Corporations - Constitution of body corporate - Conflict with Listing Rules - What amounts to - Listing Rules 1.1, 10.11 and 11.12

Words and phrases - Equity securities - Whether the phrase "equity securities", in its context in a company constitution, includes shares and options

Taipan Resources NL : Mr J Gilmour QC & Mr R L McKenzie

GAF Corporation v Millstein 453 f 2d 709 (2nd Circuit Court of Appeal 1971)

Graphic Sciences Inc v International Mogul Mines Ltd 397 F Supp 112 (1974) US DC

IBJ Financial Corporation v Seiman & Associates 136 f 3d 940 (3rd Circuit Court of Appeals 1998)

Jewelcor Inc v Pearlman 397 F Supp 221

Robox Nominees Pty Ltd v Bell Resources Ltd (1986) 4 ACLC 164

SEC v Texas International Company 498 F Supp 1231 (1980) ND Illinois

SEC v W J Howey Co [1946] USSC 115; 328 US 293 (US SC 1946)

Tchereprin v Knight [1967] USSC 267; 389 US 332 (US SC 1987)

1 STEYTLER J: The plaintiff, St Barbara Mines Ltd ("St Barbara") and others are in dispute over a range of matters touching upon a proposed merger, to be effected by way of a scheme of arrangement, between Taipan Resources NL ("Taipan") and St Barbara. The trial of the matters in dispute has yet to be heard. However the parties have raised three preliminary issues for determination. These are to be decided upon the basis of agreed facts. Paragraph 1 thereof agrees the terms of Taipan's constitution. Paragraphs 2 - 8 of the agreed facts read as follows:

"2. Stephen William Miller ('Miller') was appointed as an executive director of Taipan on 8 May 2000 and retains that appointment.

3. Miller was appointed as a director of St Barbara on 12 March 1999 and retains that appointment.

4. Miller was appointed as a director of Strata Mining Corporation NL ('Strata') on 9 March 1999 and retains that appointment.

5. On 6 October 2000, Taipan issued to St Barbara 11,538,462 new ordinary fully paid shares in the capital of Taipan pursuant to the terms of a convertible note deed dated 29 September 2000 annexed marked 'B' (in relation to which an announcement was made by Taipan to the Australian Stock Exchange Limited ('the ASX') on 31 July 2000). No other shares in Taipan were issued at that time.

6. The merger the subject of these proceedings may, if implemented, result in the issue to Strata of new ordinary fully paid shares in Taipan in accordance with the material terms of the scheme of arrangement as follows:

(a) Taipan will issue to each St Barbara shareholder (other than Taipan) 3 fully paid ordinary shares in the capital of Taipan in exchange for every 1 fully paid ordinary share in the capital of St Barbara held by that St Barbara shareholder;

(b) all fully paid ordinary shares in the capital of St Barbara other than the 100 fully paid ordinary shares in the capital of St Barbara held by Taipan will be cancelled;

and not pro rata to Strata's shareholding in Taipan.

7. If the approval of shareholders of Taipan was required pursuant to clause 4.3 of the constitution for the issue of shares referred to in paragraph 5 above (which Taipan denies), no such approval has been obtained.

8. Insofar as the approval of shareholders of Taipan is required for the issue of shares referred to in paragraph 6 above:

(a) Taipan's shareholders met to consider inter alia the following resolution on 12 October 2000:-

'That Taipan is authorised to implement the merger by way of scheme of arrangement with St Barbara Mines Limited (ACN 009 165 066) ("the Scheme"), notwithstanding that in implementing the Scheme Taipan will, under Listing Rule 10.1, be deemed to acquire a substantial asset from Strata Mining Corporation NL (ACN 008 021 118) ("Strata").'

(b) The declared result of a poll on that resolution was 52,766,771 votes in favour and 41,225,158 votes against."

2 The three preliminary issues for determination on the strength of these agreed facts are:

"1. Whether by the application of Sections 11 and 15(2) of the Corporations Law to the agreed facts, the proposed merger would result in Taipan Resources NL ('Taipan') breaching clause 4.3 of its constitution ('the constitution') on the grounds that the proposed merger will result in the issue to Strata Mining Corporation NL of equity securities in Taipan in circumstances not permitted by clause 4.3 of the constitution.

2. Whether by the application of Sections 11 and 15(2) of the Corporations Law to the agreed facts, the 11,538,462 ordinary fully paid shares in the capital of Taipan issued to St Barbara Mines Ltd ('St Barbara') on 6 October 2000 were issued in breach of clause 4.3 of the constitution.

3. Whether options to acquire shares in Taipan are equity securities or other securities with rights of conversion to equity for the purposes of clause 4.3 of the constitution."

4 It is as well, first, to set out the whole of reg 4 of Taipan's constitution. It reads as follows:

"4. SHARE CAPITAL AT CONTROL OF DIRECTORS

4.1 Subject to the provisions of this Constitution, the Listing Rules, the Corporations Law and to any rights previously conferred on the holders of any existing Shares:

(a) the Shares are under the control of the Directors;

(b) the Directors may allot, grant options over or otherwise dispose of Shares to such persons on such terms and conditions, and having attached to the Shares such preferred, deferred or other rights, and at such times as the Directors think fit; but

(c) the Company shall not issue any Share with a voting right more advantageous than that available to any Share previously issued by the Company and which Share does not carry voting rights which, in the opinion of the ASX, are appropriate and confer equitable representation on the holder or holders of the Shares.

4.2 Whilst the Company is listed on the ASX a Director, or any person who for the purposes of Part 1.2 Division 2 of the Corporations Law would be regarded as an associate of any such Director, is not entitled to participate directly or indirectly in options to take Shares granted by, or an issue of Shares made by, the Company except in accordance with the provisions of the Listing Rules.

4.3 A Director or any person who for the purposes of the Law would be regarded as a person associated with that Director may only participate (directly or indirectly) in an issue by the Company of equity securities or other securities with rights of conversion to equity where:

(a) the Director or his associated [sic] receives a pro-rata entitlement of securities in his capacity of shareholder;

(b) the Director or his associate is acting in the capacity of underwriter or sub-underwriter of an issue of securities by the Company, subject to full disclosure of the precise terms and conditions of that underwriting or sub-underwriting being included in the new issue documentation being forwarded to shareholders;

(c) the directors or his associates received the prior approval of shareholders by special resolution at a general meeting where the notice convening the meeting has advised:

(i) the number of securities to be allotted to the Director or his associate; and

(ii) the precise terms and conditions of the issue,

and the Director and his associate abstain from exercising any voting rights on the resolution;

(d) the Director or his associate receives an entitlement of securities under an employee incentive scheme which has been approved by Special Resolution of shareholders in general meeting or the Director or his associates receives an entitlement of securities under a shareholders' dividend plan which has been approved by ordinary resolution of shareholders in general meeting; or

(e) the Director or his associate receives a takeover offer made pursuant to and in compliance with Chapter 6 of the Law where the offeror under the takeover offer seeks to acquire all voting securities in the capital of the Company in respect of which such offers are made an [sic] the consideration comprises or includes securities and the Director and such associates wishes [sic] to accept such offer.

4.4 Notwithstanding Regulation 4.2 Directors and their associates are expressly prohibited from participating in any issue of securities or acting as an underwriter or sub-underwriter of any issue of securities by the Company where the purpose of the issue is to raise sufficient capital to finance a takeover offer or takeover announcement and further notwithstanding the aforementioned the directors of a stockbroking company, their associates and other persons, companies and trusts which in the opinion of the ASX should be prohibited from acting as underwriter or sub-underwriter are expressly prohibited from acting as an underwriter of an issue of securities by the Company.

4.5 Notwithstanding the foregoing:

(a) no shares in the capital of the Company shall be allotted to any person without the prior approval of shareholders in general meeting where such allotment would have the effect of such person being registered as the holder of a majority of the issued shares in the Company provided that this prohibition shall not apply in any case where:

(i) such person is registered as the holder of a majority of the issued shares in the Company prior to such allotment;

(ii) such allotment is pursuant to an offer of shares to substantially all the holders of ordinary shares in the Company generally in proportion to their shareholdings; or

(iii) such allotment is authorised pursuant to the Law or exercise of power thereunder by the Court or the Commission."

5 The first preliminary issue is formulated in such a way as to require two sub-questions to be answered in the affirmative if an affirmative answer is to be given to the ultimate question posed thereby. The sub-questions are:

(a) Is Strata Mining Corporation NL ("Strata") a "person who for the purposes of the Law would be regarded as a person associated with ... " Mr Miller who is, as par 2 of the agreed facts records, a director of Taipan? and

(b) Will the proposed merger result in the issue to Strata of "equity securities" within the meaning of that phrase in reg 4.3?

6 I will deal with each of those sub-questions in turn.

7 As to the first of them it seems to me to be plain that "the Law" referred to in reg 4.3 is the Corporations Law. The Corporations Law is referred to in reg 4.2 and the use of a capital letter in the word "Law" in reg 4.3 indicates that the same "Law" is there intended to be referred to. This is further supported by the fact that sub-par (a) of reg 4.3 refers to "a takeover offer made pursuant to and in compliance with Chapter 6 of the Law". That is plainly a reference to Chapter 6 of the Corporations Law.

8 It was suggested, in the course of submissions on the first preliminary issue, that capital letters are indiscriminately used in Taipan's constitution and that the reference to "the Law" in reg 4.3, rather than being a reference to the Corporations Law, is a reference to the general law. However that, in my opinion, cannot be so. Apart from the matters to which I have already referred in this respect, it would in my opinion be somewhat unreal, in this context, to read reg 4.3 as importing some notion, of uncertain content, of association with directors which arises independently of the Corporations Law and under the general law. It seems to me, in any event, that if the reference was not intended to be one to the Corporations Law, then reg 4.3 would have referred merely to a person or persons associated with a director and would not have referred to "the Law", whether with a capital letter or otherwise, at all.

9 I will consequently proceed upon the basis that the reference is one to the Corporations Law.

10 The word "associate" is defined in s 9 of the Corporations Law. That section provides for a category of persons who are to be regarded as "associates of a bidder making a takeover offer, a substantial holder or a 90 per cent holder" before going on to provide that "Otherwise a person's associates are determined under sections 10 to 17".

11 Sections 10, 11, 12 and 15 of the Corporations Law provide as follows:

"SECTION 10 EFFECT OF DIVISION

10(1) [Interpretative purpose] This Division has effect for the purposes of interpreting a reference (in this Division called the 'associate reference'), in relation to a person (in this Division called the 'primary person'), to an associate.

10(2) [Exclusive effect of Division] A person is not an associate of the primary person except as provided in this Division.

10(3) [Generality not limited] Nothing in this Division limits the generality of anything else in it.

SECTION 11 ASSOCIATES OF BODIES CORPORATE

11 If the primary person is a body corporate, the associate reference includes a reference to:

(a) a director or secretary of the body;

(b) a related body corporate; and

(c) a director or secretary of a related body corporate.

SECTION 12 MATTERS RELATING TO VOTING SHARES

12(1) [Relevant agreement] If the associate reference relates to:

(a) the extent of a power to exercise, or to control the exercise of, the voting power attached to voting shares in a body corporate;

(b) the primary person's voting power in a body corporate; or

(c) a takeover bid for securities in a body corporate;

it includes a reference to a person with whom the primary person has, or proposes to enter into, a relevant agreement:

(d) because of which one of those persons has or will have power (even if it is in any way qualified):

(i) to exercise;

(ii) to control, directly or indirectly, the exercise of; or

(iii) to influence substantially the exercise of;

(e) for the purpose of controlling or influencing:

(i) the composition of the body's board; or

(ii) the conduct of affairs of the body;

(i) will or may acquire; or

(ii) may be required by the other to acquire;

shares in the body in which the other has a relevant interest; or

(g) under which one of those persons may be required to dispose of shares in the body in accordance with the other's directions;

whatever other effect the relevant agreement may have.

12(2) [Two-way association] In relation to a matter relating to shares in a body corporate, a person may be an associate of the body and the body may be an associate of a person.

...

SECTION 15 GENERAL

15(1) [Persons to whom associate reference applies] The associate reference includes a reference to:

(a) a person in concert with whom the primary person is acting, or proposes to act;

(b) a person who, under the regulations, is, for the purposes of the provision in which the associate reference occurs, an associate of the primary person; and

(c) a person with whom the primary person is, or proposes to become, associated, whether formally or informally, in any other way;

in respect of the matter to which the associate reference relates.

15(2) [Entering into association] If the primary person has entered, or proposes to enter, into a transaction, or has done, or proposes to do, any act or thing, in order to become associated with another person as mentioned in an applicable provision of this Division, the associate reference includes a reference to that other person."

12 Section 13 (dealing with associate references in chapter 7), s 14 (dealing with associate references in s 29 and s 1323 and chapter 8), s 16 (which provides for a number of exclusions) and s 17 (which deals with associates of composite persons) are accepted by all parties as not being relevant for present purposes.

13 While I have set out sections 10, 11, 12 and 15 in full in order to place s 15, in particular, in its context, the question posed by the first preliminary issue requires me to consider only the potential application of s 11 and s 15(2).

14 Section 11 seems to me to have no application. That section deals only with the situation in which the primary person is a body corporate. While it makes a director of a body corporate an associate of that body corporate it does not make a body corporate an associate of one of its directors. It is consequently plain that Strata is not an associate of Mr Miller by virtue of that section only.

15 That leaves s 15(2). When regard is had for the agreed facts those arguing for the application of this section in giving an affirmative answer to the question posed by the first preliminary issue rely solely upon the fact that Mr Miller is a director of Strata. No other form of association has been suggested. That being so, the only event which could be relied upon, on the agreed statement of facts, as a "transaction ... act or thing" for the purposes of s 15(2) is the appointment of Mr Miller as a director of Strata. However that is not, in my opinion, the kind of "transaction", "act or thing" which is contemplated by s 15(2). Had the legislature intended s 15(2) to be read so as to make a body corporate an associate of each of its directors merely as a consequence of the fact of his or her appointment as such then it is difficult to understand why s 11 would have been drafted in the manner in which it has been, making a director an associate of the body corporate but not the body corporate an associate of its director. It consequently seems to me to be nonsensical to read the words "has entered ... into a transaction, or has done ... any act or thing ... in order to become associated with another person as mentioned in an applicable provision of Division 2" as encompassing the taking up of appointment as a director.

16 A number of the parties referred, in the course of submissions, to the case of Zytan Nominees Pty Ltd v Laverton Gold NL (1989) 7 ACLC 150. Malcolm CJ there set out (at 163) the then provisions of s 9(1) of the Companies Code which provided that:

"A reference in this Code to a person associated with another person shall be construed as a reference to -

(ii) a corporation that is related to the other person; or

(iii) a director or secretary of such a related corporation;

(b) where the matter to which the reference relates is the extent of a power to exercise, or to control the exercise of, the voting power attached to voting shares in a corporation (including, in a case where the other person is a corporation, the other person) - a person (including the corporation) with whom the other person has, or proposes to enter into, an agreement, arrangement, understanding or undertaking, whether formal or informal and whether express or implied -

(i) by reason of which the first-mentioned person, or the other person, may exercise, may directly or indirectly control the exercise of, or may substantially influence the exercise of, any voting power attached to a share in the corporation;

(ii) with a view to controlling or influencing the composition of the board of directors, or the conduct of affairs, of the corporation;

(iii) under which the first-mentioned person may acquire from the other person, or the other person may acquire from the first-mentioned person, shares in the corporation; or

(iv) under which the first-mentioned person, or the other person, may be required to dispose of shares in the corporation in accordance with the directions of the other person, or of the first-mentioned person, as the case may be;

(c) a person in concert with whom the other person is acting, or proposes to act, or proposes to act, in respect of the matter to which the reference relates;

(d) a person with whom the other person is, or proposes to become, associated, whether formally or informally, in any other way in respect of the matter to which the reference relates; or

(e) if the other person has entered into, or proposes to enter into, a transaction, or has done, or proposes to do, any other act or thing, with a view to becoming associated with a person as mentioned in paragraph (b), (c) or (d) - that last-mentioned person."

