(2) The person must either:
(a) repay the money received by the person from the applicants; or
(b) give the applicants:
(i) the documents required by subsection (3); and
(ii) 1 month to withdraw their application and be repaid; or
(c) issue or transfer the securities to the applicants and give them:
(i) the documents required by subsection (3); and
(ii) 1 month to withdraw their application and be repaid.
Note: Section 719 deals with lodging supplementary and replacement documents. Section 728 makes it an offence for a person to offer securities if the disclosure document is deficient in a way that is material from the point of view of an investor.
…"
7 Having regard to the description of the alleged debt in the statutory demand, the operation of s.724 is central to the contention of the defendant that a debt owing, due and payable now exists - or, more precisely, existed so as to justify the issue of the statutory demand dated 28 August 2007.
8 The defendant says that the newly arising misleading or deceptive statement or the new circumstance represented by the removal of Mr Nugent on 27 March 2006 "was materially adverse from the point of view of an investor", that being a form of words appearing in both s.724(1)(c) and s.724(1)(d). The defendant also says that the plaintiff knew of the materially adverse change or event. These contentions depend upon objective assessment in two areas, and I emphasise that in my view the "investor" referred to in the expression "is materially adverse from the point of view of an investor" is, if you like, a hypothetical reasonable investor, not a particular idiosyncratic investor. In other words, the test is an objective test: see, in a comparable context, the reference by Bryson J in ICAL Ltd v County Natwest Securities Australia Ltd (1988) 39 NSWLR 214 to "[t]he shareholder whom I should hypothesise for the purpose of materiality".
9 The first issue of objective assessment raised by the words in question concerns the significance, from the point of view of disclosure under prospectus content requirements, of a statement about who holds in the company the positions Mr Nugent held in this particular case. The second area concerns the capacity of the newly emerged information about the occupancy of such a position to affect the decision of the ordinary would-be investor whether or not to make the investment, this being the test of materiality which has long been applied in this area of the law: see for example, Cackett v Keswick [1902] 2 Ch 456. For s.724(1) to be activated, it would have to be found that any such capacity was adverse, in the sense of turning the would-be investor away rather than making him or her more willing to invest.
10 It is obvious that an assessment of this kind could not be made in a factual vacuum. To put the matter simply, there would be a difference between the case of dismissal and departure of a wise, enlightened and skilful officer and the case of dismissal and departure of a bumbling, inept and unskilful officer. In short, a factual inquiry would be necessary to decide whether the event of Mr Nugent's dismissal and departure was an event triggering s.724(1).
11 The defendant says that the event was of that quality and that I should so find. That is not the correct approach. The cases make it very plain that anything beyond fairly cursory factual investigation of the underlying merits is foreign to applications of this kind. The only question before me is whether there exists a genuine dispute as to the existence of the debt referred to in the statutory demand. To the extent that answer to the question of the existence of the debt goes to factual matters of any complexity, an application of this kind is not the occasion for those depths to be plumbed.
12 Let it be assumed, however, that the s.724(1) threshold was crossed at the point when Mr Nugent was removed from relevant positions on 27 March 2006. Let it be assumed, as part and parcel of what I have just said, that, at the point of Mr Nugent's removal, the defendant's application for shares under the offer information statement was still pending in the sense that no shares had been issued in response to his application. On the basis of those assumptions, let me consider the impact and effect of s.724(1).
13 What s.724(1) does in the assumed circumstances just stated is to require something to be done by the issuer of the relevant disclosure document, in this case, the plaintiff as the issuer of the offer information statement. That person, "must deal under subsection (2) with any applications for the securities made under the disclosure document that have not resulted in an issue or transfer of the securities".
14 It is necessary then to turn to s.724(2) which gives content to the s.724(1) obligation. Section 724(2), although somewhat curiously employing the word "either", refers to three courses of action and says that the person subjected to the obligation referred to in s.724(1) must adopt one of those three courses of action. What it does not say is how the choice among the three alternatives is to be made.
15 I note that submissions entertained by the Supreme Court of Western Australia in West Gold Resources NL v Metals Australia Ltd (2002) 41 ACSR 67 proceeded on the basis that the person fixed with the obligation to act (that is, the offeror of securities under the disclosure document) is the person who makes the choice among the three courses of action. That is also indicated by the heading to s.724, "Choices open to person making the offer if the disclosure document condition cannot be met or disclosure document defective" - although I do note that the applicable interpretation provision (s.13 of the Acts Interpretation Act 1901 (Cth) as in force on 1 November 2000 and as applied by s.5C of the Corporations Act itself) tells us that the heading to a section, as distinct from a part or division or subdivision, is not part of the Act. On the other hand, there is a suggestion, without discussion, at paragraph 17.192 of the work by Emeritus Professor Ford, Justice Austin and Professor Ramsay ("Ford's Principles of Corporations Law" current looseleaf edition) that, in a s.724(1) case, "investors to whom securities have not yet been issued must be given the options specified in s.724(2)". This implies that it is the persons with applications still pending who choose among the s.724(2) alternatives.
16 Looking at the legislation itself, it is my view that the correct interpretation is virtually certainly that which puts the choice into the hands of the person carrying the obligation, that is the person making the offer under the disclosure document.
17 Let me continue for the moment in the realm of assumption - assumption, I emphasise, favourable to the defendant. Assume that the s.724(1) obligation became binding on the plaintiff. I think it is common ground that the plaintiff did not adopt one of courses specified in s.724(2). It issued the shares to the defendant, thereby satisfying s.724(2)(c) in part; but it did not do the other things mentioned in s.724(2)(c). What follows? According to the defendant, the consequence of the plaintiff's failure to follow through to completion any of the three courses described in s.724(2) is that the plaintiff became indebted to the defendant in a sum equal to the amount received by the plaintiff from the defendant upon application for the shares. That contention is reflected in the terms of the statutory demand. The defendant asserts that such a debt owing, due and payable by the plaintiff to the defendant has arisen because of or in the form of the defendant's "rights under s.724 of the Act".
18 The plaintiff says that even if all things necessary to activate s.724(1) occurred so that it became bound by statute to "deal under subsection (2)" with applications for shares which included the defendant's application, there has not thereby arisen, in terms of s.459E(1)(a), a "debt" that the plaintiff owes to the defendant.
19 There can be no real doubt, in my view, that if a statute commands one person to pay money to another, the first person is indebted to the second person, provided that the relevant statute makes it clear, either expressly or by implication, that the second person may sue to recover the money. The judgments in the Supreme Court of Western Australia in Commissioner of State Taxation v Pollock (1993) 12 ACSR 217 are instructive in that respect.
20 In the present context it is by no means at all clear that s.724(2) contains an indication that a person in the position assumed to be occupied here by the defendant may sue to recover money. If the correct approach to the section is, as it seems to me most likely to be, that it is for the person in the position of the plaintiff to elect among the three alternatives specified in s.724(2), I can see no basis on which a right to sue could be said to be created in the applicant for shares. But even if it is the person in the position of the defendant who is to make the choice among the three alternatives, there must still be very significant doubt indeed whether a statutory right to sue to recover a debt is created. There are two reasons for this. First and it is made clear by s.724(1A), failure to comply with s.724(1) entails criminal consequences. The legislature has thus specified one result of failure to comply. Second, another such consequence is stated in s.737 where, as here, the securities have been issued:
" Remedies for investors
Right to withdraw and have money returned