Premier Pacific Pharmaceutical Industries Ltd v Australian Stock Exchange Ltd

[1995] FCA 389

IN THE FEDERAL COURT OF AUSTRALIA )
  )
NEW SOUTH WALES DISTRICT REGISTRY )    No.  NG 3175  of  1995
  )
GENERAL DIVISION                 )

BETWEEN:PREMIER PACIFIC PHARMACEUTICAL INDUSTRIES LIMITED

Applicant

AND:AUSTRALIAN STOCK EXCHANGE LIMITED & ANOR

Respondent

27 APRIL 1995

REASONS FOR JUDGMENT
LOCKHART J.
This is a motion by Premier Pacific Pharmaceutical Industries Limited, the applicant, to whom I shall refer as Premier Pacific. It seeks an order pursuant to s 1322(4)(d) of the Corporations Law extending an order made by Gummow J. when a judge of this Court on 19 April 1995.  It wishes that order to be extended until three business days after the determination of an appeal which Premier Pacific instituted yesterday against his Honour's order.  His Honour's judgment was given on 19 April 1995 and it is necessary to refer to certain of the facts as found by his Honour and his Honour's process of reasoning which led him to make the orders to which I shall refer in a moment.

Premier Pacific is a Bermuda company which has an 80 per cent interest in certain joint ventures established in the People's Republic of China.  On 30 November 1994 the directors of Premier Pacific signed a prospectus in relation to an offer of 40 million ordinary shares of 20 cents each to be issued in the authorised but unissued share capital of Premier Pacific at an issue price of $1 each.  (References to currency unless otherwise stated by me shall be to Australian currency.) 

On 1 December 1994 a copy of the prospectus was lodged with and registered by the Australian Securities Commission, the ASC.  Supplementary prospectuses were lodged by Premier Pacific, so my reference to the prospectus will be to include the original prospectus as supplemented.

The prospectus states in paragraph 1.3 that the directors have agreed that the funds raised by the issue will be used for certain purposes variously described as expansion of distribution networks, building and office renovations, working capital and float expenses.  The prospectus also states that no significant contractual commitments have been made for any of those capital expenditure projects and that pending board approval and expenditure thereon, the funds raised will be placed on interest bearing or debt offset deposit. 

Paragraph 2.7 of the prospectus declares that not later than three business days after the date of issue of the prospectus application will be made to the first respondent, Australian Stock Exchange Limited (the ASX) for Premier Pacific to be admitted to the official list of the ASX and for official quotation of Premier Pacific shares.  "Allotment is conditional upon such admission and quotation and to receipt of the minimum subscription", paragraph 2.8.

As his Honour noted, the effect of paragraph 2.7 of the prospectus is to attract s 1031(1) of the Corporations Law. His Honour noted in his reasons for judgment that the evident purpose of that subsection is to protect investors who subscribe for securities on the footing that they will be quoted on an exchange by ensuring that listing will take place promptly and that subscription will not be tied up by delay in listing. Section 1031 is in Division 2 of Part 7.12 of the Corporations Law (see ss 1017 to 1034). Section 1031 so far as relevant, provides:-

"1031(1)Subject to this section, where a prospectus in relation to securities of a corporation states that application has been or will be made to a securities exchange, whether in Australia or elsewhere, for permission for the securities to be listed for quotation on the stock market of that securities exchange and:

(a)the permission is not applied for in the form for the time being required by that securities exchange on or before the third day on which that securities exchange is open after the date of issue of the prospectus; or

(b)the permission is not granted before the end of 6 weeks after the date of issue of the prospectus or such longer period, not exceeding 12 weeks, after the date of issue as is,
within those 6 weeks, notified to the applicant by or on behalf of the securities exchange;

any allotment or issue, whenever made, on an application pursuant to the prospectus, or any sale, whenever made, pursuant to the prospectus, as the case requires, is void and the responsible person shall repay, in accordance with the following provisions of this section, any money received by it pursuant to the prospectus.

(2)Where a person is liable under subsection (1) to repay money received pursuant to a prospectus:

(a)the money shall be repaid as soon as practicable without interest; and

(b)if the person is a corporation and the money is not repaid:

(i)where the liability to repay the money arose because of paragraph (1)(a) - within 14 days after the third day referred to in that paragraph; or

(ii)where the liability to repay the money arose because of paragraph (1)(b) - within 14 days after:

(A)the period of 6 weeks first referred to in that paragraph or

(B)if a longer period has been notified under that paragraph - that longer period;

then, in addition to the liability of the corporation to repay the money, the directors are jointly and severally liable to repay the money with interest at the rate of 8% per annum (or, if another rate is prescribed, that other rate) calculated from the end of the 14 days referred to in subparagraph (i) or (ii), as the case requires.

(3)Where, in relation to any securities of a corporation:

(a)permission is not applied for as specified in paragraph (1)(a); or

(b)permission is not granted as specified in paragraph (1)(b);

the Commission may, by notice published in the Gazette, on the application of the responsible person in relation to the prospectus concerned made before any security is purported to be allotted or issued, or sold, as the case requires, as mentioned in subsection (1), exempt the allotment or issue, or the sale, as the case may be, of the securities from the operation of this section.

...

(6)A person who receives money pursuant to a prospectus as mentioned in the preceding provisions of this section shall keep the money in a separate bank account so long as the person is liable to repay it under this section."

By letter dated 16 January 1995 the ASX notified the solicitors of Premier Pacific that the ASX had resolved to admit Premier Pacific to its official list, subject to "notification and compliance with the conditions". His Honour noted that that brought into play s 1031(7) of the Corporations Law which reads as follows:

"1031(7)Where a securities exchange has, within the period applicable under paragraph (1)(b), granted permission subject to compliance with any requirements specified by the securities exchange, permission shall be deemed to have been granted by the securities exchange if the directors of the corporation referred to in subsection (1) have given to the securities exchange an
undertaking in writing to comply with the requirements of the securities exchange."

There followed correspondence between Premier Pacific and the ASX culminating in a letter by Premier Pacific to the ASX of 21 March 1995. The letter set out what was stated to be undertakings to the ASX by the directors of Premier Pacific. In the meantime, on 22 February 1995 the ASC acted pursuant to its powers under s 1084(6) of the Corporations Law, which confers upon the ASC a power of dispensation from the law and to change it in relation to a particular person or persons or a particular class of persons.

Subsection 6 provides that the ASC may declare that a division such as division of Part 7.12 of the law shall have effect in relation to a particular person, such as Premier Pacific, as if a specified provision of the division were omitted, modified or varied in a manner specified in the declaration. By instrument of 22 February 1995 and signed by a delegate of the ASC, the ASC declared that the provisions of part 7.12 of the law have effect in relation to Premier Pacific and the prospectus as if s 1031(1) of the law were varied or modified by omitting the text of paragraph (b) thereof and inserting:

"(b) the permission is not granted before the end of 15 weeks after the date of issue of the prospectus."

His Honour noted that the effect of that declaration was that:

"If permission for the securities to be listed for quotation on the stock market of the ASX was not granted before the end of 15 weeks after the date of issue of the prospectus, any allotment or issue made on an application pursuant to the prospectus would be void. Further, in accordance with other provisions of section 1031, Premier Pacific would be obliged to repay any money received by it pursuant to the prospectus."

His Honour said the 15 week period expired on, but included, 21 March 1995, as it then was prior to the orders made by his Honour on 19 April 1995. 

This proceeding was instituted by application filed on 30 March 1995 by Premier Pacific, which sought a declaration for the purposes of s 1031(7) of the law. The form of undertaking given in writing by the directors of Premier Pacific to the ASX on 21 March 1995 satisfied the requirements specified by the ASX for admission of Premier Pacific to the official list of the ASX by its letter of 16 January 1995. His Honour noted that s 1031(1) was cast in a form that obliged the corporation to repay moneys received by it pursuant to its prospectus.

If the prospectus states that application has been or will be made to a securities exchange, whether in Australia or elsewhere for permission to list the securities for quotation there is a failure in either of two respects: first, that the permission is not applied for within the time specified in paragraph (a). Second, the permission is not granted, as indeed in this case, before the end of 15 weeks after the date of issue of the prospectus. (Paragraph (b) as modified by the ASC's declaration under s 1084(6).) A corporation that receives money to its prospectus is obliged by subsection 6 of s 1031 to keep the money in a separate bank account for so long as the corporation is liable to repay it under section 1031. Where a corporation is obliged by s 1031(1) to repay money received pursuant to a prospectus, it must do so as soon practicable, (s 1031(2)(a).) If that is done, his Honour noted, the money does not attract interest.

If other circumstances detailed in s 1031(2)(b) apply, then in addition to the liability of the corporation to repay the money, the directors are jointly and severally liable to repay with interest at the rate specified in or pursuant to s 1031(2), which I note is 8 per cent. In the present case liability of the directors to repay with interest would arise if Premier Pacific did not repay, his Honour noted, within 14 days of 21 March 1995, that is to say by 4 April 1995.

His Honour referred to s 1031(2b)(ii)B. The second respondent, ABN Amro Bank NV which I will refer to as ABN Amro, is the ultimate parent company of ABN Amro Australia Hoare Govett Limited to which I shall refer as the underwriter, which is underwriter to the offer by Premier Pacific of 40 million ordinary shares at an issue price of a dollar each. The underwriting is pursuant to an agreement of 15 November 1994.

On 23 February 1995 ABN Amro lodged an application with Premier Pacific for 40 million shares together with the sum of $40 million. By its cross-claim filed in this Court on 3 April 1995 ABN Amro sought a declaration that if the relief sought by Premier Pacific on its application was not granted then ABN Amro would be entitled to be refunded by Premier Pacific for the sum of $40 million pursuant to s 1031 of the Corporations Law. 

In addition to the declaration Premier Pacific also sought an order pursuant to s 1322(4)(d) of the law which states that:

"The Court may on application by an interested person make an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under the law.  Such an order may be made where the period concerned ended before the application for the order was made. "

His Honour referred to Elderslie Finance Corporation Limited v ASC (1993) 11 ACSR 157 at 161. His Honour noted:

"The Court shall not make an order under section 1322 unless it is satisfied that no substantial injustice has been or is likely to be caused to any person. (Section 1322(6)(c)). 

His Honour said that:

"The order was sought on the hypothesis that the court would refuse a declaration that the letter of 21 March satisfied the requirements of the Stock Exchange. 

...

The objective of the order which upon that contingency is sought under section 1322(4)(d) is to extend the time for Premier Pacific to cause to come into existence a document which answers the statutory description in section 1031(7) of an undertaking by its directors in writing to comply with the requirements of the ASX."

At the conclusion of submissions on 3 April last his Honour without objection made an interlocutory order sought by Premier Pacific, namely, an order made pursuant to s 1322(4)(d) of the law in terms that the time permitted by s 1031(2)(b)(ii) in which Premier Pacific is obliged to repay money received by it pursuant to the prospectus be extended to two days after the delivery of judgment in this proceeding.

His Honour noted the objective was to protect the position of Premier Pacific if the outcome of the case was that ABN Amro succeeded in obtaining the declaration sought on its cross‑claim.  His Honour noted that the debate before him turned upon the adequacy of what Premier Pacific submitted was the undertaking in writing given by its directors on 21 March 1995 to comply with the requirements of the ASX in paragraph 3.2 of the letter of 16 January.  What was said to be the undertaking was set out in a letter signed by the directors of Premier Pacific and addressed to ASX dated 21 March 1995.

His Honour noted the submission of ABN Amro that what was involved in this case was a purported undertaking to bring about a state of affairs beyond the control of the directors of Premier Pacific.  They may only, his Honour said, "promptly satisfy in fact" if third parties provide the corporation with the application referred to in paragraph 1 of the letter.

The letter is set out in extenso by his Honour, I need not set it out in my reasons.  His Honour said that the question whether the letter of 21 March conveyed a written undertaking by the directors of Premier Pacific to comply with the requirements of the ASX set out in paragraph 3.2 of the letter of 16 January, so that permission is deemed to have been granted within, time can be answered appropriately only after dealing with what he called a threshold question, namely, whether the requirement in paragraph 3.2 of the letter was susceptible of an undertaking in writing by the directors to comply with it.

His Honour reached a view in respect of the undertaking unfavourable to Premier Pacific and accordingly his Honour found that the application by Premier Pacific for declaratory relief should be dismissed. He said in view of the conclusion he had reached the question of certain discretionary orders sought by Premier Pacific did not arise. He then turned to the interlocutory relief granted on 3 April 1995 which would have the effect, unless further extended by his Honour, of extending until 21 April 1995 the time permitted by s 1031(2)(b)(ii)B as that within which Premier Pacific is obliged to repay the money received by it pursuant to the prospectus.

His Honour said:

"It may be that in the light of the outcome in the present matter by fresh application Premier Pacific may seek an order of the court extending with effect from 21 March 1995 the period within which the ASX may grant permission as specified in s 1031(b) of the law."

His Honour said that he would say nothing as to whether such an application was open or as to its prospects of success, nor would he canvass any other avenue which may be open to Premier Pacific under the law.  His Honour noted that he appreciated the submissions by ABN Amro in resisting any further extension of the time in which its money was tied up when it should be free for recovery.  Nevertheless in all the circumstances he regarded it as appropriate for Premier Pacific to have a short further extension of what was then the present interlocutory order so that it might consider its position.

Accordingly, his Honour extended the order made on 3 April up to and including today the 27th of April. His Honour dealt with the declaration sought by ABN Amro on its cross-claim, namely, that in the events which have come to pass ABN Amro is entitled, pursuant to s 1031 of the law, to the refund by Premier Pacific of the $40 million being the application money for shares in Premier Pacific. He said that one difficulty with a declaration in those terms is that it would not take into account the contingency that even though the time has now passed in another proceeding Premier Pacific might obtain relief with effect from 21 March and extending the period within which permission might be granted.

This would obviate, he said, what otherwise would have been the operation of s 1031(1). He said he reached the conclusion that any declaratory relief in favour of ABN Amro in the present proceeding could be apt to mislead by presenting an incomplete picture as to what were the complex relations between the parties which flowed from the operation of the law.

Accordingly his Honour declined to grant the relief sought on the cross‑claim.  His Honour made orders of extension until today and ordered Premier Pacific to pay the costs of the respondents of the application and the cross‑claim.

The question before the court today is what should happen to the moneys presently reposing in the bank account being kept pursuant to s 1031(6) by Premier Pacific. The appeal, as I have said, was lodged by Premier Pacific yesterday and is one which, for reasons that will be briefly given later, should be expedited. The hearing can take place on 26 May 1995, it is said it will take one day to argue. Of course, it is a matter of some complexity and one would have to assume the Court will consider its reasons so that sometime after that date the Court would deliver its judgment. I am not, of course, in a position to say at all how long that would be.

If the order of extension made by Gummow J which expires today is not further extended, then it would follow that Premier Pacific thereupon becomes obliged to return to ABN Ambro the moneys which have been paid to it, namely, the sum of $40 million Australian.  As I read the law, if the moneys are repaid within the time as extended, then there will be no obligation on the part of Premier Pacific to pay interest on the moneys which are presently in the separate bank account.  If however, the money is not repaid as required by s 10312B(2b) of the law, then the directors of Premier Pacific become jointly and severally liable to repay interest at the rate of 8 per cent calculated from the end of the period referred to in that statutory provisions.  There is some dispute as to whether that date is 4 April or is upon the expiration of today.  I do not propose to determine that point.

What it means however, is that if the extension is not made and the money is obliged to be returned to ABN Ambro, then should Premier Pacific win its appeal to the Full Court, in the absence of an appropriate undertaking by ABN Ambro and perhaps its Australian subsidiary the underwriter, it would have no means of obtaining payment for the shares which have been the subject of the application by ABN Ambro.  An undertaking has been proffered however by ABN Ambro, and it may be that tomorrow one will know whether the underwriter also proffers a similar undertaking to the Court, to pay to Premier Pacific within a particular period (which is based upon the successful outcome of the appeal on the part of Premier Pacific in this matter) the sum of some $35 million, being the amount ABN Ambro calculates as the amount required to be paid by it to Premier Pacific to enable the offer to be fully subscribed.

At this time ABN Ambro has succeeded in this case in obtaining a judgment in its favour from a judge of this Court.  That judgment must be assumed to be correct unless and until it is overruled on appeal. ABN Ambro is entitled prima facie to the full fruits of its judgment.  It says that if the money remains in the separate bank account which I am informed by counsel and I accept, is earning interest at the rate of 5.1 per cent, then that is interest which accrues to the benefit of Premier Pacific and cannot accrue to the benefit of ABN Ambro at all unless Premier Pacific defaults in its obligation to repay under s 10312 in the event the appeal failing which has the liability cast upon the directors to which I have referred.

ABN Ambro says that it is out of its money of some $A40 million, it has succeeded in the case, there is evidence that it can invest that money and gain a return from it in the order of some 12 per cent per annum.  Counsel for Premier Pacific, mindful of the difficulty in relation to interest, has said that his client is prepared to undertake to the Court that in the event of Premier Pacific failing in the appeal and being liable to repay the moneys subscribed by ABN Ambro, then it shall account to ABN Ambro for any interest which Premier Pacific may earn on the moneys in the special bank account from today and the accounting to take place when the capital sum is repaid.

The Court's power to impose undertakings is a power which flows from s 1322(4) of the Corporations Law, my only reservation as to that point is whether or not it is appropriate to impose such an undertaking. It seems to be the legislative policy, gained primarily from s 1031 itself, that the obligation of the relevant company, in this case Premier Pacific is, in the events set out in that section, to repay the moneys to the corporation that subscribed them but without any obligation to pay interest. The only interest obligation appears to be on the directors of Premier Pacific if there should be a failure to repay as provided by the section.

That is a view which appears to have been taken, I notice also from his reasons for judgment, by Gummow J in one passage to which I have already referred and is the view which has been argued for by counsel for Premier Pacific.  As at present advised I would accept the correctness of that view.  However, I think in all the circumstances if it was a case where I thought it appropriate to allow the moneys to stay in the separate bank account, then I would be disposed to accept an undertaking in those terms.  Whether it would be a sufficient undertaking is, of course, another matter of which I shall say something in a moment.

Counsel for Premier Pacific argues that there would be severe prejudice sustained by Premier Pacific if the money does not remain in the separate bank account, namely, that the obligation to repay moneys to subscribers, though modified so far as ABN Ambro if an appropriate undertaking of the kind I have mentioned is given to the Court, could not extend to some $3 million which is the amount of capital subscribed by other subscribers not connected with ABN Ambro.  That money would have to go back and counsel says probably it would be irrecoverable, even if it wins the appeal.

There is, I think, substance in the view that that is an element of prejudice to be sustained by Premier Pacific which I must take into account and which I do take into account.

As was noted by the learned primary Judge the evident purpose of s 1031(1) of the Corporations Law is to protect investors who subscribe for securities on the footing they will be quoted on exchange by ensuring that listing will take place promptly, and that subscription moneys will not be tied up by delay in listing. I respectfully agree with this statement which is also in accord with the public statement by the ASC, in evidence that s 1031 is a section intended to enable investors confidently to predict that they will be able to realise their investments within a maximum term of some three months.

The statement is in evidence and is in a slightly different context but it is nonetheless in line with the policy to which I have just referred in Gummow J's judgment.  There is one course that the Court could take in all the circumstances, namely, simply to allow the extension sought to be granted until the determination of the appeal (or further order) on the basis of accepting the undertaking offered by counsel for Premier Pacific in relation to the payment of interest in the event of the appeal failing, and to support that course by noting the problem that may well arise with respect to the $3 million investment to which counsel has referred.

That on the other hand there is real prejudice to ABN Amro if the order for extension is made I have referred to already.  To restate briefly certain of it ABN Amro is a successful party to this litigation.  It may or may not hold the benefit of its judgment on appeal but I must assume that the judgment is correct.  I do not propose to express any view as to the prospect of success of Premier Pacific on the appeal, except for me to say that it raises important questions of law and the points which counsel have briefly outlined to me are points which in my view are reasonably open to argument, so I shall act on that basis in favour of Premier Pacific's prospects of success in the appeal.

ABN Amro has provided evidence which is not contradicted to the effect that the terms of the letter from Premier Pacific to ABN Amro of 21 March suggests that its proposals now impute a value of some 50 cents to each share in Premier Pacific and not $1.  ABN Amro has lodged its application for 40 million shares in Premier Pacific on an expectation that upon official quotation its shares would be worth approximately $40 million, being the requisite application moneys. 

There is evidence that ABN Amro would not have applied for the shares if it had been aware that there was a possibility that shares may now be worth half that value because of the terms of Premier Pacific's amended proposals to obtain official quotation which were made subsequent to the date on which ABN Amro applied for its shares. I also take into account the fact that the moneys lodged by ABN Amro were in the special banking account where they would not attract interest during the extended period unless the directors failed to honour their obligations under s 1031. I also have to take into account the modifying effect of that by the undertaking that has been proffered by counsel for Premier Pacific with respect to interest.

In all the circumstances, although I do not find the question easy, I am not persuaded that any further extension of time should be granted.  I also take into account as I am bound to do the injunction which is imposed upon the Court by s 1322(6) that the Court shall not make an order of the kind that is sought unless it is satisfied that no substantial injustice has been or is likely to be caused to any person.  In my opinion I am not satisfied that no substantial injustice has been or is likely to be caused to ABN Amro for the reasons I have given.  I am therefore in my view barred from making an order for extension by the operation of that provision and in any event of the exercise of my discretion I would not be disposed to do so.  Accordingly the motion before the Court is dismissed.

I order the Premier Pacific to pay the costs of ABN Amro of the proceeding and the costs of Australian Stock Exchange Limited as a submitting party.  The orders that I have made however will not take effect until I have before me the appropriate undertakings by ABN Amro and perhaps the underwriter which I shall consider tomorrow morning.  I should make it clear however that provided those undertakings are appropriate then the orders that I have made shall take effect.  If they are not the orders shall be rescinded and not take effect.

In view of what I have just said it is appropriate in my view and fair that there be an extension order operating up to and including tomorrow, pursuant to s 1322(4)(d). Accordingly, the Court orders that pursuant to that section the time permitted by s 1031(2)(b)(ii) in which Premier Pacific shall repay the money received by it pursuant to its prospectus be extended up to and including tomorrow, 28 April 1995.

The appeal is in matter number 275 of 1995.  I have been asked by all parties to expedite the appeal.  I am satisfied it is a matter that should be expedited.  Accordingly, I order that the appeal be expedited and that the date fixed be 26 May 1995.  I direct the usual order for written submissions.

I request the Registrar to settle the index to the appeal books as soon as possible so that the appeal will be heard on 26 May 1995 and I direct Premier Pacific to use its best endeavours to prepare the appeal books in sufficient time to enable that appeal to proceed then.

I refer to the Registrar the whole question of preparing the appeal for hearing and shall specially fix the appeal for 26 May.

In my reasons for judgment I referred to an undertaking proffered by counsel for Premier Pacific in relation to interest.  Counsel reminds me and correctly so that what was proffered was not an undertaking to the court, doubtless because he did not have instructions to do it but that he would submit to an order imposing a condition to the same effect.  My reasons for judgment would not have altered in any respect and I so express them.

I should also have added that the evidence before me satisfied me that in relation to the undertaking foreshadowed by counsel for the ABN Amro that it is a company of very substantial assets and income and is obviously an asset-rich company.  Its credit rating by the highest international authorities is very high indeed.  I am satisfied that it has sufficient assets to honour the undertaking which has been
foreshadowed.

I certify that this and the preceding twenty-two (22) pages are a true copy of the reasons for judgment herein of the Honourable Justice Lockhart.

Associate

Dated:  27 April  1995

Counsel for the Applicants   :        Mr J Spigelman QC

Mr D Robinson

Solicitors for the Applicants     :        Strang & Chippendall

Counsel for the First Respondent  :    Mr B W Rayment QC

Mr R W White

Solicitors for the First Respondent: 

Counsel for the Second Respondent:        Mr M Pembroke

Solicitors for the Second Respondent: Mallesons Stephen Jaques

Date of Hearing             :        27 April 1995

Date of Judgment            :        27 April 1995