Kalmet Resources Nl v Australian Stock Exchange Ltd

[1992] FCA 505

Re: KALMET RESOURCES NL
And: AUSTRALIAN STOCK EXCHANGE LTD and AUSTRALIAN STOCK EXCHANGE (PERTH) LTD
No. WA G80 of 1992
FED No. 505
Trade Practices - Corporations

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)

CATCHWORDS

Trade Practices - misleading or deceptive conduct - Stock Exchange - public announcement - exercise price of options in listed company - whether affected by reduction in capital of company - formation of option contracts - implication of terms - announcement found misleading - declaratory relief.

Corporations - options - reduction of capital - formation of option contracts - terms and conditions incorporated - conditions relating to effect of reduction of capital on exercise price - whether exercise price of options reduced - announcement by Stock Exchange - whether misleading - cross-claims - Listing Rules - breaches of Rules alleged - inappropriateness of Court as first resort - on question of domestic rules.

Corporations Law

Trade Practices Act 1974 s.52

Fair Trading Act 1987 (WA) s.10

HEARING

PERTH

#DATE 13:7:1992

Counsel for the Applicant: Mr D. Williams QC and Mr P. Tottle

Solicitors for the Applicant: Clayton Utz

Counsel for the Respondent: Mr C. Pullin QC and Mr R.G.S. Harrison

Solicitors for the Respondent: Sly and Weigall

ORDER

THE COURT ORDERS THAT:

1. It is declared as against the First Respondent that the exercise price of each of 8,985,141 options issued by Kalmet Resources NL and exercisable on 31 January 1994 was, by virtue of the reduction of the capital of the company, effected on 2 April 1992, reduced from $2.50 to 20 cents.

2. The claim is dismissed as against the Second Respondent.

3. The cross-claim is adjourned for mention to 17 August 1992 at 9 am.

4. There be liberty to apply in the meantime for further orders on the cross-claim.

5. The parties have leave to make written submissions on the question of the costs of the proceedings to date within seven (7) days.
Note: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This action is brought as a matter of urgency by Kalmet Resources NL ("Kalmet") (formerly Miralga Mining NL). It arises out of an announcement by Australian Stock Exchange Ltd on 29 June 1992 asserting that the exercise price of share options issued by Kalmet is $2.50, the exercise price at issue, notwithstanding a subsequent reduction of the capital of the company. Kalmet contends that the announcement was incorrect in this respect and that the true exercise price of the options is 20 cents. It claims declaratory and injunctive relief against both Australian Stock Exchange Ltd and Australian Stock Exchange (Perth) Ltd. In fact the latter company seems to have no active role in the conduct of the Exchange. The real issues are joined between Kalmet and the Australian Stock Exchange Ltd. The respondents have also filed a cross-claim alleging various breaches by Kalmet of provisions of its Listing Rules.

Factual Background

1. Kalmet Resources NL is a mining exploration and mining investment company which adopted its present name at an annual general meeting held on 1 October 1991. Prior to the change of name it was known as Miralga Mining NL. The Board of Directors comprises Dimitrios Socratous as Chairman, Reginald John Kalopedis as Managing Director and George Cassim. Mr Kalopedis has been Managing Director of the company since October 1990. On 11 October 1990, as appears from the company's 1991 Annual Report, control of the board had passed to Kalmet Corporation Ltd ("KCL") following its acquisition of 5.8 million Miralga shares. KCL advanced long term secured funds totalling $50,000 in November and December 1990 to assist the company in meeting current and future financial commitments.

2. On 6 February 1991, Miralga advised the Stock Exchange in Perth that it intended to make takeover offers to acquire all the ordinary shares and options in KCL. The takeover proposed involved the issue to KCL shareholders of 15 Miralga shares for every KCL share held. KCL option holders were to be offered 15 options to acquire Miralga shares for every two KCL options. Because the proposal involved the acquisition of KCL shares and options held by directors of Miralga and their associated companies, it was necessary under Listing Rule 3J(3) to obtain shareholder approval for that acquisition. This was given by resolution passed at a general meeting of Miralga held on 13 May 1991.

3. On 16 May 1991 Miralga issued a Part A Statement under the Corporations Law to KCL which was registered by the Australian Securities Commission on 17 May 1991. At the time that the statement issued, Miralga claimed an entitlement to 16.22% of the ordinary issued shares in KCL. The claimed entitlements related to shares held by Kalopedis and his company, Tirala Pty Ltd, Cassim and his wife and a company controlled by Cassim called Hiden Pty Ltd. In addition to these shareholdings, Miralga's directors held or controlled 4,320,000 Kalmet options representing 67.5% of the options issued by that company. Tirala held 3,920,000 and Cassim 400,000 of these.

