Dourado Resources Limited v Aurium Resources Limited

Statutory provisions 4 The material provisions of the Corporations Act for the purposes of this application are s 625(3) (specifically s 625(3)(c)(i)) and s 1325A(2). 5 Chapter 6 of the Corporations Act deals with takeovers. Part 6.4 is headed 'Formulating the takeover offer', and contains various provisions relevant to the nature of off-market and market bids, the offer period that must be set, and the conditions that might be attached to off-market bids. Relevantly, s 625(3) provides that if the consideration under an off-market bid is, or includes securities, the offer is subject to a condition that an application for admission to quotation be made within seven days after the start of the bid period. For convenience, I include the relevant provisions: 625(3) [rules in relation to quoted securities] If: (a) the consideration offered is or includes securities; and (b) the offer or the bidder's statement states or implies that the securities are to be quoted on a financial market (whether in Australia or elsewhere); the following rules apply: (c) the offer is subject to a condition that: (i) an application for admission to quotation will be made within 7 days after the start of the bid period; and (ii) permission for admission to quotation will be granted no later than 7 days after the end of the bid period; (d) the offer may not be freed from this condition. Note: Section 1325A provides that a Court may make a remedial order if the condition is not satisfied. 6 Section 9 relevantly defines 'bid period' as follows: bid period (a) for an off-market bid - starts when the bidder's statement is given to the target and ends: (i) 1 month later if no offers are made under the bid; or (ii) at the end of the offer period; … 7 Section 1325A relevantly provides: 1325A Orders if contravention of Chapter 6, 6A, 6B or 6C (1) The Court may make any order or orders (including a remedial order) that it considers appropriate if a person: (a) contravenes a provision of Chapter 6, 6A, 6B or 6C; or (b) contravenes a condition on a consent given by ASIC under section 652B; or (c) states in a notice under section 672B about securities that they do not know particular information about: (i) the securities; or (ii) someone who has a relevant interest in, or has given instructions in relation to, the securities. Note 1: Section 9 defines remedial order. Note 2: Sections 659B and 659C deal with court proceedings during and after a takeover bid. (2) The Court may make any order or orders (including a remedial order) that it considers appropriate if: (a) the consideration offered under a takeover bid is or includes securities; and (b) the offers under the bid or the bidder's statement states or implies that the securities will be able to be traded on a financial market (whether in Australia or elsewhere) and: (i) an application for admission to quotation is not made within 7 days after the start of the bid period; or (ii) permission for admission to quotation is not granted within 7 days after the end of the bid period.

