Leadenhall Australia Pty Limited v Cape Lambert Resources Limited [2018] FCA 558 | Case summary

Proper purpose 47 Mr Lebbon's affidavit sworn on 29 June 2017 was made before Leadenhall and Noble Investments sold their shares and before he reduced his personal shareholding from 100,000 to 1,000 shares. 48 Submissions made by the applicants' Counsel on 19 October 2017 were incorrectly premised on the assumption that Mr Lebbon and Leadenhall at that time were the holders of 100,000 and 27.6 million shares respectively. Mr Lebbon's evidence is that he did not advise his solicitors or Counsel about the divestments until some time after that hearing had concluded. I accept that evidence. There is nothing to suggest that the applicants' legal representatives have knowingly withheld any material facts from the Court. 49 In his affidavit sworn on 11 December 2017, Mr Leadenhall states that his own intentions and those of Leadenhall asserted in his earlier affidavit remained "unaffected", notwithstanding their divestments. Those purposes are asserted jointly by the two applicants. There is no aspect of them in which Mr Lebbon personally asserts interests any different from those asserted on Leadenhall's behalf. It is nonetheless necessary to evaluate Mr Lebbon's purposes as they relate to his personal capacity as a shareholder, to the extent that that can be done. 50 There are two aspects to the purposes deposed to by Mr Lebbon. The first is a concern that Gulf Energy and Mr Sage are related parties or associates, such that their combined shareholdings amount to a 24.65% interest in Cape Lambert. That concern is said to be founded upon the following: (1) Mr Sage's statement at the AGM on 26 November 2015 to the effect that Cape Lambert was solvent and did not need to raise any capital; (2) the proximity of Mr Sage's statement to the substantial capital raising that then occurred; (3) the unusual nature of the share placement, being at a price 300% above the previous closing price; (4) the circumstance that the proposed capital raising was initially to be by way of placement to "sophisticated UK and European investors", albeit underwritten by Gulf Energy, in circumstances where shares were available to be purchased by investors at market value; (5) the circumstance that the placement of shares to Gulf Energy occurred at a time when AML was threatening to use its voting power to call a general meeting; and (6) Gulf Energy's apparent status as a "shelf company" situated in the Cayman Islands with no apparent history of investment. 51 As with all of the evidence, Mr Sage's statement to the AGM to the effect that Cape Lambert did not need to raise capital is to be understood in its proper context. It is Cape Lambert's position that the statement was made in response to a question concerning the company's solvency and ought not to be understood as precluding capital raising directed at other purposes, such as those stated in its announcements to the market. These are matters in respect of which the parties may be in dispute, but in my view they do not detract significantly from Mr Lebbon's stated concerns, in light of the other surrounding circumstances. 52 I consider it significant that in the weeks leading up to the share placement, Mr Lebbon (rightly or wrongly) was forcefully articulating complaints about Cape Lambert's management and Mr Sage personally and insisting upon his involvement in appointing an independent non-executive director to the company's Board. The content and tenor of the correspondence indicates that Mr Lebbon's dealings with the company were perceived by Mr Sage as improper and hostile. It may be readily inferred that Cape Lambert, by Mr Sage, perceived Mr Lebbon, through AML, to be something of a corporate pest who was engaging in an attempt to affect the composition of the Board to achieve a hidden and malign objective. 53 For Cape Lambert it is submitted that there is no reasonable basis for investigating whether Mr Sage and Gulf Energy are related parties. I reject that submission. It is unusual that "sophisticated" international investors would consider an acquisition of shares at 300% above market value and why an apparently small company situated in the Cayman Islands would agree to underwrite such a transaction. The more curious aspects of the transaction are not explained by Gulf Energy's responses to ASIC's beneficial tracing directions. Mr Lebbon's desire to investigate the matter is, I find, a bona fide one having some objective basis in the facts that are presently known to him. 54 The second aspect of Mr Lebbon's purposes is the commercial ends sought to be achieved by his inspection of Cape Lambert's books. 55 In written and oral submissions, Counsel for the applicants contended that an order pursuant to s 247A(1) may be made in circumstances where the applicant for the order has not or cannot articulate any particular cause of action that may be presently under his or her contemplation. That general proposition may be accepted. An order for inspection may be made to enable an applicant to investigate a case "at large": Smartec Capital Pty Ltd v Centro Properties Ltd (2011) 83 ACSR 461 at [65]; London City Equities Limited v Penrice Soda Holdings Limited [2011] FCA 674; (2011) 281 ALR 519 at [29], [36] - [38]; Praetorin Pty Ltd v TZ Ltd (2009) 76 ACSR 236 at [38] - [39]. 56 Mr Lebbon's subjective purposes are a question of fact, to be determined by reference to his affidavit evidence. It is the propriety of Mr Lebbon's actual purposes that are to be objectively assessed, not the propriety of other unarticulated purposes for which a shareholder in his position might otherwise seek to inspect Cape Lambert's books. Mr Lebbon has not alleged that he subjectively intends to investigate a case with no apparent end in mind. Rather, the affidavits disclose a desire to conduct an investigation into the relationship between Mr Sage and Gulf Energy as a means of achieving a specified legal and financial result. 57 Mr Lebbon states that if it could be established that Mr Sage and Gulf Energy were related parties or associates, then it would follow that: (1) Cape Lambert would have breached s 606 of the Act, which prohibits certain acquisitions of relevant interests in voting shares subject to specified exceptions and, accordingly, both he and Leadenhall may obtain a declaration of unacceptable circumstances "and associated orders" pursuant to ss 606, 657A and 657D of the Act; and (2) both he and Leadenhall may have claims for compensation pursuant to s 671C of the Act by reason of Mr Sage and Gulf Energy's failure to comply with notification requirements imposed by s 671B. 58 Section 611 of the Act sets out the exceptions to the prohibition in s 606. Among the exceptions is the acquisition of the relevant shares resulting from the acceptance of an offer under a takeover bid. The phrase "takeover bid" is defined in s 9 of the Act to mean "an off-market bid or market bid made under Chapter 6". 59 No such takeover bid has in fact occurred. 60 Under s 657A of the Act, the Takeovers Panel (established under Pt 10 of the Australian Securities and Investments Commission Act 2001 (Cth)) may make a declaration of unacceptable circumstances. Mr Lebbon's argument proceeded on the basis that such a declaration could be made if (among other things) s 606 of the Act has been contravened. Upon making such a declaration, the Takeovers Panel may make an order pursuant to s 657D(2). It relevantly provides: (2) The Panel may make any order (including a remedial order but not including an order directing a person to comply with a requirement of Chapter 6, 6A, 6B or 6C) that it thinks appropriate to: (a) if the Panel is satisfied that the rights or interests of any person, or group of persons, have been or are being affected, or will be or are likely to be affected, by the circumstances - protect those rights or interests, or any other rights or interests, of that person or group of persons; or (b) ensure that a takeover bid or proposed takeover bid in relation to securities proceeds (as far as possible) in a way that it would have proceeded if the circumstances had not occurred; or (c) specify in greater detail the requirements of an order made under this subsection; or (d) determine who is to bear the costs of the parties to the proceedings before the Panel; regardless of whether it has previously made an order under this subsection or section 657E in relation to the declaration. The Panel may also make any ancillary or consequential orders that it thinks appropriate. Note: Section 9 defines remedial order. 61 The Takeovers Panel is not empowered to make an order for compensation to a person affected by a contravention of s 606 of the Act. Nor does proof of a contravention of s 606 of the Act result in there being a deemed or mandated takeover bid as a matter of law. The Takeovers Panel does, however, have the power to order that "a takeover bid or proposed takeover bid" proceed in a way that it would have proceeded if the unacceptable circumstances had not occurred: subs 657D(2)(b). The phrase "takeover bid" in this context is to be understood as a takeover bid under Ch 6 that is already proceeding or one that is proposed to proceed. The power to make an order is a power to affect the manner in which an actual bid must proceed, not to mandate that a takeover bid be made. 62 It is difficult to comprehend how the exercise of powers by the Takeovers Panel might result in the relief sought by Mr Lebbon, assuming he could first establish a contravention of s 606 of the Act. Moreover, at the present time, Mr Lebbon does not now retain the 100,000 shares he states he could and would have sold into a takeover bid, should such a bid now occur. As I have said, he presently maintains only a trivial shareholding, and Leadenhall maintains no shares at all. 63 The contemplated claim for compensation is one founded upon a suspected breach of s 671B of the Act. Relevantly, it obliges a person to give to a company and the relevant market operator prescribed information if (among other things) the person begins to have a "substantial holding" in the company (subs 671B(1)(a)) or the person makes a takeover bid for the securities of the company (subs 671B(1)(c)). A person who contravenes s 671B is liable to compensate a person for any loss or damage the person suffers "because of" the contravention: s 671C(1). 64 For Cape Lambert it is submitted that even if Mr Lebbon could establish a contravention of s 671B(1)(a) of the Act (including by way of information obtained by inspecting its books) he could not succeed in establishing a causal link between such a contravention and his alleged loss (namely, a lost opportunity to sell his shares at a premium into a takeover bid). Assuming a contravention of s 671B(1)(a) of the Act could be established, the obligation under that provision is one that would have arisen after the event of the share placement. I accept Cape Lambert's submission. It has not been shown how a failure to comply with that obligation could result in an award of compensation of the kind sought to be pursued by Mr Lebbon. 65 If it could be shown that Mr Sage and Gulf Energy were related parties or associates, it is true that that circumstance would support a conclusion that the share placement constituted a contravention of s 606 of the Act. However, that contravention would arise because none of the exceptions set out in s 611 of the Act in fact applied (including that there was in fact no takeover bid). Similarly, subs 671B(1)(c) would not have been infringed because there was, in fact, no takeover bid at all. 66 I have not overlooked that Mr Lebbon's contemplated claim for compensation may be founded upon a hypothetical counterfactual which he says could and would have occurred had a takeover bid been made in accordance with the provisions of the Act. Where a claim for compensation is founded upon a lost opportunity, it is not uncommon for a counterfactual to be alleged and proven so as to demonstrate a causal connection between a particular contravention and a claimed lost commercial opportunity. However, the contravention must be one in respect of which the claimant has an entitlement to seek compensation. A contravention of s 606 of the Act does not give rise to a claim for compensation in a shareholder who could and would have sold shares into a takeover bid, had one occurred. Nor has Mr Lebbon articulated any possible claim founded on a hypothetical takeover counterfactual in connection with a breach of s 671B. 67 In my evaluation, even assuming that information obtained by inspecting Cape Lambert's books might in some way assist Mr Lebbon to prove that Mr Sage and Gulf Energy were related parties, that circumstance would not result in Mr Lebbon personally having a claim for compensation of the kind advanced in his affidavit evidence. Whilst there is a proper objective basis to investigate whether there has been a contravention of the Act, the stated purpose for obtaining evidence of a relevant connection between Mr Sage and Gulf Energy in my view is one that is not proper in the requisite sense because the consequential claims contemplated by Mr Lebbon are legally misconceived. 68 If I am incorrect in my assessment that Mr Lebbon's purposes are confined to the causes of action specified in his affidavits, and if I am also incorrect in my conclusion that the foreshadowed claims are bound to fail, I would in any event dismiss the application for an alternative reason. 69 The circumstance that Leadenhall divested itself of all of its shares in my view weighs heavily against an order granting Mr Lebbon the relief he seeks in his personal capacity. I consider Mr Lebbon's relations in connection to the company to have been undertaken principally on behalf of Leadenhall, in that his primary purpose for seeking the order and persisting with the application is to formulate what would be a sizeable claim for compensation on Leadenhall's behalf. Any interests Mr Lebbon may have in his personal capacity are, in my view, secondary and financially insubstantial. Leadenhall's acquisition of options in AML's shares was significant, occurring just one day before the AGM at which Mr Lebbon agitated concerns about the company's management. Mr Lebbon's personal holding was also acquired in close proximity to the AGM and was very small in comparison to the potential value of Leadenhall's derivative interests. 70 Weight should also be given to the trivial size of Mr Lebbon's current shareholding and the circumstance that the purpose for inspecting the books is not so much to protect Mr Lebbon's present investment in the company, but to advance a claim for a lost profit he claims he might have made had he divested 99,000 formerly-held shares into a takeover bid. I consider the divestment of Leadenhall's shares to create a circumstance in which Mr Lebbon's primary purpose for inspecting the books is to advance a claim on behalf of a former shareholder, being an entity that is not presently entitled to obtain an order of inspection in its own right. That is not a "proper purpose" within the meaning of s 247A(1) of the Act and in any event weighs heavily against exercising the discretion in Mr Lebbon's favour. 71 Before concluding, I should note that Cape Lambert advanced a further submission to the effect that Mr Lebbon's true purposes were to pursue causes of action against Mr Sage and Gulf Energy rather than to pursue claims against the company itself. It argued that, on its proper construction, s 247A(1) of the Act does not permit an order to be made to advance that purpose. It submitted that the purpose of the provision was to protect and advance the interests of a shareholder qua shareholder in its relations with the company and not to afford the means by which a shareholder may obtain what would effectively be pre-action discovery against third parties. Having dismissed the applicants' claims on other bases, I do not consider it necessary to determine whether Cape Lambert's additional submissions are correct. These additional points of construction should be determined in the context of a case in which the outcome necessarily turns upon them. 72 In the circumstances, it is unnecessary to resolve an outstanding dispute as to whether the categories of books sought to be inspected are properly adapted to achieving the purposes asserted by Mr Lebbon, and Leadenhall. 73 I will hear the parties as to costs. I certify that the preceding seventy-three (73) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Charlesworth.

Leadenhall Australia Pty Limited v Cape Lambert Resources Limited

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