4. In para.11 of the Part A Statement, Miralga's offer to acquire Kalmet options was set out in the following terms:
   

"KALMET OPTIONS

Miralga is also offering to acquire all of the Kalmet Options that have been allotted and issued as at the date of the Option Offers and which are not already held by Miralga, pursuant to the following terms and conditions:

(a) the consideration offered to holders of Kalmet Options is the allotment and issue of fifteen (15) Miralga Options for every two (2) Kalmet Options;

(b) Option Offers will remain open from the commencement and for the duration of the Offer Period;

(c) the acceptance of each Option Offer in respect of each holder of Kalmet Options shall only be for all and not less than all of that person's holding of Kalmet Options;

(d) all Option Offers are otherwise unconditional. In particular, and without limiting the generality of the foregoing, the Option Offers to each holder of Kalmet Options are not conditional upon that person's acceptance of Offers made to that person or upon the success of the Take- over Scheme;

(e) Within 30 days of receipt of valid acceptances in respect of the Option Offers Miralga will satisfy the consideration in respect of those Option Offers; and

(f) the terms of all the Option Offers are identical.

"Option Offers" means the offers of Miralga to acquire all of the Kalmet Options which offers together with the Acceptance and Transfer Forms, Miralga intends to dispatch to the holders of all the Kalmet Options pursuant to this clause.

11.2 In the event that Miralga's Offer is accepted by all the holders of Kalmet Options a total of 48,000,000 Miralga Options will be issued and allotted to holders of Kalmet Options. A copy of this Statement shall accompany the Option Offers to be despatched to the holders of all the Kalmet Options, pursuant to this clause."

The term "Kalmet Option" was defined in cl.1.1 of the Part A Statement as follows:

""Kalmet Option" means an unlisted renounceable option on issue to subscribe for one (1) fully paid ordinary share of 20 cents in Kalmet for Kalmet Option held, for an exercise price of 25 cents expiring on 1 July 1992;"

The term "Miralga Option" was also defined:

""Miralga Option" means an unlisted renounceable option to subscribe for one (1) fully paid ordinary share of 20 cents in Miralga for each Miralga Option held, for an exercise price of 20 cents expiring on 31 January 1994;"

The term "Miralga Share" was defined as follows:

""Miralga Share" means a fully paid ordinary share of 20 cents par value in the capital of Miralga;"

The directors of Miralga also comprised the Board of KCL and on 20 May 1991 a Part B Statement recommending acceptance of the Miralga offer was issued by the directors to KCL shareholders.

1. On 6 June 1991, Miralga sent offers to the holders of the shares and options to acquire shares in KCL. The offer to KCL option holders was in the following terms:
   

"MIRALGA MINING NL A.C.N. 009 140 550 OPTION OFFER To the holders of all 1.7.1992 Options issued by KALMET CORPORATION LIMITED A.C.N. 003 236 146

1. THE OPTION OFFER

1.1 Pursuant to clause 11 of the Part A Statement by Miralga Mining NL to Kalmet Corporation Limited, registered on 17 May 1991, and enclosed with this Option Offer ("the Statement"), Miralga Mining NL hereby offers to acquire from you the Kalmet Options in respect of which you were registered and entitled to be registered in the register of option holders of Kalmet on the date of this Option Offer ("Your Options"). 1.2 The consideration offered by Miralga for the acquisition of Your Options is the allotment and issue of fifteen

(15) Miralga Options for every two (2) of Your Options. 1.3 You may accept Miralga's Option Offer for all and not less than all of Your Options.

2. INTERPRETATION

2.1 "Option Offers" has the same meaning as ascribed to it in clause 11 of the Statement, whilst all other words and phrases used in this Option Offer which are defined in the Statement shall have the same meaning as that ascribed to them in the Statement. 2.2 Singular includes plural and vice versa and words importing any gender shall include all other genders and a reference to persons includes corporations.

3. HOW TO ACCEPT THIS OPTION OFFER 3.1 To validly accept this Option offer you should

(a) complete and sign the accompanying Acceptance and Transfer Form (which forms an integral part of, and is incorporated into this Option Offer); and

(b) forward the completed Acceptance and Transfer Form together with the certificate(s) issued to you by Kalmet , in respect of Your Options, so that they are received by Miralga no later than before the end of the Offer Period on 8 July 1991, to: Registry Managers or Registry Managers

(Aust) Pty Ltd (Aust) Pty Ltd 8th Floor GPO Box D182 111 St. George's Terrace PERTH WA 6001 PERTH WA 6000 3.2 If the holder of Your Options is a corporation, its common seal should be affixed to the Acceptance and Transfer Form in accordance with its memorandum and articles of association.

4. AUTHORISATION TO SIGN THIS OPTION OFFER The board of directors of Miralga has, pursuant to a resolution passed at a meeting of the directors, authorised Messrs. D. Socratous and R J Kalopedis to sign this Option Offer.

This Option Offer is dated the 6th day of June 1991. D Socratous - Director R J Kalopedis - Director"

Although the offer did not specify the exercise price of the Miralga options, this was incorporated by reference to the Part A Statement which indicated an exercise price of 20 cents for each of the fully paid 20 cent shares.

1. The form of acceptance and transfer attached to the offer was as follows:
   

"ACCEPTANCE AND TRANSFER FORM Option Offer by MIRALGA MINING NL A.C.N. 009 140 550 to acquire all of your 1.7.1992 Options in KALMET CORPORATION LIMITED A.C.N. 003 236 146 Name and Address Number of Entitlement Kalmet Options Miralga Options upon Acceptance If your name, address or option holding is incorrect, please amend and initial the alteration. I/We the person/s named above accept Miralga's Option Offer in respect of all my/our Kalmet Options and transfer all of my/our Kalmet Options to Miralga.

Where this form is signed under a Power of Attorney, the Attorney declares that he has received no notice of revocation of the power.

Expressions used in this Acceptance and Transfer Form shall bear the same meaning as in the Option Offer document despatched with this Acceptance and Transfer Form. Dated this day of 1991. Sign or Seal here

To accept the Option Offer, send this Form and all of your Kalmet Option certificates in the enclosed reply-paid envelope to:

Miralga Mining NL or Miralga Mining NL C/- Registry Managers (Aust) C/- Registry Managers (Aust) Pty Ltd Pty Ltd 8th Floor, 111 St. George's Terrace GPO Box D182 PERTH WA 6000 PERTH WA 6001 so that they reach Miralga by end of the Offer Period, on 8 July 1991."

Miralga received signed acceptance from various option holders between 6 June and 8 July 1991. On 20 July 1991 it issued 48 million Miralga options pursuant to these acceptances at an exercise price of 20 cents, exercisable up until 31 January 1994. The breakdown of the issue was as follows:

29,400,000 Tirala Pty Ltd 7,200,000 Advance Investments Securities Pty Ltd 3,000,000 George Cassim 1,800,000 Arsos Holdings Pty Ltd 1,800,000 Bresowl Pty Ltd 1,650,000 B. Raffles 1,650,000 N. Cairns 1,500,000 Auslink Pty Ltd

1. The form of certificate issued to each of the option holders set out the holder's name and address, the number of options registered, the certificate number and the date of the certificate. The document went on to certify that the person named was the registered holder of the specified number of options:
   

"... to subscribe for ordinary shares of 20 cents each in Miralga Mining NL on the terms and conditions set out below in the certificate and subject to the Memorandum and Articles of Association of the Company."

The option conditions set out were, in the parts relevant for present purposes expressed as follows:

"OPTION CONDITIONS

Each option entitles the holder to subscribe for one ordinary share in Miralga Mining NL on payment of twenty cents per share on the following terms and conditions.

1. The options shall be exercisable on or before 31 January 1994. .

.

.

5. It is a condition of the option that in the event of any reduction of the issued capital of the company the number or nominal value of options to which each holder is entitled shall be reduced in the same proportion as the issued capital of the company is reduced (subject to rounding as sanctioned by the meeting of shareholders approving the reduction of capital) but in all other respects the term of the exercise of options shall remain unchanged."

The certificate bore an endorsement at the end noting that application had not been sought by the company for official quotation of the options by the Australian Stock Exchange Limited. At that stage official quotation would not have been possible as Rule 2A(5)(a) of the Main Board Official Listing Rules of the Exchange imposed a pre-requisite to the quotation of new classes of equity security or security with rights of conversion to equity that there be "at least 100,000 security units held by at least 50 holders holding marketable parcels".

1. The option holders as at 20 July 1991 were companies or persons associated with the directors of Miralga. Tirala Pty Ltd as already pointed out, is controlled by Mr Kalopedis. Advance Investment Securities Pty Ltd was controlled by Mr Socratous. Mr Cassim is a director of Miralga. Arsos Holdings Pty Ltd is a company connected with Athan Pangas, a friend of Mr Kalopedis. Bresowl Pty Ltd is a company of which Mr Bernard Raffles is a director. Auslink Pty Ltd is a company which Mr Brian Riegl is a director. Messrs. Pangas, Raffles, Cairns and Riegl are business acquaintances of Kalopedis. According to Mr Kalopedis those acquaintances were people to whom he spoke regularly about the affairs of Miralga.

2. Affidavits sworn by Messrs. Socratous, Cassim, Pangas, Raffles, Cairns and Riegl were read in evidence. Each of them said he had read the terms and conditions endorsed on the Option Certificate issued to him or his company and had in particular noted condition 5 relating to capital reductions. Each said that all the conditions were acceptable.

3. In the 1991 Annual Report of the company which was lodged with the Australian Securities Commission on 9 September 1991, a proposed restructuring of its capital and change of name to Kalmet Resources NL were foreshadowed. The elements of the restructuring were set out in the Report as follows:
   

"1. An increase in the Company's authorised capital to $200,000,000 to facilitate future equity raisings;

2. A consolidation of the Company's share capital on a two for twenty five basis to provide greater flexibility for future capital raising. The effect on shareholders of the proposed consolidation is that two new Miralga shares of $2.50 each par value will be substituted for every twenty five Miralga shares of 20 cents each par value. Similarly the effect on Option Holders is that two new Miralga 31/1/94 options exercisable at 20 cents each. In either case fractions will be disregarded.

3. A change of the Company's name to Kalmet Resources NL to reflect the recent merger; and

4. A reduction of the Company's capital to recognise an estimated permanent loss of capital and to minimise Stock Exchange listing fees."

1. According to Mr Kalopedis, he discussed the proposed restructuring at length on at least two occasions over the telephone with Susan Clarkson, the Assistant Manager, Companies (Perth) of Australian Stock Exchange Ltd. He said that she assured him that the Exchange had no difficulty with the proposed restructuring and specifically did not have any difficulty with the way in which the options were to be dealt with. In her reply affidavit, which referred to Mr Kalopedis' affidavit, Ms. Clarkson did not dispute this evidence and subject to the question of its significance in these proceedings, I accept it as correct. Kalopedis also discussed the proposed restructuring with Pangas, Raffles, Cairns and Riegl in September and explained its essential elements to them including the prospective reduction of capital. They accepted the restructuring and the variation to the options held by them. He also discussed the proposal with his co-directors, Socratous and Cassim, and its effect upon the options.

1. On 20 September 1991, the company lodged a prospectus with the Stock Exchange and sent copies to shareholders. The document was described on its cover as:
   

PROSPECTUS for a non-renounceable offer to shareholders to subscribe for one fully paid ordinary $2.50 share with a free attaching 31 January 1994 option exercisable at $2.50 for every two fully paid ordinary $2.50 shares held, and the placement by the Directors of any shortfall within a period of 3 months of the closing date of acceptances

and for the Secondary Trading of 48,000,000 31 January 1994 Options exercisable at 20 cents,..."

1. The terms and conditions of the offer set out in the prospectus specified the terms of the proposed free attached options and included condition (vi) in the following terms:
   

"(vi) In the event of any reconstruction of the share capital of the Company the number and exercise price of options will be reconstructed in the same proportion as the share capital of the Company is reconstructed (subject to the same provisions with respect to rounding of entitlements as are sanctioned by the meeting of shareholders at which the reconstruction of capital is approved), but in all other respects the terms of exercise will remain unchanged."

Condition (vii) read:

"(vii) The options to be issued under this Prospectus will be identical in all respects to the options issued by the Company on 20 July 1992, and referred to on page 6."

1. Application for official quotation of the new shares and attaching options and options issued by the company on 20 July 1991 was also foreshadowed under the heading "Terms and Conditions of the Offer".

2. In a section of the Prospectus entitled "CAPITAL STRUCTURE" the following summary of issued options appears:
   

"ISSUED OPTIONS

3,840,000 Options over unissued fully paid shares of $2.50 in the Company, exercisable at $2.50 each on or before 31 January 1994 5,145,141 Options attaching to shares now offered for subscription, bearing identical terms and conditions to the options already on issue. 8,985,141 Issued Options after Completion of Issue "

On the following page of the Prospectus under the heading "OTHER MATERIAL INFORMATION" and the sub-heading "SECONDARY TRADING OF UNLISTED OPTIONS" it was said:

"Miralga Mining N.L. issued a total of 48,000,000 options over unissued fully paid 20 cent shares in the Company on 20 July 1991, as consideration for the acceptances received in respect of an offer made under a Takeover Scheme for all of the issued options of Kalmet Corporation Limited. For more details on the Takeover Scheme see page 15. The options currently on issue by Miralga Mining N.L. are exercisable at 20 cents each on or before 31 January 1994. Details of these options on a post-reconstruction basis are provided on page 5. An application will be made to Australian Stock Exchange Ltd within 3 days after the issue of this Prospectus for the listing of these options."

1. At p 15 of the Prospectus, the issue of 15 Miralga options for every 2 KCL options pursuant to the takeover offer of 6 June 1991 was recited. Supplementary prospectuses issued on 14 October 1991 and 6 November 1991, but they are not material for present purposes.

2. An application dated 20 September 1991 seeking Official Quotation of Additional Securities was lodged by Miralga with the Stock Exchange on or about that date. It applied for quotation of:
   

(a) Maximum of 5,145,141 fully paid $2.50 shares;

(b) Maximum of 5,145,141 options over fully paid $2.50 shares exercisable at $2.50 prior to 31 January 1994;

(c) 48,000,000 options over fully paid $0.20 shares exercisable at $0.20 prior to 30 January 1994."

The application in respect of the securities mentioned in paras. (a) and (b) was said at the foot of the first page of the form to be subject to shareholder approval of the consolidation and increase in authorised capital to be put to the annual general meeting on 1 October 1991. It was also subject to minimum spread requirements being obtained. All the securities were said to be:

"... the subject of a Prospectus dated 20 September 1991."

The application indicated that the options referred to in para.(c) were then currently held by eight persons. The application did not however proceed in respect of those options as it was overtaken by events.

1. The company held its Annual General meeting on 1 October 1991. Mr Kalopedis explained the detail of the capital restructuring and, he said, the effect it would have on the options. The company then passed the resolutions of which notice had been given and which had been foreshadowed in the Annual Report for 1991:
   

"1. To approve an increase in the share capital of the Company to $200,000,000 and, forthwith upon such increase a consolidation and division of the capital into 80,000,000 shares of $2.50 each.

