Ex Parte
[2021] WASC 86
•31 MARCH 2021
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: EX PARTE NEW CENTURY RESOURCES LTD [2021] WASC 86
CORAM: HILL J
HEARD: 9 MARCH 2021
DELIVERED : 9 MARCH 2021
PUBLISHED : 31 MARCH 2021
FILE NO/S: COR 41 of 2021
MATTER: Sections 1322(4)(a) and 1322(4)(c) of the
Corporations Act 2001 (Cth)
EX PARTE
NEW CENTURY RESOURCES LTD
Plaintiff
Catchwords:
Corporations - Application for orders under s 1322 of Corporations Act 2001 (Cth) - Failure of company to have shareholder nominate auditor prior to annual general meeting - Failure of company to resolve to appoint auditor at annual general meeting - Impact on validity of cleansing notices - Where no blatant or flagrant disregard of obligations - Whether orders should be made relieving officers of civil liability - Appropriate form of orders
Legislation:
Corporations Act 2001 (Cth), s 327B, s 327C, s 328B, s 706, s 707, s 708A,
s 708AA, s 1322
Result:
Application allowed
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr L N Firios |
Solicitors:
| Plaintiff | : | Allens |
Case(s) referred to in decision(s):
Cordiant Communications (Australia) Pty Ltd v Communications Group Holdings Pty Ltd [2005] NSWSC 1005; (2005) 55 ACSR 185
Gofur v Bangladesh Islamic Centre of NSW (BIC) [2020] NSWSC 652
Re Bellevue Gold Ltd [2021] WASC 80
Re Caeneus Minerals Ltd [2018] FCA 560
Re Classic Minerals Ltd [2018] FCA 2039
Re Golden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17
Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174
Re ICandy Interactive Ltd [2018] FCA 533; (2018) 125 ACSR 369
Re Murray River Organics [2019] FCA 931; (2019) 138 ACSR 365
Re Poseidon Nickel Ltd [2018] FCA 1063; (2018) 129 ACSR 57
Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418
Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396
HILL J:
On 9 March 2021, the plaintiff, New Century Resources Limited (New Century), filed an originating process seeking orders under s 1322 of the Corporations Act 2001 (Cth) (Act) relating to contraventions of s 327B(1)(b), s 327C(2), and s 328B of the Act. The contraventions occurred as a result of New Century’s failure to have a shareholder nominate Deloitte Touche Tohmatsu (Deloitte) as auditor or have the appointment of Deloitte as their auditor approved at their annual general meetings in 2019 and 2020.
These contraventions have had a secondary impact on the company as cleansing notices issued by New Century from November 2019 until December 2020 are likely to also be defective. For that reason, New Century also applies for orders pursuant to s 1322 for declarations that these notices are not invalid.
In light of the urgency with which the application was brought, as financial statements for the period ending 31 December 2020 were required to be lodged on 16 March 2021, I made orders at the conclusion of the hearing on 9 March 2021 granting the relief sought and said that I would subsequently publish reasons for my decision. These are the reasons for my decision.
Until March 2021, the provisions of the Act which govern the appointment of auditors had been subject to only very limited judicial consideration and academic commentary. However, after earlier proceedings were commenced in this court seeking relief in relation to contraventions of these provisions of the Act,[1] which was the subject of an announcement to the ASX, these proceedings and a further set of proceedings were commenced. In publishing my reasons for decision, I have drawn on the helpful submissions of counsel who appeared for the plaintiff in this matter as well as the submissions of counsel in the other matters.[2]
[1] ReBellevue Gold Ltd [2021] WASC 80.
[2] ReBellevue Gold Ltd; Ex parte Matador Mining Ltd (COR 44 of 2021).
Factual background
New Century is an Australian public company headquartered in Melbourne, Victoria.[3] New Century is a base metal producer,[4] with its major project, Century Zinc, based in Queensland.[5]
[3] Affidavit of Oonagh Jane Malone filed 9 March 2021 [16].
[4] Affidavit of Oonagh Jane Malone filed 9 March 2021 [16].
[5] Affidavit of Oonagh Jane Malone filed 9 March 2021 [21]; ts 7.
