Re Helios Energy Ltd - [2021] WASC 183

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   RE HELIOS ENERGY LTD; EX PARTE HELIOS ENERGY LTD [2021] WASC 183
CORAM:   HILL J
HEARD:   22 MARCH 2021
DELIVERED          :   22 MARCH 2021
PUBLISHED           :   11 JUNE 2021
FILE NO/S:   COR 48 of 2021
MATTER:   Helios Energy Ltd

EX PARTE
HELIOS ENERGY LTD
Plaintiff

Catchwords:

Corporations law - Securities - Application for extension of time to lodge cleansing notice - Application for declaratory relief to validate trading in shares issued without a valid cleansing notice or prospectus - Six instances of securities being issued without a valid cleansing notice - Where no blatant or flagrant disregard of obligations - Whether no substantial injustice if orders made - Application granted

Legislation:

Corporations Act 2001 (Cth), s 707, s 708A, s 721, s 1322

Result:

Application granted

Category: B

Representation:

Counsel:

Plaintiff

N Wallwork & K M McNally

Solicitors:

Plaintiff

McNally & Co

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

Re Caeneus Minerals Ltd [2018] FCA 560
Re Classic Minerals Ltd [2018] FCA 2039
Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22
Re Golden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17
Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174
Re ICandy Interactive Ltd [2018] FCA 533; (2018) 125 ACSR 369
Re Jaxsta Ltd [2018] WASC 390
Re Poseidon Nickel Ltd [2018] FCA 1063; (2018) 129 ACSR 57
Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418
Weinstock v Beck (2013) 251 CLR 396

HILL J:

On 19 March 2021, the plaintiff, Helios Energy Ltd (Helios Energy), filed an originating process seeking orders under s 1322 of the Corporations Act 2001 (Cth) (Act) relating to contraventions of s 707(3) and s 727(1) of the Act. The contraventions occurred as a result of six separate instances of shares being issued between 13 February 2019 and 4 March 2021 without a valid cleansing notice or cleansing prospectus.
Despite the number of instances where shares were issued without a valid cleansing notice or cleansing prospectus, the plaintiff has provided a frank and detailed explanation as to the circumstances surrounding each of the share issues. On the basis of the evidence before me, I was and am satisfied that the failure was caused by inadvertence rather than any deliberate disregard of the plaintiff's obligations.
In light of the urgency with which the application was brought, I made orders at the conclusion of the hearing on 22 March 2021 granting the relief sought and said that I would subsequently publish reasons for my decision. These are the reasons for my decision.

Part 6D.2 Corporations Act

Part 6D.2 of the Act imposes disclosure obligations in relation to the issue and sale of shares. In certain circumstances, these obligations can be satisfied by lodging what is commonly referred to as a cleansing notice or a prospectus.[1] If disclosure has not been made by the issuer and the shares are on-sold within 12 months, the party to whom the shares are issued may be obliged to make disclosure.[2]
[1] Corporations Act s 708A(5).
[2] Corporations Act s 707(3). See also ReGolden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17.
The cleansing notice exception can only be relied upon if the preconditions in s 708A(5) of the Act are met.
The cleansing prospectus exception applies where a prospectus is lodged on or after the date that shares are issued but before the day on which a sale offer is made.[3] Where this occurs, the disclosure requirements for offers and sales of that class of securities are met from that date.
[3] Corporations Act s 708A(11).

Factual Background

In support of its application, the plaintiff relied on three affidavits: an affidavit of Chen Chik Ong, a non-executive director of the plaintiff, filed 19 March 2021; an affidavit of John Palermo, the company secretary of the plaintiff, filed 19 March 2021; and an affidavit of Kathleen Marie McNally, a partner at McNally & Co, the plaintiff's solicitors, filed 22 March 2021.
Helios Energy is an Australian public company whose securities are listed on the Australian Securities Exchange (ASX). Helios Energy is an oil and gas company, whose primary focus is its Presidio oil project in Presidio County in Texas, in the United States of America.[4]

The March 2021 share issues

[4] Affidavit of John Palermo filed 19 March 2021 [11].

On 4 March 2021, the plaintiff issued 95,333,357 shares to 106 investors following a capital raising arranged by CPS Capital Group Pty Ltd (CPS Capital Group) and Gleneagle Securities Pty Ltd (Gleneagle Securities).[5] CPS Capital Group and Gleneagle Securities were to be issued fully paid shares in the plaintiff as their fee for the capital raising.[6]
[5] Affidavit of John Palermo filed 19 March 2021 [24] - [26].
[6] Affidavit of John Palermo filed 19 March 2021 [30].
In the ordinary course, the shares to be issued to CPS Capital Group and Gleneagle Securities would be issued on the same day the shares were issued to the 106 investors.[7] However, on this occasion, due to a delay in Gleneagle Securities providing details to the plaintiff as to whom the shares should be issued, this did not occur. Subsequently, the shares were issued to Gleneagle Securities on 10 March 2021.[8]
[7] Affidavit of John Palermo filed 19 March 2021 [31].
[8] Affidavit of John Palermo filed 19 March 2021 [31] - [33].
Issuing the shares in two tranches (on 4 March 2021 to the 106 investors and CPS Capital Group and on 10 March 2021 to Gleneagle Securities) created an issue for the plaintiff as to its compliance with the obligation under s 708A(5) of the Act to issue a cleansing notice. Mr Palermo discussed the matter with Ms Lisa Christou, an employee of Gratia Australia Pty Ltd, a company engaged by the plaintiff to provide accounting and company secretarial services to the plaintiff. Following these discussions, Mr Palermo formed the view that a single cleansing notice could be lodged within five business days of the issue of the second tranche of shares to Gleneagle Securities and that this would constitute adequate compliance with the plaintiff's disclosure obligations under the Act.[9] Mr Palermo did not seek legal advice in respect of this matter.[10]
[9] Affidavit of John Palermo filed 19 March 2021 [46] - [47].
[10] Affidavit of John Palermo filed 19 March 2021 [49].
On 11 March 2021, a draft Appendix 2A was provided to the Board for approval.[11] On 14 March 2021, a draft announcement and cleansing notice prepared by Mr John Kenny, the plaintiff's corporate advisor, was provided to the Board for approval.[12] On the same day, Mr Ping He, the plaintiff's managing director, approved the issue of these documents.[13]
[11] Affidavit of John Palermo filed 19 March 2021 [34], 'JP-09'.
[12] Affidavit of John Palermo filed 19 March 2021 [35], 'JP-10'.
[13] Affidavit of John Palermo filed 19 March 2021 [36], 'JP-11'.
On 15 March 2021, these documents were lodged with the ASX.[14]
[14] Affidavit of John Palermo filed 19 March 2021 [37], 'JP-12'.
The evidence of both Mr Ong and Mr Palermo is that at the time of this issue, there was no excluded information for the purposes of s 708A(5)(e) of the Act and a cleansing notice could have been lodged within the time required under the Act.[15]
[15] Affidavit of John Palermo filed 19 March 2021 [112]; Affidavit of Chen Chik Ong filed 19 March 2021 [22].
On 15 March 2021, Mr Palermo was informed by an ASX compliance officer that the plaintiff had failed to lodge a cleansing notice in relation to the first tranche of shares issued on 4 March 2021.[16] Immediately upon being made aware of the issue, Mr Palermo sought legal advice from the plaintiff's solicitors, Eaton Hall.[17]
[16] Affidavit of John Palermo filed 19 March 2021 [38].
[17] Affidavit of John Palermo filed 19 March 2021 [39].
On 16 March 2021, prior to the open of trade, Mr Palermo notified the board of the issue and requested and obtained a trading halt of the plaintiff's shares.[18]

Further instances of non-compliance

[18] Affidavit of John Palermo filed 19 March 2021 [40] - [43], 'JP-13', 'JP-14'.

Following discovery of this issue, Mr Palermo requested the plaintiff's solicitors undertake a comprehensive review of its compliance with its obligations under pt 6D.2 of the Act since the company's reinstatement to the official list of the ASX on 11 August 2017.[19] Since reinstatement, Helios Energy has undertaken 51 share issues. Of these, the plaintiff's solicitors discovered six further irregularities.[20]
[19] Affidavit of John Palermo filed 19 March 2021 [52].
[20] Affidavit of John Palermo filed 19 March 2021 [53] - [54], 'JP-16'.
The first was the plaintiff's failure to lodge a cleansing notice in relation to the issue of 80,001 shares on 22 September 2017.[21] None of these shares were on-sold within 12 months after their date of issue and have not been traded since.[22] I accept the submission of counsel for the plaintiff that, as a consequence, there has not been any non‑compliance with pt 6D.2 of the Act in respect of this share issue.
[21] Affidavit of John Palermo filed 19 March 2021 [55] - [57], 'JP-16'.
[22] Affidavit of John Palermo filed 19 March 2021 [58].
On 28 August 2019, the plaintiff issued 173,941 shares to a single investor following the conversion of options (August 2019 Issue).[23] Mr Palermo's evidence was that a cleansing notice and Appendix 3B was prepared by Ms Christou, but only the Appendix 3B was lodged with the ASX.[24] At that time, the normal procedure for the plaintiff was that the cleansing notice and Appendix 3B were prepared as individual PDF files which were later combined into a single PDF file and lodged with the ASX.[25] Mr Palermo believes that the plaintiff inadvertently lodged the PDF file containing only the Appendix 3B when it should have lodged the combined PDF file.[26] On 18 March 2021, the plaintiff lodged a cleansing notice with the ASX in respect of the August 2019 Issue.[27]
[23] Affidavit of John Palermo filed 19 March 2021 [69] - [70].
[24] Affidavit of John Palermo filed 19 March 2021 [73] - [75].
[25] Affidavit of John Palermo filed 19 March 2021 [73].
[26] Affidavit of John Palermo filed 19 March 2021 [75].
[27] Affidavit of John Palermo filed 19 March 2021 [76], 'JP-21'.
The evidence of both Mr Ong and Mr Palermo is that at the time of the August 2019 Issue, there was no excluded information for the purposes of s 708A(5)(e) of the Act and a cleansing notice could have been lodged.[28]
[28] Affidavit of John Palermo filed 19 March 2021 [112]; Affidavit of Chen Chik Ong filed 19 March 2021 [22].
The remaining irregularities identified by the plaintiff's solicitors were typographical errors in cleansing notices that had been lodged with the ASX.
On 13 February 2019, the plaintiff issued 11,037,022 shares to five investors (February 2019 Issue).[29] The cleansing notice lodged on 13 February 2019 misquoted the number of shares that had been issued as 10,687,022 shares. This understated the total number by 350,000 shares,[30] which corresponds with the number of shares issued to Gleneagle Securities as a 'marketing fee'.[31] Each of the shares were issued to a sophisticated or professional investor.[32] Some of these shares have been on-sold.[33]
[29] Affidavit of John Palermo filed 19 March 2021 [60] - [61].
[30] Affidavit of John Palermo filed 19 March 2021 [66].
[31] Affidavit of John Palermo filed 19 March 2021 [64].
[32] Affidavit of John Palermo filed 19 March 2021 [62] - [63].
[33] Affidavit of John Palermo filed 19 March 2021 [104], 'JP-04'.
On 13 December 2019, the plaintiff issued 27,566,789 shares to seven investors pursuant to a capital raising arranged by Gleneagle Securities (December 2019 Issue).[34] The cleansing notice lodged on 20 December 2019 misquoted the number of shares issued as 27,435,789 shares. This understated the total number by 131,000 shares,[35] which corresponds with the number of shares Gleneagle Securities was issued as a 'marketing fee'.[36] All of the shares were issued to a sophisticated or professional investor.[37] Some of these shares have subsequently been on-sold.[38]
[34] Affidavit of John Palermo filed 19 March 2021 [77] - [79], 'JP-22'.
[35] Affidavit of John Palermo filed 19 March 2021 [82] - [83], 'JP-23'.
[36] Affidavit of John Palermo filed 19 March 2021 [85].
[37] Affidavit of John Palermo filed 19 March 2021 [79] - [80].
[38] Affidavit of John Palermo filed 19 March 2021 [104], 'JP-04'.
On 12 February 2020, the plaintiff issued 500,000 shares and on 13 February 2020, the plaintiff issued a further 4,500,000 shares (February 2020 Issues).[39] In both instances, the shares were issued following the conversion of options by a single investor.[40] The cleansing notice lodged on 14 February 2020 incorrectly stated that 5,000,000 shares were issued on 12 February 2020.[41] Mr Palmero did not know whether these shares were issued to professional or sophisticated investors.[42] Some of these shares have since been traded.[43]
[39] Affidavit of John Palermo filed 19 March 2021 [86] - [87].
[40] Affidavit of John Palermo filed 19 March 2021 [88].
[41] Affidavit of John Palermo filed 19 March 2021 [90] - [91], 'JP-24'.
[42] Affidavit of John Palermo filed 19 March 2021 [89].
[43] Affidavit of John Palermo filed 19 March 2021 [104], 'JP-04'.
On 3 November 2020, the plaintiff issued 400,000 shares to a single investor following the conversion of options (November 2020 Issue).[44] The cleansing notice lodged on 5 November 2020 in respect of the November 2020 Issue inaccurately recorded the date of issue as being 27 October 2020, when in fact the shares were issued on 3 November 2020.[45] Mr Palermo did not know whether the shares were issued to a professional or sophisticated investor.[46] The share registry has not been able to determine whether any of these shares have been subsequently on-sold.[47]
[44] Affidavit of John Palermo filed 19 March 2021 [93] - [94].
[45] Affidavit of John Palermo filed 19 March 2021 [97] - [98].
[46] Affidavit of John Palermo filed 19 March 2021 [95].
[47] Affidavit of John Palermo filed 19 March 2021 [104], 'JP-04'.
In respect of each of the February 2019 Issue, December 2019 Issue, February 2020 Issues and the November 2020 Issue, Mr Palermo's evidence was that he was unaware of the reason for the inadvertence and that he had no reason to believe the errors in the cleansing notices were deliberately made.
The plaintiff has taken several steps to address its non‑compliance with the Act, including resolving to seek legal advice on matters which may be controversial and a recommendation to the directors of the plaintiff that all notices be reviewed by external counsel before they are lodged with the ASX.
On 17 March 2021, Mr Palermo contacted representatives of CPS Capital Group and Gleneagle Securities to inform them of the errors in the cleansing notices and the plaintiff's non-compliance with the Act and requested that they inform their investors.[48]
[48] Affidavit of John Palermo filed 19 March 2021 [100] - [101], 'JP-26', 'JP-27'.
On 18 March 2021, following the expiry of the trading halt and prior to the opening of the market, the plaintiff requested and obtained a suspension of trading.[49] On that same day, the plaintiff's solicitors, McNally & Co, notified ASIC of the plaintiff's non-compliance and its intention to apply to this court for relief under s 1322 of the Act.[50] This was also the subject of an ASX announcement on 18 March 2021.[51]
[49] Affidavit of John Palermo filed 19 March 2021 [44], 'JP-15'.
[50] Affidavit of John Palermo filed 19 March 2021 [103], 'JP-28'.
[51] Affidavit of John Palermo filed 19 March 2021 [102], 'JP-21'.

The power under s 1322 of the Act to grant the relief sought

Section 1322 relevantly provides:
(4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:
(a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation;
(b)an order directing the rectification of any register kept by ASIC under this Act;
(c)an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a);
(d)an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding;
and may make such consequential or ancillary orders as the Court thinks fit.
...
(6)The Court must not make an order under this section unless it is satisfied:
(a)in the case of an order referred to in paragraph (4)(a):
(i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature;
(ii)that the person or persons concerned in or party to the contravention or failure acted honestly; or
(iii)that it is just and equitable that the order be made; and
(b)in the case of an order referred to in paragraph (4)(c) that the person subject to the civil liability concerned acted honestly; and
(c)in every case that no substantial injustice has been or is likely to be caused to any person.
In considering an application under s 1322 of the Act, the essential principles are:[52]
(a)the prescriptive requirements of the wording in s 1322(4) and the pre-conditions in s 1322(6) need to be satisfied;[53]
(b)the court retains a discretion under s 1322(4) as to whether it makes the orders sought;
(c)the broad powers reflect a legislative policy that the law should not inflict unnecessary liability or inconvenience or invalidate transactions because of non-compliance with its requirements where such non-compliance is the product of honest error or inadvertence and where the court can avoid its effects without prejudice to third parties or to the public interest in compliance with the law;[54]
(d)implied limitations to the broad powers in s 1322 will not be readily implied.[55] Section 1322 is remedial in character and should be applied broadly;
(e)the court can make orders under s 1322(4)(a) on conditions and also make such consequential and ancillary orders as it thinks fit; and
(f)an order can be made under s 1322(4)(a) notwithstanding that the contravention or failure concerned resulted in the commission of an offence.[56]
[52] Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174.
[53] Weinstock v Beck (2013) 251 CLR 396 [43], [53] and [64].
[54] Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418, 426 [29].
[55] Weinstock v Beck [43], [55] - [56] and [64].
[56] Corporations Act, s 1322(5).

Disposition

Application by an 'interested person'

I accept that the plaintiff is an interested person who may seek relief, as required by s 1322(4).[57]

Position of ASX and ASIC

[57] Re Caeneus Minerals Ltd [2018] FCA 560 [38]; Re Classic Minerals Ltd [2018] FCA 2039 [34].

ASIC indicated that it neither supports nor opposes the application and did not intend to appear at the hearing of the matter.[58]
[58] Affidavit of Kathleen Marie McNally filed 22 March 2021 [3], 'KMM1'.
There was no evidence before the court as to the position of the ASX. In light of the urgency with which the matter was brought, I am and was satisfied that it was appropriate to proceed with the hearing of the application in the absence of the ASX's position being known to the court.

Application for extension of time under s 1322(4)(d) of the Act

The test under s 1322(4)(d) of the Act was set out by Vaughan J in Re Jaxsta Ltd:[59]
As to s 1322(4)(d), I derived more guidance from the two-stage process embraced by Barker J in Blaze Asset Pty Ltd v Target Energy Ltd.
There Barker J stated:
'[T]he exercise of the power under s 1322(4) [referring to s 1322(4)(d)] involves in effect a two stage process. First, the Court needs to determine whether, having regard to the circumstances of the case and the general objects of the [Corporations Act 2001 (Cth)], it is appropriate to make an order extending a relevant period, or abridging a relevant period. Secondly, if those circumstances are made out, then the Court must address the question whether any substantial prejudice has been or is likely to be caused to any person by the making of such an order.'
Also, the power under s 1322(4)(d) must be exercised having regard to the general objects and purposes of the relevant statutory provision within the Corporations Act 2001 (Cth) - here the statutory purpose evinced by s 723(3). The court's order must not undermine the reasons for the requirements of the Act. The power must be exercised having regard to the interests of all parties affected and the public interest in ensuring compliance with the Act. (footnotes omitted)
[59] Re Jaxsta Ltd [2018] WASC 390 [41] - [43].
The period to be extended may be extended even if it has expired. In this case, the relevant periods expired on 4 September 2019, in respect of the August 2019 Issue and on 15 March 2021, in respect of the March 2021 Issue.
For the following reasons, I was and am satisfied that, in the circumstances of this case, it is appropriate to grant the extension of time within which to lodge these cleansing notices until 19 March 2021 and 15 March 2021 respectively as sought by Helios Energy in their originating process.
First, in respect of the extension sought in respect of the March 2021 Issue, the extension is sought for a short period of time, being two business days.
Second, the cleansing notices were not lodged due to inadvertence and the issue was promptly rectified upon its discovery by Helios Energy. In respect of the August 2019, issue, I accept and find that this arose by reason of inadvertence. In respect of the March 2021 issue, I accept and find that this occurred by reason of a misunderstanding of the provisions of the Act. As soon as Mr Palermo was made aware of the errors, he immediately sought the advice of external counsel to rectify the position. I accept and find that these errors were honest and not intentional and that there has been no failure of the persons concerned or Helios Energy to act honestly. This finding is supported by the numerous share issues undertaken by Helios Energy since its relisting in 2017 in compliance with the Act and the ASX Listing Rules and the actions of the company on being informed of its non-compliance with the Act.
Third, in the absence of an extension, there are adverse consequences for Helios Energy and its shareholders. Unless orders are made by the court, Helios Energy's shares will continue to be suspended from trading which will deny all shareholders the opportunity to trade their shares. In addition, the company will potentially lose its ability to lodge a cleansing notice under s 708A(5)(b) of the Act, which will require the preparation of a prospectus for future issues of shares.
Fourth, the shareholders who have purchased shares on market since August 2019 may have purchased some of the shares the subject of the impugned share issues. Given that any such sales will have occurred without disclosure, this potentially means that these transactions are void or voidable creating title issues for these parties.
Fifth, in facilitating the transaction as originally contemplated, the making of the orders sought is consistent with the conduct of commerce generally. Section 1322(4)(d) of the Act should be exercised in a way which does not unnecessarily stifle corporate and financial activity on technical grounds.
Sixth, Helios Energy has brought the application without delay. Helios Energy first became aware of the issue on 15 March 2021. The plaintiff approached the court on 18 March 2021 and the matter came on for hearing on 22 March 2021.
Seventh, the additional orders sought by Helios Energy provide for notice to be given to all persons affected and the ability for them to apply to raise any matters with the court.
Eighth, ASIC does not oppose the application, nor do any shareholders of Helios Energy.

No substantial injustice (s 1322(6)(c))

I have considered the classes of persons who may be impacted by the making of these orders.
First, the people who were issued the impugned shares. The prejudice to them is that the sale of the impugned shares may be void or voidable for want of compliance with the statutory requirements.[60]
[60] Re Poseidon Nickel Ltd [2018] FCA 1063; (2018) 129 ACSR 57, 67 [63].
Second, any people who purchased shares from on-sellers may have on-sold the shares themselves by trading on the open market of the ASX since they were issued. Any further sales of shares will have occurred without the requisite disclosure under pt 6D.2 of the Act.
I find that there is no basis for inferring that substantial injustice has been or is likely to be caused to any person by the making of the proposed orders.
I accept that if the orders sought are not made, there may be substantial injustice to the plaintiff as the offers of and sales of shares may be void or voidable. This could give rise to commercial uncertainty and expense for the company as it must remain involved in problems caused by void or voidable offers and sales of its shares. I also accept that there may be substantial injustice to the other ordinary shareholders of the plaintiff, as they may not be able to trade their shares on an open market if the ASX does not lift the current suspension from trading.
It is usual in cases such as these to provide an opportunity for shareholders or other parties to raise a complaint about the proposed orders. The usual timeframe is that there be liberty to apply within 28 days from the date of the order. I accept that this is an appropriate timeframe in this case.

No other discretionary reason to withhold relief

Notwithstanding the number of instances of contravention that have been identified by the plaintiff, I accept and find that there is no evidence of any substantial misconduct, serious wrongdoing or flagrant disregard of the corporate law or the company's constitution so as to warrant refusal of the relief sought.[61]
[61] Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418, 426 [29].
There is nothing in the evidence before me that suggests that any minority shareholder interest might be oppressed or any other interest might be affected. I am satisfied that all shareholders impacted by the contravention as well as ASIC have been notified of the plaintiff's contravention of the Act and given notice of this hearing.[62] No shareholder or ASIC sought to intervene in the hearing or gave notice that they wanted to be heard on the application.
[62] Affidavit of Kathleen Marie McNally filed 22 March 2021 [3], 'KMM1'.
In exercising the discretion to grant relief under s 1322(4), a relevant factor is the promptness with which the plaintiff has sought to remedy the irregularity once it has been identified.[63] In this case, on 15 March 2021, the plaintiff was informed by a compliance officer of the ASX that the plaintiff had failed to issue a cleansing notice in respect of the tranche of shares issued on 4 March 2021. One day after being informed of this non-compliance, on 16 March 2021, the plaintiff sought a trading halt to allow it time to consider the issues in relation to this application before commencing proceedings on 19 March 2021. In the course of preparing this application, the plaintiff instructed Eaton Hall to review the issues of securities by the plaintiff since the company's reinstatement to the official list of the ASX on 11 August 2017. I accept that the plaintiff acted diligently after being informed of the issue.

Application for declaratory orders under s 1322(4)(a)

[63] Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22, 34 [60].

The plaintiff seeks a series of declarations under s 1322(4)(a) of the Act that any offer for sale or sale of the quoted securities, during the period between 13 February 2019 and 15 March 2021 (inclusive), is not invalid, by reason of the failure of the plaintiff to issue a cleansing notice pursuant to s 708A(6) of the Act or to issue a cleansing prospectus pursuant to s 708A(11) of the Act to exempt the sellers from the obligation of disclosure under the Act, or by reason of a defect in such notice, or the sellers' consequent failure to comply with s 707(3) and s 727(1) of the Act.
I note that:
(a)the proposed validation orders are framed in a declaratory form;
(b)the act, matter or thing is the offer and sale of securities;
(c)the contravention is the offering of securities for sale or sales without proper disclosure in contravention of s 707(3) of the Act.[64]

Pre-conditions in s 1322(6)(a)

[64] See Re Caeneus Minerals Ltd [39] - [40]; Re Caeneus Minerals Ltd [35] - [36].

The plaintiff submitted that the each of the pre-conditions in s 1322(6)(a) of the Act is satisfied.
Turning first to the pre-condition in s 1322(6)(a)(ii), in Re ICandy Interactive Ltd, Banks-Smith J undertook a comprehensive review of the relevant principles in respect of whether there is no failure of the persons concerned or the company to act honestly.[65] Relevantly, Banks-Smith J considered that:
[65] Re ICandy Interactive Ltd [2018] FCA 533; (2018) 125 ACSR 369 [54] - [104].
(a)when determining whether someone has acted honestly for the purposes of s 1322, the courts look to absence of evidence of dishonesty and prompt action to remedy the error;[66]
(b)the concept of acting honestly can embrace:[67]
(i)inadvertence or failure to turn one's mind to an issue;
(ii)active but incorrect consideration of a legal issue;
(iii)failure to consider an issue at all; or
(iv)failure to understand or appreciate the significance of non-compliance; and
(c)when testing for honesty, the authorities reveal that the courts look at the company itself, the directors, the company secretary and others as may be concerned.[68]
[66] Re ICandy Interactive Ltd [54], [106] - [107].
[67] Re ICandy Interactive Ltd [55].
[68] Re ICandy Interactive Ltd [60] - [104].
In this case, the plaintiff has erred in both failing to lodge cleansing notices and in lodging defective cleansing notices for the shares issued throughout the period between 13 February 2019 and 15 March 2021. I accept that these errors have occurred honestly and inadvertently in either failing to consider whether a cleansing notice or prospectus was required to be lodged or seeking legal advice as to whether this was required, or inadvertence in respect of the inaccurate quotations in the cleansing notices, rather than any deliberate disregard by the plaintiff or its officers of the obligations under ch 6D of the Act.
I also accept that this is not a case where there has been a failure of the plaintiff's directors to take an active interest in the company's compliance with the Act or to properly define roles of company officers. I accept that the plaintiff's directors had delegated this responsibility to the company secretary.

Ancillary orders

For the following reasons, I was and am satisfied that in the circumstances of this case, the ancillary orders should be granted in the terms sought by the plaintiff. First, the evidence before me is that a number of the impugned shares have been sold. It cannot be discounted that there have been resales of these shares. In these circumstances, I consider that it is appropriate to make the orders sought to remove any question as to title in the shares of the plaintiff. Second, at the time the application came on for hearing, cleansing notices had been lodged.[69] For that reason, the order did not concern a future but a past act. Third, I am satisfied that the conduct of the plaintiff in failing to lodge the cleansing notices required under the Act and in lodging inaccurate cleansing notices was inadvertent and not in blatant disregard of its obligations under the Act. I do not consider that public policy will be undermined by granting the plaintiff the relief sought.
[69] Affidavit of John Palermo filed 19 March 2021, 'JP-20', 'JP-21'.

Conclusion

Accordingly, at the conclusion of the hearing, I made orders in the form annexed to these reasons as 'Annexure A'.

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
11 JUNE 2021