RE ENOVA MINING LTD; EX PARTE ENOVA MINING LTD [2023] WASC 492 (15 December 2023)

(a) independent audit reports were signed by Mr Shute for the financial years ending 31 December 2021 (dated 29 March 2022) and 31 December 2022 (dated 29 March 2023);[14]

(b) the half year financial statements of Enova were reviewed by Mr Shute and were the subject of a review report for the period ending 30 June 2021 (dated 7 September 2021) and 30 June 2022 (dated 13 September 2022);[15] and

(c) a cleansing notice was issued on 30 May 2022 in respect of an issue of shares by Enova to a Malaysian company, Emmco Mining Sdn Bhd (Emmco).[16]

1. On 28 November 2023, the Australian Securities Exchange (ASX) notified the plaintiff that there was a discrepancy with the cleansing notice issued on 30 May 2022 because Mr Shute's appointment as auditor of Enova had not been approved by shareholders. As at this date, the trading of the plaintiff's shares was suspended (and remained suspended at the date of the hearing) pending the outcome of unrelated submissions that had been lodged with the ASX concerning a potential acquisition by the plaintiff.[17]
2. Emmco has not on-traded any of the shares issued to it.[18] As a result, there has not been any consequent breach of its obligations pursuant to s 727 of the Act to make disclosure in respect of any offer for sale.
3. On 4 December 2023, Enova made an announcement to the ASX advising of its intention to make this application.[19]
4. On 6 December 2023, Enova's solicitors wrote to the court to request an urgent hearing of the application. On the same date, Enova by its solicitors, wrote to the ASX and ASIC to give notice of this application.[20]

Statutory regime Financial Reports and appointment of auditor

1. Chapter 2M of the Act is entitled 'Financial Reports and Audit'. The process for the appointment and removal of auditors is set out in pt 2M.4 of the Act.
2. Directors of a public company are obliged within one month of registration of the company to appoint an auditor, unless the members at a general meeting have appointed an auditor (s 327A(1)).
3. Where there is a vacancy in the office of auditor, pursuant to s 327B(1)(b) of the Act, a public company must appoint an auditor to fill the vacancy at each annual general meeting subsequent to the company's first annual general meeting. Section 327B(3) of the Act requires a director of a company to take all reasonable steps to comply with, or to secure compliance with s 327B(1).
4. Section 327C of the Act deals with circumstances where an auditor is appointed to fill a casual vacancy other than at an annual general meeting. If a vacancy occurs in the office of auditor of a public company, which is not caused by the removal of the auditor from office and there is no surviving or continuing auditor of the company, the directors must, within one month of the vacancy occurring, appoint an auditor to fill the vacancy unless the company at a general meeting has appointed an auditor to fill the vacancy (s 327C(1)). An auditor appointed to fill a casual vacancy under s 327C(1) of the Act holds office until the company's next general meeting (s 327C(2)).
5. Section 301 of the Act requires a company to have its financial report for a financial year audited in accordance with div 3 of pt 2M.3 and to obtain an auditor's report.
6. Section 314 of the Act relevantly requires a company to report to its members for a financial year by providing certain specified reports, including the auditor's report, to its members.

1. Part 6D.2 of the Act imposes disclosure obligations on corporations in relation to rights issues and the issue and sale of quoted securities.
2. Section 708A of the Act governs the issue of quoted securities, including shares. In certain circumstances, the disclosure obligations can be satisfied by lodging a cleansing notice (s 708A(5)) or a prospectus. If disclosure has not been made by the issuer and the shares are on‑sold within 12 months, the party to whom the shares are issued may be obliged to make disclosure.[21]
3. The notice is required to comply with s 708A(6) of the Act which requires the notice to state that, as at the date of the notice, the body has complied with the provisions of ch 2M of the Act.

Power under s 1322 of the Act to grant the relief sought

1. Section 1322 relevantly provides:

(4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:

(a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation;

(b) an order directing the rectification of any register kept by ASIC under this Act;

(c) an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a);

(d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding;

and may make such consequential or ancillary orders as the Court thinks fit.

(6) The Court must not make an order under this section unless it is satisfied:

(a) in the case of an order referred to in paragraph (4)(a):

(i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature;

(ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or

(iii) that it is just and equitable that the order be made; and

(b) in the case of an order referred to in paragraph (4)(c) - that the person subject to the civil liability concerned acted honestly; and

(c) in every case - that no substantial injustice has been or is likely to be caused to any person.

1. In considering an application under s 1322 of the Act, the essential principles are:[22]

(a) the prescriptive requirements of the wording in s 1322(4) and the pre‑conditions in s 1322(6) need to be satisfied;[23]

(b) the court retains a discretion under s 1322(4) as to whether it makes the orders sought;

(c) the broad powers reflect a legislative policy that the law should not inflict unnecessary liability or inconvenience or invalidate transactions because of non-compliance with its requirements where such non-compliance is the product of honest error or inadvertence and where the court can avoid its effects without prejudice to third parties or to the public interest in compliance with the law;[24]

(d) limitations to the broad powers in s 1322 will not be readily implied.[25] Section 1322 is remedial in character and should be applied broadly;

(e) the court can make orders under s 1322(4)(a) on conditions and make such consequential and ancillary orders as it thinks fit; and

(f) an order can be made under s 1322(4)(a) notwithstanding that the contravention or failure concerned resulted in the commission of an offence.[26]

Disposition Application by an 'interested person'

1. I accept that the plaintiff is an interested person who may seek relief, as required by s 1322(4) of the Act.[27]

1. The ASX indicated that it did not intend to appear at the hearing.[28] ASIC indicated that it neither supported nor opposed the application and did not intend to appear at the hearing of the matter.[29]

1. On the evidence before me, I make the following findings of fact:

(a) Following the resignation of RSM as auditor of Enova with effect from 22 November 2020, the directors of Enova complied with their obligations under s 327C(1) of the Act by appointing Mr Shute as auditor with effect from that date.

(b) The directors of Enova were required, pursuant to s 327B(3) of the Act, to take all reasonable steps to comply with, or to secure compliance with s 327B(1) of the Act to appoint an auditor at its 2021 annual general meeting to fill the vacancy. This did not occur.

(c) By his letter dated 9 September 2020, Mr Shute consented to fill the casual vacancy as auditor of Enova until the 2021 annual general meeting for the purposes of s 328A(1) of the Act. However, this consent did not translate into a valid appointment given Enova's failure to ratify this appointment at their 2021 annual general meeting by a resolution of its members.

(d) As no resolution was passed at the 2021 AGM to ratify his appointment as auditor, Mr Shute ceased to be the auditor of Enova at the conclusion of the 2021 annual general meeting.

(e) The board of Enova did not comply with s 327B(1) of the Act to appoint an auditor following the 2021 annual general meeting, nor was any resolution included in the notice of meeting for the 2022 annual general meeting.

(f) Mr Shute carried out audits for Enova's 2021 and 2022 financial reports in accordance with s 301(1) and s 314(1) of the Act.

(g) At no stage did a shareholder or any person, including Mr Shute, notify the company secretary or directors of Enova of the requirement to approve Mr Shute's appointment at the annual general meetings of Enova in 2021 or 2022.

1. I considered the legislative history and objects of ch 2M.4 in Re Bellevue Gold Ltd.[30] These reasons for decision reflect my views on this matter. It is not necessary for me to repeat what I said there.

1. The plaintiff sought declarations under s 1322(4)(a) of the Act, including that:

(a) the appointment of John Shute as auditor of the plaintiff from 9 September 2020; and

(b) the notice given under s 708A(5) of the Act given to the ASX on 30 May 2022 in respect of the 28,556,218 ordinary fully paid shares in the plaintiff issued to Emmco,

(i) the failure of the plaintiff to comply with s 327B(1)(b) of the Act by not appointing an auditor of the plaintiff to fill any vacancy in the office of auditor at the annual general meetings of the plaintiff in 2021 and 2022;

(ii) the failure of the directors of the plaintiff to comply with s 327C(1) of the Act by not appointing an auditor of the plaintiff within one month following the 2021 and 2022 annual general meetings;

(iii) any failure of the plaintiff to comply with s 301(1) of the Act by not having a financial report audited by a properly appointed auditor for the financial years ended 31 December 2021 and 31 December 2022;

(iv) any failure of the plaintiff to comply with s 302 of the Act by not having a half year financial report audited by a properly appointed auditor for the financial half years ended 30 June 2020, 30 June 2021 and 30 June 2022; and

(v) any failure of the plaintiff to comply with s 314(1) of the Act by not providing to members a financial report audited by a properly appointed auditor for the financial years ended 31 December 2021 and 31 December 2022.

1. I note that the prescriptive requirements of s 1322(4)(a) of the Act are satisfied in that:

(a) the proposed validation orders are framed in a declaratory form;

(b) the act, matter or thing is the appointment of an auditor, and the offer and sale of securities; and

(c) the contraventions are clearly identified.

1. Counsel for the plaintiff submitted that, while only one of the pre‑conditions in s 1322(6)(a) of the Act needed to be satisfied, the preconditions in s 1322(6)(a)(ii) and (iii) were satisfied in this case.
2. In Re ICandy Interactive Ltd, Banks‑Smith J undertook a comprehensive review of the relevant principles in respect of whether there is no failure of the persons concerned or the company to act honestly.[31] Relevantly, Banks‑Smith J considered that:

(a) when determining whether someone has acted honestly for the purposes of s 1322, the courts look to absence of evidence of dishonesty and prompt action to remedy the error;[32]

(b) the concept of acting honestly can embrace:[33]

(i) inadvertence or failure to turn one's mind to an issue;

(ii) active but incorrect consideration of a legal issue;

(iii) failure to consider an issue at all; or

(iv) failure to understand or appreciate the significance of non-compliance; and

(c) when testing for honesty, the authorities reveal that the courts look at the company itself, the directors, the company secretary and others as may be concerned.[34]

1. In this case, I accept Mr Metcalfe's evidence that the initial failure to appoint Mr Shute as auditor arose as a matter of inadvertence. This conclusion is supported by the steps that have been taken by Enova to rectify the irregularity once it became aware of the issue and that the issue had not been addressed by the passage of a resolution at the 2023 annual general meeting. In relation to the failure to seek relief from the court once the issue was identified, I accept Mr Metcalfe's evidence that he failed to appreciate the significance of the issue and did not seek legal advice at that time. For these reasons, I accept that the pre‑condition in s 1322(6)(a)(ii) of the Act is satisfied.
2. Section 1322(6)(a)(iii) gives the court a wide discretion in exercising its powers under s 1322 of the Act.[35] I am also satisfied that it would be just and equitable to make the orders sought.
3. In my view, the making of the order sought by the plaintiff would be consistent with the public policy of ch 2M of the Act, which is to ensure that public companies appoint independent auditors to audit the companies' accounts and that audited accounts are lodged within the timeframes specified by the Act.
4. It is relevant that all relevant parties (Mr Shute, Enova, and its shareholders) have proceeded on the basis that Mr Shute had been validly appointed as auditor of Enova. No issue or complaint has been raised in relation to the 2021 or 2022 accounts or the conduct of the audits (or reviews) undertaken by Mr Shute. This is supported by the almost unanimous support for the resolution appointing Mr Shute as auditor of Enova at the 2023 annual general meeting.[36]
5. In my view, the granting of the relief sought will remove any doubt as to the compliance by Enova with its financial reporting obligations and the potential impact on the operations of the company.

No substantial injustice (s 1322(6)(c) of the Act)

1. In making the orders sought by the plaintiff, I considered the classes of persons who may be impacted by the making of these orders, being Enova, its shareholders and Mr Shute.
2. I find there is no basis for inferring that substantial injustice has been or is likely to be caused to any person by the making of the proposed orders.
3. I accept that if the orders sought are not made, there may be substantial injustice to the plaintiff due to the uncertainty that will attach to the work undertaken by Mr Shute since September 2020 and the status of the plaintiff's compliance with its financial reporting and audit obligations under ch 2M of the Act.
4. It is usual in cases such as these to provide an opportunity for shareholders or other parties to raise a complaint about the proposed orders. The usual timeframe is that there be liberty to apply within 28 days from the date of the orders. I accept this is an appropriate timeframe in this case.

1. I accept and find there is no evidence of any substantial misconduct, serious wrongdoing or flagrant disregard of the Act or the company's constitution to warrant refusal of the relief sought.[37]
2. There is nothing in the evidence before me suggesting that any minority shareholder interest might be oppressed, or any other interest might be affected. I am satisfied that all shareholders, as well as the ASX and ASIC, have been notified of the plaintiff's contravention of the Act and been given notice of this hearing. No shareholder or either regulator sought to intervene in the hearing or gave notice they wanted to be heard on the application.
3. In exercising the discretion to grant relief under s 1322(4) of the Act, a relevant factor is the promptness with which the plaintiff sought to remedy the irregularity once it had been identified.[38] In this case, after the issue was identified by the ASX on 28 November 2023, the plaintiff took steps to review its books and records to determine what relief was required, sought legal advice and commenced this proceeding in just over a week.

1. Enova also sought orders relieving the company and its current and former directors from any civil liability arising out of the contraventions of ss 301(1), 302, 314(1), 327B(1)(a), 327C(1), and 344(1) of the Act by reason of the failure to have the appointment of Mr Shute approved at the 2021 and 2022 annual general meetings.
2. Section 1322(4)(c) of the Act permits the court to make an order relieving a person from civil liability for a broad range of contraventions or failures, subject to the conditions in s 1322(6) of the Act that the person concerned acted honestly and that no substantial injustice has been or is likely to be caused to any person.[39]
3. A pre‑condition to making an order under s 1322(4)(c) of the Act is that the person to be relieved from civil liability acted honestly.[40]
4. Counsel for Enova submitted that the relevant parties acted honestly throughout the relevant period as they believed the requirements of the Act had been complied with and acted promptly to rectify the error on its discovery. I accept that the contravention occurred by way of inadvertence or oversight and that there is no evidence that Enova, or its current or former directors or officers, acted dishonestly. I also accept that the relief sought is appropriately confined to the specific omissions that caused the contravention.
5. For that reason and having regard to the matters referred to at [41] to [44] above, it is appropriate that Enova and its current and former officers be relieved of any civil liability arising out of their contraventions of the Act.

Validation of issues of securities subject of a s 708A(5) notice

1. In addition to the orders sought by Enova in respect of the appointment of Mr Shute, Enova also sought orders in respect of the issue of securities to Emmco, which was the subject of a cleansing notice dated 30 May 2022.
2. I note that:

(a) the proposed validation order is framed in a declaratory form;

(b) the act, matter or thing is the offer for sale or issue, or sale of securities for the purposes of s 706, s 708A(5) or s 707(3) of the Act; and

(c) the contraventions are the offering of securities for sale without proper disclosure in contravention of s 706 and s 707(3) of the Act.

1. Counsel for Enova submitted that the pre‑conditions in s 1322(6)(a)(ii) and (iii) of the Act were satisfied.
2. Mr Metcalfe's evidence is that when he issued the cleansing notice for this share placement, he mistakenly believed there had been compliance with the provisions of ch 2M of the Act. Enova submitted, which I accept, that this was a genuine error and that there was no failure of the persons concerned, Enova, or its directors and officers to act honestly.
3. On this basis, I am satisfied that the pre‑conditions in s 1322(6)(a)(ii) and s 1322(6)(a)(iii) are satisfied.
4. In considering whether there would be any substantial injustice if the orders were made, I have considered the classes of persons who may be impacted by the making of these orders.
5. First, Emmco, the party who was issued the impugned shares. The prejudice to them is that any future sale of these shares may be void or voidable.[41]
6. Second, the shareholders of Enova. Enova's failure to comply with the relevant provisions has caused a trading halt of its securities. If orders are not made and the trading halt is not lifted, Enova's security holders will not have the benefit of a market for their securities.
7. Third, I accept that if the orders sought are not made, there may be substantial injustice to Enova as the offer of securities may be void or voidable. This could give rise to commercial uncertainty and expense for the company as it must remain involved in problems caused by void or voidable offers of its securities.
8. I find there is no basis for inferring that substantial injustice has been or is likely to be caused to any person by the making of the proposed orders.
9. It is usual in cases such as these to provide an opportunity for shareholders or other parties to raise a complaint about the proposed orders. The usual timeframe is that there be liberty to apply within 28 days from the date of the order. I accept that this is an appropriate timeframe in this case.
10. For the following reasons, I was and am satisfied that in the circumstances of this case, relief should be granted in the terms sought in respect of this issue of securities. First, while the evidence before the court is that there have been no sales of any securities by Emmco, I accept there is a question as to the validity of the cleansing notice given the failure to comply with ch 2M.4 of the Act. Second, the orders sought by Enova concerned a past act and not a future act. Third, I am satisfied that the conduct was inadvertent and not in blatant disregard of Enova's obligations under the Act. I do not consider that public policy will be undermined by granting the relief sought.

1. For the following reasons, I was and am satisfied that, in the circumstances of this case, relief should be granted in the terms sought by Enova. Accordingly, at the conclusion of the hearing on 15 December 2023, I made orders in the form annexed to these reasons as 'Annexure A'.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

[1] Affidavit of Andrew William Metcalfe filed 8 December 2023 [13].

[2] Affidavit of Andrew William Metcalfe filed 8 December 2023 [14].

[3] Second affidavit of Andrew William Metcalfe filed 12 December 2023 'AM-03'.

[4] Second affidavit of Andrew William Metcalfe filed 12 December 2023 'AM-04'.

[5] Second affidavit of Andrew William Metcalfe filed 12 December 2023 'AM-06'.

[6] Affidavit of Andrew William Metcalfe filed 8 December 2023 'AM-03'.

[7] Second affidavit of Andrew William Metcalfe filed 12 December 2023 'AM-07'.

[8] Second affidavit of Andrew William Metcalfe filed 12 December 2023 [15].

[9] Affidavit of Andrew William Metcalfe filed 8 December 2023 [23] - [24].

[10] Affidavit of Andrew William Metcalfe filed 8 December 2023 [27] - [29].

[11] Affidavit of Andrew William Metcalfe filed 8 December 2023 [23], [29].

[12] Affidavit of Andrew William Metcalfe filed 8 December 2023 [36] - [37], [41].

[13] Affidavit of Andrew William Metcalfe filed 8 December 2023 [38] ‑ [39].

[14] Affidavit of Andrew William Metcalfe filed 8 December 2023 [34(b), (d)].

[15] Affidavit of Andrew William Metcalfe filed 8 December 2023 [34(a), (c)].

[16] Affidavit of Andrew William Metcalfe filed 8 December 2023 [30], 'AM-08'.

[17] Affidavit of Andrew William Metcalfe filed 8 December 2023 [44] - [45].

[18] Affidavit of Andrew William Metcalfe filed 8 December 2023 [32].

[19] Affidavit of Alexander Anthony Triglavcanin filed 14 December 2023 [13]; Affidavit of Andrew William Metcalfe filed 8 December 2023 'AM-17'.

[20] Affidavit of Alexander Anthony Triglavcanin filed 14 December 2023 [5], [7].

[21] Corporations Act 2001 (Cth) s 707(3). See also Re Golden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17.

[22] Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174 [20].

[23] Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 [43], [53], [64].

[24] Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418 [29].

[25] Weinstock v Beck [43], [55] - [56], [60], [64].

[26] Corporations Act 2001 (Cth) s 1322(5).

[28] Affidavit of Alexander Anthony Triglavcanin filed 14 December 2023 'AT-01'.

[29] Affidavit of Alexander Anthony Triglavcanin filed 14 December 2023 'AT-03'.

[30] Re Bellevue Gold Ltd [2021] WASC 80 [48] ‑ [54].

[31] Re ICandy Interactive Ltd [2018] FCA 533; (2018) 125 ACSR 369 [54] ‑ [104].

[32] Re ICandy Interactive Ltd [54], [106] - [107].

[34] Re ICandy Interactive Ltd [60] - [104].

[35] Re Bellevue Gold Ltd [64] - [65] and the authorities cited therein.

[36] Affidavit of Andrew William Metcalfe filed 8 December 2023 [41], 'AM-11'.

[38] Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22 [60].

[39] Re Murray River Organics [2019] FCA 931; (2019) 138 ACSR 365 [28].

[40] Corporations Act 2001 (Cth) s 1322(6)(b).

[41] Re Poseidon Nickel Ltd [2018] FCA 1063; (2018) 129 ACSR 57 [63].