New Century was incorporated on 19 February 2010 and its securities are listed on the Australian Securities Exchange (ASX).[6] As at 7 March 2021, New Century had 4,493 shareholders and a market capitalisation of approximately $199.64 million.[7]
Appointment of Deloitte as auditor
[6] Affidavit of Oonagh Jane Malone filed 9 March 2021 [13].
[7] Affidavit of Oonagh Jane Malone filed 9 March 2021 [17] - [18], 'OJM-3'.
In late 2018, the directors of New Century, after a competitive tender process, resolved to appoint Deloitte as its auditor in place of Bentleys Audit & Corporate (WA) Pty Ltd (Bentleys). This decision was made for a number of reasons, including the relocation of New Century's head office from Western Australia to Melbourne and the development of the company's Century Zinc Project.[8]
[8] Affidavit of Oonagh Jane Malone filed 9 March 2021 [21] - [22].
On 29 November 2018, Deloitte provided its written consent to New Century to act as its auditor.[9]
[9] Affidavit of Oonagh Jane Malone filed 9 March 2021 'OJM-4'.
On 21 December 2018, following a request from New Century in November 2018, Bentleys submitted a request to ASIC to resign as New Century's auditor pursuant to s 329(5) of the Act.[10] On 28 February 2019, ASIC consented to Bentleys' resignation.[11]
[10] Affidavit of Oonagh Jane Malone filed 9 March 2021 [23], 'OJM-4'.
[11] Affidavit of Oonagh Jane Malone filed 9 March 2021 [24] 'OJM-5'.
On 11 March 2019, Deloitte was validly appointed as auditor to fill the casual vacancy pursuant to s 327C(1) of the Act. On the same date, an announcement was made to the ASX regarding this change.[12]
[12] Affidavit of Oonagh Jane Malone filed 9 March 2021 [26], 'OJM-7'.
In September 2019, Ms Malone, who was then company secretary of New Century, instructed the company’s external solicitors to prepare a draft notice of annual general meeting.[13] At that time, she did not: [14]
(a)instruct the external solicitors to procure a nomination of Deloitte as auditor of the company;
(b)instruct the solicitors to include a resolution seeking shareholder approval for Deloitte’s appointment; or
(c)inform the solicitors there had been a change of auditor in March 2019.
[13] Affidavit of Oonagh Jane Malone filed 9 March 2021 [28].
[14] Affidavit of Oonagh Jane Malone filed 9 March 2021 [29] - [30].
Ms Malone's evidence was that in preparing the notice of meeting for the 2019 annual general meeting, she overlooked the requirement to procure a nomination or include a resolution for shareholders to approve Deloitte as auditor.[15] Although she was familiar with the requirement for auditors to be approved at annual general meetings, Ms Malone deposed that her failure to include these matters was an administrative error and an honest mistake due to the time that had passed between Deloitte's appointment in March 2019 and the annual general meeting held in October 2019.[16]
[15] Affidavit of Oonagh Jane Malone filed 9 March 2021 [28] ‑ [29].
[16] Affidavit of Oonagh Jane Malone filed 9 March 2021 [31].
After receiving the draft notice of meeting from the company's external solicitors, Ms Malone forwarded the draft to the directors of New Century for approval.[17] Ms Malone's evidence is that none of New Century's external solicitors, Deloitte, ASIC, ASX or the company's directors raised any query about whether the notice of meeting should contain a resolution for the appointment of Deloitte as auditor.[18]
[17] Affidavit of Oonagh Jane Malone filed 9 March 2021 [32].
[18] Affidavit of Oonagh Jane Malone filed 9 March 2021 [33].
New Century's 2019 annual general meeting was held on 31 October 2019. A representative of Deloitte attended the annual general meeting.[19] During the annual general meeting, one question was asked about the company's annual accounts. Ms Vlahovic, a partner of Deloitte, assisted the chairman in responding to the question.[20]
[19] Affidavit of Oonagh Jane Malone filed 9 March 2021 [35].
[20] Affidavit of Oonagh Jane Malone filed 9 March 2021 [35], 'OJM-11'.
At the 2019 annual general meeting, as a result of the omission from the notice of meeting, the shareholders of New Century did not resolve to appoint Deloitte as auditor. As a consequence, by reason of s 327B(1)(b) of the Act, Deloitte ceased to be auditor of New Century at the conclusion of the 2019 annual general meeting.
