Re Galaxy Resources Ltd - [2021] WASC 277

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   RE GALAXY RESOURCES LTD; EX PARTE GALAXY RESOURCES LTD [2021] WASC 277
CORAM:   HILL J
HEARD:   2 JULY 2021
DELIVERED          :   2 JULY 2021
PUBLISHED           :   12 AUGUST 2021
FILE NO/S:   COR 106 of 2021
MATTER:   IN THE MATTER OF GALEXY RESOURCES LTD
EX PARTE

GALAXY RESOURCES LTD
Plaintiff

AND

OROCOBRE LTD
Interested Party

Catchwords:

Corporations law – Scheme of arrangement – Application for orders convening scheme meeting under s 411(1) of the Corporations Act 2001 (Cth) – Whether requirements to order scheme meeting are satisfied – Orders made convening scheme meeting

Legislation:

Corporations Act 2001 (Cth), s 411(1), s 412(1)(a), s 1319
Supreme Court (Corporations) (WA) Rules 2004 (WA), r 3.2

Result:

Orders made convening scheme meeting

Category: B

Representation:

Counsel:

Plaintiff	:	A J Papamatheos & S Mengler
Interested Party	:	E J Sylwestrzak

Solicitors:

Plaintiff	:	Ashurst Australia
Interested Party	:	Jones Day

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

Pacific Energy Limited [2019] WASC 443
Re Amcom Telecommunications Ltd [2015] FCA 341
Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400
Re CannPal Animal Therapeutics Ltd [2021] WASC 37
Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358
Re David Jones Ltd [No 2] [2014] FCA 720; (2014) 101 ACSR 381
Re Doray Minerals Ltd [2019] WASC 57
Re DUET Management Company 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34
Re Kangaroo Resources Ltd [2018] WASC 327
Re Macquarie Private Capital A Ltd [2008] NSWSC 323
Re NTM Gold Ltd [2021] WASC 22
Re Nzuri Copper Ltd [2019] WASC 189
Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20
Re Piedmont Lithium Ltd [2021] WASC 76
Re SRG Ltd [2018] FCA 1092
Re Wesfarmers Ltd [2018] WASC 308
Re Wesfarmers Ltd [No 2] [2018] WASC 357

HILL J:

The plaintiff, Galaxy Resources Limited (Galaxy), is an Australian public company listed on the official list of the Australian Securities Exchange (ASX).
On 19 April 2021, the plaintiff announced to the ASX it had entered into a merger implementation deed (MID) with Orocobre Limited (Orocobre) (Scheme).[1] Under the Scheme, it is proposed that Galaxy will become the wholly owned subsidiary of Orocobre and subsequently will be delisted from the ASX.[2] Each Galaxy shareholder will receive 0.569 fully paid ordinary shares in Orocobre for every fully paid ordinary share in Galaxy.[3]
[1] First affidavit of Jacob Ronald Carmody filed 16 June 2021 [13] – [14], JRC-5.
[2] Scheme booklet [3.1].
[3] Scheme booklet [3.2].
By originating process dated 16 June 2021, Galaxy sought orders under s 411 of the Corporations Act 2001 (Cth) (Act) in relation to the proposed Scheme. The application came before me for the first court hearing on 2 July 2021.
On 2 July 2021, I made orders pursuant to s 411(1) of the Act to convene a meeting of Galaxy's members to consider and vote on the proposed Scheme. Orders were also made approving the distribution of a Scheme booklet to Galaxy's shareholders under s 412(1)(a) of the Act. I also made ancillary orders as to the convening and conduct of the Scheme meeting under s 1319 of the Act.
In making those orders, I stated that I would subsequently publish written reasons for my orders. These are my reasons for decision.

Factual Background

Galaxy Resources

Galaxy is a global lithium chemicals company headquartered in Perth, Western Australia. It develops and operates lithium mines and chemical processing facilities.[4] Its key assets are in Western Australia, north west Argentina and Quebec, Canada.
[4] Scheme booklet [5.2].
As at 23 June 2021, Galaxy had an issued capital of 505,669,628 fully paid ordinary shares (Shares), 9,408,299 performance rights (Performance Rights) and a market capitalisation of approximately $1,714,220,039.[5] Galaxy proposes to issue a further approximately 103,000 Performance Rights prior to the record date for the Scheme, which is currently scheduled for 5.00pm (AWST) on Wednesday, 18 August 2021 (Scheme Record Date).[6]

Orocobre

[5] Affidavit of Martin Ronald Rowley filed 25 June 2021 [17(c)], [21].

[6] Affidavit of Martin Ronald Rowley filed 25 June 2021 [21].

Orocobre is a global lithium chemicals company and an established producer of boron. It is listed on both the ASX and the Toronto Stock Exchange (TSX).[7] Orocobre is a vertically integrated producer of lithium chemicals and has two key assets: one in Argentina and the other in Japan.
[7] Scheme booklet [6.2].
If the Scheme is implemented, Galaxy will become a wholly owned subsidiary of Orocobre.[8]

Proposed Scheme

[8] Scheme booklet [3.1].

The purpose of the proposed Scheme between Galaxy and Orocobre is to create a top six lithium chemicals global company. Several reasons are given for the proposed merger including a highly complementary portfolio of assets across four continents, lithium source, stage of assets and end product, as well as enhanced scale, liquidity and financial capacity. It will enable the merged group to have opportunities for growth in both brine and hard rock and enable it to take advantage of the expected rising demand for lithium in connection with the electric vehicle market.[9]
[9] Scheme booklet p 9.
If the Scheme is implemented, Orocobre will acquire all of the Galaxy Shares on issue as at the Scheme Implementation Date. Galaxy's shareholders will receive 0.569 fully ordinary Orocobre shares for each Galaxy Share as consideration for the acquisition of their Shares under the Scheme (Scheme Consideration).[10] Ineligible overseas shareholders and shareholders who hold an unmarketable parcel of Shares and do not elect to receive Orocobre shares will receive a pro-rata share of the net proceeds from the sale of their Scheme Consideration, which will be sold through a sale facility.[11]
[10] Scheme booklet [3.2].
[11] Scheme, cl 4.3 and cl 4.4.
The Performance Rights will be dealt with outside of the Scheme. Galaxy proposes to issue approximately 103,000 Galaxy Performance Rights before the Scheme Record date and, assuming that these are issued, all Galaxy Performance Rights will be converted to Galaxy Shares prior to the implementation date.[12]
[12] Affidavit of Martin Ronald Rowley filed 25 June 2021 [21]; Scheme booklet [11.2].
On 18 April 2021, Galaxy and Orocobre entered into a merger implementation deed (MID) for the implementation of the Scheme.[13] This was announced to the ASX on 19 April 2021.[14] The MID was subsequently amended by letter deeds between Galaxy and Orocobre dated 27 April 2021,[15] 10 June 2021,[16] and 25 June 2021.[17]
[13] Affidavit of Martin Ronald Rowley filed 25 June 2021 [6], MRR-1.
[14] Affidavit of Martin Ronald Rowley filed 25 June 2021 [7]; First affidavit of Jacob Ronald Carmody filed 16 June 2021 [13] – [14], JRC-5.
[15] Affidavit of Martin Ronald Rowley filed 25 June 2021 [27], MRR-4.
[16] Affidavit of Martin Ronald Rowley filed 25 June 2021 [28], MRR-5.
[17] Second affidavit of Jacob Ronald Carmody filed 30 June 2021 [40], JRC-26.
The directors of Galaxy unanimously recommend that shareholders vote in favour of the Scheme.[18] Galaxy retained an independent expert to give an opinion on the Scheme. The independent expert has concluded that, in the absence of a superior proposal, the Scheme is fair and reasonable and in the best interests of Galaxy's shareholders.
[18] Scheme booklet, Letter to shareholders.

Evidence for the first court hearing

Galaxy and Orocobre relied on eight affidavits that were filed prior to the first hearing. These were:
(a)an affidavit of Jacob Ronald Carmody filed 16 June 2021. Mr Carmody is a senior associate employed by Ashurst Australia, the solicitors for Galaxy. His affidavit gave a brief outline of Galaxy and confirmed the Scheme booklet had been lodged with ASIC. The affidavit annexed the draft Scheme booklet, the ASX Announcement of the proposed Scheme, information about Galaxy obtained from ASIC, and Galaxy's constitution;
(b)an affidavit of Martin Ronald Rowley filed 25 June 2021. Mr Rowley is the independent non‑executive chairman of Galaxy and the proposed chairperson of the Scheme meeting. The affidavit contains an overview of the Scheme, Galaxy, and Orocobre. By his affidavit, Mr Rowley consented to act as chairperson of the Scheme meeting and provided the necessary disclosures required by r 3.2 of the Supreme Court (Corporations) (WA) Rules 2004 (WA) (Corporations Rules). His affidavit annexed, among other things, a copy of the MID, the various securities registers of Galaxy (including an extract of the performance rights summary report), the draft pro-forma opt-in notice for Unmarketable Parcel shareholders, the written consents from the experts named in the Scheme booklet, the draft proxy form to be given to shareholders and the circular resolution approving the information in the Scheme booklet;
(c)an affidavit of Simon Michael Hay filed 25 June 2021. Mr Hay is the chief executive officer of the plaintiff and is the proposed alternate chairperson for the Scheme meeting. By his affidavit, he consented to act as chairperson in the event that Mr Hay was unable to act and provided the necessary disclosures pursuant to r 3.2 of the Corporations Rules;
(d)an affidavit of John Ernest Sanders filed 25 June 2021. Mr Sanders is the company secretary and general counsel of the plaintiff. His affidavit detailed the verification process undertaken by Galaxy in relation to the information about Galaxy in the Scheme booklet. Mr Sanders' affidavit annexed the relevant verification certificates and the due diligence questionnaires completed by the directors and executive management;
(e)a second affidavit of Mr Carmody filed 30 June 2021. Mr Carmody annexed copies of correspondence between the plaintiff and ASIC and the ASX, including a revised copy of the Scheme booklet, as well as a letter deed executed by the Galaxy and Orocobre amending the MID;
(f)an affidavit of Mr Richard Stacy Anthon filed 29 June 2021. Mr Anthon is the general counsel and a joint company secretary of Orocobre. Mr Anthon gave an overview of Orocobre and attested to the verification process undertaken by Orocobre in relation to the Scheme. Annexed to his affidavit, among other things, were the relevant verification certificates and the executed Deed Poll;
(g)a second affidavit of Mr Sanders filed 1 July 2021. Mr Sanders confirmed advice had been received from Galaxy's foreign legal adviser, Rimôn Law, regarding the offer of shares in certain foreign jurisdictions pursuant to the Scheme. The affidavit annexed an email from the general counsel and joint company secretary of Orocobre, Mr Anthon, in relation to the offer to Galaxy shareholders registered in Argentina, Canada, Hong Kong and the United Kingdom; and
(h)a third affidavit of Mr Carmody filed 1 July 2021, which detailed the revisions to the Scheme booklet that had been made as a result of changes in the market price of Galaxy and Orocobre shares. Mr Carmody confirmed that all court documents had been served on ASIC. Mr Carmody annexed the plaintiff's correspondence with ASIC, including extracts of the amended marked-up parts of the Scheme booklet, the finalised version of the independent expert report (IER) and the independent technical expert report (ITER). He also annexed the letter from ASIC confirming that ASIC did not intend to appear at the first court hearing.

