Premier Pacific Pharmaceutical Industries Ltd v Australian Stock Exchange Ltd
[1995] FCA 242
•19 APRIL 1995
CATCHWORDS
CORPORATIONS - allotment or issue of securities where prospectus indicates application for quotation on stock market - allotment or issue void and corporation obliged to repay if permission for quotation not granted within stipulated period - permission granted subject to compliance with the requirements - undertaking in writing by directors of corporation to comply with requirements of securities exchange - construction of s. 1031 of Corporations Law.
Corporations Law ss. 1031, 1084, 1322.
PREMIER PACIFIC PHARMACEUTICAL INDUSTRIES LIMITED v
AUSTRALIAN STOCK EXCHANGE LIMITED & ANOR
No. NG 3147 of 1995
BEFORE: GUMMOW J.
PLACE: SYDNEY.
DATE: 19 APRIL 1995.
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 3147 of 1995
GENERAL DIVISION )
BETWEEN: PREMIER PACIFIC PHARMACEUTICAL
INDUSTRIES LIMITED
(ARBN 066 346 889)
Applicant
AND: AUSTRALIAN STOCK EXCHANGE LIMITED
(ACN 008 624 691)
First Respondent
ABN AMRO BANK NV
Second Respondent
BEFORE: GUMMOW J.
PLACE: SYDNEY.
DATE: 19 APRIL 1995.
MINUTE OF ORDERS
THE COURT ORDERS THAT:
(1)The order made 3 April 1995 be extended by deleting the words "two days after the delivery of judgment in these proceedings" and inserting "27 April 1995".
(2)The applicant pay the costs of the respondents of the application and the cross-claim.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 3147 of 1995
GENERAL DIVISION )
BETWEEN: PREMIER PACIFIC PHARMACEUTICAL
INDUSTRIES LIMITED
(ARBN 066 346 889)
Applicant
AND: AUSTRALIAN STOCK EXCHANGE LIMITED
(ACN 008 624 691)
First Respondent
ABN AMRO BANK NV
Second Respondent
BEFORE: GUMMOW J.
PLACE: SYDNEY.
DATE: 19 APRIL 1995.
REASONS FOR JUDGMENT
The applicant, Premier Pacific Pharmaceutical Industries Limited ("Premier Pacific") is incorporated in Bermuda. It has an 80% interest in two Sino-foreign equity joint ventures established in the People's Republic of China ("the PRC"). The remaining 20% interest in the two equity joint ventures is owned by Tianjin Holdings, a State-owned corporation.
The first of the joint ventures owns an enterprise known as "Tianjin Medical", which is one of the largest wholesalers of pharmaceutical products in the PRC. A wholly owned subsidiary of Tianjin Medical has a 20% shareholding in TSKF,
a Sino-American equity joint venture which manufactures and markets SmithKline Beecham pharmaceutical products in the PRC. TSKF is the second largest manufacturer in the PRC of ethical and "over the counter" pharmaceutical products.
The second joint venture owns an enterprise known as Hebei Pharmaceutical, which is a manufacturer of the raw material Vitamin B2 and of the anti-cancer drug Bleomycin A5. Hebei Pharmaceutical manufactures both for the local market in the PRC and for export.
The Prospectus
On 30 November 1994, the directors of Premier Pacific signed a prospectus in relation to an offer of 40m ordinary shares of $A0.20 each to be issued in the authorised, but unissued, share capital of Premier Pacific at an issue price of $A1 each.
On 1 December 1994, a copy of the Prospectus was lodged with, and registered by, the Australian Securities Commission ("the ASC"). Premier Pacific lodged a supplementary prospectus with the ASC on 28 December 1994, and a further supplementary prospectus on 5 January 1995. The original prospectus, as supplemented, is identified in these reasons as "the Prospectus".
The Prospectus states (para. 1.3) that the directors have agreed that the funds raised by the issue will be used to expand the Vitamin B2 manufacturing facilities at Hebei Pharmaceutical, to upgrade the Bleomycin plant at Hebei Pharmaceutical, to establish a centralised distribution and supply centre for Tianjin Medical, and for other purposes described as "expand distribution network", "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 application will be made to the first respondent ("the ASX") not later than 3 business days after the date of issue of the Prospectus for Premier Pacific to be admitted to the Official List of the ASX, and for official quotation of Premier Pacific's shares. Allotment is conditional upon such admission and quotation, and to receipt of the minimum subscription (para. 2.8). The consent of the Bermuda Monetary Authority has been sought for the issue of the shares and for their subsequent free transferability whilst listed on the ASX; no further consents are required from any authority in Bermuda in this regard (para. 2.10).
Section 1031 of the Law
The effect of para. 2.7 of the Prospectus is to attract sub-s. 1031 (1) of the Corporations Law ("the Law"). The evident purpose of this sub-section 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 moneys will not be tied up by delay in listing. Section 1031 is in Division 2 of Part 7.12 of the Law (ss. 1017 - 1034). Sub-section 1031 (1) provides:
(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 is void and the corporation shall repay, in accordance with the following provisions of this section, any money received by it pursuant to the prospectus."
Premier Pacific is a "corporation" within the meaning of the definition in s. 57A of the Law. This was inserted by Schedule 3 of the Corporations Legislation Amendment Act 1994, with effect 1 January 1995. ASX is defined in s. 9 of the Law as the "Exchange" and is, by operation of further definitions in that section, a "stock exchange" and thus, for the purposes of Part 7.12, a "securities exchange".
Sub-section 1031 (1) distinguishes between allotment and issue. The House of Lords has described the distinction in company law (but subject to contrary statutory provision) as one between an enforceable contract for the issue of shares, which contract is constituted by an allotment, and the issue of shares which is completed by registration; allotment confers a right to be registered, registration confers legal title and membership of the corporation: National Westminster Bank plc v Inland Revenue Commissioners [1995] 1 AC 119 at 126, 146-7. See also Central Piggery Co. Ltd v McNicoll (1949) 78 CLR 594 at 599-600, Maddocks v D.J.E. Constructions Proprietary Limited (1982) 148 CLR 104 at 119.
Experience teaches that specification of strict time limits may frustrate the ends it is designed to assist. Sub-section 1031 (1) may operate to avoid an allotment or issue against the wishes of investors and corporation alike. To some extent, sub-s. 1031 (3) meets this type of situation. It applies where para. (a) or para. (b) of sub-s. 1031 (1) has not been satisfied and provides that upon application by the corporation to the ASC before allotment or issue of any security, the ASC may exempt the allotment or issue from the operation of s. 1031. In the present case, nothing turns upon sub-s. 1031 (3). However, it will be necessary to refer to another source of special power given the ASC, that in sub-s. 1084 (6).
In the present case, there is no issue as to para. (a) of sub-s. 1031 (1) because permission was sought within the time limited therein. The dispute turns upon para. (b) and the need for a grant within time of permission by the ASX, and also upon the consequences if there were failure to meet that requirement.
By letter dated 16 January 1995, to some of the terms of which it will be necessary later to refer in detail, 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".
That brought into play sub-s. 1031 (7) of the Law. This states:
(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 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. It will be necessary to refer later to the terms of that letter. It is sufficient now to indicate that it set out what were 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 sub-s. 1084 (6) of the Law. This is a significant feature of the Law. It confers upon the ASC a power of dispensation from the Law and to change the Law "in relation to a particular person or persons, or a particular class of persons". The sub-section provides that the ASC may declare, to put it broadly, that a Division such as Division 2 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 dated 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 sub-s. 1031 (1) of the Law were varied or modified by omitting the text of para. (b) thereof and inserting:
"(b)the permission is not granted before the end of 15 weeks after the date of issue of the prospectus."
The effect of this 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 the other provisions of sub-s. 1031, Premier Pacific would be obliged to repay any money received by it pursuant to the Prospectus. The 15 week period expired on, but included, 21 March 1995.
The Issues
Premier Pacific contends that the exchange of correspondence with the ASX ending on 21 March 1995 has the result that, within time the ASX granted permission subject to compliance with the requirements specified by it, and the directors of Premier Pacific gave to the ASX an undertaking in writing to comply with those requirements. The consequence, pursuant to sub-s. 1031 (7), is said to be that permission is to be deemed to have been granted by the ASX within time for the securities to be listed for quotation.
This proceeding was instituted by application filed 30 March 1995. Premier Pacific seeks a declaration that for the purposes of sub-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 satisfies the requirements specified by the ASX for admission of Premier Pacific to the Official List of the ASX by its letter dated 16 January 1995.
Sub-section 1031 (1) is cast in a form that obliges the corporation to repay any money 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. The first is that the permission is not applied for within the time specified in para. (a). The second is that permission is not granted (in this case) before the end of 15 weeks after the date of issue of the Prospectus (para. (b) as modified by the declaration under sub-s. 1084 (6)).
In such circumstances, the allotment or issue being void, there also may be obligations at common law or in equity, or both, to repay. But this matter was not explored in the present case; cf Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567, Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1994] 4 All ER 890.
A corporation that receives money pursuant to a prospectus is obliged by sub-s. 1031 (6) to keep the money in a separate bank account for so long as the corporation is liable to repay it under s. 1031.
Where a corporation is obliged by sub-s. 1031 (1) to repay money received pursuant to a prospectus, it must do so as soon as practicable (para. 1031 (2) (a)). If that is done, the money does not attract interest. If other circumstances, detailed in para. 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 sub-s. 1031 (2). In the present case, liability of the directors to repay with interest would arise if Premier Pacific did not repay within 14 days of 21 March 1995, that is to say, by 4 April 1995 (sub-para. 1031 (2) (b) (ii) (B)).
The second respondent ("ABN Amro") is the ultimate parent company of ABN Amro Australia Hoare Govett Limited ("the underwriter") which is underwriter to the offer by Premier Pacific of 40m ordinary shares at an issue price of $A1 each. The underwriting is pursuant to an agreement dated 15 November 1994. On 23 February 1995, ABN Amro lodged an application with Premier Pacific for 40m shares together with the sum of $A40m. Nothing presently turns upon the circumstance that ABN Amro made the application and its parent has not acted as the underwriter.
By its cross-claim filed in Court on 3 April 1995, ABN Amro seeks a declaration that, if the relief sought by Premier Pacific on its application is not granted, ABN Amro is
entitled to refund by Premier Pacific of that sum of $A40m, pursuant to s. 1031 of the Law.
In addition to or, more accurately, in the alternative to, the declaration I have already mentioned in these reasons, Premier Pacific also seeks an order pursuant to para. 1322 (4) (d) of the Law. This, put shortly, states that the Court may, on application by any 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"; see, for example, Elderslie Finance Corporation Ltd v Australian Securities Commission (1993) 11 ACSR 157 at 161. The Court shall not make an order under s. 1322 "unless it is satisfied" that "no substantial injustice has been or is likely to be caused to any person" (para. 1322 (6) (c)).
This order is sought on the hypothesis that the Court refuses a declaration that the letter of 21 March 1995 satisfies the requirements of the Stock Exchange. The result would be that there had not been compliance with the requirements specified by the ASX, so that permission was not deemed to have been granted by the ASX within the period applicable under para. 1031 (1) (b). As a further consequence, provisions of s. 1031 as to avoidance and repayment would operate.
The objective of the order which, upon that contingency, is sought under para. 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 sub-s. 1031 (7) of an undertaking by the directors in writing to comply with the requirements of ASX. Counsel for Premier Pacific put the point as being that if his client was wrong as to it having given a proper undertaking under sub-s. 1031 (7) it wished the opportunity to provide a proper undertaking. A period of 90 days was mentioned in the course of submissions as the time sought.
ABN Amro contends that in any event, as a matter of discretion no such order should be made in favour of Premier Pacific pursuant to para. 1322 (4) (d). It is against that background that ABN Amro further seeks, by its cross-claim, the declaration which I have described as to its entitlement to refund of the application moneys.
At the conclusion of submissions on 3 April 1995, and without objection by the other parties, I made an interlocutory order sought by Premier Pacific. The order was made pursuant to para. 1322 (4) (d) of the Law. It is that the time permitted by para. 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 these proceedings". The objective is to protect the position of Premier Pacific if the outcome of the case is that ABN Amro succeeds in obtaining the declaration sought on its cross-claim.
The Position of ASX
The principal contradictor of Premier Pacific was ABN Amro, rather than the ASX. Counsel for the ASX stated that his client had decided not to seek to interpose itself in the substance of the dispute as to the meaning of sub-s. 1031 (7) of the Law. Counsel said:
"We have expressed a position, namely, that what is now proposed by this company is not acceptable to us as a compliance with our conditions and it would follow from that that unless something changes they will not be admitted to the list by my clients. But that we would not understand to be before your Honour as a direct issue in the case. ...
The Stock Exchange is not directly concerned with any question under sub-s. (7) of s. 1031, because its concern is whether its own conditions upon which it has agreed to give [listing to] these shares have been satisfied and the only effect of sub-s. (7) if [counsel for Premier Pacific] were to persuade your Honour that it relevantly applied ... would be that there would be no statutory obligation to repay the money. ... [I]t is for that reason we have thought it proper to step out of the fray on the direct issue posed by the summons. ..."
Counsel for ASX submitted that the source of its power to impose conditions was not found, by implication, in s. 1031 itself; cf The Minister for Immigration and Ethnic Affairs v Mayer (1985) 157 CLR 290 at 302-3, Chan v The Minister for Immigration and Ethnic Affairs (1989) 169 CLR 379 at 385, 394-5, 420. Rather, counsel submitted, the broader statutory framework produced a situation where Premier Pacific wished to enter into contractual relations with the ASX so as to obtain listing. The listing rules of ASX are contractual but also fall within the definition of "listing rules" in s. 761 of the Law and s. 777 confers power on the Court to order compliance with or enforcement of the business rules or listing rules of, inter alia, ASX. Further, as was discussed in argument, the proposed listing need not be on a securities exchange in Australia, and the requirements specified under sub-s. 1031 (7) may be those of a foreign exchange.
I am prepared, for the purposes of this case, to assume that sub-s. 1031 (7) operates in conjunction with para. (b) of sub-s. 1031 (1), that s. 1031 is not a source of power of any securities exchange and that it is not directed to what otherwise may be the practical or legal power of a securities exchange to obtain undertakings before securities are admitted to quotation. Nevertheless, the fact of the grant of permission by the securities exchange is a step upon which the operation of s. 1031 turns and which therefore has a vital effect on the rights and liabilities inter se of investor and corporation.
The ASC appeared by its solicitor and without opposition presented submissions as amicus curiae. These submissions largely were adopted by counsel for ABN Amro. They reflected a draft policy statement "Relief From Section 1031", issued by
the ASC for public comment on 24 March 1995. This was shortly before the institution of this proceeding.
The Construction of sub-s. 1031 (7)
I begin with the consequences provided by the Law if a director of a corporation contravenes an undertaking given by the directors, as mentioned in sub-s. 1031 (7).
Sub-section 1031 (8) states:
"A director of a corporation shall not contravene an undertaking given by the directors of the corporation as mentioned in subsection (7)."
The term "contravene" suggests transgression or infringement by the director who has entered into an engagement by giving the undertaking. Counsel for Premier Pacific submitted that this provision brought with it the sanctions provided by the general offence provisions of the Law in Division 2 of Part 9.4. This would have the consequence that each director is responsible in the criminal law for failure to perform what could only be done by the collegiate activity of the board of directors.
Counsel also referred to sub-s. 1324 (2). This confers a power of enforcement by mandatory injunction and provides:
(2) Where a person has refused or failed, is refusing or failing, or is proposing to refuse or fail to do an act or thing that the person is required by this Law to do, the Court may, on the application of:
(a)[the ASC]; or
(b)any person whose interests have been, are or would be affected by the refusal or failure to do that act or thing;
grant an injunction, on such terms as the Court thinks appropriate, requiring the first-mentioned person to do that act or thing."
Further, the Law creates certain money remedies. In a proceeding instituted for a contravention of Part 7.12 (which includes sub-s. 1031 (8)), if the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage because of conduct of another person engaged in contravention of that Part, the Court may make such order as it thinks appropriate against the person who engaged in the conduct, or against the person involved in the contravention. It may do so whether or not it grants an injunction, or makes an order under any other provision of the Law. The Court must consider that the order will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage (sub-s. 1325 (1)). The orders which may be made under this provision include an order to refund money and an order to pay the amount of loss or damage (paras. 1325 (5) (d), (e)).
I accept that the force of the term "contravene" in sub-s. 1031 (8) and the significant consequences of contravention by a director of an undertaking given as mentioned in sub-s. 1031 (7), should be borne in mind when construing the terms of sub-s. (7).
The obligation to repay will not arise if permission is applied for in proper form and within time and if permission is granted within time. In a particular case, within the period applicable under para. 1031 (1) (b), the securities exchange may grant permission without conditions. In another case, it may do so but conditionally. It is to this latter possibility that sub-s. 1031 (7) is addressed.
There are two interconnected elements in sub-s. 1031 (7) which present some difficulty in construction. The first concerns the temporal operation of the sub-section. The second difficulty involves what one may describe as the character or quality of the acts, events or states of affairs which may be the subject of requirements specified by the securities exchange and compliance with which may be undertaken by the directors. I deal with these matters in turn.
Permission may be granted within time but, in terms of sub-s. 1031 (7), "subject to compliance with" what are "requirements specified by the securities exchange". These requirements may be susceptible of satisfaction within time. In such cases, and if they are so satisfied, no further temporal complication arises.
But the requirements may be such that they cannot be met, or it is impracticable or unreasonable to require that they be met within the period applicable under para. 1031 (1) (b). The result could be that the grant of permission was ineffective because that requirement subject to which it was given has not been satisfied within time.
Hence the need for a "deeming" provision, that is to say, a provision which, in this context, requires sub-s. 1031 to operate as if permission had been granted within the period applicable under para. 1031 (1) (b); cf Hunter Douglas Australia Pty Ltd v Perma Blinds (1970) 122 CLR 49 at 65-7. If the directors "have given", that is to say given within time, an undertaking in writing to comply with "the requirements" of the securities exchange, then permission is deemed to have been granted within the period applicable under para. (b) of sub-s. 1031 (1). The consequence will be that the allotment or issue is not avoided and the obligation to repay will not arise.
I turn to the second aspect of construction. Counsel for ABN Amro submitted that in considering the requirements with which sub-s. 1031 (7) is concerned, a distinction is to be drawn. On one hand, there are requirements the satisfaction of which is within the control or competence of the corporation. On the other, there are requirements which are beyond such control or competence either because they are at the disposition of the third parties who are free to act independently of the corporation or because they are the product of events or conditions within the reach of no individual, corporation or government agency.
Counsel illustrated the distinction by contrasting a requirement that the securities exchange be supplied with copies of certain documents issued by the corporation and a requirement that an issue of securities be taken up within a particular time by a designated number of persons. The former, he submitted, can be the subject of an undertaking which the directors can perform under sanction of contravention of sub-s. 1031 (8), and of a mandatory injunction or payment of damages. The latter example depends upon the independent acts of others and the state of the market. Counsel also referred to the examples given in the ASC document to the compliance by directors with the requirement to provide a list of the top 20 shareholders before quotation, and a requirement as to "shareholder spread", the latter being something with which the directors could not comply unless sufficient applications were received.
Counsel for Premier Pacific made several responses to these submissions. He submitted that to give the phrase in sub-s. 1031 (7) "an undertaking in writing to comply ...", the meaning contended for would require a reading to the same effect of the phrase in the earlier portion of the sub-section, "granted permission subject to compliance with any requirements ...". This would mean that sub-s. 1031 (7) did not operate in cases where permission was granted subject to compliance within the applicable period of requirements that were "objective" in nature, being beyond the control of the corporation; the only requirements which might be specified would be those capable of forming the subject matter of an undertaking to be given by the directors.
It is not essential that a term be used in the same sense within the one statutory provision. The question always is one of construction: cf Murphy v Farmer (1988) 165 CLR 19 at 26-27. Further, it should be noted that the phrase "subject to compliance" in the first part of the sub-section does not identify any particular actor as the party to bring about the state of compliance, whereas in the latter branch of the sub-section the directors are identified as the persons to give the undertaking "to comply". Further, "compliance" may be used to indicate that a condition or requirement has been met or satisfied, whether by the party upon whom the burden of compliance is placed, or by a third party where the primary party will enjoy the benefit or advantage which flows from that state of affairs.
In the present case, the phrase "an undertaking in writing to comply" and the reinforcement of the undertaking by the requirement of sub-s. 1031 (8) that there be no contravention of it, supports the submission by ABN Amro, which I accept.
This is that although the phrase "subject to compliance" in the first part of sub-s. 1031 (7) has a broader denotation, the second part of the sub-section does not contemplate that permission shall be deemed to have been granted within time if directors have given undertakings to comply thereafter, but which they cannot perform. The result is that a condition might be a requirement to be met within the period applicable under para. 1031 (1) (b), but be of such a nature that it is not susceptible of an undertaking by the directors which has the effect of deeming a grant of permission within that time.
I turn now to the text of the requirements by the ASX set out in its letter of 16 January 1995 to the solicitors for Premier Pacific. The letter was written by Mary-Louise North, Executive Director, Companies, of ASX. Nothing turns upon para. 2. thereof. Even if it was characterised as imposing requirements which were not wholly within the competence of the directors to satisfy, these requirements were met within time.
Rather, the debate before me turned upon a condition in para. 3.2 that (i) there be at least 500 shareholders, and (ii) each shareholder have a parcel of shares having a value of at least $2,000. Premier Pacific submits that the directors did give, within time, an undertaking to the ASX in writing to comply with the requirements of para. 3.2. This ABN Amro denies. It also submits that, in any event, this requirement was one not susceptible of an undertaking by the directors by means of which permission is to be deemed to have been granted by the ASX. The ABN Amro submission was that it is not susceptible of such an undertaking because the "undertaking" would be a promise or engagement the performance of which was not within the power of the directors giving the undertaking. It will be seen that I accept that submission.
The Letters of 16 January and 21 March 1995
So far as presently material, the letter of 16 January stated (with emphasis supplied):
"I refer to the application by the Company dated 25 November 1994 for admission to the Official List of Australian Stock Exchange Limited ('ASX').
I advise that ASX has resolved as follows:
Premier Pacific Pharmaceutical Industries Limited (the 'Company') be admitted to the Official List of Australian Stock Exchange Limited ('ASX') subject to Notification and Compliance with the Conditions.
Notification means actual notification by the Company to Australian Stock Exchange Limited ('ASX') that:
(a)the offer of shares in the Company under the prospectus dated 30 November 1994 (the 'Prospectus') has closed and that there has been no material adverse change within the meaning of section 1024E (6) of the Corporations Law as at the time of notification, or
(b)ABN Amro Australia Hoare Govett Limited (the 'Underwriter') has agreed to apply for, and pay for, any shares returned to the Company pursuant to section 1024E (5) of the Corporations Law provided that it has not exercised its right to terminate its obligation to underwrite the issue,
and is not satisfied by undertakings to notify.
Compliance with the Conditions means compliance with the following conditions:
3.1completion of the underwritten issue of 40,000,000 ordinary shares of 20 cents each fully paid at an issue price of $1.00;
3.2there being at least 500 shareholders, each with a parcel of shares having a value of at least $2,000;
3.3completion of the allotment of 40,000,000 ordinary shares at 20 cents each fully paid at an issue price of $1.00;
3.4completion of the allotment of 11,535,000 ordinary shares of 20 cents each fully paid to Premier Pacific Enterprises Limited and 37,165,000 ordinary shares of 20 cents each fully paid to Tianjin Industrial and Commercial Pharmaceutical Holdings Limited;
3.5despatch of all certificates, uncertificated security holding statements and refund moneys;
3.6provision of a distribution schedule of each class of security to be quoted setting out the number of holders of each class of security to be quoted in the form contained in Listing Rule 3C (3) (e) (iii) prior to Official Quotation of securities;
3.7provision of a list of the 20 largest holders of each class of security to be quoted, including the number and percentage of each class of security held by each, prior to Official Quotation of securities;
3.8provision of an undertaking under seal by the Company that:
(a)all its financial reports will comply with Australian Accounting Standards;
(b)it will immediately inform the market on the Company becoming aware of any of the following:
(i)a person becoming a substantial shareholder in the Company within the meaning of section 708 (4) of the Corporations Law (a 'Substantial Shareholder'), together with the name of the Substantial Shareholder, the date of the person becoming a Substantial Shareholder and the number of equity securities in which the Substantial Shareholder has an interest;
(ii)a change in the number of equity securities in which the Substantial Shareholder has an interest, together with the name of the Substantial Shareholder, the date of the change and the number of equity securities in which the Substantial Shareholder has an interest; and
(iii)a person ceasing to be a Substantial Shareholder, together with the name of the Substantial Shareholder and the date on which the person ceased to be a Substantial Shareholder,
in each case, to the best of the knowledge of the Company;
(c)it will include in each annual report a statement, made up to a date not earlier than six weeks from the date of the audited annual accounts, setting out the names of all Substantial Shareholders and the number of equity securities in which each Substantial Shareholder has an interest, to the best of the knowledge of the Company;
(d)it will include in each annual report a prominent statement of the Company's place of incorporation and that the Company is not subject to any regulation in respect of takeovers (provided that the Company is not subject to such regulation) including, in particular, Chapter 6 of the Australian Corporations Law dealing with the acquisition of shares (including substantial shareholdings and takeovers) and provide such a statement to any person who may subscribe for securities pursuant to a prospectus;
(e)it will take all steps necessary to participate in the Clearing House Electronic Subregister System ('CHESS') in the event that the legal impediments to its participation in CHESS are removed;
(f)it will apply the majority of the funds raised under the issue by satisfying its obligations to make capital contributions under the joint venture contracts dated 8 August 1994 between Tianjin Industrial and Commercial Pharmaceutical Holdings Limited and Premier Pacific Enterprises Limited in relation to Tianjin Pacific Pharmaceutical Limited and Tianjin Pacific Holdings Limited respectively in accordance with the terms of those joint venture contracts; and
(g)it will comply with Listing Rules 3B and 3C with respect to the financial year ended 31 December 1994;
3.9upon completion of the allotment of 88,700,000 ordinary shares of 20 cents each fully paid, issue the notices as contemplated by articles 5.3 to 5.5 (inclusive) of the joint venture contracts dated 8 August 1994 between Tianjin Industrial and Commercial Pharmaceutical Holdings Limited and Premier Pacific Enterprises Limited in relation to Tianjin Pacific Pharmaceutical Limited and Tianjin Pacific Holdings Limited respectively;
3.10release to the market of the following prior to Official Quotation of securities:
(a)letter to ASX from Price Waterhouse Corporate Finance Pty Ltd dated 8 December 1994; and
(b)profit and loss statement and balance sheet of The Sino-American Tianjin Smith Kline & French Laboratories Limited for each of the last three financial years;
3.11confirmation by the Underwriter that it will not rely on any event described in sub-paragraph (1) on page 84 of the Prospectus to terminate its obligation to underwrite the issue;
3.12provision of certified copies of escrow deeds entered into by the Company together with certificates issued by a bank or recognised trustee company in relation to the vendor securities of the Company; and
3.13provision of a statement that is suitable for release to the market setting out the number of securities subject to escrow and the escrow period applied to those securities.
4.The company be granted a waiver from Listing Rule 1A (3) (b) (iv) b.
5.Official Quotation of 40,000,000 ordinary shares of 20 cents each fully paid be deferred until a date to be determined by Management of ASX.
6.Official Quotation of 11,535,000 ordinary shares of 20 cents each fully paid issued to Premier Pacific Enterprises Limited and 37,165,000 ordinary shares of 20 cents each fully paid issued to Tianjin Industrial and Commercial Pharmaceutical Holdings Limited, as vendors, be deferred until the date of Official Quotation of the securities of the Company pursuant to Resolution 5, the escrowed securities to be classified as vendor securities and quoted but escrowed for a period of 24 months and, on the expiration of that period, to be released from escrow and become tradable.
Section 1031 of the Corporations Law specifies the time within which permission is required to be granted in order for allotment to proceed. For this purpose, where permission has been granted subject to compliance with any requirements specified by ASX, permission will be deemed to have been granted if the directors give an undertaking in writing to ASX to comply with those requirements. Given that the closing date of the issue coincides with the expiration of the twelve week period under Section 1031 (1) (b), you may wish to apply to the Australian Securities Commission for an extension of this period to enable the Company to comply with the Conditions as an alternative to the directors giving an undertaking to ASX.
In the event that the directors consider giving an undertaking to ASX, please note that section 1031 (8) of the Corporations Law carries a penalty of $2,500 or imprisonment for six months or both if there is a contravention of the undertaking. We recommend that in such circumstances it is advisable that the directors obtain their own legal advice prior to giving an undertaking.
Upon Notification and compliance with the Conditions, or Notification and receipt of an undertaking, the Company will be admitted to the Official List, and this will be advised to the market by ASX."
As foreshadowed in the third last paragraph of the above letter, Premier Pacific made the application to the ASC which led to the declaration of 22 February 1995 and the insertion of a 15 rather than 12 week period in para. 1031 (1) (b) of the Law.
In the interval between the letter of 16 January 1995 and the letter of 21 March 1995, there were various communications between the parties. To a significant degree they were concerned with the requirements of the ASX for listing, and these requirements became entangled with somewhat narrower issues arising directly under sub-s. 1031 (7) of the Law. In particular, the ASX wished to be satisfied as to the manner in which the requirements would be satisfied and sought information as to this from Premier Pacific.
On 7 March 1995, the solicitors for Premier Pacific wrote to the ASX enclosing correspondence and documents submitted to satisfy the requirements in the letter of 16 January. The letter also set out information as to how it was proposed to satisfy those conditions not met by reason of the enclosed material.
On 10 March, ASX wrote to the solicitors responding to the letter of 7 March 1995, and stating:
"In order for the Company to satisfy the conditions of listing as set out in our letter to you of 16 January 1995, it must confirm that the conditions have in fact been met and provide the relevant confirmation and/or documentation requested. ASX cannot confirm that the conditions have been satisfied until they have been met. It is not sufficient that the Company states what it intends to do, rather it must comply with the condition in order to satisfy ASX's requirements."
On 17 March, there was a meeting between representatives of Premier Pacific and ASX. During the meeting, Mr Grieve, an officer of the ASX, said that the ASX would need to be satisfied that any undertaking given by the directors of Premier Pacific was capable of performance and satisfactory to the ASX. He referred to the statements as to "shareholder spread" in an ASX Guidance Note dated September 1994 and entitled "Overseas Companies". Mr Grieve said that 200 to 250 Australian resident applicants probably would be sufficient for the purposes of the ASX.
It will be recalled that para. 3.2 of the letter of 16 January 1995 specified that there be at least 500 shareholders each with a parcel of shares having a value of at least $2,000. There was no requirement as to Australian resident applicants.
At the meeting on 17 March, Mr Grieve also said that Premier Pacific would have to ensure "that the balance of the shareholders are genuine, independent shareholders". It will be noted from the letter of 21 March, set out below, that a large number of the applicants were Tianjin employees.
March 21, 1995 was the last day of the period within which the ASX might grant permission or be taken to have granted permission, so as not to trigger the operation of sub-s. 1031 (1) to render any allotment or issue void and oblige Premier Pacific to repay moneys received. The debate before me turned upon the adequacy of what Premier Pacific submitted was an undertaking in writing given by the directors on 21 March 1995 to comply with the requirement of ASX in para. 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. Omitting formal parts, and with emphasis added, the letter states:
"We hereby undertake to the Exchange:
to ensure that within 90 days of the date of this letter the Company will have received at least 500 valid applications from third parties of which at least 250 applicants will have residency in Australia by:
(a)relying upon Tianjin Northern International Trust and Investment Corporation ('NORITIC') as an applicant, under the Company's recently closed offer, for 600,000 shares in the Company to assign its rights as applicants to a company ('SPV') of which the directors of the Company are its directors and the shareholders of SPV are the Company's Australian resident directors;
(b)relying upon an undertaking of Tianjin Industrial and Commercial Pharmaceutical Holdings Limited ('TICPHL') to ensure that the present rights of each of the approximately 435 applicants (who are employees of the Company or of one or more of its subsidiaries) be assigned to SPV;
(c)relying upon an undertaking executed by Hambros Equities Limited contemporaneously with this letter;
(d)assisting SPV to offer all these rights, so assigned, under a fresh prospectus, and issued by SPV;
(e)ensuring that the prospectus referred to in paragraph (d) refers to, or incorporates the relevant contents of, amongst other things:
(i)the Company's Prospectus dated 30th November 1994;
(ii)the Company's two supplementary prospectuses to that prospectus; and
(iii)all such other information required to be included in it under the Corporations Law; and
(f)by assisting Hambros Equities Limited, NORITIC and TICPHL to fulfil their undertakings to us.
to, on the Company having received the valid applications as contemplated by paragraph 1, promptly satisfy in fact each of the conditions set out in paragraph 3 of the Exchange's letter dated 16th January 1995 to our Australian solicitors, Kemp Strang & Chippindall, which are not as at the time of delivery of this letter to the Exchange satisfied in fact.
These undertakings are supported by the following written undertakings to the Company appended to this letter.
.an undertaking dated 10th March 1995 by NORITIC,
.an undertaking dated 21st March 1995 by Tianjin Industrial and Commercial Pharmaceutical Holdings Limited; and
.an undertaking dated 21st March 1995, executed contemporaneously with this undertaking, by Hambros Equities Limited."
Conclusions
Counsel for ABN Amro said that this letter did not constitute an undertaking in writing by the directors of Premier Pacific to comply with the requirements of para. 3.2
that there be at least 500 shareholders, each with a parcel of shares having a value of at least $2,000.
Therefore, counsel for ABN Amro submitted, there was no deemed permission granted by the ASX within the period applicable under sub-s. 1031 (1) (b). Counsel pointed out that the undertaking was one merely to ensure within 90 days that a certain state of affairs would exist, counsel for Premier Pacific countered that 90 days was a reasonable period in the circumstances and that, in any event, the relevant requirement of the ASX had not stipulated any particular period for compliance.
Counsel for Premier Pacific referred to the use in para. 1 of "by" followed in sub-paras. (a) - (f) of the expressions "relying upon", "assisting" and "ensuring that". He submitted that this was not conditional in nature. Rather, what sub-paras. (a) - (f) did was to explain to the ASX, as it wished to have explained, the means by which Premier Pacific proposed to satisfy the conditions.
On the other hand, however that may be, para. 2 of the letter of 21 March uses the phrase "promptly satisfy in fact" in relation to future events. This highlights the submission for ABN Amro that what is involved here is a purported undertaking to bring about a state of affairs beyond the control of the directors of Premier Pacific. They may only "promptly satisfy in fact" if third parties provide the corporation with the applications referred to in para. 1 of the letter.
In my view, the question whether the letter of 21 March conveyed a written undertaking by the directors of Premier Pacific to comply with the requirement of ASX set out in para. 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 the threshold question. This is whether the requirement in para. 3.2 was susceptible of an undertaking in writing by the directors to comply with it.
Earlier in these reasons, I have discussed the submissions on this matter of construction and indicated that I accept those of ABN Amro. That conclusion has several consequences.
First, the point is not reached of considering whether, on the footing that an adequate undertaking was not given but might still be given, Premier Pacific should have an order in its favour extending time for an adequate undertaking to be made, over the opposition of ABN Amro to such a favourable exercise of discretion.
Secondly, Premier Pacific submitted that if the present point were reached in the decision, the consequence was that the requirement in para. 3.2 was severable and this produced a result favourable to it. The contention was that compliance could not be stipulated for a requirement, within the meaning of sub-s. 1031 (7), unless it was susceptible of a written undertaking by the directors to comply with that requirement, under sanction of the penalty for contravention of the undertaking by the directors.
I have rejected that submission, so it is unnecessary to consider the further steps in the Premier Pacific argument. However, for the sake of completeness I should do so. In my view, para. 3.2 would not be severable.
The resolution of the ASX was that Premier Pacific be admitted to the Official List subject to "compliance with Conditions". That term was stated to mean "compliance with the following conditions" set out in sub-paras. 3.1 - 3.13. Whilst the sub-paragraphs are separately identified, it is manifest that the intention of the ASX in resolving as it did was that all conditions be complied with as a composite requirement for admission. The sub-paragraphs are linguistically distinct and in that sense severable, but as a matter of substance they are interdependent. The conclusion advocated by Premier Pacific would be that permission was given where it was not intended to be given; cf Director of Public Prosecutions v Hutchinson [1990] 2 AC 783 at 805-811.
Finally, upon the construction I have supported, para. 3.2 properly was made a requirement to be met within the applicable period, ending 21 March 1995, if the grant of permission were to be effective. That requirement was not met. The result is that para. (b) of sub-s. 1031 (1) was not satisfied by 21 March 1995.
The application by Premier Pacific for declaratory relief should be dismissed. In view of the conclusion I have reached, the question of the discretionary order sought by Premier Pacific in the terms I have described does not arise.
There remains the interlocutory relief granted 3 April 1995, which will have the effect, unless now further extended, of extending until 21 April 1995 the time permitted by sub-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.
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 ASX may grant permission as specified in para. 1031 (1) (b) of the Law. I say nothing as to whether such an application is open or as to its prospects of success, nor do I canvas any other avenue which may be open to it under the Law. I appreciate the submissions by ABN Amro in resistance to any further extension of the time in which its money is tied up when it should be free for recovery.
Nevertheless, in all the circumstances, it is appropriate for Premier Pacific to have a short further extension of the present interlocutory order so that it may consider its position. Accordingly, I will extend the order made 3 April 1995 up to and including 27 April 1995.
There remains the declaration sought by ABN Amro on its cross-claim. A declaration is sought 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 sum of $40m being the application money for shares in Premier Pacific.
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 what otherwise would have been the operation of sub-s. 1031 (1).
I have 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 are the complex relations between the parties which flow from the operation of the Law. The position is best understood from a perusal of these reasons as a whole.
Accordingly, I will not grant the relief sought on the cross-claim.
The orders of the Court will be:
(1)The order made 3 April 1995 be extended by deleting the words "two days after the delivery of judgment in these proceedings" and inserting "27 April 1995".
(2)The applicant pay the costs of the respondents of the application and the cross-claim.
I certify that this and the preceding thirty five (35) pages are a true copy of the reasons for judgment of the Honourable Justice Gummow.
Associate:
Date: 19 April 1995.
Counsel and solicitors Mr J. Spigelman QC and
for the applicant: Mr D. Robinson instructed by Strang & Chippendall.
Counsel and solicitors Mr B.W. Rayment QC and
for the first respondent: Mr R.W. White instructed
by Deborah Hambleton.
Counsel and solicitors Mr M.A. Pembroke instructed
for the second respondent: by Mallesons Stephen
Jaques.
Mr R. Goldie solicitor for the Australian Securities Commission appeared as amicus curiae.
Date of hearing: 3 April 1995.
Date of judgment: 19 April 1995.
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