During the 2019 and 2020 financial years, the directors of New Century did not resolve to appoint Deloitte to fill the casual vacancy that had arisen as a matter of law.
Deloitte issued separate letters of engagement for its audit and review services for the year ending 30 June 2019 (including the review for the half year ending 31 December 2018) and the year ending 30 June 2020 (including the review for the half year ending 31 December 2019).[21]
[21] Affidavit of Oonagh Jane Malone filed 9 March 2021 'OJM-8', 'OJM-9'.
A similar process was adopted by Ms Malone in relation to the preparation of the materials for the 2020 annual general meeting. Ms Malone prepared the notice of meeting (on this occasion without the assistance of external counsel) and the notice of meeting was approved by the board.[22] Ms Malone's evidence was that she did not turn her mind to whether Deloitte needed to be formally appointed as auditor at this meeting as she assumed that Deloitte's appointment in March 2019 was valid.[23]
[22] Affidavit of Oonagh Jane Malone filed 9 March 2021 [36].
[23] Affidavit of Oonagh Jane Malone filed 9 March 2021 [37].
Ms Malone deposed that a representative of Deloitte attended the plaintiff’s annual general meeting on 30 November 2020 and that no questions were asked of the representative.[24]
[24] Affidavit of Oonagh Jane Malone filed 9 March 2021 [40], 'OJM-13'.
On 1 March 2021, a former director of New Century brought to Ms Malone's attention a market announcement that had been published by Bellevue Gold Ltd. The announcement disclosed that this company had requested a voluntary trading halt after discovering that it had inadvertently failed to appoint its auditors at its annual general meeting and that there were issues with cleansing notices that had been lodged with the ASX.[25]
[25] Affidavit of Oonagh Jane Malone filed 9 March 2021 [41] - [43].
On receiving this message, Ms Malone (who ceased being company secretary of the plaintiff on 22 February 2021 but is assisting with the transition of the role to the new company secretary)[26] reviewed New Century’s records and realised that a resolution for Deloitte's appointment had not been tabled at the 2019 or 2020 annual general meeting.[27] She contacted Mr Walta, the managing director of the plaintiff, on 2 March 2021 and they immediately sought advice from New Century's external solicitors.[28]
[26] Affidavit of Oonagh Jane Malone filed 9 March 2021 [1] - [2].
[27] Affidavit of Oonagh Jane Malone filed 9 March 2021 [43].
[28] Affidavit of Oonagh Jane Malone filed 9 March 2021 [44]; Affidavit of Patrick Christopher Andrew Walta filed 9 March 2021 [8] - [9].
On the same date, Ms Malone informed the board of directors of the matter and New Century informed Deloitte.[29]
[29] Affidavit of Oonagh Jane Malone filed 9 March 2021 [45], 'OJM-14'.
On 9 March 2021, the directors of New Century resolved to commence these proceedings and request a voluntary trading halt.[30]
[30] Affidavit of Patrick Christopher Andrew Walta filed 9 March 2021 [30].
On 9 March 2021, New Century:
(a)applied for and obtained a voluntary trading halt of its securities;[31]
(b)commenced these proceedings; and
(c)by its solicitors, notified both ASIC and the ASX of the company's non‑compliance with the Act and informed them that proceedings had been commenced in this court.[32]
Issues of Shares
[31] Affidavit of Patrick Christopher Andrew Walta filed 9 March 2021 [30].
[32] Affidavit of David George Filov filed 10 March 2021 [8] ‑ [11], [15] ‑ [18], 'DGF-1', 'DGF-2', 'DGF-3', 'DGF-4', 'DGF-5', 'DGF-6'.
Between November 2019 and December 2020, New Century undertook a number of share and rights issues.[33] At the time of each of these issues, Ms Malone lodged cleansing notices with the ASX.[34]
[33] Affidavit of Oonagh Jane Malone filed 9 March 2021 [50], 'OJM-15'.
[34] Affidavit of Oonagh Jane Malone filed 9 March 2021 [49].
Before each of the cleansing notices were issued, Ms Malone considered and confirmed that New Century was in a position to issue the notice.[35]
[35] Affidavit of Oonagh Jane Malone filed 9 March 2021 [52].
Each cleansing notice stated that as at the date of issue, New Century was in compliance with the provisions of ch 2M of the Act as they applied to the company.[36] This statement was not correct given New Century’s failure to validly appoint Deloitte as auditor at the 2019 and 2020 annual general meetings.
[36] Affidavit of Oonagh Jane Malone filed 9 March 2021 [48] ‑ [50], 'OJM-15'.
Statutory regime
Financial Reports and appointment of auditor
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.
The 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)).
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).
Section 327C deals with the 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) holds office until the company's next annual general meeting (s 327C(2)).
Section 328B of the Act sets out the procedure that governs the nomination of an auditor. Pursuant to s 328B(1) of the Act, a company may appoint an individual, firm or company as auditor of the company at its annual general meeting only if a member of the company gives the company written notice of the nomination of the individual, firm or company before the meeting is convened, or not less than 21 days before the meeting (unless an auditor is removed from office at the annual general meeting). If a company purports to appoint an auditor in contravention of s 328B(1), the appointment is of no effect (s 328B(2)(a)) and the company and each officer of the company who is in default are guilty of an offence (s 328B(2)(b)).
Fundraising disclosures
Part 6D.2 of the Act imposes disclosure obligations on corporations in relation to rights issues and the issue and sale of quoted securities.
Section 708AA of the Act governs offers under a rights issue. Relevantly:
(a)an offer under a rights issue does not need disclosure to investors under pt 6D.2 if the plaintiff lodges with the ASX what is commonly known as a cleansing notice within the 24 hour period prior to the offer being made (s 708AA(2)(f));
(b)the requirements for the cleansing notice are set out in s 708AA(7). This includes the requirement that the notice state that, as at the date of the notice, the plaintiff has complied with the provisions of ch 2M as they apply to the plaintiff (s 708AA(7)(c)(i)).
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)). The cleansing notice exception can only be relied upon if the preconditions in s 708A(5) of the Act are met.
Section 708A(6) of the Act sets out the requirements of a valid notice. Relevantly, this includes the obligation for the notice to state that as at the date of the notice, the company has complied with 'the provisions of ch 2M as they apply to the body' (s 708A(6)(d)).
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.[37]
Power under s 1322 of the Corporations Act to grant relief sought
[37] Corporations Act, s 707(3). See also ReGolden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17.
Section 1322 of the Act 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.
In considering an application under s 1322(4)(a) of the Act, the essential principles are:[38]
(a)the prescriptive requirements of s 1322(4)(a) and one of the pre-conditions in s 1322(6) need to be satisfied;[39]
(b)the court retains a discretion under s 1322(4)(a) 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;[40]
(d)limitations to the broad powers in s 1322 will not be readily implied.[41] 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 also 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.[42]
[38] Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174 [20].
[39] Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 [43], [53], [64].
[40] Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418 [29].
[41] Weinstock v Beck [43], [55] - [56], [64].
[42] Corporations Act, s 1322(5).
Disposition
Application by an 'interested party'
I accept that the plaintiff is an interested person who may seek relief, as required by s 1322(4).[43]
Position of ASX and ASIC
[43] Re Caeneus Minerals Ltd [2018] FCA 560 [38]; Re Classic Minerals Ltd [2018] FCA 2039 [34].
The ASX informed the plaintiff prior to the hearing that it was not in a position to review the materials prior to the hearing of the application and did not intend to appear at the hearing.[44] At the hearing, counsel for the plaintiff justified the urgency of the matter. The urgency arose because of the impending deadline for New Century to lodge its half‑yearly accounts on 16 March 2021. This required the audit committee to meet on 10 March 2021.[45] On the basis of these matters, I was satisfied that it was appropriate to proceed with the hearing of the application in the absence of the ASX's position being known to the court.
[44] Affidavit of David George Filov filed 10 March 2021 [13].
[45] Certificate of urgency filed 9 March 2021.
ASIC indicated that it neither supports nor opposes the application and did not intend to appear at the hearing of the matter.[46]
Validation of appointment of Deloitte as auditor
[46]Affidavit of David George Filov filed 10 March 2021 [20], 'DGF-7'.
On the evidence before me, I make the following findings of fact:
(a)following the resignation of Bentleys as auditor of New Century with effect from 11 March 2019, the directors of New Century complied with their obligations under s 327C(1) of the Act by appointing Deloitte as auditor with effect from 11 March 2019. However, by reason of s 327C(2) of the Act, the appointment of Deloitte to fill the casual vacancy only extended until the company's next annual general meeting;
(b)the effect of s 327C(2) of the Act is that Deloitte ceased to hold office as auditor of New Century following its annual general meeting on 31 October 2019;
(c)from this date, the directors of New Century were required, pursuant to s 327C(3) of the Act, to take all reasonable steps to comply with, or to secure compliance with s 327C(1) to appoint an auditor to fill the casual vacancy. This did not occur;
(c)at no stage did a shareholder nominate Deloitte as auditor of New Century nor was a resolution passed at the annual general meetings in 2019 or 2020 appointing Deloitte as auditor of New Century.
I considered the legislative history and objects of ch 2M.4 in my decision in Re Bellevue Gold Ltd at [48] ‑ [54]. Those reasons for decision reflect my views on this matter. It is not necessary for me to repeat what I said there.
Orders under s 1322(4)(a)
The plaintiff sought a declaration under s 1322(4)(a) of the Act that the appointment of Deloitte as auditor of the plaintiff from 31 October 2019 to date was not invalid by reason of its failure to comply with s 327B(1)(b), 327C(2) and 328B of the Act.
I accept that the prescriptive requirements of s 1322(4)(a) of the Act are satisfied in that:
(a)the proposed validation order is framed in a declaratory form;
(b)the act, matter or thing is the appointment of Deloitte pursuant to ch 2M.4 of the Act;
(c)the contravention is the failure by the plaintiff and its directors to comply with s 327B(1)(b), s 327C(2)(c) and s 328B of the Act.
Pre-conditions in s 1322(6)(a)
The plaintiff submitted that each of the pre-conditions in s 1322(6)(a) of the Act was satisfied.
For the reasons I expressed in Re Bellevue Gold Ltd at [59], my preliminary view is that the failure to appoint Deloitte is not an act of a 'procedural nature', within the meaning of that term in s 1322(6)(a)(i).[47] However, for the reasons which follow, it is not necessary for me to reach a concluded view on this matter.
[47] See Cordiant Communications (Australia) Pty Ltd v Communications Group Holdings Pty Ltd [2005] NSWSC 1005; (2005) 55 ACSR 185 [103]; Gofur v Bangladesh Islamic Centre of NSW (BIC) [2020] NSWSC 652 [39] - [40].
Turning to the pre-condition in s 1322(6)(a)(ii), 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.[48] Relevantly, Banks‑Smith J considered that:
[48] Re ICandy Interactive Ltd [2018] FCA 533; (2018) 125 ACSR 369 [54] - [104].
(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;[49]
(b)the concept of acting honestly can embrace:[50]
(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.[51]
[49] Re ICandy Interactive Ltd [54], [106] - [107].
[50]Re ICandy Interactive Ltd [55].
[51] Re ICandy Interactive Ltd [60] - [104].
In this case, on the basis of the evidence of Ms Malone, which I accept, there was no failure of any relevant person to act honestly. The failure arose through inadvertence, specifically Ms Malone overlooking the requirement at the time of preparing the notice of annual general meeting in 2019 to procure a nomination of Deloitte from a shareholder or include a resolution confirming Deloitte's appointment as auditor. The contravention in 2020 followed on from this initial contravention. For these reasons, I accept the pre‑condition in s 1322(6)(a)(ii) of the Act is satisfied.
I am also satisfied that it would be just and equitable to make the orders sought. Section 1322(6)(a)(iii) gives the court a wide discretion in exercising its powers under s 1322 of the Act.[52]
[52] Re Bellevue Gold Ltd [64] and the authorities cited therein.
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.
It is relevant that all relevant parties (Deloitte, New Century and its shareholders) proceeded on the basis that Deloitte had been appointed auditor. No issue or complaint has been raised in relation to the 2019 or 2020 accounts or the conduct of the audits (or reviews) by Deloitte.
In my view, the granting of the relief sought will remove any doubt as to the compliance by New Century with its financial reporting obligations and the potential impact on the operations of the company.
No substantial injustice (s 1322(6)(c))
I have considered the classes of persons who may be impacted by the making of these orders being New Century, the shareholders of the plaintiff and the auditor of New Century, Deloitte.
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 orders.
I accept that if the orders sought are not made, there may be substantial injustice to each of the plaintiff, Deloitte and the plaintiff's shareholders. In addition to the specific matters raised above at [53], in the event that Deloitte's appointment is not validated and a complaint was raised about the work they had done, it is possible that a legal issue could be raised as to whether an auditor who is not appointed at law is liable for the work performed by them and whether the work is covered by their professional indemnity insurer.
No other discretionary reason to withhold relief
Notwithstanding the duration of time over which the contraventions occurred, I accept and find that there is no evidence of any substantial misconduct, serious wrongdoing or flagrant disregard of the Act so as to warrant refusal of the relief sought.
There is nothing in the evidence before me that suggests 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 contraventions of the Act and given notice of this hearing. No shareholder or either regulator has sought to intervene in the hearing or given notice that they want to be heard on the application.
In exercising the discretion to grant relief under s 1322(4)(a), a relevant factor is the promptness with which the plaintiff has sought to remedy the irregularity once it was identified. In this case, the plaintiff first became aware of the issue on 1 March 2021. The plaintiff immediately sought external advice and commenced these proceedings on 9 March 2021. I accept and find that the plaintiff has acted diligently in seeking to remedy the matters the subject of the application.
Relief from civil liability
The plaintiff also sought orders relieving the company and its current and former directors and officers from any civil liability arising out of the contraventions of s 327B(3) and 328B(2)(b) of the Act by reason of the failure to procure that a member nominate Deloitte as auditor of the company or to have the appointment of Deloitte approved at the 2019 and 2020 annual general meetings.
Section 1322(4)(c) 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) that the person concerned acted honestly and that no substantial injustice has been or is likely to be caused to any person.[53]
[53] Re Murray River Organics [2019] FCA 931; (2019) 138 ACSR 365 [28].
A pre‑condition to making an order under s 1322(4)(c) is that the person to be relieved from civil liability acted honestly.[54]
[54] Corporations Act, s 1322(6)(b).
Counsel for the plaintiff submitted that the relevant parties acted honestly throughout the relevant period as they believed the requirements of the Act had been complied with. I accept that the contravention occurred by way of inadvertence or oversight for the reasons set out at [50] and that there is no evidence that New Century or its current or former directors or officers acted dishonestly. I also accept that the relief sought by the plaintiff is appropriately confined to the specific omissions that caused the contravention.
For that reason, and having regard to the matters referred to at [53] and [57] above, I consider it is appropriate that the plaintiff and its current and former officers be relieved of any civil liability arising out of their contraventions of the Act for the specific omissions identified by the plaintiff.
Validation of cleansing notices
In addition to the orders sought by the plaintiff in respect of the appointment of their auditor, the plaintiff also sought orders in respect of cleansing notices issued by New Century between November 2019 and December 2020 (Cleansing Notices).
In Re Bellevue Gold Ltd at [86] - [89], I considered whether the Act validated a cleansing notice given in respect of shares issued by the company containing a representation, which at the time it was given, was believed to be correct. There is a similar legislative regime in respect of cleansing notices issued for rights issues (s 708AA(10) and s 708AA(11) of the Act).
My preliminary view is that that these provisions do not validate any error or omission in a cleansing notice. Rather, the provisions create a further contravention of the Act if an error is discovered within 12 months and is not corrected. However, in circumstances where there was no proper contradictor who appeared at the hearing, I do not consider it is appropriate to express a concluded view. In any event, in my view, it is not necessary that I make a positive finding that there has been a contravention of the Act in order to grant the relief sought for the reasons I stated at [90] ‑ [91] of Re Bellevue Gold Ltd.
Orders under s 1322(4)(a)
The plaintiff sought a declaration under s 1322(4)(a) of the Act that the Cleansing Notices given by the plaintiff were effective when given and that any offer for sale or sale of the quoted securities from the date of issue to the date of the orders is not invalid, by reason of any failure of the Cleansing Notices to exempt the sellers from the obligation of disclosure under the Act, or the sellers' consequent failure to comply with s 706 or s 707(3) of the Act.
I note that:
(a)the proposed validation orders are framed in a declaratory form;
(b)the act, matter or thing is the offer and sale of securities;
(c)the contraventions are the offering of securities for sale or sales without proper disclosure in contravention of s 706 and s 707(3) of the Act.
Pre-conditions in s 1322(6)(a)
Counsel for New Century submitted that each of the pre‑conditions in s 1322(6)(a) of the Act were satisfied.
While I accept that the representation that the plaintiff was compliant with ch 2M of the Act was made honestly, my preliminary view is that this representation and any consequent invalidity of the Cleansing Notices is not an act of a 'procedural nature', within the meaning of that term in s 1322(6)(a)(i).[55] However, for the reasons which follow, it is not necessary for me to reach a concluded view on this point.
[55] See Cordiant Communications (Australia) Pty Ltd v Communications Group Holdings Pty Ltd [103]; Gofur v Bangladesh Islamic Centre of NSW [39] - [40].
The evidence of both Ms Malone and Mr Walta is that the non‑compliance was only brought to the company's attention on 1 March 2021 and that, until this date, the company believed they had complied with ch 2M of the Act.
New Century submitted, which I accept, that there was no failure of the persons concerned in the preparation and lodgement of the Cleansing Notices or the company to act honestly.
In this case, the plaintiff lodged Cleansing Notices for the shares issued throughout the relevant period which have subsequently been discovered to contain a representation that is false. I accept that the statement in each of the Cleansing Notices was made honestly and each is an inadvertent breach, which arises as a consequence of the contraventions regarding the appointment of the auditor, rather than any deliberate disregard by the plaintiff or its officers of the obligations under ch 6D of the Act.
I also accept that this is not a case where there has been a failure of the plaintiff's directors to take an active interest in the company's compliance with the Act or to properly define roles of company officers. I accept that the plaintiff’s directors delegated responsibility for the drafting of the notices of annual general meeting and the preparation of the Cleansing Notices to the company secretary. For these reasons, I am satisfied that the pre‑condition in s 1322(6)(a)(ii) is satisfied.
In addition I am also satisfied that it is just and equitable for the orders sought by the plaintiff to be made. At present, the shares in the plaintiff are suspended from trading and will not be reinstated until orders are made by the court. In these circumstances, I consider that the pre‑condition in s 1322(6)(a)(iii) is also satisfied.
No substantial injustice (s 1322(6))
I have considered the classes of persons who may be impacted by the making of these orders.
First, the people who were issued the impugned shares. The prejudice to them is that the sale of the impugned shares may be void or voidable.[56]
[56] Re Poseidon Nickel Ltd [2018] FCA 1063; (2018) 129 ACSR 57 [63].
Second, any people who purchased shares from on-sellers may have on‑sold the shares themselves by trading on the open market of the ASX since they were issued. Any further sales of shares will have occurred without disclosure under pt 6D.2 of the Act, and these transactions may also be void or voidable.
I find that 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.
I accept that if the orders sought are not made, there may be substantial injustice to the plaintiff as the offers of and sales of shares 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 and sales of its shares. I also accept that there may be substantial injustice to the other ordinary shareholders of the plaintiff, as they may not be able to trade their shares on an open market if the ASX does not lift the current suspension from trading.
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.
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 the plaintiff in respect of the Cleansing Notices. First, it cannot be discounted that there may have been sales of the shares that have been issued and resales of these shares. In these circumstances, I consider that it is appropriate to make the orders sought to remove any question as to title in the shares of the plaintiff. Second, the orders sought by the plaintiff did not concern a future act but a past act. Third, I am satisfied that the conduct of the plaintiff was inadvertent and not in blatant disregard of its obligations under the Act. I do not consider that public policy will be undermined by granting the plaintiff the relief sought.
Conclusion
For these reasons, I was and am satisfied that, in the circumstances of this case, relief should be granted in terms of the relief sought by the plaintiff. Accordingly, at the conclusion of the hearing, I made orders in the form annexed to these reasons as 'Annexure A'.
ANNEXURE A
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
ME
Associate to the Honourable Justice Hill
31 MARCH 2021
4
10
2