Nature of the proposed scheme

The proposed Scheme contemplates that Orocobre will acquire all of the Shares in Galaxy and that shareholders will receive 0.569 Orocobre shares for every Galaxy Share held.[19] That is, the effect of the proposed Scheme is to make Galaxy a wholly owned subsidiary of Orocobre. Galaxy will be subsequently delisted from the ASX.[20]
[19] Scheme booklet [3.2].
[20] Scheme booklet, [3.1].
Shareholders of Galaxy who reside outside of Australia and New Zealand, or any other jurisdiction agreed by Galaxy and Orocobre, are considered to be Ineligible Overseas Shareholders and will not receive the Scheme Consideration. Galaxy and Orocobre have determined that shareholders whose addresses in the register on the Scheme Record Date are in Argentina, the United Kingdom, Canada or Hong Kong will also be entitled to receive the Scheme Consideration.[21] The Orocobre shares that would have been issued to the Ineligible Overseas Shareholders will instead be issued to a sale nominee appointed by Galaxy and Orocobre (Sale Nominee) to be sold on the ASX or off‑market as soon as is reasonably practicable and in any event, not more than ten business days on which the Shares are capable of being traded after the implementation date of the Scheme.[22] The net proceeds will be paid by Galaxy to the Ineligible Overseas Shareholders on a pro rata basis.[23]
[21] Scheme booklet, [3.13(a)].
[22] Affidavit of Martin Ronald Riley filed 25 June 2021 [30] – [32]; Scheme, cl 4.4.
[23] Affidavit of Martin Ronald Riley filed 25 June 2021 [30] – [32]; Scheme, cl 4.4.
As at 23 June 2021, there were 94 Ineligible Overseas Shareholders holding 1,854,187 shares, comprising approximately 0.371% of Galaxy Shares on issue.[24]
[24] Submissions [35]; Affidavit of Martin Ronald Riley filed 25 June 2021, MRR-6.
Shareholders (other than Ineligible Overseas Shareholders) who hold less than a marketable parcel of Galaxy shares on the Scheme record date are designated as Unmarketable Parcel Shareholders for the purpose of the Scheme. Unmarketable Parcel Shareholders may elect to opt in to receive the Scheme consideration.[25] Unmarketable Parcel Shareholders who do not make a valid election will not be issued the Scheme Consideration. The Orocobre shares which would have been issued to these shareholders will be issued to the Sale Nominee and sold as soon as is reasonably practicable and in any event not more than 10 business days on which the Shares are capable of being traded following the Implementation Date.[26] The net proceeds will be paid by Galaxy to the Unmarketable Parcel Shareholders on a pro rata basis.
[25] Scheme cl 4.3; Scheme booklet, [2], [3.13].
[26] Scheme booklet, [3.13(c)]; Scheme cl 4.4.
As at 23 June 2021, there were 1,056 shareholders holding less than a marketable parcel of shares. The total number of shares held by these shareholders was 79,384 shares, which constituted approximately 0.02% of the total number of shares on issue at that date.[27]
[27] Affidavit of Martin Ronald Rowley filed 25 June 2021 [41].
The Performance Rights are being dealt with outside of the Scheme. The terms of the Performance Rights provide that, subject to the court approving the Scheme at the second court hearing, each Galaxy Performance Right will automatically vest and convert into a Galaxy Share on a one for one basis and will then become subject to the Scheme.[28]
[28] Affidavit of Martin Ronald Rowley filed 25 June 2021 [49]; MID cl 8.
If the Scheme is implemented, Galaxy will become a wholly owned subsidiary of Orocobre and will be delisted from the ASX. The Scheme will not be effected unless and until a number of conditions precedent are satisfied or waived. The conditions precedent which are required to be satisfied are disclosed in the Scheme booklet.[29]
[29] Scheme booklet, [3.6]; MID cl 3; Scheme cl 2.
The MID between Galaxy and Orocobre sets out the procedures for the implementation of the proposed Scheme.
If the Scheme is approved by shareholders and by the court at the second court hearing, on the implementation date, all the existing shares will be transferred to Orocobre, Orocobre will be entered in the register as the holder of all Galaxy shares,[30] and Orocobre will provide the Scheme Consideration to shareholders in return for their shares in Galaxy.[31]
[30] Scheme, cl 3.2.
[31] Scheme, cl 4.
The obligations of Orocobre under the Scheme are supported by a Deed Poll which has been executed by Orocobre (Deed Poll).[32]
[32] Scheme booklet, Annexure C.
The independent directors of Galaxy unanimously recommend that shareholders vote in favour of the Scheme.[33]
[33] Scheme booklet, [1.1].
An independent expert report (IER) has been prepared by Deloitte Corporate Finance Pty Ltd (Deloitte). The IER expresses the opinion that, in the absence of a superior proposal, the Scheme is fair and reasonable and is in the best interests of the shareholders.[34] The consideration of advantages, disadvantages and other factors that are likely to impact shareholders are set out comprehensively in the IER.
[34] Scheme booklet, Annexure E.
I was provided with the draft Scheme booklet which was submitted to ASIC on 17 June 2021 and the various amendments that have been made to the document since then.[35]
[35] First affidavit of Jacob Ronald Carmody filed 16 June 2021, JRC-8; Second affidavit of Jacob Ronald Carmody filed 30 June 2021, JRC-22, JRC-23, JRC-24; Third affidavit of Jacob Ronald Carmody filed 1 July 2021, JRC-29.
The scheme booklet contains the following sections:
(a)letters from the chairman of Galaxy and the chairman of Orocobre outlining the rationale for the Scheme;
(b)a listing of all important dates and times for the Scheme;
(c)an outline of considerations relevant to the vote of shareholders, including reasons to vote in favour of or against the Scheme;
(d)a 'frequently asked questions' table, which addresses all essential matters;
(e)a summary of the Scheme;
(f)a section on the choices available to shareholders and how to vote at the Scheme meeting;
(g)information on Galaxy and Orocobre and an overview of the merged group;
(h)a section on risk factors;
(i)a section on the taxation implications for Galaxy shareholders;
(j)a section on additional information, which includes details of the relevant interests of Galaxy's directors and the benefits they will obtain if the Scheme is approved.
The Scheme booklet includes a number of important annexures which will form part of the Scheme booklet. These include a summary of the MID, the proposed Scheme, the Deed Poll, the Notice of Scheme meeting, the IER and the Investigating Accountant's report.

Legal principles in respect of the scheme

Pursuant to s 411 of the Act, a scheme of arrangement can be used to re‑organise a company in a manner which will be binding on its members, provided that:
(a)the arrangement is agreed by the requisite majorities as prescribed by s 411(4)(a) of the Act, namely 75% of shareholders by value and 50% by number; and
(b)the court approves the arrangement pursuant to s 411(4)(b) of the Act.
There are three stages to an application under s 411 of the Act. First, the court approves the convening of a scheme meeting and the draft explanatory statement to be sent to the scheme members. Second, the members vote on the proposed scheme at the scheme meeting. Third, assuming the first two stages have occurred, the court approves the proposed scheme.[36]
[36] Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 [7].
There are well‑established principles which apply to the first stage of proceedings. The court will order the convening of the scheme meeting and approve the dispatch of the scheme booklet if it is satisfied that:[37]
(a)there is a pt 5.1 body;
(b)there is a compromise or arrangement within the meaning of s 411 of the Act;
(c)the proposed scheme booklet contains the prescribed information[38] and provides proper disclosure;[39]
(d)the scheme is bona fide and properly proposed;
(e)ASIC has had at least 14 days' notice of the proposed hearing date and a reasonable opportunity to examine the terms of the scheme and the scheme booklet and make submissions;[40]
(f)the procedural requirements of the Act and the Corporations Rules have been met;
(g)the scheme is of such a nature that, if it receives the necessary statutory majority at the scheme meeting, the court will be likely to approve it.
[37] Re SRG Ltd [2018] FCA 1092 [11]; Re Wesfarmers Ltd [2018] WASC 308 [60].
[38] Corporations Act, s 412(1)(a)(ii); Corporations Regulations 2001 (Cth), reg 5.1.01 and Sch 8 cl 8301 ‑ 8310.
[39] Corporations Act, s 412(1)(a)(i).
[40] Corporations Act, s 411(2)(b).

Any issue about classes of members is usually determined at the first hearing.[41] This is so that costs and court time are not wasted which would otherwise occur if this issue was left to the second hearing.[42]
[41] Re CSR Ltd [73].
[42] Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20 [20].
The standard of review that is undertaken by the court at the first hearing is whether the proposed scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members.[43] If the proposed arrangement is one that appears fit for consideration by a meeting of members and is a commercial proposition likely to gain the court's approval if passed by the necessary majority, leave should be given to convene the meeting.[44]
[43] Re Amcom Telecommunications Ltd [2015] FCA 341 [10].
[44] Re SRG Ltd [12]; Re Wesfarmers Ltd [72] - [76].

Disposition

The formal matters that Galaxy had to prove are satisfied.
Galaxy is a company and, accordingly, is a pt 5.1 body. The proposed Scheme constitutes an 'arrangement'. This type of share acquisition scheme has been approved by courts as an arrangement on numerous occasions.
Galaxy filed the affidavit required by r 3.2 of the Corporations Rules regarding the persons who have been nominated to be the chairperson and alternate chairperson for the Scheme Meeting.[45]
[45] Affidavit of Martin Ronald Rowley filed 25 June 2021 [111] – [112]; Affidavit of Simon Michael Hay filed 25 June 2021 [5].
By letter dated 1 July 2021, ASIC confirmed that it had been given 14 days' notice of the hearing and a reasonable opportunity to examine the terms of the Scheme and the draft explanatory statement or Scheme booklet.[46] ASIC also gave notice that it did not propose to appear at the first hearing to make submissions or intervene to oppose the Scheme.[47]
[46] Third affidavit of Jacob Ronald Carmody filed 1 July 2021, JRC-32.
[47] Third affidavit of Jacob Ronald Carmody filed 1 July 2021, JRC-32.
On the materials before me, there was nothing to suggest that the Scheme was not properly proposed. The constitution of Galaxy does not prevent the Scheme.[48]
[48] First affidavit of Jacob Ronald Carmody filed 16 June 2021, JRC-3.
No class issue arose in relation to the Scheme. The treatment of the Unmarketable Parcel Shareholders is commonplace and is not class creating.[49] All Galaxy shareholders are being treated equally and, as a result, constitute a single class.
[49] See Re Wesfarmers Ltd [96].
There are a number of conditions precedent to the Scheme.[50] Mr Rowley has deposed that he is not aware of any basis to believe that any condition precedent will not be satisfied or waived by the necessary time.[51]

Disclosure and Scheme Booklet

[50] Scheme booklet, [3.6]; MID cl 3; Scheme cl 2.

[51] Affidavit of Martin Ronald Rowley filed 25 June 2021 [108].

I have read the initial draft of the Scheme booklet (as provided to ASIC). I have also been provided with the correspondence between ASIC and Galaxy's solicitors relating to ASIC's review of the draft Scheme booklet.[52] ASIC's only query concerned the identity of the Sale Nominee nominated by Orocobre to sell the new Orocobre shares attributable to the Ineligible Overseas Shareholders, and the percentage of Ineligible Overseas Shareholders they would represent.[53]
[52] Second affidavit of Jacob Ronald Carmody filed 30 June 2021, JRC-13 – JRC-25; Third affidavit of Jacob Ronald Carmody filed 1 July 2021, JRC-29.
[53] Second affidavit of Jacob Ronald Carmody filed 30 June 2021, JRC-17.
I was and am satisfied that there will be proper disclosure as to the effect of the proposed Scheme and the material considerations for shareholders of Galaxy.
There is evidence before me as to the due diligence and verification process that was undertaken by both Galaxy and Orocobre.[54] On the basis of this evidence, I accept that:
(a)Galaxy undertook a process of due diligence and verification to verify the accuracy of statements attributable to Galaxy in the Scheme booklet;
(b)Orocobre undertook a similar process to verify the statements attributable to it;
(c)appropriate steps have been taken to satisfy Galaxy and Orocobre that the Scheme booklet does not omit any material information.
[54] Affidavit of Martin Ronald Rowley filed 25 June 2021 [71] – [78]; First affidavit of John Ernest Sanders filed 25 June 2021 [11] – [22].
The directors of Galaxy have resolved to approve the Scheme booklet.[55]
[55] Affidavit of Martin Ronald Rowley filed 25 June 2021, 'MRR-11'.
Based on the checklist provided by counsel for Galaxy,[56] I was satisfied that the Scheme booklet contained the prescribed information in accordance with s 412(1)(a)(ii) of the Act and sch 8 of the Corporations Regulations 2001 (Cth).
[56] Submissions, Annexure A.
In written and oral submissions, Galaxy's counsel drew my attention to some specific matters. I address each of these below.

Performance Risk

I was and am satisfied that the nature and terms of the proposed Scheme are such that the shareholders are adequately protected against the risk that they will not receive the Scheme Consideration and have no capacity to sue Orocobre to recover their shares or damages.
In that respect I have had regard to the terms of the Scheme and the Deed Poll. Pursuant to these documents:
(a)Orocobre must allot and issue (or procure the allotment and issue of) 0.569 Orocobre shares to each eligible shareholder for each Galaxy Share they hold on the implementation date;[57]
(b)Orocobre is required to issue the Scheme Consideration on the implementation date;[58]
(c) transfer of the Scheme shares is subject to provision of the Scheme Consideration;
(d)beneficial title in Galaxy Shares does not pass unless the Scheme Consideration has been issued in accordance with the Scheme;[59] and
(e)Galaxy and each Scheme participant will have individual rights against Orocobre in the event that Orocobre fails to provide the Scheme Consideration.[60]
[57] Scheme, cl 4.1.
[58] Scheme, cl 4.2.
[59] Scheme, cl 4.12.
[60] Property Law Act 1969 (WA) s 11.
The arrangements under the terms of the proposed Scheme are supported by the Deed Poll. By the Deed Poll, Orocobre covenants in favour of each Galaxy shareholder that it will perform all actions attributed to it under the Scheme. There is also an acknowledgement that the Deed Poll may be relied on and enforced by any Scheme shareholder in accordance with its terms.[61] In my view, the shareholders are sufficiently identified within the Deed Poll to enable them to enforce the Deed Poll as against Orocobre.

Exclusivity provisions and break fee

[61] Deed Poll, cl 2.

The MID contains the customary lock up devices in the form of 'no shop', 'no talk', 'no due diligence', 'notification obligations' and 'matching right' provisions.[62] The 'no talk' and 'no due diligence' provisions are subject to a fiduciary carve out.[63] In certain circumstances, a break fee of $18,600,000 is payable by Galaxy to Orocobre[64] and by Orocobre to Galaxy.[65]
[62] MID, cl 11, cl 12.
[63] MID, cl 11.3.
[64] MID, cl 13.2
[65] MID, cl 13.3.
In considering whether the exclusivity provisions impact on completion of the transaction and the duties of directors, the court has regard to:[66]
(a)the period of the exclusivity, which should be no more than a reasonable period and capable of precise ascertainment;
(b)whether the provisions are subject to an overriding obligation that the directors not breach their fiduciary duties or are otherwise unlawful; and
(c)whether there is adequate prominence given to these provisions in the Scheme booklet.
[66] Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 [29] - [35]; Re Kangaroo Resources Ltd [2018] WASC 327 [57] - [61]; Pacific Energy Limited [2019] WASC 443 [58].
In this case, the exclusivity period in the MID is defined and, at most, is a period of approximately six months. The no‑talk and no due diligence provisions contain appropriate fiduciary carve‑outs.[67] The exclusivity arrangements are prominently disclosed in the Scheme booklet at [1.4].[68]
[67] MID, cl 11.3.
[68] Scheme Booklet, [1.4].
The affidavit of Mr Rowley sets out the commercial justification for the exclusivity provisions and the Break Fee.[69] I accept his evidence that the exclusivity provisions are reasonable and appropriate for a transaction of this nature. The inclusion of these provisions in the MID followed arm's‑length commercial negotiations in which both parties were separately advised and represented by external legal advisers.[70]
[69] Affidavit of Martin Ronald Rowley filed 25 June 2021 [56] – [63].
[70] Affidavit of Martin Ronald Rowley filed 25 June 2021 [64] – [68].
The amount of the Break Fee is $18,600,000, which is approximately 1% of the equity value of Galaxy based on the closing price of the Galaxy shares on the ASX on 16 April 2021 (the business day prior to the announcement of the entry into the MID).[71] As such, it is within generally accepted commercial parameters for break fees. The Break Fee is intended to compensate the parties for the costs (both costs incurred and opportunity costs) if the Scheme does not proceed. The Break Fee is not payable if shareholders do not vote in favour of the Scheme.[72] Accordingly, despite the amount of the Break Fee, I consider it is unlikely to influence shareholders in their decision to vote on the Scheme.

No collateral benefit which should prevent approval of the Scheme

[71] Affidavit of Martin Ronald Rowley filed 25 June 2021 [52].

[72] MID, cl 13.5.

The court must examine whether a benefit exists for one shareholder in particular, so as to bring into question the overall fairness of the Scheme.[73] To determine whether there is a collateral benefit, the court considers the 'net benefits' test, to ensure that there is no overall disparity in favour of the party to the non-Scheme transaction.[74] If no net benefit is present, then, prima facie, the equality principle under s 602(c) of the Act is satisfied.
[73] Re David Jones Ltd [No 2] [2014] FCA 720; (2014) 101 ACSR 381 [16] – [21] (Farrell J).
[74] Takeovers Panel, Guidance Note 21: Collateral Benefits [15].
On the evidence before me, no issue of collateral benefit arises in this Scheme application.

Director benefits and director recommendations

The terms of the MID require Galaxy to state that each director recommends that shareholders vote in favour of the Scheme resolution in the absence of a Superior Proposal and provided that the Independent Expert's Report continued to confirm the Scheme is in the best interests of shareholders.[75]
[75] MID, cl 4.2.
Counsel drew my attention to the fact that out of the six Galaxy directors, Mr Rowley, Mr Tse, Mr Bacchus and Mr Turner directly or indirectly hold Galaxy shares, amounting to 11,886,955 of the 505,669,628 Galaxy shares on issue, or 2.351%.[76] Each of the six Galaxy directors directly or indirectly holds Performance Rights, being 149,551 of the 9,408,299 Performance Rights on issue, or 1.590%.[77] These matters are prominently displayed in the Scheme booklet.[78]
[76] Affidavit of Martin Ronald Rowley filed 25 June 2021 [89].
[77] Affidavit of Martin Ronald Rowley filed 25 June 2021 [89].
[78] Scheme booklet, [11.1].
The Performance Rights held by Mr Rowley, the independent non‑executive chairman of Galaxy, and the Performance Rights held by Mr Turner, Mr Bacchus, Ms Heredia and Mr Fitzpatrick, as Galaxy's non‑independent directors, were issued in lieu of a portion of their directors' fees and will vest on 1 July 2021.[79] The Performance Rights held by Mr Tse, the executive director of Galaxy, were issued as part of Galaxy's 2021 Incentive Program and will automatically vest in accordance with their terms if the Scheme is approved by the court at the second court hearing.[80]
[79] Affidavit of Martin Ronald Rowley filed 25 June 2021 [47(b)].
[80] Affidavit of Martin Ronald Rowley filed 25 June 2021 [47(c)].
If the Scheme is approved at the second court hearing, Mr Rowley will be appointed as non‑executive chairman of Orocobre and Mr Turner, Ms Heredia and Mr Fitzpatrick will be appointed as non‑executive directors. These directors will be entitled to receive remuneration determined in accordance with Orocobre's remuneration policies and potentially to participate in the Orocobre non‑executive director Share Rights Plan.[81]
[81] Scheme booklet, [1.2(h)].
While the precise nature of the remuneration or incentives to be provided were not known to the court at the first court hearing, counsel for Galaxy drew my attention to the following matters:
(a)the directors have disclosed any arrangements in relation to remuneration or incentives that will apply after the implementation date;[82]
(b)the lifting of the aggregate fee pool of the maximum amount payable to the non-executive directors of Orocobre will only occur if the Scheme is implemented and with the approval of Orocobre shareholders; and
(c)Mr Rowley, Mr Turner, Ms Heredia and Mr Fitzpatrick will join the board of Orocobre if the Scheme is implemented. As the Scheme is a merger of the two companies, any incentives payable to the directors are to motivate the directors and align their interests with those of shareholders.
[82] Scheme booklet, [1.2(h)].
For the following reasons, it was and is my view that it was not inappropriate for each of the directors to make a recommendation in respect of the Scheme.
First, in relation to the remuneration proposed to be paid by Orocobre to each of the directors who will be appointed if the Scheme is implemented, the amounts are not out of the ordinary and are commercially not unreasonable. In relation to the Performance Rights, I accept that they were issued for a genuine and ordinary commercial rationale of incentivising director performance, in the case of Mr Tse, and in lieu of a portion of directors' fees, in the case of the remaining non‑executive directors, and not to incentivise any recommendation in respect of the Scheme.
Second, the Performance Rights will vest under the terms of the Incentive Award Plan prior to the implementation date of the Scheme.[83] Once the Performance Rights are exercised and converted into Galaxy shares, those shares will be treated equally with the other Galaxy shareholders in the Scheme and the directors will receive no additional benefits or special considerations for their Performance Rights.
[83] Affidavit of Martin Ronald Rowley filed 25 June 2021 [46], MRR-9.
Third, I accept that the benefits to the directors are not excessive or unwarranted such that it might prejudice the best interests of Galaxy shareholders and render inappropriate the directors' recommendation that Galaxy shareholders approve the Scheme.
Fourth, the remuneration expected to be received by Mr Rowley, Mr Turner, Ms Heredia and Mr Fitzpatrick in being appointed to their roles at Orocobre is to be determined under Orocobre's remuneration policies. I accept that these policies will act to limit the extent of the remuneration and that the remuneration pool will be subject to the approval of shareholders.
Fifth, cl 5.1 of the MID contains an exception whereby a director may, if the relevant conditions are satisfied, withdraw or change their recommendation.
Finally, and importantly, each of these matters are prominently disclosed in the Scheme booklet.[84]

No liability when acting in good faith

[84] Scheme booklet, [11.4].

Counsel for Galaxy drew to my attention the inclusion of cl 6.7 in the Scheme which provides Galaxy and Orocobre with an exclusion from liability for acts or omissions done in good faith in performance of the Scheme or Deed Poll.
On its proper construction, it is my view that this clause will not exclude liability for acts or omissions in breach of the Scheme or the Deed Poll. Any such acts or omissions could not be in performance of the Scheme or Deed Poll. For this reason, I do not consider that this clause will deprive members of their intended benefits under the Scheme. I note that this is consistent with the conclusion of Vaughan J in Re Wesfarmers [No 2] in relation to a similar clause.[85]

Electronic dispatch of the Scheme booklet and proxy form

[85] Re Wesfarmers Ltd [No 2] [2018] WASC 357 [49].

Galaxy sought orders pursuant to s 1319 of the Act for electronic dispatch of the Scheme booklet, applicable proxy form and Opt‑in Notice by email to those Galaxy shareholders who have nominated an electronic address for the purpose of receiving Shareholder communications from Galaxy (Email Shareholders). These orders are now common.[86] Details were provided as to the terms of the proposed electronic notification, namely that email notices would be sent to Galaxy shareholders containing links to the Scheme booklet and proxy form.[87]
[86] See, for example, Re SRG Ltd [2018] FCA 1092 [48]; Re Doray Minerals Ltd [2019] WASC 57[72].
[87] Submissions [127]; Affidavit of Martin Ronald Rowley filed 25 June 2021 [100(a)].
I was and am satisfied, having read the terms of the proposed email communication to shareholders, that an order for electronic dispatch of the Scheme booklet was appropriate.
In respect of the remaining Galaxy Shareholders (who were not Email Shareholders and those Email Shareholders in respect of whom electronic delivery has been notified as been ineffective), Galaxy proposed the dispatch of hardcopy documents by post including a notice containing the links to the Scheme booklet and proxy form.[88]
[88] Submissions [128]; Affidavit of Martin Ronald Rowley filed 25 June 2021 [100(b)].
Counsel for Galaxy proposed that a similar approach to that adopted in Re NTM Gold[89] be adopted in this case, namely that hard copy booklets be posted to shareholders on request. Subject to my comments in Re CannPal Animal Therapeutics Ltd[90] in relation to the distribution of hardcopy documents during the COVID‑19 pandemic in Australia, I consider that this is appropriate.

Scheme Meeting

[89] Re NTM Gold Ltd [2021] WASC 22 [81].

[90] Re CannPal Animal Therapeutics Ltd [2021] WASC 37 [70] – [74].

Galaxy proposed that the Scheme meeting scheduled to take place at 10.00 am on Friday, 6 August 2021 be held in person and electronically, or in light of the COVID‑19 pandemic, only electronically if it is not possible to conduct a physical meeting. I accept that this arrangement is consistent with the conduct of previous recent scheme meetings[91] and appropriate given the current pandemic.
[91] Re NTM Gold Ltd; Re Piedmont Lithium Ltd [2021] WASC 76.
Galaxy proposes that if the meeting cannot proceed in person and it is necessary to hold the meeting only electronically, notice be given by publishing a notice on its website and by making an ASX announcement. Given the short notice with which stay at home directions can be issued or lockdowns ordered, I considered that this was appropriate.

Other Matters

Counsel for Galaxy drew my attention to the 'deemed warranty' provision in the proposed Scheme.[92] The warranty provision is disclosed in the Scheme booklet.[93] Deemed warranty clauses are not unusual and are acceptable provided there is adequate disclosure that it is a condition.[94]
[92] Scheme, cl 6.3.
[93] Scheme booklet, [1.4(d)].
[94] Re APN News and Media Ltd [57] - [63]; Re DUET Management Company 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34 [23]; Re Nzuri Copper Ltd [2019] WASC 189 [90]; Re Macquarie Private Capital A Ltd [2008] NSWSC 323 [13] - [14]; Re Doray Minerals Ltd [71].
Taking into account all of these matters, I considered that there was no apparent reason why the Scheme should not, if the necessary special resolution of shareholders is passed, receive the court's approval.

Conclusion on First Hearing

At the first hearing before me, I was satisfied that the substantive and procedural requirements under s 411(1) and s 1319 of the Act had been satisfied and that the proposed Scheme was fit for consideration by Galaxy's members.

For these reasons, at the conclusion of the hearing on 2 July 2021, I made orders in terms of 'Annexure A' to this judgment in respect of the Scheme.

ANNEXURE A

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
HW
Research Associate to the Honourable Justice Hill
12 AUGUST 2021