BARKER J:
1 On 26 July 2017, I made the above orders. These are the reasons for so doing.
2 This is an application for orders pursuant to s 1322(4)(a) and s 1322(4)(c) of the Corporations Act 2001 (Cth) to validate trading in 23,630,146 shares in the plaintiff that were issued in June 2017, and to relieve sellers of those shares from civil liability for breaches of sections s 707(3) and s 727(1) of the Act.
3 The shares were issued as follows:
13,326,666 shares were issued on 8 June 2016;
6,859,036 shares were issued on 15 June 2016; and
3,444,444 shares were issued on 30 June 2016.
4 Each of the share issues was followed by a cleansing notice issued under s 708A(5)(e) of the Act, which, if valid, would have exempted the subscribers for the shares from making disclosure when offering such shares for sale.
5 The plaintiff was not qualified to issue the cleansing notices, however, because it did not satisfy the requirement under s 708A(5)(b) of the Act that its securities had not been suspended from trading for more than five days in the 12 month periods ending on the dates of the share issues. The Australian Stock Exchange (ASX) also queried the correctness of the statements in the cleansing notices dated 8 June 2017 and 3 July 2017 that there was no excluded information under s 708A(7) of the Act.
6 On 10 July 2017, the plaintiff lodged a cleansing prospectus with the Australian Securities and Investments Commission (ASIC) pursuant to s 708A(l1) of the Act, addressing disclosure for trading in the shares from that date.
7 Relief is sought in relation to trading in the shares during the periods from the three dates of issue to 10 July 2017, and in connection with the ASX lifting the trading suspension which has been in place since 5 July 2017. Other standard orders are sought.
8 The Court has jurisdiction and power to make the orders sought under s 1337B(l) and s 1322 of the Act, and s 19 of the Federal Court of Australia Act 1976 (Cth).
9 The following background matters are set out in the supporting affidavit of the plaintiff's company secretary, Ms Melissa Chapman, made on 20 July 2017.
10 The plaintiff was incorporated as Paynes Find Gold Limited on 10 March 2010.
11 The plaintiff's shares were suspended from trading from 5 May 2016 to 19 September 2016. During this period the plaintiff finalised a material acquisition involving the purchase of all of the shares in European Lithium AT (Investments) Limited.
12 Upon completion of the transaction, the plaintiff's shares were reinstated to official quotation on the ASX on 20 September 2016. Since then, the plaintiff's focus has been on developing its lithium assets.
13 In September 2016, the plaintiff changed its name to European Lithium Limited.
14 On 8 June 2017, the plaintiff made an announcement of a proposed placement of shares to raise $1.1 million for the Wolfsberg Lithium Project. The announcement states that shares were to be issued to investors, mostly European, who had provided commitments to take up shares.
15 This was followed by three share issues on 8, 15 and 30 June 2017, by which shares referred to in the 8 June 2017 announcement (placement shares) were issued to committing shareholders.
16 A cleansing notice under s 708A(5)(b) of the Act was issued in relation to each of the share issues.
17 On 8 June 2017 the plaintiff issued 13,326,666 shares (8 June shares) to subscribers as listed in the plaintiff's letter to the Advanced Share Registry dated 8 June 2017. At 18:52 AEST on the same day, the plaintiff released an announcement entitled "Issue of Placement Shares", which included a cleansing notice (8 June cleansing notice) and an Appendix B announcement of the share issue.
18 The 8 June cleansing notice contained the following statement:
As at the date of this notice, there is no excluded information (as defined in subsection 708A(7) and 708A(8) of the Act) which is required to be disclosed by EUR.
19 By its email sent at 09:36 AEST on 9 June 2017, ASX raised a concern about the statement in the 8 June cleansing notice that there was no excluded information, to which the plaintiff responded by its letter dated 13 June 2017.
20 On 15 June 2017, the plaintiff issued 6,859,036 shares (15 June shares) to subscribers as listed in the plaintiff s letter of that date to the Advanced Share Registry.
