Judgment Suppressed [2015] WASC 218 (12 June 2015)

3 By 9 June 2015 at 2.15 pm, at which point the injunction had just expired, the parties had signed a minute agreeing to an extension of the injunction until a hearing that would take place sometime after 24 June 2015. At that time, I was concerned that extending the injunction beyond today, 12 June 2015, might require the parties to breach s 674 of the Corporations Act 2001 (Cth), depending on the outcome of negotiations between the plaintiffs and various financiers in relation to loans which were due to expire today. For that reason, I extended the injunction only until today and brought the matter back on for directions.

4 Today, the defendant appeared by counsel and opposed any extension of the injunction.

5 The principles governing the grant of an interlocutory or interim injunction are wellknown. I described them when I granted the initial injunction, but given that there was some transcription difficulty and counsel for the defendant was not present, I will restate those principles now.

6 As Beech J observed in Twinside Pty Ltd v Venetian Nominees Pty Ltd,[1] the three primary interrelated considerations are whether there is a serious question to be tried or the plaintiff has made out a prima facie case; whether the plaintiff will suffer irreparable injury for which damages will not be adequate compensation unless an injunction is granted; and whether the balance of convenience favours the granting of an injunction.

The phrase 'prima facie case' does not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed. It is sufficient that the plaintiff show a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending the trial. How strong the probability needs to be depends upon the nature of the rights the plaintiff asserts and the practical consequences likely to flow from the orders the plaintiff seeks.

...

As the apparent strength of the applicant's case diminishes, the balance of convenience moves against the making of an order. The grant of an injunction involves balancing the injustice which might be suffered by the defendant if the injunction is granted and the plaintiff later fails at trial, against the injustice which might be suffered by the plaintiff if the injunction is not granted and the plaintiff later succeeds at trial [9], [11]. (citations omitted)

8 As I also indicated in my judgment on 8 June 2015, I considered the elements of the cause of action for an equitable breach of confidence in my decision in Wilson v Ferguson.[2] I said:

The principle applied by the courts in proceedings asserting a breach of confidence was described in the following terms by Mason J in Commonwealth v John Fairfax & Sons Ltd, adopting the language employed in Lord Ashburton v Pape. The principle is that the court will restrain the publication of confidential information improperly or surreptitiously obtained or of information imparted in confidence which ought not to be divulged. In addition, Mason J regarded it as necessary to show that there will be an unauthorised use of the information to the detriment of the party communicating it. The existence of a requirement to show detriment has been doubted in subsequent cases. (footnotes omitted)

9 In the present case, there is no real doubt that the plaintiffs would incur a significant detriment if the information about which they are concerned is released.

10 In this case, it is also necessary to take account of statutory obligations created by the Corporations Act, which qualify the equitable doctrine of breach of confidence as well as my power to grant injunctive relief.

11 The plaintiffs are directors of, and hold a substantial proportion of the shares in, the defendant. Those shares comprise the security for loans taken out by each of the plaintiffs in relevantly identical terms. The loans were due to expire today but have now been extended by agreement to 18 June 2015. The evidence indicates that, if refinancing cannot be arranged, the plaintiffs may be forced to default on the loan and the lenders may exercise their right to sell the shares.

12 It seems to be common ground between the parties that, if the lenders execute their security by selling a significant proportion of the shares in the defendant at once, that would significantly deflate the share price, as would the apprehension caused by public disclosure of the loan agreements and refinancing arrangements.

13 The plaintiffs are in the course of negotiating the refinancing of the loans. There is evidence, which is not contradicted, that the plaintiffs provided information about the loans to the defendant in circumstances giving rise to confidentiality. Those circumstances include a confidentiality agreement between the parties to the loan, expressed in cl 16 of the loan agreement.

14 The fact that disclosure may have been required by the plaintiffs under s 191 of the Corporations Act does not deprive the information of its confidential character, so it seems to me that there is a serious question to be tried as to whether the plaintiffs provided personal financial information to the defendant in circumstances giving rise to an obligation of confidence on the part of the defendant.

15 Since the hearing on Monday, what the defendant seeks to disclose has become clearer. It appears from a draft announcement to the Australian Securities Exchange,[3] which contains the following information:

In June 2014, two directors of Atrum, [the plaintiffs], entered into funding arrangements secured over shares in Atrum, which at the time the directors did not consider were material.

...

On Thursday, 4 June 2015, [the plaintiffs] advised Atrum by email that the date for repayment of the principal under their funding arrangements was 11 June 2015, and that Mr Moran has 24 million shares secured by his funding arrangement, and Mr D'Anna has 5 million shares secured by his funding arrangement. No other current material details of the funding arrangements have been provided to Atrum having regard to the fact repayment was due on 11 June 2015.

Atrum has approached the lender to [the plaintiffs] and has been advised that the lender has extended the repayment date for the loans to 18 June 2015, by which time if the loans are not repaid in full, each of [the plaintiffs] will be in default, and the lender will be able to exercise its security over the secured Atrum shares.

16 The proposed announcement does not say anything about steps being taken to refinance the loan and, in my view, gives rise to an inference that there is a real prospect of the security being executed. Without information about the steps being taken to refinance the loan, the proposed announcement is misleading in that it is capable of giving rise to the inference that the sale of a significant proportion of the shares in the defendant is imminent.

17 The proposed announcement would disclose the number of shares subject to security granted by each of the plaintiffs; the loans to the plaintiffs and the fact that they are secured by the shares; the date of expiry of the loans; and the prospect that the lenders may exercise the security if there is a default.