17 His Honour went on to say (at 164), of s 9(1)(a) that:

"That paragraph is concerned with determining what persons are to be regarded as associates of a corporation. Thus, each director of a company is regarded as an associate of the company. The converse is not necessarily the case unless the relationship between the director and the company falls within one or the other paragraphs, where the director is 'the other person'."

18 Mr Gentilli, who appeared on behalf of three of those companies which are opposed to the merger, submitted that it was significant that, unlike s 9(1)(e) of the Companies Code which deals only with a person who has entered into or proposes to enter into a transaction or has done, or proposes to do, any other act or thing with a view to becoming associated with a person as mentioned only in par (b), (c) or (d) of s 9(1) (and not also par (a) thereof which is similar in effect to s 11 of the Corporations Law), s 15(2) does not expressly exclude s 11. He accordingly submits that that section is consequently "an applicable provision of this Division" for the purposes of s 15(2).

19 I am unable to accept that submission. The provisions referred to by Malcolm CJ in Zytan (supra) have substantially been reformulated. While it is true that s 15(2) does not expressly exclude s 11 from its ambit it is equally true that, unlike s 9(1)(e) of the old Companies Code, it does not specifically mention what are the applicable provisions to which it refers. For the reasons I have already given it seems to me to be reasonably plain that s 11 is not one of them.

20 Mr Gentilli also referred, in support of his submissions, to the case of Kia Australia Pty Ltd v Chief Executive Officer of Customs (1998) 86 FCR 473. Finkelstein J was there dealing with questions of construction which arose under the Customs Act 1901 (Cth). His Honour said (at 477), in that context, that when a statute creates its own dictionary only that word that has been defined should be given the defined meaning. Consequently a definition of the word "associate" which was provided for in that Act in one section thereof (s 154) did not govern the meaning of the expression "associated with" in another (s 155(2)(e)(ii)) and that expression was to be given its ordinary meaning. Mr Gentilli submits that the same is true in this case where the Corporations Law defines the word "associate" whereas reg 4.3 uses the words "associated with". However I do not consider that that case, which was decided in an entirely different context, lends any support to Mr Gentilli's arguments. It is enough to say, in this respect, that reg 4.3 does not refer merely to a person who is "associated with" a director, but speaks, instead, of a person who "for the purposes of the Law would be regarded as a person associated with" a director (my italics). I have already concluded that the reference to "the Law" is one to the "Corporations Law". I should add, in any event, that the expression "the Director or his associate" appears repeatedly in sub-pars (a) to (e) of reg 4.3.

21 Submissions were also made to the effect that Division 2 of Part 1.2 of the Corporations Law deals only with the question who shall be an "associate of" another person and not with that, dealt with by reg 4.3 of Taipan's Constitution, of who is a person "associated with" a director. I am not at all persuaded that there is any substance to these submissions. I very much doubt that there is, for present purposes at least, any relevant distinction between the notion of an "associate of" a director and that of a person "associated with" a director. While there are some references in the Corporations Law, other than that in s 15(2), to persons "associated with" other persons (I was referred, in this respect, to s 708(12), s 1209(1)(e) and s 1267(4)) these arise in contexts which are not presently relevant and it is difficult to imagine that whoever drafted Taipan's Constitution could have had any such "purposes of the Law" in mind.

22 Nor, in my opinion, does it matter that reg 4.2 speaks of "an associate of" a director whereas reg 4.3 speaks of a person "associated with" a director. While those pressing for an affirmative answer to the first preliminary question placed some reliance upon this distinction it seems to me, especially in the light of what I have said in the preceding paragraph, that it is no more than the product of some looseness in language and that no distinction of the kind contended for was intended to be made.

23 It follows that I would answer "No" to the first of the sub-questions to which I have referred.

24 This conclusion makes it unnecessary for me to answer the second of the sub-questions in order to dispose of the first issue. If, as I have concluded, Strata is not associated with Mr Miller for the purposes of reg 4.3 then the question posed by the first issue must be answered "No". However I will answer the second sub-question in any event in case I might later be found to be wrong in the answer which I have given to the first of the sub-questions and also because it bears upon matters dealt with in the third of the preliminary issues.

25 It seems to me, firstly, to be plain that the words "equity securities", in their ordinary meaning, encompass shares. So, for example, "Ford's Principles of Corporations Law", 9th ed, par 17.070 lists equity securities as one of the categories of claims against companies that commerce calls "company securities". The learned authors there suggest that "equity securities" consist "mainly of shares in companies and options to take up shares to be issued by companies".

26 Moreover, regs 2.2(b) and (c) of Taipan's constitution provide as follows:

...

(b) an expression used in a particular Part or Division of the Corporations Law that is given by that Part or Division a special meaning for the purposes of that Part or Division has, in any of these Regulations that deals with a matter dealt with by that Part or Division, unless the contrary intention appears, the same meaning as in that Part or Division;

(c) words and expressions defined in the Listing Rules and the Corporations Law shall have the same meaning where used in these Regulations unless the context or subject matter otherwise requires;

... "

27 There is no definition of "equity securities" in the Corporations Law. There is only a definition of "securities", which term is defined in s 9 and s 92 so as to include shares. However there is a definition of "equity securities" in Chapter 19 of the Australian Stock Exchange Listing Rules. Rule 19.12 defines the term "equity security" to mean:

"(a) a share;

(b) a unit;

(c) a right to a share or unit or option;

(d) an option over an issued or unissued security;

(e) a convertible security;

(f) any security that ASX decides to classify as an equity security;

(g) but not a security ASX decides to classify as a debt security."

28 Consequently, if reg 4.3 is read in isolation, there seems no doubt that it comprehends an issue of shares and, indeed, options.

29 However submissions were made that, when read in its context, reg 4.3 does not comprehend an issue of shares or, for that matter, one of options because issues of that kind are regulated exclusively by reg 4.2. It was submitted that it would make no sense to read reg 4.3 as prohibiting a director or persons associated, for the purposes of that regulation, with a director of Taipan from participating in an issue of shares or the grant of options when reg 4.2 specifically provides that such a person may do so if the provisions of the Listing Rules are complied with.

30 I am unable to accept these submissions. Regulation 4.2 does not provide that a person of the kind described may participate in an issue of shares or the grant of options. Rather, it says that, while Taipan is listed on the Australian Stock Exchange, such persons may not participate in options to take shares granted by, or an issue of shares made by, Taipan except in accordance with the Listing Rules. Regulation 4.3, on the other hand, applies whether Taipan is or is not listed on the Australian Stock Exchange and encompasses equity securities of any kind as well as other securities with rights of conversion to equity. It consequently seems to me that the two provisions are capable of being read together sensibly even if the words "equity securities" are read as encompassing shares and options. The effect of so doing is no more than that, in any case, the persons mentioned in reg 4.3 may only participate in an issue or grant of the kind there referred to in the circumstances set forth in the ensuing sub-paragraphs but that, while the company is listed on the Australian Stock Exchange, those persons are, in addition, precluded from participating in options to take shares granted by, or an issue of shares made by, Taipan except in accordance with the provisions of the Listing Rules.

31 Moreover, the issue seems to me to be put beyond doubt when regard is had to paras (a) to (e) of reg 4.3. It is difficult to imagine that the "pro-rata entitlement of securities" received by a person "in his capacity of shareholder" referred to in par (a) does not encompass shares or that the underwriting or sub-underwriting "of an issue of securities" referred to in par (b) does not do so. It is just as difficult to imagine that the "entitlement of securities" under an employee incentive scheme or the similar entitlement under a shareholders' dividend plan referred to in par (d) does not include shares. The same might be said of the "securities" the subject of a takeover offer referred to in par (e).

32 It consequently seems to me to be plain that the "equity securities" referred to in reg 4.3 do encompass shares. It is common cause between the parties which participated in these proceedings that, if this is so, none of the prerequisites prescribed in paras (a) to (e) of reg 4.3 was satisfied, the resolution referred to in par 8 of the agreed facts having been passed only by a simple majority and not by way of a special resolution. It follows that the answer to the second of the sub-questions referred to above is "Yes".

33 However, those who contend for a negative answer to the question posed by the first preliminary issue argue that this is not the end of the matter, even if the first of the sub-questions to which I have referred had also been answered "Yes". They point, in this respect, to reg 2.3(c) and (f) of Taipan's constitution. Those provisions provide that:

"While the Company is admitted to the Official List of ASX, the following clauses apply:

...

(c) if the Listing Rules require an act to be done or not to be done, authority is given for that act to be done or not to be done (as the case may be);

...

(f) if any provision of this Constitution is or becomes inconsistent with the Listing Rules, this Constitution is deemed not to contain that provision to the extent of the inconsistency."

34 They next refer to Listing Rule 10.11 which provides that, unless one of the exceptions in r 10.12 applies, an entity must not issue equity securities either to a related party, or to a person whose relation with the entity or a related party is, in the Australian Stock Exchange's opinion, such that approval should be obtained, without the approval of holders of ordinary securities. There follow, in r 10.12, some eight exceptions. One of these (exception 5) encompasses the receipt by a person of securities as part of a merger by way of a scheme of arrangement under Part 5.1 of the Corporations Law. They contend that the Listing Rules consequently provide a comprehensive code of conduct as regards the issue of equity securities to related parties, encompassing an issue as part of a merger by way of a scheme of arrangement, and that any different code of conduct is necessarily inconsistent with it and thereby inoperative by virtue of reg 2.3(f) and, perhaps, also reg 2.3(c).

35 I am unable to accept that this is so. Nothing in reg 4.3 is inconsistent with Listing Rules 10.11 and 10.12 save in the sense that reg 4.3 raises barriers which are additional to those provided for in the Listing Rules. This is not, in my opinion, the kind of inconsistency which is intended to be referred to in reg 2.3(f). The concern of the person who drafted reg 2.3 was evidently that of ensuring that Taipan's constitution was, and remained, consistent with the Listing Rules, consistency being a condition imposed by Listing Rule 1.1 for the admission of an entity to the Official List. The kind of inconsistency referred to in reg 2.3(f) is, in my opinion, that in which the constitution permits something which the Listing Rules prohibit or the like. However there is no inconsistency, for the purposes of reg 2.3(f), merely because the constitution imposes conditions to the doing of a particular act which are in addition to those imposed by the Listing Rules where those additional conditions are not otherwise inconsistent with anything contained in the Listing Rules.

36 I am also not persuaded that there is any substance to the submission, made in the course of the hearing, to the effect that the intention of r 10.11 and r 10.12 is to cover the field in respect of the matters there dealt with, with the consequence that any additional conditions imposed in that regard would be inconsistent with those provisions. There is nothing in regs 10.11 and 10.12 which, in my opinion, should lead to that construction.

37 Nor does reg 2.3(c) bear upon the issue, in my opinion. That regulation merely confers authority to ensure compliance with requirements imposed by the Listing Rules. It does not have any greater effect.

38 It follows, from what I have said, that if I am wrong in the answer which I have given to the first of the sub-questions to which I have referred and Strata is a person associated with Mr Miller for the purposes of reg 4.3, and if it should be established that the proposed merger "will" result in the issue to Strata of shares in Taipan (and the agreed facts, as amended during the hearing now say only that it "may" do so), then the answer to the question imposed in the first preliminary issue would be "Yes".

39 It follows from the conclusions at which I have arrived as regards the first preliminary issue that I would answer the question posed by the second preliminary issue in a similar way.

40 Once again, the only fact relied upon in contending that St Barbara is associated with Mr Miller for the purposes of reg 4.3 is the fact that he is a director of St Barbara. It follows from what I have said above that this is not enough.

41 However, if I am wrong in that conclusion then it would follow from what I have said above that the shares referred to in the second preliminary issue were issued in breach of reg 4.3. This follows from my conclusion that the phrase "equity securities" encompasses shares, it being common cause, once again, that none of the prerequisites prescribed in pars (a) to (e) of reg 4.3 were satisfied.

42 As regards the third preliminary issue it follows from what I have said in respect of issue 1 that, in my opinion, options to acquire shares in Taipan are "equity securities". I should add that, even if they were not comprehended within the expression "equity securities", they would, in my opinion, fall within the meaning of the words "other securities with rights of conversion to equity" for the purposes of reg 4.3 of Taipan's constitution.

43 It follows that I would answer "Yes" to the question posed.

44 It follows from what I have said that I would give the following answers to the questions posed to me: