Direct Share Purchasing Corporation Pty Ltd v LM Investment Management Limited

Contravention of s 173(3) of the Corporations Act? 19 Direct Share submits that LM Investments contravened s 173(3) of the Act by failing and refusing to give Direct Share a copy of the Register in October 2010. Before turning to the proper construction of the Act, two matters should be noted. The Court is concerned with the legislation as it stood at the time of the request - 8 October 2010. The Act has since been substantively amended: see [9] above. The question of contravention of s 173(3) of the Act falls to be determined under the law as it existed at 8 October 2010. Secondly, resolution of the proper statutory construction of s 173 of the Act must start with the text of the statute: Spencer v Commonwealth (2010) 269 ALR 233 at [50] and the authorities there cited. 20 Section 173(3) of the Act provided that a company, such as LM Investments, must give a person a copy of the register (or part of the register), within seven days of a person asking for a copy and paying the prescribed fee: s 173(3) (see above at [7]). Here, Direct Share asked for a copy and paid the prescribed fee on 30 September 2010: see [5] above. 21 Notwithstanding the request, LM Investments did not respond to the Request: see [5] above. At trial it submitted that the obligation under s 173(3) was qualified by the prohibition in s 177(1)(b) of the Act and, further or alternatively, there was no obligation on LM Investments to produce the Register because the request was for an unlawful purpose because at the time that Direct Share requested the Register, Direct Share intended to use the information on the Register to engage in unconscionable conduct by making unsolicited, off-market offers to vulnerable and inexperienced persons on the Register in contravention of s 51AC of the TPA and s 12CA of the ASIC Act. Direct Share rejected those contentions and submitted that the obligation was unqualified. 22 In my view, as at 8 October 2010, the obligation on LM Investments was unqualified. That conclusion requires explanation.

Corporations Act - ss 173 and 177 23 Section 173(1) is in mandatory terms. A failure to comply with s 173(3) is a strict liability offence: s 173(9A) of the Act. Chapter 2C of the Act (of which s 173(3) forms part) was intended to facilitate "rapid and easy access to information": Explanatory Memorandum to the First Corporate Law Simplification Bill 1994, para 7.13 and the Second Reading Speech, House of Representatives, 8 February 1995, 708-9 and 712. 24 As noted above, the first qualification to this mandatory obligation relied upon by LM Investments was said to be s 177 of the Act. Section 177 provides: (1) A person must not: (a) use information about a person obtained from a register kept under this Chapter to contact or send material to the person; or (b) disclose information of that kind knowing that the information is likely to be used to contact or send material to the person. Note: An example of using information to send material to a person is putting a person's name and address on a mailing list for advertising material. (1A) Subsection (1) does not apply if the use or disclosure of the information is: (a) relevant to the holding of the interests recorded in the register or the exercise of the rights attaching to them; or (b) approved by the company or scheme. (Emphasis added.) 25 LM Investments submitted that s 177(1)(b) prohibits the disclosure of a register when the person making the disclosure knows that information from the register is likely to be used to contact or send material to a person on the register and that on a plain reading of the two provisions, the prohibition on disclosure in s 177(1)(b) qualifies the duty of disclosure in s 173(3). That is, that a company or a scheme is under no obligation to disclose its register if it knows that information from the register is likely to be used to contact or send material to persons on the register. 26 This is not however the first time that this question has arisen. It was considered by Byrne J in O'Brien v Sporting Shooters Association of Australia (Vic) [1999] 3 VR 231 and by Heenan J in Westgold Resources NL v Precious Metals Australia Ltd (2002) 171 FLR 20. The reasons for decision are not consistent. In O'Brien, Byrne J held that "the rights to inspect a register and to get a copy of it which are conferred by s 173 [were] not to be read down except in so far as s 177(1) so provides" (at [19]). In Westgold, Heenan J did not address the issue directly but at paragraphs [25] and [26] of his Honour's reasons for decision, appears to have assumed that the production obligation under s 173 was not qualified by the use prohibitions in s 177(1). 27 In the end, this apparent inconsistency may be put to one side. Even if s 173(3) is qualified by s 177(1)(b) (about which I form no concluded view), the proposed use of the Register by Direct Share fell squarely within s 177(1A). That is, s 177(1) of the Act (the use prohibition) does not apply if the use or disclosure of the information is "relevant to the holding of the interests recorded in the register or the exercise of the rights attaching to them". In the present case, that is precisely what Direct Share stated that it intended to do with the Register and about which LM Investments complains - to use the information on the Register to contact the unitholders and seek to have them exercise their rights in relation to those units by selling them to Direct Share. 28 For those reasons, I reject LM Investments' contention that because its obligation to provide the Register to Direct Share was qualified by s 177 of the Act, it was not obliged to provide a copy of the Register to Direct Share.

ASIC ACT AND TPA 29 The second basis for qualification contended for by LM Investments was said to be s 12CA of the ASIC Act and s 51AC of the TPA. 30 At the time Direct Share asked for a copy of the Register, it intended to use the information in the Register to make unsolicited offers to unitholders resident in Australia for the purchase of their units in the Fund in accordance with the existing laws, including Pt 7.9 of Div 5A of the Act.

ASIC Act 31 Unconscionable conduct and consumer protection under the ASIC Act was considered by the Full Court in Australian Securities Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132 at [26] - [45] (on appeal from Emmett J in Aevum Ltd v National Exchange Pty Ltd (2004) 142 FCR 316). 32 National Exchange was another David Tweed entity. Emmett J described the provisions as follows: 16 Under s 12BAB(1)(h) of the ASIC Act, a person provides a financial service if that person engages in conduct of a kind prescribed in regulations made for the purposes of that provision. Section 12BAB(2)(b) provides that the regulations may set out the circumstances in which persons are taken to provide, or are taken not to provide, a financial service. The Australian Securities and Investments Commission Regulations 2001 (Cth) have been made under the ASIC Act ('the ASIC Regulations'). Regulation 2C(1) of the ASIC Regulations relevantly provides that a person (Person 1) provides a financial service if Person 1 makes an unsolicited offer to purchase shares from another person (Person 2), other than through a licensed financial market, and Person 2 acquired the shares as a retail client. Under reg 2C(2) of the ASIC Regulations a person to whom reg 2C(1) applies (as Person 1) is taken not to provide a financial service if Person 1 tells Person 2 in a clear and concise written statement that is part of the offer that the offer remains open for a period that is at least one month and not more than 12 months, unless the offer is withdrawn in writing before the end of that period. 17 Section 12CA(1) of the ASIC Act provides that a person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories. However, s 12CA(1) does not apply to conduct prohibited by s 12CB. 18 Section 12CB(1) of the ASIC Act provides that a person must not, in trade or commerce, in connection with the supply or possible supply of financial services to a person, engage in conduct that is, in all the circumstances, unconscionable. However, under s 12CB(5), a reference in s 12CB to financial services is a reference to financial services of a kind normally acquired for personal, domestic or household use. The Commission accepted that, by reason of s 2CB(5), s 12CB has no application in the present circumstances. 19 Section 12CC(1)(a) provides that a person must not, in trade or commerce, in connection with the supply or possible supply of financial services to another person engage in conduct that is, in all the circumstances, unconscionable. Section 12CC(2) sets out a number of matters to which the Court may have regard for the purpose of determining whether a person has contravened s 12CC(1) in connection with the supply or possible supply of financial services to another person. Section 12CC(6) provides that a reference in s 12CC to the supply or possible supply of financial services is a reference to the supply or possible supply of financial services to a person whose acquisition or possible acquisition of the financial services is, or would be for the purpose of trade or commerce. 20 Section 12DF(1) of the ASIC Act provides that a person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose or the quantity of any financial services. (Emphasis in original.) 33 For present purposes, ss 12CC and 12DF may be put to one side. LM Investments relied upon s 12CA. As noted above (see [32]), s 12CA(1) of the ASIC Act provides that a person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories. 34 LM Investments submitted that Direct Share's conduct would be in contravention of s 12CA of the ASIC Act. The allegation had to be prospective because, unlike the steps taken by National Exchange in Aevum, at the time of the hearing Direct Share had not obtained access to the Register and had not sent out unsolicited offers to unitholders in the Fund whether at market price, below market price or well below market price. It seems to me that it is only when Direct Share ultimately communicates with unitholders that its conduct can be judged by reference to the unwritten law. I accept that by that time, any unconscionable conduct might have already occurred. However, that is not necessarily the outcome. One can envisage circumstances where a Court might grant an interlocutory injunction seeking to restrain anticipatory unconscionable conduct on the part of a company about to send out unsolicited offers to persons on a register. Such an application would of course need to be filed and would then be considered on its merits by reference to a very different standard: Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 at [65] - [72]. That did not occur here. LM Investments did not apply for an injunction. 35 Before leaving this aspect, reference should be made to the decision of the Full Court in National Exchange. That Court was not dealing with s 12CA. That Court was concerned only with s 12CC of the ASIC Act: see (2005) 148 FCR 132 at [27] and [28]. 36 In any event, it is not altogether clear how notions of unconscionability could intersect with s 173 of the Act. It is however not necessary to explore those issues or express any view about them.

Section 51AC of the TPA 37 For the same reasons, I reject LM Investments' contention that s 173 of the Act was, at the time of the request, qualified by s 51AC of the TPA. The conduct is prospective. If LM Investments intended to assert that Direct Share's conduct was likely to be contrary to s 51AC of the TPA (as it then stood), it was open to it to seek an interlocutory injunction. It did not.

DECLARATORY RELIEF 38 That leaves the issue of Direct Share's application for a declaration that LM Investments contravened s 173 of the Act. The making of a declaration and the terms in which it should be framed are in the Court's discretion: see Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 at 437-9; [1972-73] ALR 1303 at 1313 per Gibbs J; Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-2 and 596-7; 106 ALR 11 at 21-2 and 33-4 and AWB Ltd v Cole (No 6) (2006) 235 ALR 307; [2006] FCA 1274 at [5]. 39 In Plaintiff M61/2010E v Commonwealth of Australia; Plaintiff M69 of 2010 v Commonwealth of Australia (2010) 85 ALJR 133, the Court had the following to say about declaratory relief:

1. The power to grant declaratory relief is a power which "[i]t is neither possible nor desirable to fetter ... by laying down rules as to the manner of its exercise" [Forster v Jododex Aust Pty Ltd (1972) 127 CLR 421 at 437; [1972-73] ALR 1303 at 1311-12; [1972] HCA 61 (Forster); Ainsworth [1992] HCA 10; (1992) 175 CLR 564 at 581-582.] As pointed out in Ainsworth v Criminal Justice Commission [[1992] HCA 10; (1992) 175 CLR 564 at 582. See also Pape [2009] HCA 23; (2009) 238 CLR 1 at 68 [152]] it is a form of relief that is confined by considerations which mark out the boundaries of judicial power.
2. In the circumstances of this litigation it cannot be said that a declaratory order by the Court will produce no foreseeable consequences for the parties [Gardner v Dairy Industry Authority (NSW) (1977) 52 ALJR 180 at 188 per Mason J, 189 per Aickin J; 18 ALR 55 at 69, 71.] Declaratory relief is directed here to determining a legal controversy; it is not directed to answering some abstract or hypothetical question [Bass v Permanent Trustee Co Ltd [1999] HCA 9; (1999) 198 CLR 334 at 355-356 [46]- [47]; [1999] HCA 9.] Each plaintiff has a "real interest" [Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438 at 448, quoted with approval in Forster [1972] HCA 61; (1972) 127 CLR 421 at 437-438] in raising the questions to which the declaration would go. In these cases, the procedures which are said to be infirm were conducted for the purpose of informing the Minister of matters directly bearing upon the exercise of power to avoid breach by Australia of its international obligations. The statutory powers to the exercise of which the inquiries were directed are placed in the statutory and historical context earlier described. That context demonstrates the importance attached to the performance of the relevant international obligations by both the legislative and executive branches of the Government of the Commonwealth. Moreover, there is a considerable public interest in the observance of the requirements of procedural fairness in the exercise of the relevant powers [Cf Gedeon v Commissioner of New South Wales Crime Commission [2008] HCA 43; (2008) 236 CLR 120 at 134 [25]; [2008] HCA 4] 40 The circumstances of the present case are far removed from the issues in Plaintiff M61. Here, a declaratory order will produce no foreseeable consequences for the parties. So much is made clear by the fact that Direct Share did not pursue its application for a mandatory injunction against LM Investments. Why? Because Direct Share now has that part of the Register it wants. Analogous to the first consideration, the declaration sought is not to determine a legal controversy that remains a live controversy between the parties; it is directed to answering what has now become a hypothetical question. Why? Again, because Direct Share now has that part of the Register it is entitled to have. The fact that LM Investments contravened s 173 of the Act in October 2010 is past. The law in force at that time was not the law in place at the time the issue came to be determined by the Court. That was common ground. To make a declaration of what was the legal position in the past is of no relevance to the rights and duties of these parties as they now stand. 41 In those circumstances, I refuse Direct Share's application for a declaration.

COSTS 42 That leaves Direct Share's contention that it should have its costs of the proceedings. As is apparent, the circumstances of this case are unusual. The history of the proceedings is unusual. LM Investments contravened the law as it stood on 8 October 2010. The law then changed and it was not required to provide 94% of its Register. On the other hand, Direct Share did not respond to an open offer prior to trial which gave it all of the relief it ultimately sought. Instead, it maintained its claim to the whole of the Register until closing submissions and, even then, continued to seek a declaration which has now been refused. In all the circumstances, I consider that each party should bear its own costs of and incidental to the application. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.