18 In my view, that goes beyond what is currently in the public domain. Counsel for the defendant tendered two extracts from the Personal Properties Securities Register.[4] Although the extracts indicate that there is a security held by a particular financier over certain interests held by the plaintiffs, it would not be possible for a member of the public to conclude from the extracts that the interests subject to security were securities in the defendant.

19 There is no evidence that the relevant information was obtained other than from the plaintiffs. I accept counsel for the plaintiffs' submission that the proposed draft announcement, which is put before the court to show what disclosure is anticipated, is not evidence of the source or truth of the information contained therein.

20 There does seem to me to be a serious question to be tried as to whether the proposed announcement would breach an obligation of confidentiality owed by the defendant to the plaintiffs, unless that disclosure is required by the Corporations Act.

21 In that regard, s 674(1) of the Corporations Act provides that:

Subsection (2) applies to a listed disclosing entity if provisions of the listing rules of a listing market in relation to that entity require the entity to notify the market operator of information about specified events or matters as they arise for the purpose of the operator making that information available to participants in the market.

22 Section 674(2), which is a civil penalty provision, then creates an obligation to disclose information in accordance with the listing rules. (It seems to be common ground that the defendant is a 'listed disclosing entity'.)

23 Section 674(2A) creates liability for an individual who is involved in a contravention of s 674(2). Section 1311(1) of the Corporations Act also makes failure to comply with s 674(2) an offence.

24 The relevant listing rules are in evidence before me. Chapter 3 of the ASX Listing Rules contains rule 3.1, which provides that:

Once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity's securities, the entity must immediately tell ASX that information.

25 Again, it is common ground between both parties that the relevant information meets that criteria. However, counsel for the plaintiffs submits that the information falls within the exception to rule 3.1 contained in rule 3.1A, which provides that:

Listing rule 3.1 does not apply to particular +information while each of the following is satisfied in relation to the information:

3.1.A.1 One or more of the following 5 situations applies:

• It would be a breach of a law to disclose the information;
• The information concerns an incomplete proposal or negotiation;
• The information comprises matters of supposition or is insufficiently definite to warrant disclosure;
• The information is generated for the internal management purposes of the entity; or
• The information is a trade secret; and

3.1.A.2 The information is confidential and ASX has not formed the view that the information has ceased to be confidential; and

3.1.A.3 A reasonable person would not expect the information to be disclosed.

26 The position is that the plaintiffs are in the course of refinancing their loan arrangements, and there is a prospect of securities being sold if those efforts at refinancing are unsuccessful. If the financing efforts are successful, there will be nothing to disclose. That is, the information will be of historical, rather than current, relevance to the price of the defendant's shares. If the refinancing efforts are unsuccessful and one or both of the plaintiffs default on the loans, counsel for the plaintiffs accepts that disclosure will be required.

27 It seems to me that whether a significant proportion of the securities will be sold under the loan agreements is a matter of speculation at this stage. In my view, although information about the expiry of the loans and the exercise of the relevant security does not itself constitute an 'incomplete proposal', it does concern an 'incomplete negotiation', namely the refinancing negotiations which are currently underway.

28 Further, the information which is to be released in my view 'comprises matters of supposition' in the inferences which arise from it, and is 'insufficiently definite to warrant disclosure'. Disclosure would not seem to be warranted at this point in time, when there is uncertainty as to whether there will be default on one of the loans, or whether refinancing will occur.

29 As for the information being confidential, I have indicated that I am satisfied that the information has that character.

30 As to rule 3.1A.3, in my view a reasonable person would not expect information about the possible failure of refinancing negotiations to be disclosed at this point in time, particularly where disclosure suggests the likelihood of something which is in fact merely speculative at this stage. That would have a significant detrimental impact on the value of the shares, and may create a false market.[5]

31 Therefore I am satisfied that the disclosure proposed by the defendant is not required by rule 3.1 at this point in time, and that the obligation to disclose is unlikely to arise in the current circumstances until 18 June 2015, or until the defendant has information showing that there is clearly going to be a default on the loan and consequent realisation of the security over the shares.

32 It follows that s 674 of the Corporations Act does not preclude me from issuing an injunction restraining the apprehended disclosure of the information, nor does it preclude the plaintiff from asserting a cause of action for breach of confidence.

33 I am satisfied that the balance of convenience very much favours the issue of an injunction. The subject matter of the proceedings is the confidentiality of the information. That confidentiality will be lost if the disclosure occurs. There will also be significant financial prejudice to the plaintiffs which will be difficult to prove, because they would be faced with the task of convincing a court that the reduction in value of their shares and the consequences that flow from that were caused by the disclosure and not some other market factor.

34 The countervailing prejudice which is put forward by counsel for the defendants seems to be rather more ephemeral, and in my view does not warrant the refusal of injunctive relief at this time.

35 There were a significant number of other issues raised by the submissions of both counsel which in my view do not go to the central issue. They concerned whether there may be breaches of various other statutory duties imposed by the Corporations Act on one party or the other. I do not consider it necessary to determine any of those questions.

36 Counsel for the defendant also complains that the terms of the injunction are overly broad and do not sufficiently identify the information which is to be protected. I will hear from counsel as to the terms in which the injunction might be formulated to address those concerns.

[1] Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110 [9], [11].

[2] Wilson v Ferguson [2015] WASC 15 [43].

[3] Affidavit of Moran sworn 12 June 2015, 28.

[5] The defendant does not contend that rule 3.1B requires the disclosure of the information.