Moran v Atrum Coal Nl [No 4]

[2015] WASC 241

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   MORAN -v- ATRUM COAL NL [No 4] [2015] WASC 241

CORAM:   MITCHELL J

HEARD:   19 JUNE 2015

DELIVERED          :   19 JUNE 2015

PUBLISHED           :  3 JULY 2015

FILE NO/S:   CIV 1866 of 2015

BETWEEN:   RUSSELL MORAN

First Plaintiff

GINO D'ANNA
Second Plaintiff

AND

ATRUM COAL NL
Defendant

Catchwords:

Practice and procedure - Confidential information - Application to extend injunction - Continuous disclosure rules - Whether information concerns an incomplete proposal or negotiation

Legislation:

Corporations Act 2001 (Cth), s 674

Result:

Application to further extend injunction refused

Category:    B

Representation:

Counsel:

First Plaintiff                  :     Mr M L Bennett & Ms C L Donald

Second Plaintiff             :     Mr M L Bennett & Ms C L Donald

Defendant:     Mr J A Thomson SC

Solicitors:

First Plaintiff                  :     Bennett + Co

Second Plaintiff             :     Bennett + Co

Defendant:     Maddocks

Case(s) referred to in judgment(s):

Moran v Atrum Coal NL [2015] WASC 209

Moran v Atrum Coal NL [No 2] [2015] WASC 218

Moran v Atrum Coal NL [No 3] [2015] WASC 219

MITCHELL J: 

Background

1. This is an application for an extension of an injunction which I granted on 12 June 2015, restraining the defendant from disclosing, via an Australian Securities Exchange (ASX) announcement platform or otherwise, certain information concerning loan agreements and securities entered into by the plaintiffs, secured by securities in the defendant.

2. The background to the grant of that injunction is set out in the decisions in Moran v Atrum Coal NL [No 3] [2015] WASC 219 and Moran v Atrum Coal NL [No 2] [2015] WASC 218.

3. In general terms, on 8 June 2015, the plaintiffs were in a situation where the term of the finance agreements which they had with their existing lenders was to expire on 11 June 2015.  They were in the process of negotiating refinancing of the loans provided for by those agreements, and the defendant was about to disclose information to the ASX which would have given rise to an apprehension that the lenders were about to sell the shares pursuant to the securities.  In those circumstances, I granted an injunction until 2.15 pm the following day.  That injunction was extended by consent to 12 June 2015, at which time its continuation was opposed.

4. The situation which confronted me on 12 June 2015 was that refinancing negotiations were still on foot and the plaintiffs had been granted a short extension of their existing loan agreement to enable those negotiations to be completed.  I concluded that there was a serious question to be tried as to whether disclosure of the information would constitute a breach of confidence and concluded that the balance of convenience favoured the extension of the injunction to today, by which time the extended loan agreement would have expired.

5. In the course of those reasons I said:

   The position is that the plaintiffs are in the course of refinancing their loan arrangements, and there is a prospect of securities being sold if those efforts at refinancing are unsuccessful. If the financing efforts are successful, there will be nothing to disclose. That is, the information will be of historical, rather than current, relevance to the price of the defendant's shares. If the refinancing efforts are unsuccessful and one or both of the plaintiffs default on the loans, counsel for the plaintiffs accepts that disclosure will be required [26].

The agreements of 18 June 2015

1. On the evidence before me today, it seems that the efforts to renegotiate finance before the conclusion of the extended term of the loan agreement were not successful.  As a consequence, the plaintiffs have entered into further agreements with their lenders by letters dated 18 June 2015.

2. The agreements contain the following clauses which are relevant for the purposes of this application:

   1.LOAN AGREEMENT

   (a)Under clause 6.1(a) of the Loan Agreement, on the Termination Date (being 11 June 2015), the Borrower is required to pay the Principal Outstanding … and any accrued but unpaid interest under clause 4 of the Loan Agreement (assuming payment on the Termination Date …) (Payment Obligation).

   …

   (d)The Borrower has indicated that it is unable to satisfy the Payment Obligation and accrued interest on 18 June 2015, and has requested further extension to 17 July 2015.

   (e)The Borrower has informed us that:

   (i)The Borrower is proposing to:

   (A)sell sufficient of its Shares to pay all amounts owing under the Transaction Documents on or before the Extended Date (Sell Down); or

   (B)do a partial Sell Down which, in combination with a refinancing of the Loan (Refinancing), will allow the Borrower to pay all amounts owing under the Transaction Documents on or before the Extended Date;

   (ii)at or about the same time as the Sell Down, Company proposes to undertake a capital raising (Capital Raising);

   (iii)the ordinary shares of the Company were placed in a trading halt on 4 June 2015 and were suspended from trading on ASX on 9 June 2015, and it is proposed that they remain suspended while the Capital Raising is proceeding,

   and the Borrower has requested a waiver of the Event of Default that would arise under clause 10.1(h) of the Loan Agreement, in respect of the period until and including the Extended Date.

   2.EXTENSION AND WAIVER

   On behalf of all the Lenders the Facility Agent agrees to extend the date for satisfaction of the Payment Obligation and the accrued interest owing under paragraph 3.2 of the First Extension Letter from 18 June 2015 to 17 July 2016 (Extended Date), subject to and conditional on the other terms of this letter.

   On behalf of the Lenders the Facility Agent agrees to waive the Event of Default that would arise under clause 10.1(h) of the Loan Agreement if the ordinary shares of the Company remain suspended from trading on ASX until and including the Extended Date, subject to and conditional on the other terms of this letter.

   …

   3.1Debt owing and Event of Default

   The Borrower acknowledges and agrees that:

   …

   (f)in addition to the Events of Default set out in clause 10.1 of the Loan Agreement, if any of the following occurs, it will constitute an immediate Event of Default:

   (i)if after the date of this letter and before all amounts owing to the Finance Parties under the Transaction Documents are paid in full, the company's ordinary shares cease to be suspended from trading on ASX and the share price falls below [redacted] per share; or

   (ii)if the Facility Agent considers in its absolute discretion that:

   (A)the Sell Down and (if applicable) Refinancing is not being diligently pursued; or

   (B)the Sell Down and (if applicable) Refinancing is unlikely to raise sufficient funds to allow the Borrower to pay all amounts it owes under the Transaction Documents by the Extended Date;

   …

   3.3Sell Down, Refinancing and Capital Raising

   The Borrower agrees that:

   (a)the Borrower will provide the Finance Parties with regular updates regarding the Sell Down, Refinancing and Capital Raising, and will promptly provide any information requested by any Finance Party in connection with the Sell Down, Refinancing and Capital Raising;

   (b)any Finance Party may discuss the Sell Down, Refinancing Capital Raising or Transaction Documents with the Company and the financier under the Refinancing (and its professional advisers) and may provide information requested by the Company or the financier in connection with the Capital Raising or Refinancing (and clause 16 of the Loan Agreement does not prevent or apply to disclosure of such information); and

   (c)the Borrower's obligations under the Transactions Documents are not dependant [sic] in any way on whether the Sell Down, Refinancing or Capital Raising proceeds or succeeds.

3. In some respects, the form of this extension agreement is similar to that of the first extension agreement.  However, in my view there are some significant differences.  In the first place, the term of the extended loan is significantly greater than the few days contemplated by the first extension agreement.  The term is extended to 17 July 2015.  Secondly, the agreement was entered into on the basis that the plaintiffs were proposing to sell their shares, or do a partial sell down in combination with refinancing, sufficient to pay all amounts owing.

4. There is a capacity for the facility agent to treat a failure to diligently pursue the sell down and, if applicable, refinancing, as an immediate event of default, which will entitle the lenders immediately to exercise their rights to enforce their securities.

Is disclosure required now?

1. The terms of the agreements of 18 June 2015 contemplate the sale of the plaintiffs' shares, in that the loans are provided on the basis of information provided to the lenders by the plaintiffs that they propose to do so.  The agreements of 18 June 2015 provide for the sale of shares by allowing the lenders to do so if the facility agent considers that the sell down is not being diligently pursued.

2. Given the terms of those agreements, the prospect of shares being sold is now more than mere speculation.  The agreement operates to 17 July 2015 and contemplates that shares will be sold either by the plaintiffs, or by the facility agent if it considers that the sale is not being diligently pursued.  It seems to me that the fact that directors of the defendant, who hold a significant proportion of the shares of the defendant, have entered into this agreement is information of significance for the market, given the amounts of the loans.

3. The letter agreements of 18 June 2015 are not in the course of negotiation.  They are completed agreements.  Disclosure of the relevant features of those agreements does not concern an incomplete proposal or negotiation.  Given the manner in which the agreements contemplate sale of shares held by the plaintiffs, in my view it can no longer be said that the possible sale of those shares is a matter of supposition or insufficiently definite to warrant disclosure.  This takes the information, the disclosure of which would be restrained by the injunction, out of the exceptions to ASX Listing Rule 3.1, on which I relied in my previous decisions.

4. In light of the plaintiffs' failure to secure refinancing by 18 June 2015, and their entry into the agreements with the lenders in the terms set out in the letters of 18 June 2015, my provisional view is that the point has now been reached where Listing Rule 3.1, read with Listing Rule 3.1A, requires the defendant to immediately notify the ASX of that information.

5. That is, it seems to me that an obligation to notify the market operator of the information does now arise under s 674 of the Corporations Act 2001 (Cth). Counsel for the plaintiffs accepted that if the plaintiffs told the defendant under its securities trading policy that they intended to sell shares in the defendant, that would be information which the defendant would be required by s 674 to disclose. Given the significant number of shares held by the plaintiffs and the fact that the plaintiffs are directors of the defendant, I agree with that view. However, it also seems to me that information that the plaintiffs have entered into agreements which contemplate and provide for the sale of their shares is to be treated equivalently. It is significant that an agreement has been concluded, operating until 17 July, which contemplates the sale of shares in order to repay debt, either alone or in combination with refinance. The entry into that concluded agreement is itself significant for a potential purchaser of shares in the defendant.

6. It is accepted by all parties that I should not grant an injunction in terms which would require a person to contravene s 674 of the Corporations Act. The injunction I granted on 12 June 2015 restricted the disclosure of the number of shares subject to the securities; the identity of the lenders under the securities; the due date for repayment of the loans pursuant to the securities; that the plaintiffs are presently engaged in refinancing negotiations in respect of those loans; and the existence of the loans or securities. Because that injunction would prevent the defendant from disclosing information it is required by s 674 to give to the ASX, it seems to me to be inappropriate to extend the term of the injunction in the present circumstances.

7. In reaching that conclusion, I have not formed any view about whether the exception in Listing Rule 3.1A relating to information that concerns an incomplete proposal or negotiation is confined to a proposal made by or to, or a negotiation with, the company bound by the disclosure obligation.  Counsel for the defendant contended that it was so confined, while counsel for the plaintiffs advanced a strong argument to the contrary.  I will proceed on the assumption (favourable to the plaintiffs) that the exception is not confined in the manner for which the defendant contends.

Evidence as to the likelihood of a share sale

1. In reaching this conclusion, I have also had regard to the affidavit of Ms Donald, sworn today, par 3 of which relays information provided to her by the first plaintiff, Mr Moran.  At one point in that paragraph, she says that Mr Moran has no current proposal to sell and does not intend to sell any part of his 'stock' (which I understand to mean shares in the defendant).  That statement does not seem to me to be consistent with what is said in cl 1(e) of the letter of 18 June 2015, which Mr Moran signed, and which includes information given by him about what he was then proposing.

2. It is not necessary for me to resolve the reason for the apparent disparity between what is said in the affidavit and the letter of 18 June 2015 recording what was told to the lenders.  Even assuming that Mr Moran's intentions have changed since the letter was signed, the significant fact is the entry into an agreement on the terms set out in the letters of 18 June 2015.  A subsequent change of intention in relation to the sale of shares would not affect the fact that there is an existing finalised agreement which contemplates their sale and provides for the immediate execution of the security in the event that the facility agent considers that sale is not being diligently pursued.

3. Paragraph 3 of Ms Donald's affidavit also indicates that Mr Moran is still attempting to refinance and believes that a mandate will be signed today with a new facility agent.  I have very few details of this refinancing proposal, which will not alter the terms of the agreement which has been entered into with the existing financier. 

4. In my view, the possibility that some further financing arrangements might be made which will avoid the sale of shares currently contemplated by the existing loan agreement does not mean that there is no existing obligation to disclose pursuant to s 674 of the Corporations Act.  A finance agreement can always be varied or superseded by subsequent events, and the market can be informed of those subsequent events if they transpire.  In my view, the 18 June 2015 agreement takes the situation beyond that which existed on 12 June 2015, and itself constitutes a completed agreement which should be disclosed.  It does more than simply provide for a short extension of an existing loan arrangement to allow the completion of refinancing negotiations.  It is itself a completed agreement which contemplates and provides for the sale of shares in the defendant held by the plaintiffs.

Balance of convenience

1. The fact that I am not satisfied that the injunction sought by the plaintiffs would not require the defendant to contravene s 674 of the Corporations Act means that it is inappropriate for me to grant the injunction.  It is not in those circumstances necessary for me to consider the balance of convenience.

2. I note, however, that in relation to balance of convenience, counsel for the defendant raised a number of detrimental effects which the continuation of an injunction would have on persons participating in the market and contended that the difficulties which the continuation of the injunction would create for those participants would create grounds for the refusal of injunctive relief.

3. There was considerable force in that submission.  However, it must also be recognised that refusing to continue the injunction will result in a disclosure which will destroy the confidentiality of the information which these proceedings were commenced in order to protect.

4. The fact that the defendant has previously indicated a willingness to suspend trading in its shares to 30 June 2015, including in consent orders which it had proposed on 9 June 2015, suggests to me that the inconvenience caused, at least to the defendant, is not so great as to justify allowing the release of the information to occur with the consequences that will have for the rights which the plaintiffs seek to assert in this action. I would therefore have been inclined to continue the injunction if I had been satisfied that doing so would not require the defendant to contravene s 674 of the Corporations Act.  However, I am not so satisfied, and in those circumstances will refuse the application to extend the injunction which I granted on 12 June 2015.

5. After I delivered the above reasons, the parties accepted that it was appropriate to revoke suppression orders which had previously been made in the proceedings:  see Moran v Atrum Coal NL [2015] WASC 209.