuation exercise); the likelihood of an alternative proposal offer being made; factors relevant to shareholders in assessing the Scheme; advantages and disadvantages to shareholders; and the position if the Scheme does not proceed. 32 The conclusion of BDO as stated in the Report is that, in the absence of a superior offer, the Scheme is fair and reasonable and therefore in the best interests of shareholders. 33 More specifically as to value, the Report concludes that the value of a share in Essential prior to the Scheme (on a controlling and diluted basis) is in the range of $0.283 to $0.468, compared with the offered scheme consideration of $0.50 per share. 34 At part 13 of the Report, the advantages and disadvantages are set out in terms that I consider clear and accessible to shareholders.

Voting position of directors 35 It is disclosed in the Scheme Booklet that the directors of Essential unanimously recommend that shareholders vote in favour of the Scheme in the absence of a superior proposal and subject to the independent experts continuing to conclude that the Scheme is in the shareholders' best interests. It is disclosed that each board member will vote in favour of the Scheme. Director benefits are also disclosed, and discussed further below.

A single class 36 The question of classes and separate class meetings arises because of the reference in s 411(1) to an arrangement proposed between a company and its members 'or any class of them'. I accept that the Scheme involves only one class of voters. The method of dealing with the other securities in Essential is not class creating. 37 As to the various unlisted options on issue, it is a condition precedent of the SIA that before 8:00am on the second court date, each person registered as a holder of options has either exercised them in accordance with their terms, or agreed unequivocally and irrevocably to exercise them prior to the Record Date or entered into an 'Option Cancellation Deed' (as defined in the SIA, as amended by the Deed of Variation). 38 The Essential Options are to be the subject of Option Cancellation Deeds, are all to be treated on the same basis and the intrinsic value is to be provided (explained in schedule 5 of the SIA). The directors hold both ordinary shares and Essential Options, but I accept that they are not in a separate class by reason of holding these two different securities for which they receive separate and different value: Excelsior Gold Limited, in the matter of Excelsior Gold Limited [2018] FCA 2064 at [36]. 39 As to the Essential Performance Rights, under the SIA, before 8.00 am on the second court date Essential must have arrangements in place such that all Essential Performance rights vest and convert to shares, lapse or otherwise are cancelled before the Record Date. Essential has confirmed that the Essential Performance Rights will vest in accordance with their terms upon the approval by the Court of the Scheme at the second court hearing. Again, the directors (and any employees) who hold both ordinary shares and Essential Performance Rights are not in a separate class by reason of holding these two different securities for which they receive separate and different value: Excelsior Gold Limited. 40 The manner in which these securities are dealt with is disclosed in s 9.5 of the Scheme Booklet.

ASIC's position 41 The jurisdiction of the Court to make an order to convene meetings under s 411(1) of the Corporations Act is conditional upon satisfaction of the two matters set out in s 411(2). The Court must be satisfied, first, that ASIC has been given (relevantly) 14 days' notice of the hearing; and second, that ASIC has had a reasonable opportunity to examine the terms of the Scheme and the draft explanatory statement and to make submissions to the Court. 42 I am satisfied as to both of these matters on the evidence. 43 Further, by letter dated 17 March 2023, ASIC informed Essential that the timing requirement had been satisfied, and that ASIC is of the view that it has had a reasonable opportunity to examine the terms of the Scheme and the draft explanatory statement, and to make submissions to the Court. 44 Despite raising a number of matters with Essential in correspondence prior to the hearing, ASIC chose not to appear at the hearing, chose not to intervene and made no submissions.

Proposed meeting procedures - chairperson 45 I am satisfied by the relevant affidavits that the requisite consents to act as chairperson and alternate chairperson have been provided.

Proper purpose and bona fides 46 I am also satisfied for the purpose of the first hearing that the Scheme is bona fide and properly proposed. 47 Essential's constitution does not prevent the Scheme. Its directors recommend the Scheme. There is nothing in the material before the Court that suggests the Scheme has not been properly proposed. It is the type of share acquisition that the courts have recognised may be facilitated by way of a scheme of arrangement under s 411.

Consideration - particular matters relevant to the proposed scheme 48 As is frequently the case with a first hearing of this nature, it proceeded in effect ex parte and without any true contradictor. Although TLEA was represented as an interested party, its interests are aligned with those of Essential. ASIC chose not to make submissions. In those circumstances counsel drew the Court's attention to a number of matters of significance.

Performance risk 49 Performance risk concerns the risk that after transferring their shares, shareholders in a target will be left with no scheme consideration and with no capacity to sue the acquirer to recover their shares or damages, other than to sue on a deed poll. 50 In the present matter the risk that consideration will not pass for the shares is addressed by the terms of the SIA, the Scheme itself and the Deed Poll. 51 In summary, the structure and mechanisms of those terms require that TLEA must have procured payment of the total scheme consideration into a trust account, operated by or on behalf of Essential, the day before the Implementation Date (defined in the Scheme as five business days after the Record Date, or as agreed). Upon that payment, Essential will become bound to take the steps required for TLEA to become the holder of the shares in Essential. So no shares will be transferred by Essential to TLEA until payment of the consideration in full into the trust account is made. On the Implementation Date, Essential must pay the shareholders their consideration from the trust account. 52 This mechanism for payment before transfer is not uncommon and minimises the risk for shareholders: In the matter of Link Administration Holdings Limited [2022] NSWSC 650 at [36] (Black J); and more generally as to different mechanisms, Decimal Software Limited, in the matter of Decimal Software Limited [2018] FCA 1647 at [31]-[33]. 53 By reason of s 11 of the Property Law Act 1969 (WA) and the terms of the Deed Poll, each shareholder also has the benefit of the Deed Poll. Essential is appointed as agent to pursue and enforce the Deed Poll (cl 1.3(b) of the Deed Poll). 54 I accept that in those circumstances, performance risk is minimised: APN News & Media Limited, in the matter of APN News & Media Limited [2007] FCA 770 at [23] (Lindgren J); and Tawana Resources NL, in the matter of Tawana Resources NL [2018] FCA 1456 at [30]. Accordingly, there is no material performance risk which would justify me not ordering the convening of the scheme meeting.

Execution of Deed Poll 55 By her affidavit, Ms Myers provides a foreign law opinion on the methodology for an English company to execute deeds under English law. The authorities suggest that proof of the method of proper execution according to the foreign law of the place of incorporation of the acquirer should be confirmed for the Court: Staging Connections Group Limited, in the matter of Staging Connections Group Limited [2015] FCA 1012 at [45] (Gleeson J). Ms Myers confirms that a single director as authorised can execute a contract. The Deed Poll for the Scheme was before the Court and appears to have been duly executed in that manner. Mr Surendran has also confirmed by his affidavit the execution of the Deed Poll.

Break fee 56 Clause 10 of the SIA contains a provision as to the payment of a Target Payment of $1,360,000 to TLEA by Essential if certain events occur. The Target Payment has been calculated by financial advisers to Essential, being Sternship Advisers, as 1% of the total equity value of approximately $136 million, and is said to be in line with the Takeovers Panel Guidance Note 7. 57 Prominence is given to the Target Payment in the Scheme Booklet. 58 In certain circumstances, a break fee may be considered excessive or otherwise coercive in nature: see generally Rusina Mining NL, in the matter of Rusina Mining [2010] FCA 517 at [52] (Barker J); APN News & Media Limited at [55]; and Amcom Telecommunications Limited at [35] (McKerracher J). Essential submits that the break fee in this case is neither, because: (a) the Target Payment is not payable if the Scheme is not approved by Essential shareholders; (b) it is not payable to the extent that any court or regulatory authority so prohibits; (c) it is not payable by Essential if one or more of the directors changes or withdraws their support or recommendation of the Scheme as a result of a requirement of a court or regulatory authority or the Independent Expert opining that the Scheme is not in the best interests of Essential shareholders, or Essential is entitled to terminate; (d) the amount of the Target Payment was negotiated after advice and at arms' length, and represents a fair and reasonable pre-estimate of the transaction costs TLEA would likely incur should the Scheme not proceed, such costs being acknowledged by the parties in the SIA. 59 Mr Spencer has deposed to the manner in which the Target Payment was struck, the fact that independent advice was obtained by the respective parties, and that the directors of Essential considered it an acceptable term, having regard to the above matters and the desire to secure TLEA's acceptance of the terms of the SIA. 60 I accept Essential's submissions as to the break fee.

Exclusivity arrangements 61 The SIA contains exclusivity provisions by way of 'no shop', 'no talk' and 'no due-diligence' agreements on the part of the Essential directors. 62 More particularly, Essential has agreed that Essential and its representatives are restricted from, directly or indirectly (among other things), in essence: (a) soliciting, facilitating, encouraging, initiating or inviting any competing proposal (cl 9.2: no shop); and (b) negotiating or entering into, or participating in negotiations or discussions regarding, a competing transaction or any agreement, understanding or arrangement that may be reasonably expected to lead to a competing transaction or allowing due diligence (cl 9.3: no talk and no due diligence). 63 The no talk and no due diligence clause is subject to an express fiduciary and statutory duties carve out. Essential is not prevented from taking or omitting to take any action in relation to a competing proposal (which was not solicited in breach of cl 9), if acting within the requirements of ordinary consideration and taking advice. 64 In addition, the SIA includes notification and 'Matching Right' provisions which require Essential to notify TLEA of any approaches and give to TLEA the right to match or beat (by a 'Bidder Counter Proposal') any offer identified as a superior proposal from a rival bidder. 65 In general, and as discussed in APN News & Media Limited at [29] and Re Arthur Yates & Co Ltd [2001] NSWSC 40 at [9] (Santow J), exclusivity provisions should: (a) exist for no more than a reasonable period which is properly defined; (b) be subject to the directors' fiduciary and other duties; and (c) be given adequate prominence when disclosed in the scheme booklet. 66 In this case, the relevant period is defined and it is for a period of approximately six months, a period within an acceptable range: Asaleo Care Limited, in the matter of Asaleo Care Limited [2021] FCA 406 at [57]. 67 The exclusivity provisions are subject to an overriding obligation not to breach directors' fiduciary and statutory duties, and there is clear disclosure of the provisions in the Scheme Booklet. 68 It should also be noted that the SIA provides for an express right of termination at any time prior to 8:00am on the date of the second court hearing, if a majority of the Essential directors publicly withdraw, fail to make or adversely change their recommendation or voting intention or publicly recommend a competing proposal. If required they must pay the Target Payment to TLEA - but this mechanism preserves the capacity of the directors of Essential to accept a better transaction if there is an unsolicited approach. 69 In all of those circumstances, there is nothing to suggest the exclusivity devices in the SIA are unacceptable.

Director benefits 70 It is recognised that director benefits and executive incentives can raise issues of class, collateral benefit, and the appropriateness of directors making a recommendation to shareholders in relation to a scheme. 71 In this case the issue arises because the directors hold the Essential Options and Mr Spencer, the managing director, holds the Essential Performance Rights. 72 For convenience, I repeat the observations I made as to this issue in Asaleo Care Limited: [70] … In a number of recent decisions, courts have considered whether a director who is to receive an additional financial benefit if a scheme is approved should make a recommendation to members about voting in favour of the scheme. Counsel for Asaleo noted the recent cases in this area and that different views have been expressed: (a) in some cases, the court has taken the view that, as a general rule, a director who will receive such a benefit should decline to make a recommendation to shareholders as to how they should vote, but that the making of such a recommendation may not preclude the court making orders convening a meeting if the benefits are adequately disclosed in the scheme booklet: for example Gazal Corporation Limited, in the matter of Gazal Corporation Limited [2019] FCA 701 at [30] (Farrell J); Ruralco Holdings Limited, in the matter of Ruralco Holdings Limited [2019] FCA 878 at [28] (Farrell J); Re Navitas Ltd; Ex Parte Navitas Ltd [No 2] [2019] WASC 218 at [32] (Vaughan J); and Wellcom Group Limited, in the matter of Wellcom Group Limited [2019] FCA 1655 at [60] (O'Bryan J); (b) in other cases, the court has taken a different approach, holding that it will ordinarily be appropriate for a director who is to receive a financial benefit if a scheme is approved to make a recommendation, but to fully and prominently disclose the benefit in the scheme booklet: see, for example Re SMS Management & Technology Ltd [2017] VSC 257 at [26] (Robson J); Kidman Resources Limited, in the matter of Kidman Resources Limited [2019] FCA 1226 at [105]-[113] (O'Callghan J); Re Villa World Ltd [2019] NSWSC 1207 at [38]-[40] (Black J); Re ERM Power Limited v Shell Energy Australia Pty Ltd [2019] NSWSC 1502 at [18] (Black J); DWS Limited, in the matter of DWS Limited [2020] FCA 1590 at [42]-[49] (Beach J); and RXP Services Limited at [41]-[48] (Beach J). [71] Whilst I favour what might be referred to as the second approach, the difference between the approaches in the various decisions is at times somewhat nuanced and much depends upon the nature of the particular alleged benefit and the level of disclosure. 73 Subsequently in Japara Healthcare Limited, in the matter of Japara Healthcare Limited [2021] FCA 1150, Moshinsky J similarly preferred and followed the second approach: at [71]. His Honour then considered the nature and extent of the additional benefits to be received by the director in that case in determining that it was not inappropriate for the director to make a voting recommendation to members. See also In the matter of Ausnet Services Ltd [2022] NSWSC 21 at [28]-[30] (Black J); iSelect Limited, in the Matter of iSelect Limited [2022] FCA 1329 at [99] (Anderson J); In the matter of Link Administration Holdings Limited at [21]; Over the Wire Holdings Limited, in the matter of Over the Wire Holdings Limited [2022] FCA 26 at [42] (Halley J); and ThinkSmart Limited, in the matter of ThinkSmart Limited [2022] FCA 1314 at [51]-[52] (Jackson J). 74 I continue to endorse the second approach, which ordinarily permits the making of a recommendation but carries with it the requirement to assess the nature and extent of the proposed disclosure. 75 In this case, it was submitted that the directors' interests do not prevent them making the recommendation that they have made for reasons that include the following: (a) the ownership of the securities arises as part of shareholder approved remuneration packages for the directors which were in place prior to the entry into the SIA, and were announced in previous Annual Reports and approved at previous AGMs - they are not the result of any recent action; (b) the directors gave careful consideration to their position to make recommendations, as detailed in the affidavit evidence; (c) the directors' recommendation is contingent upon BDO continuing to conclude that the Scheme is in the best interests of shareholders and the shareholders will receive the Report; and (d) the reasons for the benefits are ordinary and customary and the amounts are not on their face extravagant or out of all obvious proportion - the total implied value of Essential is approximately $136 million, and the directors are to each receive between $90,000 to $225,000 for their pre-existing securities. 76 I accept the force of these submissions. Further, I consider that the benefits are adequately disclosed in the Scheme Booklet, and shareholders are told to have regard to these arrangements when considering the directors' recommendation of the Scheme. 77 For example, the Scheme Booklet provides the following information about the Essential Options and the Essential Performance Rights held by the directors: The Options may be exercised into Shares upon payment of the exercise price prior to 8.00am on the Second Court Date or will otherwise be subject to the Option Cancellation Deeds (a private treaty agreement), pursuant to which the Essential Options will be cancelled for consideration equal to the Scheme Consideration less the Option exercise price, as is detailed in section 9.5. It is noted that this arrangement arrives at the same cash position for each Director as though the Options were exercised and the resultant Shares participated in the Scheme. In addition, Timothy Spencer (the Managing Director of Essential) also holds Performance Rights received during his employment tenure as part of the Company's employee incentive schemes (as detailed in section 9.3) and those that have not vested shall vest upon Court approval of the Scheme.1 … In considering the unanimous recommendation and intentions of the Essential Board to vote in favour of the Scheme, Essential Shareholders should have regard to section 1.2 (in relation to the unanimous recommendation of the Essential Board) and sections 9.3 and 9.5 (which concerns the treatment of Essential Performance Rights held by Mr Timothy Spencer and Essential Options held by all Directors in connection with the Scheme). The amounts that may be payable under the Option Cancellation Deeds if the Scheme proceeds are $225,000 to Mr Timothy Spencer, $150,000 to Mr Craig McGown, $90,000 to Mr Paul Payne and $195,000 to Mr Warren Hallam. All unvested Performance Rights held by Mr Timothy Spencer will vest should the Court approve the Scheme on the Second Court Date. 78 In addition, there is disclosure of the benefits in the Frequently Asked Questions section of the Scheme Booklet and the directors' letter to shareholders that is to accompany the Scheme Booklet. 79 I am satisfied that there is nothing in the circumstances of the present case that impacts on the propriety of any director having made recommendations with respect to the Scheme, and that there has been appropriate transparency as to this issue.

Conditions precedent 80 The SIA and Scheme are subject to a number of uncontroversial conditions precedent, which are set out the SIA. 81 The conditions precedent are disclosed prominently in the Scheme Booklet (at s 3.6) and also in the Frequently Asked Questions section. 82 I was informed that at the second court hearing, Essential and TLEA will each provide a certificate as required by the SIA to demonstrate satisfaction or waiver of each condition precedent, as applicable. 83 For present purposes, the evidence confirms that Essential directors are not aware of any facts, matter or circumstances that have resulted in or are likely to result in the failure of the conditions precedent to the Scheme. Mr Surendran on behalf of TLEA has provided a similar confirmation.

FIRB approval 84 TLEA received correspondence on 6 March 2023 from FIRB which indicated that the acquisition of the shares in Essential by TLEA may lead to obligations under the Foreign Acquisitions and Takeovers Act 1975 (Cth). Regulatory approvals are addressed by way of the conditions precedent in the SIA. TLEA has informed Essential that it has determined that FIRB approval is not required for it to acquire all the shares in Essential. However, TLEA continues to deal with Treasury as to this issue. The Scheme Booklet discloses that any material development with respect to any FIRB approval that might impact the Scheme or its timing will be disclosed by way of supplementary disclosure. 85 I do not consider the existence of this potential issue would justify me not ordering the convening of the scheme meeting. It can be dealt with under the terms of the SIA and by any supplementary disclosure as required.

No liability provision 86 The Scheme contains a 'no liability when acting in good faith' provision that extends to Essential, TLEA and their respective officers or employees. As the exclusion of liability is only for things done or omitted to be done in performance of the Scheme and in good faith, these clauses are consistent with similar clauses that have generally not been considered problematic: Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2] [2018] WASC 357 at [49(4)] (Vaughan J); and Re Galaxy Resources Ltd; Ex Parte Galaxy Resources Ltd [2021] WASC 277 at [71]-[72] (Hill J).

Shareholder communications 87 The affidavit evidence discloses that Essential has retained a 'professional proxy solicitation firm', Morrow Sodali, to provide shareholder engagement services in relation to the Scheme. 88 In theory there is no issue with shareholders being contacted by such service providers for the purpose of encouraging voter engagement and turnout. However, in a number of recent cases the court has effectively required approval of call scripts. In the present case, draft call scripts were before this Court. However, comments from ASIC and the response of Essential's solicitors to those comments were also before the Court, and it is apparent that the call scripts are to be revised. Therefore there was no script before the Court in a form that could be approved in any event. 89 However, as the issue occupied some time at the hearing, I will make some brief observations, acknowledging that any question that arises might be addressed more fully by way of any supplementary disclosure application (as, for example, in Tawana Resources NL, in the matter of Tawana Resources NL (No 2) [2018] FCA 1724) or at the second hearing. 90 It is apparent from the authorities that particularly in the case of schemes that target shares held by a large number of shareholders, the scheme proponents may retain corporate communication firms to embark on a calling campaign. This might involve establishment of a call centre to approach shareholders in advance of any proposed transaction, but might also relate to calls during the period after a scheme is propounded and prior to the shareholder meeting. The call centre will potentially receive inbound calls from shareholders who have questions, but may also involve a proactive programme of outbound calls. Call scripts are prepared for use in those calls. 91 In Dragontail Systems Limited, in the matter of Dragontail Systems Limited [2021] FCA 834 Halley J, in addition to making a number of standard orders convening a scheme meeting, made an order requiring telephone communications with shareholders to be made in accordance with an approved script. These calls had a specific purpose, which was to follow up those shareholders who had not returned a form that was needed in connection with an exemption from withholding tax, and in circumstances where it was recognised that some information was to be amended: at [25]. The reasons do not otherwise address whether an order approving a script must necessarily be obtained. 92 In Re Galaxy Resources Ltd; Ex Parte Galaxy Resources Ltd [No 2] [2021] WASC 314, Hill J was informed at the second court hearing (to approve the scheme) about a shareholder information line run by a communications company. This line had been used to answer calls from shareholders, but also to make calls to ensure that they were aware of the scheme meeting and the relevant dates for lodging proxy forms. There were 'canvassing scripts' used for both receiving calls from shareholders and making calls to them and it was stressed that the scripts should not be departed from. The scripts were consistent with the information in the scheme booklet that had previously been approved for despatch to shareholders. Her Honour acknowledged that the purpose of the calls was to encourage shareholders to vote, and that such purpose was appropriate as there had been low turnout to previous general meetings of shareholders. Having reviewed the scripts, her Honour said there was nothing in them to cause concern and they were consistent with the disclosure in the scheme booklet. 93 Her Honour observed, however, that in her view it would have been preferable for any intention or proposal to canvass shareholders to be drawn to the attention of the Court at the first hearing and for approval to be sought as to the script. Her Honour referred to Dragontail Systems Limited in that regard. Her Honour also observed that such an approach was consistent with views previously expressed by the courts that where a meeting is convened under s 411 of the Corporations Act, only information approved by the court should be given to members. But since the scripts before her Honour were consistent with the scheme booklet, the calls did not constitute a reason not to approve the scheme. 94 Her Honour reiterated this view in Re Western Areas Ltd; Ex Parte Western Areas Ltd [2022] WASC 193. This related to a first court hearing. There, the company had submitted scripts that were to be used by a 'proxy solicitation agent'. Again, the scripts were consistent with the disclosures in the scheme booklet and were approved by the Court. 95 In In the matter of ResApp Health Ltd [2022] NSWSC 1014 (Black J), the issue arose in a more pointed manner. In this case, after the Court had made orders under s 411 of the Corporations Act convening a meeting, the company made an announcement to the ASX that was selective, pointing out the advantages of the scheme but not specifically its disadvantages. After ASIC raised concerns about the ASX announcement, the company made a further announcement to the ASX clarifying the position. Against that backdrop, the company then approached the Court to approve a script for telephone calls to be made to shareholders by a third party on behalf of the company. ASIC had made comments on the script. The Court refused to make orders in chambers as asked, noting that 'aspects of it appeared to be advocacy for the scheme as distinct from a balanced provision of information to shareholders in respect of the scheme': at [13]. The company then revised its script and sought a relisting. 96 Black J addressed the applicable principles as to disclosure beyond the approved explanatory statement as follows: [15] I now turn to the well-established authorities concerning these issues. In Re Centro Retail Ltd [2011] NSWSC 1321, Barrett J emphasised (at [7]) the duty on a company and its directors to ensure that information placed in the hands of members before a meeting was complete as to material matters and fully and fairly informed them of what was to be considered at the meeting, and was not misleading or deceptive. His Honour also emphasised (at [10]), by reference to earlier authority, that, where the Court has ordered the convening of a meeting and has approved an explanatory statement (as, I interpolate, had occurred here), the company should not dispatch additional explanatory material without first obtaining Court approval. [16] Many subsequent cases emphasise the principle that, if the Court has ordered the convening of a scheme meeting and approved an explanatory statement, its approval should be sought before additional explanatory material is dispatched, including at least Re Trust Company Ltd [2013] NSWSC 1946 at [6]-[8]; Re Investa Listed Funds Management Ltd [2016] NSWSC 344 at [4]; Re Investa Listed Funds Management Ltd [2016] NSWSC 369 at [1]; Re Billabong International Ltd (No 2) [2018] FCA 496; Re Tawana Resources NL (No 2) [2018] FCA 1724 at [18]; Re Prime Media Group Ltd [2019] NSWSC 1888; and Re Walsh and Company Investments Ltd [2020] NSWSC 1746 at [66]. In Re Walsh and Co Ltd above at [66], I also dealt with the question where, by inadvertence in that case, there had been communications with shareholders which had not been approved by the Court, and observed that the ultimate question was whether the manner in which those communications had occurred had compromised the integrity of the voting process at the scheme meeting. That question will also arise here and will be a matter to be addressed at the second Court hearing. [17] The need for the Court's approval of reminder to vote emails and investor presentations has also been noted in subsequent cases, including those to which I referred in Re Tabcorp Holdings Ltd [2022] NSWSC 448 at [22]. In that case, I accepted a submission of Senior Counsel that approval would generally be given to such communications, where the content of a proposed presentation 'largely mirrors that contained, in more detail, in the [scheme] booklet and it prominently directs recipients to read the [scheme] booklet before making any voting decision in respect of the proposed [scheme].' Plainly, however, that proposition depends upon the fairness of the applicable summary and the fact that it does not, for example, highlight advantages rather than disadvantages of the proposed scheme. 97 His Honour proceeded to approve the revised script that addressed the issues of selectivity in the previous version, noting that in its revised form it fairly provided information to shareholders about both advantages and disadvantages. It had suitable qualifications, drew attention to the independent expert's report and emphasised the desirability of reading that report and the scheme booklet. It encouraged shareholders to vote, but this was considered a legitimate inquiry, given the headcount requirement for an effective shareholder approval. 98 In Re Vimy Resources Ltd (No 2) [2022] WASC 257, Strk J, having examined the various authorities in some detail, adopted the approach in Galaxy Resources (No 2) and Western Areas Ltd, and concluded that call scripts should be approved by the Court, noting however that it is those scripts that are prepared for 'substantive communications' where prior approval should be sought. Her Honour acknowledged that some calls might be answered by simply referring callers to the appropriate parts of the scheme booklet, in which case it might not be necessary for disclosure to be made to the Court, nor for approval to be sought or secured: at [76]-[96]. 99 I accept that it is important that the fact and nature of intended communications with shareholders should be disclosed for the purpose of the first court hearing, regardless of whether a formal order approving any script or other communication is sought at that time. 100 Where information intended by those communications is of a substantive nature and relevantly departs or deviates from the information contained in the scheme booklet, a matter that must be carefully considered by the proponents and their legal representatives, then formal approval from the Court for its use or distribution should be sought. Absent such a course, in a context where the Court is asked to approve or has approved the despatch of the scheme booklet, any such additional communications may constitute interference with 'the Court-approved message': Re Centro Retail Ltd (in its capacity as responsible entity of Centro Retail Trust) [2011] NSWSC 1321 at [11] (Barrett J). 101 Such a regime is unlikely to capture every post-despatch communication. Nor should it be required to do so. Some communications may be of no more than an administrative or ancillary nature. Some may do no more than encourage shareholders to exercise their right to vote, and direct them to the Scheme Booklet. It is not possible to anticipate all scenarios. Telephone campaigns carry the prospect that outbound conversations might unintentionally go off-script. Inbound conversations that shareholders might initiate also carry such risk. It is of course appropriate that shareholders seek out further information if they have questions or concerns, and indeed the scheme booklet would ordinarily invite them to do so. 102 It is for the scheme proponents to remain alive to the nature of communications about a scheme with shareholders. In the present case, where I have been informed about the intention that a script be finalised and deployed, I would expect that Essential will either seek orders as to supplementary disclosure or provide me with evidence at the second court hearing as to the nature of relevant communications that have occurred. Essential's legal representatives are well aware of the risks that might present at the second court hearing if any issue arises as to whether information provided to shareholders was new, misleading or otherwise deviated from the information in the court-approved Scheme Booklet. Any such issue may provide a ground for resisting the ultimate approval of the Scheme at the second court hearing. 103 Separately, I note that the Scheme Booklet the subject of this application reinforces in a number of places that it is important that shareholders read it. Shareholders are reminded on the front page of the Scheme Booklet and within its contents as an 'Important Note' that they are to read the Scheme Booklet in full carefully. A recommendation to read the Scheme Booklet in its entirety is repeated in a number of places. 104 The shareholders are also informed in the Scheme Booklet that where the Court has ordered that the scheme meeting be convened, it does not mean that the Court has endorsed the Scheme, has formed a view as to how shareholders should vote or is responsible for the Scheme Booklet. 105 Shareholders are also encouraged to seek independent financial, legal and taxation advice before making any investment decision in relation to their shares in Essential.

Despatch of materials 106 The orders sought with respect to the despatch of materials electronically or, by hard copy where specifically requested, are standard in form and unobjectionable.

Interested party 107 I note that TLEA was represented by Clayton Utz and appeared at the hearing as an interested party. I invited submissions from counsel, who confirmed and adopted the submissions on the part of Essential.

Conclusion 108 I was satisfied at the first hearing and having heard detailed oral submissions on behalf of Essential that each of the matters relevant to an order convening a scheme meeting under s 411 was addressed by the evidence and that it was appropriate to make the orders sought by Essential, including those relating to the convening of the meeting, approving the Scheme Booklet for distribution and the conduct of the scheme meeting. 109 The terms of the proposed Scheme are in a conventional form. There is no reason why the Scheme, if considered and adopted by the members, is not of such a nature as would be likely to be approved at the second court hearing. 110 Orders were made accordingly. I certify that the preceding one hundred and ten (110) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Banks-Smith.

Corporations Act 2001(Cth)ss 9, 411, 412

ing Connections Group Limited [2015] FCA 1012 Tawana Resources NL, in the matter of Tawana Resources NL [2018] FCA 1456 Tawana Resources NL, in the matter of Tawana Resources NL (No 2) [2018] FCA 1724 ThinkSmart Limited, in the matter of ThinkSmart Limited [2022] FCA 1314

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