IMF (Australia) Ltd v Sons of Gwalia Ltd (Admin Apptd)

[2005] HCATrans 891

[2005] HCATrans 891

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P22 of 2005

B e t w e e n -

IMF (AUSTRALIA) LTD

Applicant

and

SONS OF GWALIA LTD (ADMIN APPTD)

Respondent

Application for special leave to appeal

GUMMOW J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT PERTH ON WEDNESDAY, 26 OCTOBER 2005, AT 10.50 AM

Copyright in the High Court of Australia

MR M.J. McCUSKER, QC:   May it please the Court, I appear with my learned friend, MR J.C. GILES, for the applicant.  (instructed by Solomon Brothers)

MR K.J. MONY DE KERLOY:   May it please the Court, I appear for the respondent.  (instructed by Freehills)

GUMMOW J:   Yes, Mr McCusker.

MR McCUSKER: May it please your Honours, this appeal, if special leave were granted, would raise a very short but very important point of statutory interpretation. The interpretation is, of course, of section 177(1A) of the Corporations Law. The background to that provision, or the context in which it appears, needs to be considered. By section 173(1) of the Corporations Law the public are given a right to inspect the register of shareholders and that right to inspect carries with it the right to ascertain the names and addresses of the shareholders and further, the right to ascertain the number of shares which each shareholder has.  It carries with it also a right to obtain a copy of the register of shareholders.

So although it has been said that the provisions of section 177 are aimed at ensuring privacy of shareholders it must be read against that background that there is open access to the register and the obtaining of copies of those details.  Section 177(1) provides, however – and that appears in the bundle of authorities that we have provided to the court – that:

(1)      A person must not:

(a)      use information about a person obtained from a register ‑ ‑ ‑

GUMMOW J:   Is there any intersection between these provisions in the federal Act and the federal Privacy Act?

MR McCUSKER:   Not directly, your Honour.  The trial judge referred to the provisions of the Privacy Act in his reasons for judgment.

GUMMOW J:   Yes, and to the principles.

MR McCUSKER: And the principles, yes. However, it is our submission that the principles do not really carry us very far in this question because the question is one of interpretation of section 177(1A) and the exception to the prohibition in section 177(1) against a person using information:

about a person obtained from a register . . . to contact or send material to the person –

An example given of that is using information to send material to a person is putting a person’s name and address on a mailing list for advertising material.  Most of the community, and perhaps your Honours included, are familiar with the fact that from time to time unsolicited advertising material for a wide variety of goods is received and it is against that, principally, that, in our submission, section 177(1) is aimed.  The exception which is contained in (1A) is that:

if the use or disclosure of the information is:

(a)      relevant to the holding of the interests recorded in the register or the exercise of the rights attaching to them –

That is where the issue has arisen in this case.  What the applicant sought to do was to use the information obtained from the register for the purpose of writing to all existing shareholders.  I should add there that the learned trial judge was in error in referring to former shareholders because the applicant expressly sought only to write to existing shareholders and to apprise them of the fact that they had a potential cause of action against the company under various provisions of the Corporations Law and to apprise them of the opportunity to join in with other shareholders in an action which would be funded by the applicant.

That, in brief, was the purpose of seeking to use that information.  But although, as Mr McLernon has said in his affidavit, he is aware of others, at least one firm of lawyers and another organisation, which has used the information in the register for that exact purpose, because of the decision of a single judge in the Supreme Court, Justice Heenan in Westgold, there were some doubts expressed as to whether it was lawful to do so and having regard to the very severe penalties that are involved, if there is a breach of section 177 prohibition, it was decided that an application should be made initially for permission, but the company understandably, which is in liquidation, refused permission to use this information for the purpose of then soliciting people to sue the company, and that is of course one exception.

If the company approves the use of information for any purpose, then it may be used for that purpose and that is not limited to a purpose which is specified in 1A(a) that is “relevant to the holding of the interests recorded in the register”.  It could, for example, be the case that an application is made to the company for approval to send advertising material to shareholders advertising, let us say, the Financial Review and offering the company shareholders a discounted rate.  That, if approved by the company, which it might well do, would be outside the prohibition contained in the section.

So the question is what is meant by “relevant to the holding of the interests” or “the exercise of the rights”?  Now, the learned trial judge took an approach that, in fact, in error, referred to the holding of interests and the exercise of the rights and clearly that is wrong.  He also took an approach to the meaning of the word “relevant” which was a very narrow definition.  One of the two judges in the majority in the Full Federal Court took the view that it did not matter – that was Justice Emmett, I think – took the view that a definition whether wide or narrow of “relevant” was not to the point.  Justice North took the view that what was proposed was clearly relevant.  To some extent he said that was an impression of what is relevant and what is not to the holding of the interest recorded in the register.  But there were, as we have said in a summary of argument, different approaches to the same question. 

It is our submission, of course, that Justice North’s approach was the correct approach and consistent with the purpose and, indeed, the context in which this provision appears.  If the purpose be taken to – that is the broad purpose of the Corporations Law – protect shareholders, albeit ensuring to some extent their privacy is not intruded upon unduly, then surely to approach existing shareholders having obtained this information and telling them of the potential that they have as shareholders to sue the company under various provisions – we have actually prepared, your Honours, copies of the various provisions of the Corporations Law under which action might be brought by the shareholders, if I could hand up copies of those. 

They are all statutory provisions which would enable shareholders to bring the kind of action that was contemplated.  It was essentially based upon misrepresentations or failure to observe by the company the obligations of continuous disclosure with the result that many of the shareholders had obtained or purchased shares and became shareholders based on either lack of full information or positive disinformation.  That is the essence of the action sought to be brought.

The second reading speech which is referred to in the judgment at page 38, line 15 of the application book refers to an invasion of privacy as being the object or the mischief which is aimed at by section 177(1) where:

In his second reading speech, the Attorney-General noted:

In response to concerns about the use of information from registers to invade the privacy of securities holders, such as through the compilation of mailing lists to send correspondence to them –

and it is our submission that what was being referred to there was mailing lists so that various organisations might send advertising material, et cetera, to shareholders, but which had no relevance to the fact that they were shareholders or the rights attaching to them, to their interests.  The explanatory memorandum also set out at that page says:

However, the prohibition does not operate if the use or disclosure is relevant to the holding of the securities concerned.  It does not interfere with the use of information for purposes such as contacting shareholders in relation to takeovers or in order to influence company management about the operation of the company.  In addition, the prohibition does not operate if the use or disclosure of the information is approved by the company -

So the privacy on which great emphasis was placed, understandably by the learned trial judge, the principles of privacy are of very limited nature when one looks at what can be done with the use of this information.  The differing approaches of the judges in this case is a matter of concern and the matter needs to be, because of the widespread importance of this particular question ‑ ‑ ‑

GUMMOW J:   What is the error with Justice Emmett’s reasoning at paragraph 64 of page 58 going over to page 59?

MR McCUSKER:   Well, your Honour, what we say is that, if you go over the page there he says at the bottom of the page:

It may be that becoming the holder of the shares in the Company was an essential step in the cause of the action –

it was the parting of the price paid for the acquisition –

It is the acquisition of shares that gave rise to the possible Claims.

Justice Emmett seems to have taken the approach that the holding is an act of holding.  We say that that is too narrow an approach.  The permission that is granted in (1A) is anything which is relevant to the holding of the interest and, looked at broadly, that must apply to not simply the act of acquisition or the act of holding, but the holding itself used as a noun.  I think it was referred to as a present participle, but it is the holding of the interest if it is relevant to that, which we say clearly it is here, the proposal to – or the offer to the shareholders, …..shareholders to join them in an action, then that would be ‑ ‑ ‑

GUMMOW J:   His Honour says these relevant:

Claims exist whether or not shares in the Company are held by a person. 

It is the last sentence of paragraph 64.

MR McCUSKER:   Yes, it is true in a sense that they do still exist even if they have disposed of the shares, although we are not seeking to deal with persons other than existing shareholders, but that really sidesteps the real point.  Is it relevant to the holding?  Is what is proposed relevant to that holding and relevant to the holding is the fact that they became holders of the shares by virtue of misrepresentations or breach of the disclosure rules.  So that is why we say that his Honour there erred in his approach.

Justice North, in our submission, took the correct approach by reference to the whole of the context of the provisions in which this exception appears and at page 48 of the application book he dealt with:

The need for protection of shareholders’ privacy only arises –

this is at line 35 –

because the starting point of the legislation is the requirement that the company keep a register –

So he went through the process which I have taken already, really and pointed out that the privacy is of a very limited nature.  Indeed, the effect of this decision, if it stands, is to create the following anomalies, that it is permissible to use the information for anyone to contact shareholders regarding takeovers, to suggest that they should or should not vote in respect of takeovers or to influence company management.  That appears as an example in the explanatory memorandum itself.  It is open to anyone to solicit votes from the shareholders and to send them proxy forms.  That was held in the O’Brien v Shooters’ Case that is referred to and is in our list of authorities.

Now, a real question arose because the conflict arises in this case because the conflict between the views of Justice French and his narrow view of relevance and the view expressed by Justice North, although not directly on point, it was obiter, as to whether investment advisers or brokers offering competitive rates or offering to buy, for example, can use the information.  Justice French said no, they cannot.  Justice North ‑ ‑ ‑

GUMMOW J:   The trouble is that this is an imperfectly thought out piece of legislation, to be frank. 

MR McCUSKER:   Indeed, it is.

GUMMOW J:   There are going to be anomalies in whatever view one takes of it, I suspect.

MR McCUSKER:   That is certainly so, but the courts will endeavour, with respect, whenever possible ‑ ‑ ‑

GUMMOW J:   Given the intensity of this CLERP legislation.

MR McCUSKER:   Yes, as far as possible to ‑ ‑ ‑

GUMMOW J:   This may be added to their list.

MR McCUSKER:   I accept that is so, your Honour, but advertising the proposal is open.  There is nothing to stop the - as it was put by one of the judges at page 25, advertising the proposal is open, of course.  Even listing the names of the shareholders in a newspaper is open.  There is nothing to stop that being done.  It would appear from the judgments of both Justice French at page 23 and Justice Emmett at page 58 of the application book, that one can use information to approach past and present shareholders to suggest to them that they join an action for relief against oppression or to intervene in a statutory derivative action, as it was put at those pages.

Now, that is very close to what is presently being proposed.  It is just the nature of the action that differs, but apart from that, in principle, why should not an invitation to shareholders who in many cases are unlikely to be aware of their rights or even if they are aware of their rights or possible rights to take action would not have the sufficient finance to bring an action themselves, why in principle should there not be use made of this information in order to apprise them of their rights and offer them the opportunity of joining in the action?  Your Honours have, I think, in the papers before you Mr McLernon’s affidavit.

GUMMOW J:   Yes.

MR McCUSKER:   In that he observes that the applicant did approach – this appears at paragraph 9 – that the applicant was able to make direct contact with the 20 largest shareholders in the company because the identities of the shareholders are published each year in the company’s annual reports and since many of those shareholders, in the nature of things, are holding as trustees for a large number, sometimes superannuation funds and the like, large number of beneficiaries, in turn as a result of being able to obtain through them the details of the shareholders for whom they acted as trustees, the applicant has approached those individual shareholders, the

smaller shareholders, and the result of all that, as he puts it at page 5 of his affidavit:

There has never been, to my knowledge, any instance –

this is at the last sentence:

of a shareholder, to whom IMF has written in these circumstances, objecting to the disclosure of the shareholder’s details, enabling the Applicant to communicate with the shareholder.

So the concern about invasion of privacy in these circumstances is, in our submission, not justified and when one thinks about it, why should a shareholder who is deprived of possible rights of action be concerned about the fact that there has been a so-called invasion of his privacy by reason of the use of those names?

So our submission is that this is an important matter that does need resolution by this Court.  It is a very short point of interpretation.  It would resolve doubts, for example.  As a result of what Justice French said, brokers no doubt will be in doubt as to whether they can approach shareholders by using that information as will investment advisers.  With different approaches of the courts below and there is a very large public interest in the proposal, both on this occasion and no doubt on other occasions, to apprise small shareholders of the rights and the opportunity to join in actions in order to vindicate those rights.  They are our submissions if it please the Court.

GUMMOW J:   Thank you, Mr McCusker.  We do not need to call on you, Mr Mony de Kerloy.

In our opinion the decision as to statutory construction to be found in the judgment of Justice Emmett in the Full Court is correct.  There are therefore insufficient prospects of success of any appeal to warrant a grant of special leave.

Accordingly, special leave is refused with costs.

AT 11.11 AM THE MATTER WAS CONCLUDED