21 On 16 June 2017, the plaintiff released an announcement entitled "Issue of Placement Shares" which included a cleansing notice (15 June cleansing notice), and an Appendix B announcement of the share issue.
22 The 15 June cleansing notice included the same statement about excluded information as appeared in the 8 June cleansing notice.
23 The 15 June issue did not prompt any communication from ASX.
24 On 30 June 2017, the plaintiff issued 3,444,444 shares (30 June shares) to the subscriber referred to in the plaintiff's letter of that date to the Advanced Share Registry.
25 On 30 June 2017, the plaintiff issued an Appendix B announcement of the share issue, and at 09:22 AEST on 3 July 2017, the plaintiff released a cleansing notice (although headed "Cleansing Statement") in relation to the issue of the 30 June shares (30 June cleansing notice).
26 On 3 July 2017 at 10:51 AEST, the plaintiff issued an announcement entitled "European Lithium Increases Resources at Wolfsberg Adding 4.7 million tonnes at 0.78% Li2O in Zone 1" (3 July announcement).
27 On 3 July 2017, the ASX sent an email to the plaintiff querying whether the statement in the 3 July cleansing notice that there was no excluded information was correct, in view of the 3 July announcement, to which the plaintiff responded by its letter dated 5 July 2017.
28 On 5 July 2017 ASX sent an "Aware" letter (aware letter) to the plaintiff, in which ASX:
queried whether the cleansing notices were intended to operate as "cleansing notices" under s 708A(5) of the Act or as a disclosure statement under Pt 6D.2 of the Act, and if the former, how the plaintiff says it could issue such notices when trading in its securities had been suspended for more than five days during the 12 month period ending on 3 July 2017;
said that if the plaintiff considered that the 3 July cleansing notice was valid, it required answers to questions relating to the correctness of the statement in the July cleansing notice that the plaintiff was not in possession of excluded information; and
requested a response by 3 pm on 6 July 2017, and noted that the plaintiff might wish to consider a trading halt.
29 The plaintiff went into an interim trading halt on 5 July 2017 until commencement of trading on 7 July 2017 or the earlier release of an announcement.
30 Ms Chapman appreciated for the first time that the cleansing notices should not have been issued when she read the aware letter.
31 On 5 July 2017, the plaintiff instructed solicitors to apply to the Court for validating orders.
32 The plaintiff responded to the aware letter by letter dated 6 July 2017, in which the plaintiff:
acknowledged that the cleansing notices should not have been issued, as the plaintiff was not qualified under s 708A(5)(b) of the Act;
said that the plaintiff had made an honest mistake in relation to the period of suspension, had not appreciated the significance of a defective cleansing notice, did not properly consider s 707(3) of the Act in connection with future sales, and noted the change in company secretary in February 2017; and
said that it was preparing a cleansing prospectus under s 708(11) of the Act, and had instructed solicitors to apply to the Court for validating orders.
33 On 7 July 2017, the plaintiff's securities were suspended from official quotation.
34 On 10 July 2017, the plaintiff lodged a cleansing prospectus with ASIC.
35 In an email sent on 11 July 2017, ASX made it clear that the suspension from quotation would remain in place until validating orders had been made.
36 On 18 July 2017, the plaintiff wrote to the six shareholders who received placement shares and may have traded in them.
37 Trading in the placement shares was set out in a table obtained from the plaintiff s registry.
38 So far as the requirements of s 1322(4)(a) of the Act are concerned in relation to proposed orders 1,3 and 5, I am satisfied they are met.
39 First, the plaintiff is an interested person who may seek relief, as required by s 1322(4). See Re Golden Gate Petroleum Ltd (2010) 77 ACSR 17 at [44]; [2010] FCA 40.
40 Secondly, the proposed orders are orders declaring that any act, matter or thing purporting to have been done under the Act or in relation to a corporation is not invalid by reason of any contravention of a provision of the Act. Proposed orders 1, 3 and 5 identify the relevant "act, matter or thing" as the sale or offering for sale of the respective shares, and identifies the specific contraventions, namely breaches of s 707(1) and s 707(3) of the Act.
41 The third requirement is as to satisfaction of one of the matters set out s 1322(6)(a)(i), (ii) and (iii).
42 There are divergent views on whether a contravention of s 708A(5) constitutes a "procedural irregularity". A negative answer to this question was given in Golden Gate at [46], and Sprint Energy Limited, in the matter of Sprint Energy Limited [2012] FCA 1354 at [42]. A different approach was taken in Elemental Minerals Ltd, in the matter of Elemental Minerals Ltd [2010] FCA 687 at [36]-[39].
43 I accept, however, that it is not necessary to consider this question, as the second and third preconditions are established.
44 A question then arises as to honesty on the part of the person concerned in the contravention, having regard to s 1322(6)(a)(ii).
45 The subject conduct was the issuing by the plaintiff of the invalid cleansing notices.
46 The plaintiff's board initiated the share issues by its resolution to issue shares pursuant to the placement. However, the board did not make further resolutions about the mechanics of the share issue process, and did not direct the company secretary as to the precise manner in which the share issues were to be affected.
47 The involvement of the directors during the period from 8 June 2017 to 3 July 2017 in connection with the mechanics of the share issues was limited to the following matters:
Drafts of the cleansing notices and Appendix B announcements in relation to the 8 June share issue and the 15 June share issue were sent to the board by Ms Chapman.
A circular resolution in relation to the 30 June share issue was sent to the board by Ms Grant-Edward. The resolution approved an adjustment to the schedule of the shares to be issued that had been approved at the 8 June 2017 board meeting, and authorised and instructed the company secretary "to complete all necessary announcements, ASX and ASIC lodgements in respect of the issue".
48 The main actor in the relevant conduct was Ms Chapman, who prepared and issued the notices.
49 Ms Chapman explains how she came to cause the plaintiff to issue the cleansing notices in [39] to [42] of her affidavit.
50 Her initial and continuing error was as to the proper interpretation of s 708A(5)(b) of the Act, in particular as to the relevant period of quotation that applied to the plaintiff for the purposes of considering whether it met the five-day trading suspension limit so as to be qualified to issuing a cleansing notice. This type of error occurred in Re Chameleon Mining NL [2009] NSWSC 660 and Golden Gate. In both cases validating orders were made.
51 Ms Chapman had understood that the period of quotation commenced upon relisting, on 20 September 2016. If this was correct, the plaintiff would have qualified under s 708A(5)(b).
52 While this interpretation was not correct, it is perhaps reasonable to comment that it was not obviously so; the plaintiff had recast itself as focussing on the development of lithium assets, having previously been involved in gold exploration, and the plaintiff's relisting had some similarities to a company's initial quotation after an IPO.
53 Ms Chapman came to understand her error upon reading the aware letter and checking the announcements that showed the trading suspension from 5 May to 19 September 2016.
54 The ASX also raised issues about whether the 5 June cleansing notice and the 30 June cleansing notice might be defective by reason of the failure to disclose "excluded information" as defined in s 708A(7) of the Act.
55 The plaintiff responded to the ASX's emails with explanations as to why the plaintiff did not consider that either of the cleansing notices should have included the purported excluded information, and Ms Chapman says that she did not believe that there was any excluded information that should be released with the 5 June cleansing notice and the 30 June cleansing notice.
56 I am satisfied that in causing the plaintiff to issue the cleansing notices, Ms Chapman did not engage in any dishonest conduct but rather made what might be called an honest mistake.
57 As to whether it is just and equitable that the orders sought should be made, as required by s 1322(6)(a)(iii), I consider this requirement is met.
58 First, the circumstances of the contraventions warrant relief. They arose by way of an honest mistake on the part of the plaintiff s company secretary when she caused the issue of the 5 June cleansing notice, which mistake was carried through when the second and third cleansing notices were issued.
59 Secondly, the making of the curative and other orders sought by the plaintiff would be consistent with the public policy of Chapter 6D, which is to ensure disclosure to shareholders: see above.
60 Thirdly, it is appropriate that shareholders who received an issue of the placement shares should be relieved from any liability arising from defective cleansing notices. Importantly, the curative orders will not relieve the plaintiff from any potential liability in relation to the defective cleansing notices.
61 Fourthly, the relief will permit the plaintiff to have the suspension in trading of its shares removed by the ASX, and this will allow shareholders to freely trade their shares.
62 Fifthly, it is unlikely that any prejudice will be suffered by any purchasers of the placement shares if the proposed orders are made. Those purchasers' rights will, in any event, be protected by proposed order 10, and by order 8 which deals with publication of the orders as made by the Court. This is consistent with the approach taken in Re Silver Lake Resources Ltd (2012) 87 ACSR 436 at [24]-[25]; [2012] FCA 32, Sprint Energy at [51], and TV2U International Limited, in the matter of TV2U International Limited [2016] FCA 1556 at [47] and [50].
63 Sixthly, both ASIC and ASX have been given notice of this application and have been served with this application.
64 Both ASIC and ASX have indicated that they do not take a position in relation to the application, neither consenting nor opposing it.
65 I am also satisfied that no substantial injustice has been or is likely to be caused to any person by the making of the orders, the consideration identified by s 1322(6)(c).
66 I proceed on the basis that it is probable that any person who acquired any of the placement shares did so in the bona fide belief that the shares were tradable without having to make disclosure under s 707(3) of the Act: see TV2U at [40] and Silver Lake at [19].
67 If the orders are not made, then there may be substantial injustice to sellers of placement shares, given that any sales of such shares may be void or voidable.
68 Also, I accept that the general body of shareholders would be prejudiced by reason of the continuing suspension from official quotation.
69 Orders 2, 4 and 6 of the orders will provide relief from civil liability, pursuant to s 1322(4)(c). They are in what might be called standard form and are similar to those made in Sprint Energy at [53]-[55], Golden Gate, Elemental and TV2U.
70 Section 1322(6)(b) provides an additional statutory requirement for the making of an order under s 1322(4)(c), namely that the person to be relieved from civil liability acted honestly.
71 There is no evidence that any of the sellers acted dishonestly in any way.
72 I infer that the sellers were likely to be acting honestly and would not have sold shares knowing of the absence of proper disclosure. The inference is justified from an inference about sellers believing they could trade without making disclosure, as dealt above. Inferences about honesty were made in Golden Gate at [51]; Elemental at [43], [45] and [52]; Silver Lake at [23], Sprint Energy at [51]-[53], and TV2U at [40] and [49].
73 Further, as to the requirement under s 1322(6)(c), it is unlikely that the proposed validation orders will cause any substantial injustice to sellers. Also, they will have protection under proposed orders 8 and 10.
74 As to the Court's general discretion under s 1322(4) to make or not make the orders sought, I am satisfied that the application for relief has been made with appropriate promptness.
75 I note that, in the present case, the ASX is not pressing any issue about excluded information. Further, the satisfaction of the other statutory requirements for relief and the other matters favouring an exercise of discretion in favour of the plaintiff militate in favour of the orders being made, despite the queries about excluded information.
76 There is no evidence of any substantial misconduct, serious wrongdoing or flagrant disregard of the corporate law or the company's constitution so as to warrant refusal of the relief sought. See Re Wave Capital Limited [2003] FCA 969 at [29].
77 Further, the plaintiff has not sought relief from civil liability for itself or its officers under s 1322(4)(c), so that there is no bar to proceedings being brought against the plaintiff for damages, or imposition of a civil penalty, or prosecution for breaches of the Act.
78 Sellers who consider that they have suffered detriment as a result of the making of the orders are protected by orders 8 and 10.
79 The public policy of the Act will not be undermined by the validation of sale transactions. See Sprint Energy at [56].
80 There are no other discretionary reasons for refusing relief.
81 For these reasons I made the orders sought.
I certify that the preceding eighty-one (81) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker.