Western Desert Resources Limited, in the matter of Western Desert Resources Limited [2012] FCA 596

REASONS FOR JUDGMENT 1 The plaintiff, Western Desert Resources Limited, is a company listed on the Australian Stock Exchange (ASX). On 30 May 2012 it applied by originating process for relief under s 1322(4)(a) and (b) of the Corporations Act 2001 (Cth) (the Corporations Act) in relation to the issue by it of two tranches of 5,000,000 fully paid shares on 13 and 16 March 2012. 2 On 13 March the plaintiff placed 5,000,000 ordinary shares with four parties who are described in exhibit LA4 to the affidavit of Mr Laurence Ackroyd, who is the Chief Financial Officer and Company Secretary of the plaintiff, sworn on 30 May 2012. On 16 March, the company placed through Macquarie Equity Limited (Macquarie) a further 5,000,000 shares with seven parties who are identified in LA7 to the same affidavit. At the time of the issue of the shares, the company had on issue 208,769,203 shares and had a market capitalisation in the order of $200 million. 3 After the placement of those shares, Mr Ackroyd provided the ASX with Appendix 3B relating to the placement of the shares, which was a requirement of the ASX reporting rules, but did not provide the ASX with a "cleansing notice" as notices in s 708A of the Corporations Act are commonly described. Appendix 3B represented that the plaintiff would file a cleansing notice. 4 On or around 5 April 2012, Macquarie contacted the plaintiff's managing director, Mr Norm Gardner, asking whether a cleansing notice had been lodged in relation to the Macquarie placement shares. Mr Gardner spoke to Mr Ackroyd who said that he would contact the plaintiff's then lawyers. On the same day he contacted the plaintiff's lawyers and was advised that a cleansing notice had to be lodged within five business days of the issue of the shares, but had not been lodged. 5 The plaintiff's then lawyers had not been asked to advise on the lodgement of a cleansing notice or, indeed, on any obligations under the Corporations Act or any of the ASX listing rules or disclosure rules after the placements were made and Appendix 3B provided to the ASX. 6 Because Mr Ackroyd was on leave between 11 April and 8 May, and because the ramifications of the failure to lodge the cleansing notice were not understood within the plaintiff, little was done by the plaintiff. On 8 May, on Mr Ackroyd's return from leave, he was contacted by Macquarie who advised him of the failure to lodge the cleansing notice and the inconsistent representation in Appendix 3B lodged by the plaintiff. On 9 May Mr Ackroyd sought legal advice, and on 15 May he was advised that there had been some on-sales of the shares previously placed by Macquarie. 7 On 17 May 2012 he caused to be lodged with the ASX a company announcement correcting the information contained in Appendix 3B and advising that the plaintiff would be seeking an order from the Court pursuant to s 1322(4) of the Corporations Act permitting the plaintiff to lodge a cleansing notice within an extended period of time. He instructed the plaintiff's lawyers accordingly. 8 On 21 May he wrote to all shareholders who had been issued shares on 13 March advising that they were not able to rely on the on-sale disclosure exemption in s 708A(5), but that the plaintiff was taking urgent steps to rectify the situation. On 22 May 2012 he wrote to Macquarie on behalf of the shareholders with whom Macquarie had placed shares advising that those shareholders were not presently able to rely on the on-sale disclosure exemption but, again, that the plaintiff was taking urgent steps to rectify the situation. The plaintiff's present lawyers were instructed at about the same time, which led to this application being made on 30 May. 9 Chapter 6CA deals with continuous disclosure in relation to the issue of securities by listed companies. The purpose of the Chapter is to ensure that a company placing securities conforms with its obligations to make full disclosure to the parties to whom the placement is made in an efficient, competitive and informed market. The Chapter is prescriptive in the way in which a company must go about informing potential shareholders of information. If proper disclosure is not made, the Corporations Act restricts the on-sale of shares issued without disclosure under Chapter 6D. For that reason, a company might seek, pursuant to s 708A, the making of a cleansing notice. Section 708A provides that if a company provides the ASX with a cleansing notice of the kind contemplated in s 708A(5), and the notice complies with subsection (6), the shareholder may on-sell the shares without making any further disclosure. The failure of a company to give a notice in that form means that the shareholders with whom the shares have been placed are unable to on-sell those shares without having to give a product disclosures statement. Therefore, the persons disadvantaged by the company's failure are the shareholders who accepted the placement of the shares on 13 and 16 March. 10 Of course, the plaintiff also requires relief not only to protect those shareholders but to protect itself, because the plaintiff gave notice under Appendix 3B that it had or would obtain a cleansing order, which it did not do. In those circumstances, the plaintiff could be liable at the suit of the shareholder either to a claim for rescission of the placement or for damages. The plaintiff therefore has made this application under s 1322(4), which provides in paragraph (a) and (b) that the Court may make: (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. 11 The other relevant subsection of s 1322 is subsection (6), which provides: 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. 12 The first matter under s 1322(6) to be addressed, as counsel for the plaintiff contended, is whether s 1322 applies or is meant to apply to a procedural failure of the kind addressed in s 708A. In my opinion, there is no doubt that s 1322 is intended to remedy a failure by a company to comply with s 708A. There are a number of authorities which support that proposition, including In the matter of Charter Hall Limited [2007] FCA 1316 and In the matter of RCR Tomlinson Ltd [2009] FCA 1130. 13 I am satisfied, therefore, that the plaintiff is entitled, subject to the second matter, to relief under s 1322. However, relief cannot be ordered under s 1322 unless the contravention was innocent in the sense that the plaintiff had acted honestly; and secondly, that no substantial injustice is likely to be caused to any person. I am satisfied that the failure to act was inadvertent. Section 708A(6)(e) requires the company providing the notice to set out any information that is "excluded information" as at the date of the notice. I am satisfied, on the affidavit of Mr Ackroyd, that there was no excluded information as at the date of the notice, or, indeed, as at this date, and in those circumstances there was no deliberate attempt on the part of the plaintiff to avoid giving notice under s 708A(5). 14 I am satisfied that on the affidavit evidence that at the present time the plaintiff would not need, in giving a notice, to provide excluded information under that notice. I accept Mr Ackroyd's evidence that the failure was inadvertent. 15 That leaves the question as to whether or not any substantial injustice has been or is likely to be caused to any person. The plaintiff served this application on the Australian Securities Investment Commission, ASX Limited and Macquarie. All three parties have advised the plaintiff that they do not object to the order being made. Indeed, although this order will benefit the plaintiff in that the plaintiff will be absolved from a claim for rescission or for damages by any of the parties to whom the placement was made, the parties who most benefit from the orders sought by the plaintiff are, in fact, the shareholders to whom the placement was made. 16 In those circumstances there is no substantial injustice to any party if the orders sought were made. If, indeed, in due course, it is established that the plaintiff did fail to provide excluded information, that would not cause, in view of the form of the orders which I am about to make, any substantial injustice to any party if that excluded information were provided late to the ASX. 17 For those reasons, I am prepared to make the orders sought in the draft minutes of order which have been provided to me. I note that these orders are in the same form as the orders made by Gyles J in In the matter of Charter Hall Limited and by McKerracher J in In the matter of RCR Tomlinson Ltd. 18 I make the following orders: