REASONS FOR JUDGMENT
1 The plaintiff is an Australian company which carries on business as a gold producer and explorer. The company was incorporated on 20 April 2004 and its securities have been quoted on the Australian Stock Exchange (ASX) since 14 November 2007.
2 The company was listed on the ASX following a successful initial public offer of the company's securities pursuant to the issue of a prospectus dated 11 October 2007. The prospectus stated that at the date of the prospectus, the company's directors, Mr Brian Anthony Kennedy, Mr Leslie Brian Davis, Mr David John Griffiths, Mr Peter Brendan Johnston, Mr Christopher Adam Banasik and Mr Paul Ian Chapman, each indirectly held four million options.
3 Between 8 September 2011 and 14 September 2011, each of the directors' associates sold a number of the options to managers of investment funds in off-market transactions. I will refer to the managers as "the purchasers". A total of some 6.57 million options were sold to the purchasers for a total consideration of AUD15,462,976.50.
4 At different times during the period 30 September 2011 to 24 October 2011, the purchasers exercised the options and the company issued shares to the purchasers consequent upon them exercising the options. During that period, Mr Peter Armstrong, the company secretary of the company, prepared and submitted to the ASX, a number of applications for quotation of the additional shares which were issued by the company pursuant to the exercise of the options by the purchasers. The documents are referred to as "Appendix 3B announcements". In each of the Appendix 3B announcements prepared by Mr Armstrong, on behalf of the company, the company warranted to the ASX that an offer of the shares for sale within 12 months after their issue would not require disclosure under s 707(3) or s 1012C(6) of the Corporations Act 2001 (Cth). Mr Armstrong, on behalf of the company, did not procure the issue of a cleansing notice pursuant to s 708A(5)(e) of the Corporations Act, within five business days of the date of issue of the shares. The shares were listed by the ASX pursuant to the company's application for listing and the Appendix 3B announcements were published on the ASX website. The company thereby represented to investors that trade in the additional shares issued would not require compliance with the disclosure requirements under s 707(3) of the Corporations Act.
5 The warranty which was given by Mr Armstrong, on behalf of the company, to the ASX in the Appendix 3B announcements was inaccurate. This is because the shares issued pursuant to the exercise of the options by the purchasers had not been issued pursuant to a prospectus and no cleansing notice had been issued. Therefore, the disclosure requirements under s 707(3) of the Corporations Act applied to any trading in the shares within 12 months of the date of issue.
6 On 19 December 2011, Mr Armstrong obtained legal advice to the effect that in order to permit secondary trading within 12 months in the issued shares, without compliance with the disclosure requirements of s 707(3) of the Corporations Act, it was necessary for the company to have issued a cleansing notice pursuant to s 708A(5)(e) of the Corporations Act.
7 The evidence reveals that there has been a substantial volume of shares in the company traded by each of the purchasers after 30 September 2011, being the earliest date on which shares were issued by the company to the purchasers pursuant to the exercise of the options. It is to be inferred that at least some of the trades were in respect of the affected shares. It is, also, to be inferred that those trades were made without the purchasers (or any subsequent sellers of the affected shares) complying with the disclosure requirements under s 707(3).
8 Mr Armstrong deposed that he prepared the Appendix 3B announcements without realising that s 707(3) of the Corporations Act applied to the issue of the shares. Mr Armstrong deposed that he did not have previous experience with the issue of shares following the exercise of options, other than in respect of the exercise of options issued under an employee share scheme.
9 Mr Armstrong said that on learning of his error in failing to procure the issue of a cleansing notice, he immediately instructed Gilbert + Tobin to prepare a transaction specific prospectus pursuant to s 708A(11) of the Corporations Act with respect to the shares which had been issued. After having lodged the cleansing prospectus with the Australian Securities and Investments Commission, the lodging of the prospectus was announced to the ASX on 28 December 2011.
10 The company seeks declarations that any offer for sale or sale of shares in the company which were issued to the purchasers is not invalid by reason of the company's failure to comply with s 708A(5)(e) of the Corporations Act or the seller's failure to make disclosure under s 707(3) of the Corporations Act.
11 The company also seeks orders that the sellers of the shares in question be wholly relieved from any civil liability arising out of their contravention of s 707(3) of the Corporations Act, or by reason of the company's failure to comply with s 708A(5)(e) of the Corporations Act.
12 Section 1322(4)(a) of the Corporations Act provides that the Court may on the application of an interested person, make an order declaring that any act, matter or thing purporting to have been done under the Corporations Act, or in relation to a corporation, is not invalid by reason of any contravention of a provision of the Corporations Act.
13 Section 1322(6)(a) provides that the Court must not make an order under s 1322(4)(a) unless it is satisfied:
(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.
14 Further, under s 1322 (6)(c), the Court must be satisfied "that no substantial injustice has been or is likely to be caused to any person".
15 The authorities in respect of the application of these criteria, insofar as they apply to a failure to comply with s 708A(5) of the Corporations Act, have been extensively set out in the decisions of Re Golden Gate Petroleum Ltd (2010) 77 ACSR 17 and Re Elemental Minerals Ltd (2010) 79 ACSR 277, and it is unnecessary to repeat them. I intend to apply those authorities.
16 I am satisfied that the declaration validating the trading in the affected shares should be made.
17 First, I am satisfied that the plaintiff company is an interested party.
18 Secondly, it is apparent that Mr Armstrong was somewhat out of his depth in dealing with the issue of the shares following the exercise of the options by the purchasers, and in preparing the Appendix 3B announcements. With the benefit of hindsight, it is plain that Mr Armstrong should have obtained legal advice at an earlier stage. However, I am satisfied that in failing to issue a cleansing notice and in filing the Appendix 3B announcements which misrepresented the true position, Mr Armstrong acted honestly.
19 Further, I am satisfied, on the evidence before the Court, that no substantial injustice has been caused or is likely to be caused to any person. As I have mentioned, it is to be inferred that all of the persons who engaged in trading of the affected shares acted in the bona fide belief that the shares were tradeable without having to make the disclosure called for by s 707(3) of the Corporations Act. Therefore, in my view, the making of the orders will serve to give legal effect to the expectations no doubt held by the persons concerned.
20 In any event, the orders I propose to make, make provision for any affected person, within 28 days from the date of publication by the ASX of the announcement of the orders, to have liberty to apply to vary or discharge the order.
21 I will, also, make an order, pursuant to s 1322(4)(c), relieving any person from any civil liability in relation to any contravention of s 707(3) of the Corporations Act by reason of the failure by any seller of the affected shares, to comply with s 707(3) of the Corporations Act, or the company's failure to comply with s 708A(5)(e) of the Corporations Act.
22 Section 1322(6) of the Corporations Act provides that the Court should not make such an order unless the Court is satisfied that the person or persons subject to the civil liability concerned, acted honestly and that no substantial injustice has been or is likely to be, caused to any person.
23 The evidence of the publication of the Appendix 3B announcements containing the representation that the shares were not subject to the trading restrictions imposed by s 707(3) of the Corporations Act, leads to an inference that the persons who traded in the affected shares acted honestly in the belief that the shares were able to be traded without the disclosure required under s 707(3) of the Corporations Act. There is no evidence, nor would I expect there to be such evidence, to suggest that any of the persons who traded in the affected shares knew that the shares were subject to the restrictions imposed by s 707(3) of the Corporations Act. I am satisfied that any sellers of the affected shares acted honestly in selling the affected shares without making the disclosures called for in s 707(3) of the Corporations Act.
24 For the same reasons as expressed above, I am satisfied that no substantial injustice has been or is likely to be, caused to any person by the making of the orders. However, in this case, also, any person affected by the making of this order, will have the opportunity to make an application, within 28 days of the announcement to the ASX of the making of the order, to vary or discharge the order.
25 Accordingly, I will make the orders sought by the company.
I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.