2. That the name of the Company be changed to Kalmet Resources NL and that paragraph 1 of the Memorandum of Association of the Company be deleted, and in lieu thereof, a new paragraph be inserted, number 1, namely:

1. The name of the company is Kalmet Resources N.L."

Immediately following the meeting Mr Kalopedis spoke to Messrs. Socratous, Cassim, Pangas, Raffles, Cairns and Riegl and asked them to send to him their share and option certificates so that new certificates could be issued. All persons who had been issued with options on 20 July continued to hold them until a day or so following the annual general meeting. Mr Kalopedis then arranged for new certificates to be issued to them. At the same time he transferred about a million of the options held by his company, Tirala, to other persons known to him in order to meet the minimum of fifty holders required before the options could be listed on the Exchange. Although it was not explicitly stated, I infer that the new option holders were issued with certificates in the same form as those issued to existing option holders pursuant to the restructuring. The new option certificates bore the expiry date, 31 January 1994 and the heading "Kalmet Resources N.L.". They stated:

"THIS IS TO CERTIFY that the person named herein is the registered holder of the number of options specified hereunder to subscribe for $2.50 Fully Paid Shares on the terms and conditions set out overleaf on the Certificate, and subject to the Memorandum and Articles of Association of the Company."

The terms and conditions printed on the reverse side of the certificate in each case included the following:

"Each option entitles the holder to subscribe for one ordinary share in Kalmet Resources N.L. on payment of $2.50 per share on the following terms and conditions:

1. The options shall be exercisable on or before 31 January 1994. .

.

.

5. It is a condition of the option that in the event of any reduction of the issued capital of the Company, the number or nominal value of options to which each holder is entitled shall be reduced in the same proportion as the issued capital of the Company is reduced (subject to rounding as sanctioned by the meeting of shareholders approving the reduction of capital) but in all other respects the terms for the exercise of options shall remain unchanged."

On 3 October the company (now Kalmet Corporation NL) applied for quotation of 3,840,000 of these options expiring 31 January 1994 and exercisable at $2.50. These were the replacement takeover options which replaced those originally issued on 20 July 1991 as consideration on the takeover of KCL. The number of holders was said to be 51.

1. On 10 October, the Australian Stock Exchange Ltd granted Official Quotation to the 3,840,000 options the subject of the application of 3 October. The quoted securities of Kalmet as at that date were summarised in the Exchange's letter of that date to Kalmet as follows:
   

"ordinary shares of $2.50 each fully paid 10,290,282 new ordinary shares of $2.50 each fully paid 5,145,141 new options expiring 31 January 1994 exercisable at $2.50 5,145,141 options expiring 31 January 1994 exercisable at $2.50 3,840,000"

1. On or about 11 October 1991 and pursuant to the Prospectus, Entitlement and Acceptance Forms were despatched to the company's shareholders albeit under the name Miralga Mining NL. The relevant parts of that document were as follows:
   

"NON-RENOUNCEABLE ISSUE OF 5,145,141 ORDINARY FULLY PAID $2.50 SHARES, ISSUED AT 18 PER SHARE (DISCOUNT OF $2.32 PER SHARE) AND 5,145,141 ATTACHING FREE OPTIONS EXERCISABLE AT $2.50 EACH ON OR BEFORE 31st JANUARY 1994 PAYABLE IN FULL ON APPLICATION. To the Directors,

MIRALGA MINING M.L.

(1) I/We the abovenamed being registered on the 11th October 1991 as the holder(s) of $2.50 Fully Paid Ordinary Shares in your Company hereby accept: of my/our entitlement to the above mentioned shares and attaching free options issued in accordance with the enclosed Prospectus.

(2) I/We enclose my/our cheque for the amount shown being payment at the rate of $0.18 cents per share.

(3) I/We hereby authorise you to place my/our name(s) on the registers of members and option holders in respect of the number of shares and options allotted to me/us and

(4) I/We agree to be bound by the Memorandum and Articles of Association of the Company."

Towards the end of the document on the first page the following appeared:

"NOTE: RETURN OF THIS DOCUMENT WITH THE REQUIRED REMITTANCE WILL CONSTITUTE YOUR ACCEPTANCE OF THE SECURITIES BEING OFFERED."

1. On the reverse side of the form appeared the printed heading "INSTRUCTIONS FOR HANDLING ENTITLEMENT AND ACCEPTANCE FORM". The instructions that followed related to procedures for completion of the form, payment and ancillary matters. There was no reference to the conditions upon which the options would issue.

2. Option certificates initially issued pursuant to the acceptance in respect of 1,725,227 Prospectus options. Each certified that the person named therein was the registered holder of the number of options specified to subscribe for $2.50 fully paid shares "on the terms and conditions set out overleaf on the Certificate and subject to the Memorandum and Articles of Association of the Company". The "Option Conditions" overleaf specified an exercise price of $2.50 per share and included Condition 5 which read:
   

"5. It is a condition of the option that in the event of any reduction in the issued capital of the Company, the number or nominal value of options to which each holder is entitled shall be reduced in the same proportion as the issued capital of the company is reduced (subject to rounding as sanctioned by the meeting of shareholders approving the reduction of capital) but in all other respects the terms of the exercise of options shall remain unchanged."

1. On 9 January 1992 (by a letter dated 9 January 1991) the Australian Stock Exchange Limited wrote to Kalmet confirming that as from commencement of trading on that day deliveries were enforced on 1,725,227 ordinary shares of $2.50 each fully issued at 18 cents per share pursuant to the company's non-renounceable issue and 1,725,227 options expiring 31 January 1994 exercisable at $2.50 issued free of charge pursuant to the same issue. The quoted securities of the company were then set out:
   

"ordinary shares of $2.50 each fully paid 1,725,227 ordinary shares of $2.50 each fully paid 10,290,282 options expiring 31/1/94

exercisable at $2.50 5,565,227"

1. On 11 February 1992 a third Supplementary Prospectus was issued by Kalmet and sent to its shareholders. It referred to a shortfall on the non-renounceable entitlement issue of 3,419,914 shares and an equal number of free attaching 31 January 1994 options. The shares and options were offered under the Supplementary Prospectus. A 10% commission would be paid on the placement of any of the shortfall through a member of the Australian Stock Exchange Limited. Kalmet received offers to acquire the shortfall shares and options. It issued 3,419,914 options for fully paid $2.50 shares exercisable upon payment of $2.50 per option before 31 January 1994. Option certificates in the same terms as those issued pursuant to the original Prospectus were issued to the shortfall option holders. On 26 March 1992 the Australian Stock Exchange Limited granted official quotation to these options which had issued on 20 February 1992.

2. In the meantime, on 6 March 1992, a draft notice of a proposed extraordinary general meeting, draft information memorandum and draft specimen proxy form were lodged with the Australian Stock Exchange Limited. The draft notice was of a meeting to be held on 2 April 1992 to approve a special resolution reducing the issued capital of Kalmet from $38,588,557 divided into 15,435,423 ordinary shares of $2.50 each fully paid to $3,087,084.60 divided into 15,435,423 ordinary shares of 20 cents each. The reduction was to be effected "by cancelling the paid up capital to the extent of $2.30 per share upon each of the 15,435,423 fully paid $2.50 shares on issue". A like reduction of the authorised capital to $50,000,000 was sought by cancellation of 60,000,000 unauthorised shares of $2.50 each and division of the remaining $50,000,000 into 250,000,000 shares of 20 cents each. Consequential amendments to the Memorandum of Association were also sought. The draft information memorandum made no reference to the position of option holders. Nor did a draft letter to shareholders which accompanied those documents.

3. The letter actually sent to shareholders on 10 March 1992, however, contained the statement (which had not appeared on the draft lodged with the Exchange) that:
   

"...the number of shares and options you may hold will not change."

In the Information Memorandum sent to shareholders the following statement appeared:

"With regard to options the number held will not change, however the exercise price of such options will reduce to 20 cents."

That statement had not appeared in the draft. Kalmet alleges in its defence to cross-claim that it supplied 15 copies of the final version of the Letter and Information Memorandum to the Exchange. There was no direct evidence of this, but it was not disputed. The point of significance is that it was the drafts that were lodged for examination, not the final version. There is no suggestion that the Exchange had any part in directing the insertion of statements relating to the options.

1. On 2 April 1992, the extraordinary general meeting passed the proposed resolutions relating to the reduction of the company's capital. On 17 June 1992 the Supreme Court of Western Australia approved the reduction. On 26 June 1992, a number of telephone conversations took place between representatives of Kalmet and Miss Clarkson of the Exchange concerning the proper exercise price for the Kalmet Options. Miss Clarkson contended that the exercise price remained unchanged at $2.50 notwithstanding the capital reduction. Kalmet maintained that it had been reduced to 20 cents in accordance with the reduction in the fully paid value of the shares. On 29 June 1992, Australian Stock Exchange Ltd published a notice in the following terms:
   

"RECONSTRUCTION As from the commencement of trading on Tuesday 30 June 1992, the securities of Kalmet Resources NL will be quoted on a deferred delivery basis, following receipt of confirmation of the company's reconstruction from the Supreme Court of Western Australia. The reconstruction of capital is by way of cancelling $2.30 capital on each $2.50 fully paid share, making such shares 20 cents each fully paid. As from the commencement of trading the company will have on issue:

15,435,423 ordinary 20 cents each fully paid shares 8,985,141 options expiring 31 January 1994 exercisable at $2.50 The effect of the reconstruction will mean that shareholders who held 10,000 ordinary $2.50 each fully paid shares prior to the reconstruction will now hold 10,000 ordinary 20 cents each fully paid shares. ASX CODE: KMTDB - ordinary 20 cents each fully paid shares KMTDC - options expiring 31 January 1994 exercisable at $2.50"

By letter dated 30 June 1992, Kalmet requested that the Australian Stock Exchange Ltd immediately suspend trading in the company's shares and options. It referred to legal advice that the new exercise price for the options was 20 cents not $2.50 as alleged by the Exchange.

1. The company's directors say that they fear the current suspension of trading in its securities and the dispute over the exercise price of the options will make it impossible for them to raise funds for the company. In particular they are concerned that the public announcement by the Exchange of a $2.50 exercise price contradicting the company's own documents will erode investor confidence. The longer the suspension and the duration of the dispute, the greater the risk will be.

2. On 30 June 1992, the company instituted the present proceedings against Australian Stock Exchange Ltd and Australian Stock Exchange (Perth) Ltd seeking declaratory and injunctive relief on the basis that the announcement by the Exchange was misleading or deceptive conduct in contravention of s.52 of the Trade Practices Act 1974 and s.10 of the Fair Trading Act 1987 (WA). The trial of the action proceeded on an expedited basis on affidavit evidence on 9 July 1992 and judgment was reserved until today. A defence and cross-claim was filed by the respondents on 8 July and a defence to cross-claim on 9 July at the commencement of the hearing. By the cross-claim declarations are sought that Kalmet had breached various provisions of the Listing Rules in its takeover, consolidation and capital reduction processes. It appears from the evidence that the proper respondent in the case is Australian Stock Exchange Ltd. The second respondent has played no part in the dispute.
   The Exercise Price of the Kalmet Options

3. The exercise price of the various Kalmet Options is a matter of contract between the company and its option holders. The first question to be asked is where the terms of the contracts are to be found. As a general proposition, the suggestion that officially quoted share options may be subject to terms and conditions arising from conversations between directors of the issuing company and the original acquirers of the options, has little to recommend it. The sale and purchase of options on the stock market would become unworkable if the full range of conditions attaching to them could not be known except by reference to discussions that may have taken place previously between representatives of the company and those to whom the options were first issued. That is not to say that oral components of agreements relating to share options are not possible. But the requisite contractual intent will not readily be attached to such discussions against the commercial and marketplace context in which they necessarily take place.

1. In the present case, Kalmet contends that the 48 million takeover options issued on 20 July 1991 were issued pursuant to agreements between it and each of the eight takeover option holders. The agreements are said to have been partly in writing or evidenced by writing, and partly to be inferred from the conduct of the parties. The documents relied upon are:
   

1. The offer documents of 6 June 1991

2. Acceptance documents executed by the option holders

3. The option certificates.

The conduct of the parties relied upon was the issue of the takeover option certificates by the company and the acceptance and retention of each of them by the holders. It is sought by reference to the terms of the certificates and the conduct of the option holders to incorporate into the options the conditions appearing on the back of the certificates. These included, in particular, condition 5 relating to the effect of a capital reduction upon the "nominal value" of the options.

1. These "takeover option agreements" as pleaded were said to have been varied by agreements made on or about 1 October 1991 to reflect the change in the capital structure of Kalmet. The variation agreements were said to have been constituted by the content of the annual report for 1991, the option certificates issued on 14 October 1991 and conversations between Mr Kalopedis and representatives of the option holders. The conduct of the option holders in surrendering their certificates to the company and the company in issuing replacement option certificates and their acceptance and retention by each of the option holders is also invoked. The takeover option variation agreements were said to result in the previous options being replaced on a 2 for 25 basis with the new options having an exercise price of $2.50 and otherwise subject to the terms and conditions set out in the certificates. As pleaded, this seems to be a reference to the takeover option certificates originally issued on 20 July 1991. The options said to have been the subject of the takeover option variation agreement were the 3,840,000 replacement takeover options issued shortly after 1 October 1991 as replacement for the 48,000,000 options issued on 20 July 1991.

2. The contractual consequences of the capital reduction of June 1992 on the exercise price of the replacement takeover options is to be judged by reference to their terms and conditions as they stood at the time of the reduction and by whether those terms and conditions provided for a change in exercise price reflecting the change in the fully paid price of the underlying securities effected by the capital reduction. In my opinion, the terms and conditions of the 3,840,000 replacement takeover options are to be defined upon the basis that the contracts constituting them came into existence at or about the time of their issue. They are not realistically to be regarded as variations of pre-existing contracts. What the takeover option holders did, in effect, was to trade in their existing options on the basis of 25 of the old for 2 of the new. The new options related to new underlying securities, being shares which would be fully paid at $2.50 each. They accepted the new option arrangements against a background of knowledge that the pre-existing certificates were expressed to be issued subject to conditions regulating their exercise price in the event of a capital reduction. Given the context in which the replacement takeover options were issued to these persons and the foreshadowed capital reduction, I am satisfied that the conditions appearing on the certificates relating to exercise price in the event of a capital reduction formed and were expected to form part of the contract. The transferees of replacement takeover options from Tirala Pty Ltd who made up the bulk of the 51 holders appear to have taken without any formal offer and acceptance being executed. The formation of the contract constituted by their options must be seen in the light of the commercial practicalities of security transfers. In my opinion, the possibilities are that the transferees took without inquiry as to the terms and conditions of the options and therefore subject to what appeared on the option certificates and alternatively, took after inquiry and therefore subject to those terms and conditions. The probability is that all the replacement takeover option holders hold those options subject to the conditions appearing on the relevant certificates including condition 5 and on the balance of probability I so find.

3. Condition 5 operated upon a reduction of the company's capital to vary the "nominal value" of the options in the same proportion as the company's capital was reduced. I accept that the term "nominal value" as used in condition 5 is in fact a reference to the exercise value of the options. And on that basis I am satisfied that as a matter of contract between the company and the holders of the 3,840,000 replacement takeover options, the exercise value of those options was reduced to 20 cents upon the reduction of the company's capital. This conclusion does not involve any finding of compliance or otherwise with the Listing Rules of the Exchange in the various processes followed by the company. That is a question raised in the cross-claim which if resolved adversely to the company may or may not affect the official quotation presently enjoyed by its securities.

4. The other group of option holders to be considered comprises those who took up what are referred to in Kalmet's pleading as the "rights issue options". These are the free attaching $2.50 options issued on 12 December 1991 pursuant to the Prospectus and the further issue on 20 February 1992 of "shortfall" options under the Third Supplementary Prospectus of 11 February 1992. It was not disputed by senior counsel for the respondents that the exercise price of these Prospectus options after the reduction of capital was 20 cents each. Indeed he conceded that the statement published by the Exchange was not correct so far as it suggested that these options would be subject to the higher exercise price of $2.50. Having regard to the terms and conditions of those options as set out in the Prospectus and the option certificates, I have no doubt that this view is correct.

5. It follows from the preceding findings that the true exercise price of all options issued by Kalmet after the reduction of capital is 20 cents. It is a consequence of that finding that the announcement made by the Australian Stock Exchange Ltd on 29 June 1992 mis-stated the rights of holders of options over Kalmet shares by mis-stating the exercise price to be attributed to them. To that extent it constituted misleading conduct within the meaning of s.52 of the Trade Practices Act 1974. Further, it was conduct in trade or commerce by a corporation which, as is admitted on the pleadings, is a trading or financial corporation within the meaning of the Act. In so finding, I should say that I have no reason to believe other than that the announcement was made in good faith and in the belief on the part of those responsible that it correctly stated the position of the option holders and was necessary in the interests of a properly informed market. Nevertheless, having regard to the impact of the announcement on Kalmet securities it is appropriate that I make the declaration as to the correct option price which is sought by the applicant. I see no necessity for injunctive relief.
   The Cross-claim

6. The resolution of the "exercise price" issue is not the end of the matter. The respondents by cross-claim seek declarations that in the course of the various processes of takeover, consolidation and reduction of capital described earlier, Kalmet has contravened a number of the Listing Rules. It is not suggested that these contraventions would have affected the rights of the company and the option holders inter se. If they were seen as affecting the validity of the options for example, then there could well be a need to give notice of these proceedings to option holders so that their interests might be represented. The position appears to be that if any of the contraventions alleged are made out a question would arise for determination within the Exchange of whether the suspension of trading in the company's shares and options originally requested by the company, should be continued or whether some other remedial action should be taken.

7. The various contraventions alleged appeared on the Court record for the first time on 8 July when the cross-claim was filed. A series of declarations is sought that breaches of the Rules have occurred in various ways. Kalmet denies the alleged breaches and says that the respondents are estopped from asserting those breaches. It relies upon various events including the respective grants of official quotation to its securities by the Exchange, the payment of listing fees and subsequent trading in the securities. Kalmet says that it was in reliance upon the conduct of the Exchange in granting official quotation to the takeover options and the prospectus options and allowing them to be traded that it was induced to assume that the respondents which I take, in context, to be a reference to Australian Stock Exchange Ltd, were satisfied that the Listing Rules had been complied with. In further reliance upon that assumption Kalmet said it had paid the listing fees and acquiesced in the trading of the options. Although there was affidavit evidence on the issue of reliance by Mr Swaby, I am not satisfied that the principals of Kalmet can be said to have been induced to form the requisite belief by the conduct of the Exchange. And if they did, they were not, in my opinion, entitled to. The fact that the Exchange took certain steps or failed to take other steps without knowledge that there may have been contraventions of the Listing Rules does not give rise to an estoppel. Kalmet was not entitled to assume that the Exchange had considered the detail of all of its actions and made a determination that the Listing Rules had been complied with or that non-compliance would not be the subject of any action.

8. Neither that plea nor the plea of estoppel based upon lodgment with the Exchange of documents relating to the capital reduction could stand against a finding of contravention of the Rules. The second estoppel plea was not supported by the facts in any event as the drafts submitted for examination contain no reference to the effect of the capital reduction upon the option holders.

9. The question remains whether there have in fact been any contraventions of the Listing Rules. In my opinion, that is a question which, for the time being, ought to be resolved and its practical implications, if any, dealt with by Australian Stock Exchange Ltd. The present application was brought in relation to the public announcement on Kalmet's capital reconstruction. That announcement did not in terms reflect any finding of a contravention of the Listing Rules. In a system of self regulation governed by domestic rules (albeit supported by statute) the Court should not be the first resort to determine whether there has been a contravention. Some of the contraventions alleged may take on a different practical significance in light of the findings I have made.

10. In my opinion, and as a matter of discretion, I should not proceed now to findings on the alleged breaches of the Rules. I think the best course is to adjourn the cross-claim to a date to be fixed a month from now with liberty to apply to relist in the meantime in the event that any of the contraventions are not able to be resolved between the parties.