The off-market bid 8 In summary, Strike West made an off-market takeover bid to acquire all shares in Warrego Energy Limited, with the consideration being one new share in Strike for each Warrego share. Strike is a public company listed on, and its shares quoted on, the Australian Securities Exchange (ASX). Strike West is its wholly owned subsidiary. The new shares in Strike are to be quoted on the ASX. 9 In those circumstances, s 625(3)(c)(i) of the Corporations Act applies, and the application for admission to quotation of those additional shares needed to be made within seven days after Strike West gave its bidder's statement to Warrego, that being the start of the 'bid period'. Strike West gave its bidder's statement to Warrego on 23 December 2022. The application had to be made by 30 December 2022 to comply with the statutory condition. 10 As it happens, the application was not made until 11 January 2023. 11 Mr Nowotny-Walsh explains in his evidence the reasons for the error in failing to make the requisite application by 30 December 2023. 12 In short, the bidder's statement (prepared by DLA Piper) purports to describe the requirements of s 625(3)(c)(i) at para 9.7 of the offer terms as follows: 9.7 Statutory condition (a) In accordance with section 625(3) of the Corporations Act, the Offer and any contract that results from your acceptance of it is subject to the further condition that: (i) an application is made to the ASX within seven days of the start of the Offer Period for admission to official quotation by the ASX of the Strike Shares to be issued under the Offer; and … 13 Paragraph 2.1 of the offer terms, read with the definition of 'Offer Period' in part 12.1 of the bidder's statement, defines the 'Offer Period' as the: … period starting on the date of the Offer and ending at 7.00pm (Perth time) on [◆] 2023 … 14 Paragraph 1.7 of the offer terms defines the 'Date of Offer' as: The Offer is dated [◆] 2023. 15 It is apparent that the difficulty has been caused by the reference in the offer terms to 'Offer Period', rather than ascertaining and including a reference to the bid period. 16 At the time the bidder's statement was given to Warrego the offer had not opened and thus was not dated. Indeed, as appears from the above extracts, that date was not known at that time, but subsequently was fixed as 11 January 2023 (when the offer opened). The offer period is to end at 7.00 pm on 13 February 2023 unless extended. 17 In any event, senior counsel for the plaintiffs submitted, and I accept, that it is apparent that para 9.7 of the bidder's statement was intended to reflect the requirements of s 625(3)(c)(i), but erroneously confused the bid period with the offer period. 18 DLA Piper have gone to considerable lengths to ascertain the cause of the error. In particular, it is apparent that the error was perpetuated from an earlier draft of a bidder statement, the authors of which may be assumed to have been within DLA Piper but have not been identified. 19 Since the time that the earlier draft was prepared, the team at DLA Piper advising Strike has changed somewhat. For example, Mr Nowotny-Walsh commenced working on the matter in mid-September 2022. Presumably influenced by an off-market takeover bid for Warrego by Hancock Energy (PB) Pty Ltd on 30 November 2022, Strike instructed DLA Piper to prepare a bidder's statement for the purpose of Strike West making an off-market takeover offer for Warrego. Mr Nowotny-Walsh was instructed by the partner for whom he worked to locate the earlier draft and circulate it. He did so without appreciating that it contained the relevant error. He deposed to the fact that he assumed that as the previously created draft bidder's statement was used and relied on as the template, it was not necessary to conduct a forensic examination of the draft offer terms. He assumed that they were standard terms and were correct. 20 Importantly, the proposed bidder statement was the subject of review by a due diligence committee, and by DLA Piper, Strike and its financial advisors. The error was not detected by any person during that process. 21 The error was finally detected in early January 2023, when James Stewart, a partner of DLA Piper who had only became involved in the matter on or about 22 December 2022, queried the accuracy of para 9.7 of the offer terms. Mr Nowotny-Walsh immediately instructed another solicitor to investigate and research the issue. On Monday 9 January 2023 Mr Stewart formed the view it was likely the offer terms did not accord with the statutory condition in s 625(3)(c)(i) and orders under s 1325A(2) would be required to remedy the failure. Mr Stewart then asked Mr Steel, a partner in the disputes team at DLA Piper's Perth office, to assist and take carriage of the matter. 22 Mr Steel and his team investigated the matter and by the afternoon of Wednesday 11 January 2023 had engaged with Mr Stewart, who then gave recommendations to the plaintiffs. Strike West instructed DLA Piper to immediately formally engage and brief counsel, and in parallel to prepare communications to all relevant entities and authorities and prepare court papers. Mr Steel and his team acted on those instructions. 23 Letters were sent by email to Warrego, the Australian Securities and Investments Commission (ASIC) and the ASX on Friday 13 January 2023, and the originating process and supporting affidavits were prepared and lodged for filing on the same day. As the court documents were lodged after close of business, under r 2.25(3) of the Federal Court Rules 2011 (Cth) they are taken to have been filed on Monday 16 January 2023. But I take into account the efforts of DLA Piper to lodge the documents and communicate with the Court on 13 January 2023.

Principles 24 Section 1325A(2) specifically deals with contraventions of s 625(3), and in circumstances such as those in the present case, it is the most appropriate source of power to grant the relief sought. Indeed, this is not the first time the Court has addressed an error as to the date from which the seven day requirement in s 625(3)(c)(i) commences and has granted relief under s 1325A(2) I acknowledge that the following paragraphs paraphrase the summary of the authorities prepared by senior counsel, and which accurately records those decisions. 25 The facts of this case are similar to those in FE Limited v Padbury Mining Limited [2010] FCA 1207 and Dourado Resources Limited v Aurium Resources Limited [2010] FCA 1208 - two decisions delivered by Siopis J on the same day - in which the same error was made. 26 In both FE Limited and Dourado Resources Limited, the solicitor advising the respective plaintiffs in relation to their takeover bid made an error in the advice he gave concerning s 625(3). He misconstrued the legal position and was of the view that the share quotation application had to be made to the ASX within seven days of the commencement of the offer period, rather than within seven days of the commencement of the bid period (see [6] in both reasons for decision). 27 In making orders under s 1325A(2) extending the time for compliance in s 625(3)(c)(i), Siopis J had regard to the following factors, as weighing in favour of the extension: (a) the error made by the solicitor was an honest one (at [10] of both reasons for decision); (b) on being informed by the solicitors for the respective target companies of the failure to comply with s 625(3)(c)(i), the plaintiffs acted with expedition to regularise the position by commencing the application (at [11] of both reasons for decision); and (c) if the orders were not made, acceptances of the takeover bid, which had been received by the plaintiffs, would likely have been rendered void, and the interests of third parties would thereby have been prejudiced (at [12] of both reasons for decision). 28 His Honour also observed that the applications were served on the target companies and ASIC, and all of them neither consented to nor opposed the orders sought. 29 Similarly, in In the matter of Clime Capital Limited [2019] NSWSC 1479 and In the matter of Sandon Capital Investments Ltd [2019] NSWSC 1512 - two decisions delivered by Black J on the same day - the same error was made. The respective plaintiffs applied for admission of securities to quotation within seven days after the start of the offer period, instead of the bid period. The solicitor for the plaintiffs explained the circumstances in which this error arose, being that a transaction timetable prepared prior to the preparation of the bidder's statement contained an error, because it specified the time for lodgement of the application for quotation of the securities as within seven days from the commencement of the offer period, rather than the bid period, and that error occurred due to an inadvertent oversight as to the identification of the applicable period in which to calculate the time (at [5] of both reasons for decision). Black J observed in Clime: [5] It is not clear whether that error arose from a solicitor's error, but little turns on that for present purposes where it is plain enough that the error arose from an innocent mistake as to the concepts of 'offer period' and 'bid period', of a kind that has occurred in earlier cases. 30 Relevantly, in GrainCorp Limited, in the matter of GrainCorp Limited [2008] FCA 996, Emmett J observed: [10] The power conferred on the court by s 1325A is discretionary but may be exercised in order to advance the objectives of the statutory scheme of the Act. One of those objectives is to ensure that the acquisition of shares in listed companies takes place in an efficient, competitive and informed market. Extending the time within which GrainCorp may make an application for quotation of its shares will involve no injustice to any person. It has always been intended that an application for quotation will be lodged at the appropriate time and, as I have indicated, the failure to lodge an application within the time was entirely inadvertent. The shareholders of Ridley will suffer no prejudice from the extension of time. Rather, the effect of the order will be to provide them with an opportunity to consider and, if thought fit, accept the bid that would otherwise be defeated by non-compliance with the time condition. A grant of the orders sought by GrainCorp will therefore advance the objects of Chapter 6 of the Act in ensuring that the takeover bid proceeds in an efficient, competitive and informed market. 31 I now turn to consider the exercise of the Court's discretion applying the principles enunciated in these authorities.

Consideration 32 The extension of time should be granted, having regard to the following matters. 33 First, I am satisfied that an inference can properly be drawn that the error in the bidder's statement was a result of inadvertence and was simply an honest and innocent mistake. Although I cannot be certain, it was likely an error made by one of the solicitors involved in the earlier drafting exercise. It is an error that has been made before. No lawyer is immune from the risk that such honest mistakes may occur in the day to day practice of the law. Consistent with the approach of Black J in Clime, I see no benefit in attempting to direct blame in any particular direction. I am satisfied that DLA Piper has made full and appropriate disclosure. 34 My view also accords with common sense - as McKerracher J observed in In the matter of MacMahon Holdings Limited [2008] FCA 1079 (at [12]), this is a commercial transaction of some significance and there is no evidence or reason to suppose that the plaintiffs or their solicitors would wish to jeopardise the commercial prospects through deliberate regulatory non-compliance. 35 I also accept Mr Nowotny-Walsh's evidence that had the error been picked up, steps would have been taken to correct the error and comply with s 625(3)(c)(i). 36 Second, DLA Piper (and their clients) acted swiftly to investigate the error once discovered and to bring this application. 37 Third, and acknowledging the observation of Siopis J in this regard, if the orders are not made, acceptances of the takeover bid which have been received by the plaintiffs (and there was evidence that at least a small number of shareholders had already acted in this regard) would likely be rendered void, and their interest would thereby be prejudiced. The effect of the order will be to provide them with an opportunity to consider and, if thought fit, accept the bid that would otherwise be defeated by non-compliance with the time condition. Such a course is consistent with the objects of Chapter 6 of the Corporations Act. 38 Fourth, Warrego has indicated to DLA Piper that it has no objection to the grant of the relief sought, and was provided with a copy of the application papers. 39 Fifth, ASIC was provided with a copy of the application papers and indicated in writing that it neither supports nor opposes the application. It did not seek to be heard. 40 Sixth, the ASX was provided with a copy of the application papers and indicated in writing that, having regard to the review that it had been able to undertake in the available time, the review did not identify any fact or circumstance that would cause it to oppose the application. It also did not seek to be heard at today's hearing. 41 For all of those reasons, the relief sought should be granted.

Disclosure 42 Finally, and for completeness, I note that in effect the application was heard ex parte. Accordingly the plaintiffs, through senior counsel, properly disclosed two matters. 43 The first was the fact of the competing cash bid by Hancock Energy that I have referred to above. How any shareholder deals with the competing bids is a matter for them and I do not consider that fact of any real relevance to the determination of this application. 44 The second is the prohibition in s 659B of the Corporations Act. That provision on its face restricts commencement of court proceedings in relation to a takeover bid during the takeover bid period, save by ASIC and certain other public bodies. That provision was considered in detail by McKerracher J in Venturex Resources Limited, in the matter of Venturex Resources Limited [2009] FCA 677; (2009) 177 FCR 391 at [9]-[25]. His Honour concluded (at [23]) that the very specific provisions of s 1325A(2) override the general provision in s 659B. In addition, his Honour observed (at [24]) that it would be inappropriate to exercise the power under s 659B(2) to stay the application for various reasons, including that a stay the proceeding would frustrate the purposes of Chapter 6 if orders could not be made under s 1325A of the Corporations Act before the end of the bid period. This approach was endorsed by Black J in both Clime (at [8]-[10]) and in Sandon Capital (at [8]).

Orders 45 Orders were made largely in the terms sought in the originating process. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Banks-Smith.