Re Metalicity Ltd

[2021] WASC 256

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   RE METALICITY LTD; EX PARTE METALICITY LTD [2021] WASC 256

CORAM:   HILL J

HEARD:   3 JUNE 2021

DELIVERED          :   3 JUNE 2021

PUBLISHED           :   27 JULY 2021

FILE NO/S:   COR 93 of 2021

MATTER:   IN THE MATTER OF METALICITY LTD

EX PARTE

METALICITY LTD

Plaintiff

Catchwords:

Corporations – Application for orders under s 1322(4)(a) of Corporations Act 2001 (Cth) – Failure of company to have ASIC consent to the resignation of auditor prior to annual general meeting – Resolution to appoint new auditor passed at annual general meeting – Where no blatant or flagrant disregard of obligations – Appropriate form of orders

Legislation:

Corporations Act 2001 (Cth) s 327A, s 327B, s 329, s 1322(4)(a)

Result:

Application granted

Category:    B

Representation:

Counsel:

Plaintiff : C C Spencer

Solicitors:

Plaintiff : Tottle Partners

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

Re Bellevue Gold Ltd [2021] WASC 80

Re Caeneus Minerals Ltd [2018] FCA 560

Re Classic Minerals Ltd [2018] FCA 2039

Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174

Re ICandy Interactive Ltd [2018] FCA 533; (2018) 125 ACSR 369

Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418

Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396

HILL J:

1. On 28 May 2021, the plaintiff, Metalicity Limited (Metalicity), filed an originating process seeking orders under s 1322(4)(a) of the Corporations Act 2001 (Cth) (Act) relating to a contravention of s 329(5) of the Act. The contravention occurred as a result of the failure to obtain the consent of the Australian Securities and Investments Commission (ASIC) to the resignation of Stantons International Audit and Consulting Pty Ltd (Stantons) as auditor of Metalicity until May 2021, and the subsequent failure of Metalicity to determine that consent had not been given prior to the appointment of a new auditor at its annual general meeting held on 26 November 2020.

2. In light of the urgency with which the application was brought, I made orders at the conclusion of the hearing on 3 June 2021, subject to minor amendment, granting the relief sought, and said that I would subsequently publish reasons for my decision.  These are the reasons for my decision. 

Factual background

1. Metalicity is an Australian public company whose securities are listed on the Australian Securities Exchange (ASX).  Metalicity is a mineral exploration and development company.[1]

   [1] First affidavit of Justin Charles Barton filed 28 May 2021 [6].

2. As at 28 May 2021, Metalicity had 1,730,735,820 shares on issue and a market capitalisation of approximately $23.3million.[2]

   [2] First affidavit of Justin Charles Barton filed 28 May 2021 [7].

3. On 7 February 2012, Stantons was appointed as Metalicity's auditor in place of Grant Thornton NSW.[3] 

   [3] First affidavit of Justin Charles Barton filed 28 May 2021 [8] – [9], 'JB2'.

4. In October 2020, the directors of Metalicity resolved to appoint Pitcher Partners BA&A Pty Ltd (Pitcher Partners) as auditor in place of Stantons.  This decision was made for several reasons, including staff changes that had taken place at Stantons.[4]

   [4] First affidavit of Justin Charles Barton filed 28 May 2021 [10] - [12], 'JB3', 'JB4'.

5. On 11 October 2020, Stantons received a letter from Metalicity requesting that Stantons resign as auditor as soon as possible to enable new auditors to be appointed at the upcoming annual general meeting.  The letter also requested that Stantons apply to ASIC to obtain their consent to their resignation as auditor.[5] 

   [5] First affidavit of Justin Charles Barton filed 28 May 2021 'JB3'.

6. On 13 October 2020, Pitcher Partners provided its consent to be appointed as Metalicity's auditor.[6] 

   [6] First affidavit of Justin Charles Barton filed 28 May 2021 [12], 'JB4'.

7. On 27 October 2020, the plaintiff issued a notice of annual general meeting to be held on 26 November 2020.[7]  Prior to the issue of the notice, Metalicity had received a nomination of Pitcher Partners from a shareholder in accordance with s 328B of the Act.[8]  One of the proposed resolutions, Resolution 12, was to obtain approval for Pitcher Partners to be appointed as auditor in place of Stantons, who would resign at the meeting.[9]  At the time the notice of meeting was issued, the plaintiff had not yet received ASIC's consent to the resignation of Stantons.  It was intended that:[10]

   (a)if ASIC gave their consent before the meeting, the resignation would be effective at the conclusion of the meeting;

   (b)if ASIC refused to give consent prior to the meeting, the resolution would not be proposed at the meeting; and

   (c)if ASIC gave its consent after the meeting, then, assuming that the resolution was passed, Stantons' resignation would take effect upon receipt of that consent and the appropriate announcement being made. 

   [7] First affidavit of Justin Charles Barton filed 28 May 2021 [25], 'JB9'.

   [8] First affidavit of Justin Charles Barton filed 28 May 2021 'JB9' p 172.

   [9] First affidavit of Justin Charles Barton filed 28 May 2021 [26], 'JB9'.

   [10] First affidavit of Justin Charles Barton filed 28 May 2021 [27.3].

8. At the annual general meeting on 26 November 2020, Resolution 12 was put to the shareholders and 99.26% of the 250,434,25 votes were in favour of the resolution to appoint Pitcher Partners as auditor.[11]  The passing of the resolution was the subject of a subsequent ASX announcement on the same date.[12]

   [11] First affidavit of Justin Charles Barton filed 28 May 2021 'JB11'.

   [12] First affidavit of Justin Charles Barton filed 28 May 2021 [29], 'JB11'.

9. Between 17 December 2020 and 8 January 2021, representatives from Stantons and Pitcher Partners liaised directly about the auditor handover and the issue of ASIC's outstanding consent.[13]

   [13] First affidavit of Justin Charles Barton filed 28 May 2021 'JB8' p 135 – 144.

10. On 11 January 2021, and again on 12 January 2021, Ms Xie, a manager of Pitcher Partners, emailed Mr Barton informing him that ASIC's consent to the resignation of Stantons remained outstanding.[14]  On 12 January 2021, Ms Xie asked Mr Barton to follow up ASIC in the next two weeks to determine if they had given consent.[15]  Mr Barton's evidence was that he followed up with ASIC and was informed at that stage that ASIC had no record of the necessary form having been lodged.[16]

    [14] First affidavit of Justin Charles Barton filed 28 May 2021 'JB8' p 134 – 135. 

    [15] First affidavit of Justin Charles Barton filed 28 May 2021 'JB8' p 134.

    [16] First affidavit of Justin Charles Barton filed 28 May 2021 [32].

11. Stantons maintained that it lodged a Form 342 'Application for consent from ASIC to resign as an auditor of a public company' in October 2020.  The Form 342 produced in evidence contains a signature of Mr Martin Michalik, a director of Stantons, and is dated 15 October 2020.[17]  However, ASIC records do not record the Form 342 being lodged at that time.[18]  A copy of the Form 342 was provided to Pitcher Partners on 8 January 2021 and received by ASIC on 14 January 2021.[19]

    [17] First affidavit of Justin Charles Barton filed 28 May 2021 'JB7' p 131.

    [18] First affidavit of Justin Charles Barton filed 28 May 2021 'JB1' p 26.

    [19] First affidavit of Justin Charles Barton filed 28 May 2021 [17.2], [19].

12. Mr Barton's evidence is that he did not hear anything further from Pitcher Partners or Stantons regarding ASIC's consent in January, February or March 2021.  During this time, Pitcher Partners reviewed the plaintiff's half‑year accounts for the period ended 31 December 2020.[20]

    [20] First affidavit of Justin Charles Barton filed 28 May 2021 [34], [45].

13. Mr Barton deposed that, given his correspondence with Pitcher Partners and Stantons in January 2021, he believed all the necessary steps had been taken to obtain ASIC's consent.  Given the amount of time that had passed, he assumed consent had been received.[21]

    [21] First affidavit of Justin Charles Barton filed 28 May 2021 [47].

14. On 12 March 2021, Metalicity released its interim financial report for the half year ended 31 December 2020.[22]  The report:

    (a)listed Pitcher Partners as the auditors of the plaintiff;

    (b)was reviewed by Pitcher Partners and contained a report on their review; 

    (c)was approved by the directors of Metalicity; and

    (d)was released to the ASX.

    [22] First affidavit of Justin Charles Barton filed 28 May 2021 'JB21'. 

15. On 30 March 2021, ASIC wrote to Stantons and raised defects with its application to resign as Metalicity's auditor.[23]  Stantons forwarded this letter to Metalicity on 13 April 2021.  At that time, Stantons indicated they believed that the change in auditor had already been approved by ASIC.[24] 

    [23] First affidavit of Justin Charles Barton filed 28 May 2021 'JB17' p 221.

    [24] First affidavit of Justin Charles Barton filed 28 May 2021 'JB20' p 284 – 285.

16. On 5 May 2021, Metalicity wrote to ASIC in response to their letter to Stantons dated 30 March 2021.  This letter provided the outstanding information together with the application fee as requested.[25] 

    [25] First affidavit of Justin Charles Barton filed 28 May 2021 'JB17'.

17. By letter dated 14 May 2021, ASIC wrote to Stantons to confirm its consent to their resignation, subject to several conditions.  ASIC informed them that their consent could not be backdated to take effect at Metalicity's annual general meeting on 26 November 2020 and would take effect from the date the change of auditor was announced.[26] 

    [26] First affidavit of Justin Charles Barton filed 28 May 2021 'JB18'.

18. On 25 May 2021, Stantons forwarded this letter to Mr Barton.[27]  Mr Barton then forwarded both the email from Stantons and the attached letter from ASIC to the other directors of Metalicity, as well as to Mr Day, the company secretary of Metalicity.[28] 

    [27] First affidavit of Justin Charles Barton filed 28 May 2021 'JB18'.

    [28] First affidavit of Justin Charles Barton filed 28 May 2021 [40].

19. Mr Day discussed the matter with the plaintiff's solicitors.[29]  On 28 May 2021, the plaintiff commenced these proceedings. 

    [29] First affidavit of Justin Charles Barton filed 28 May 2021 [41].

Statutory regime

Financial Reports and appointment of auditor

1. Chapter 2M of the Act is entitled 'Financial Reports and Audit'.  The process for the appointment and removal of auditors is set out in pt 2M.4 of the Act.

2. The directors of a public company are obliged within one month of registration of the company to appoint an auditor, unless the members at a general meeting have appointed an auditor (s 327A(1)).

3. Where there is a vacancy in the office of auditor, pursuant to s 327B(1)(b) of the Act, a public company must appoint an auditor to fill the vacancy at each annual general meeting subsequent to the company's first annual general meeting. Section 327B(3) of the Act requires a director of a company to take all reasonable steps to comply with, or to secure compliance with, s 327B(1).

4. Section 328B of the Act sets out the procedure that governs the nomination of an auditor.  Pursuant to s 328B(1) of the Act, a company may appoint an individual, firm or company as auditor of the company at its annual general meeting only if a member of the company gives the company written notice of the nomination of the individual, firm or company before the meeting was convened, or not less than 21 days before the meeting (unless an auditor is removed from office at the annual general meeting).  If a company purports to appoint an auditor in contravention of s 328B(1), the appointment is of no effect (s 328B(2)(a)) and the company and each officer of the company who is in default are guilty of an offence (s 328B(2)(b)). 

5. Section 329(5) of the Act provides that an auditor of the company may, by written notice to the company, resign as auditor but only if the auditor has, by written notice, applied to ASIC for consent to the resignation and the consent of ASIC has been given. Pursuant to s 329(6) of the Act, ASIC must, as soon as is practicable after receiving a notice of resignation from an auditor under s 329(5) of the Act, notify the auditor and the company whether it consents to the resignation of the auditor.

6. The date on which the resignation of the auditor takes effect is governed by s 329(8) of the Act. This provides that the resignation takes effect:

   (a)on the day (if any) specific for the purpose in the notice of resignation; or

   (b)on the day on which ASIC gives its consent to the resignation; or

   (c)on the date (if any) fixed by ASIC for the purpose.

Power under s 1322 of the Corporations Act to grant relief sought

1. Section 1322 of the Act 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.

2. On an application under s 1322 of the Act, it is necessary that the prescriptive requirements of the wording in s 1322(4) and the preconditions in s 1322(6) of the Act be satisfied.[30]

   [30] Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 [43] (French CJ), [53] (Hayne, Crennan and Kiefel JJ), [64] (Gageler J).

3. The powers conferred under s 1322 of the Act reflect the broad legislative policy that the law should not unnecessarily invalidate transactions or cause inconvenience because of non-compliance with the requirements of the Act where such non-compliance is the result of honest error or inadvertence and where the court can avoid such effects without causing prejudice to third parties or the public interest in ensuring compliance with the law. This broad policy does not authorise the court to lightly set aside the requirements of the Act where such requirements have not been observed. It is necessary for the court to consider the circumstances of each individual case to ensure that it is appropriate to grant the indulgence sought and that, in making such orders, it does not undermine requirements of the Act.[31]

   [31] Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418 [29].

4. In considering an application under s 1322(4) of the Act, the essential principles are:[32]

   (a)the prescriptive requirements of s 1322(4) and the pre‑conditions in s 1322(6) need to be satisfied;[33]

   (b)the court retains a discretion under s 1322(4)(a) as to whether it makes the orders sought;

   (c)limitations to the broad powers in s 1322 will not be readily implied.[34] Section 1322 is remedial in character and should be applied broadly;

   (d)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

   (e)an order can be made under s 1322(4)(a) notwithstanding that the contravention or failure concerned resulted in the commission of an offence.[35]

   [32] Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174 [20].

   [33] Weinstock v Beck [43], [53], [64].

   [34] Weinstock v Beck [43], [55] - [56], [64].

   [35] Corporations Act 2001 (WA), s 1322(5).

Disposition

Application by an 'interested person'

1. I accept that the plaintiff is an interested person who may seek relief, as required by s 1322(4).[36]

Position of ASX and ASIC

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

1. The ASX indicated that it was not in a position to comment on the matter  and did not intend to appear at the hearing.[37]  ASIC neither supported nor opposed the application and did not appear at the hearing of the matter.[38]

Validation of appointment of Pitcher Partners as auditor

[37] Second affidavit of Justin Charles Barton filed 3 June 2021 'JB24'.

[38] Second affidavit of Justin Charles Barton filed 3 June 2021 'JB25'.

1. On the evidence before me, I make the following findings of fact:

   (a)following Metalicity's request to Stantons to resign as auditor on 11 October 2020, Stantons prepared the Form 342 notice of resignation.  This was not received by ASIC until 14 January 2021;

   (b)Stantons did not follow up ASIC to ensure ASIC's consent to its resignation was received prior to the annual general meeting on 26 November 2020;

   (c)the plaintiff and its directors failed to follow up whether ASIC's consent had been given to Stantons' resignation; and 

   (d)Pitcher Partners could not be appointed as auditor of Metalicity at its annual general meeting on 26 November 2020 as ASIC's consent to the resignation of Stantons had not been given.

Orders under s 1322(4)(a) of the Act

1. In its originating process, the plaintiff sought a declaration under s 1322(4)(a) of the Act that the resignation of Stantons and the appointment of Pitcher Partners as auditor was not invalid notwithstanding that the consent of ASIC was not given to the resignation of Stantons as auditor until 14 May 2021. The plaintiff also sought a separate order that the resignation of Stantons and the appointment of Pitcher Partners shall be effective as and from 26 November 2020.

2. I raised the framing of the proposed orders with counsel for the plaintiff at the hearing.  In my view, as proposed, these orders did not address the issue that had been identified by the plaintiff, namely the position of the auditor of the company between 26 November 2020 and the date of any announcement of the change of auditor when the appointment would take effect.  Unless this was addressed, there was a possibility that the validity of the half-yearly report could be questioned.  Following this discussion, counsel for the plaintiff sought amended orders for a declaration that the resignation of Stantons and the appointment of Pitcher Partners are not invalid and take effect from 26 November 2020, notwithstanding that the consent of ASIC was not given to the resignation of Stantons as auditor of the plaintiff until 14 May 2021.

3. I accept that the prescriptive requirements of s 1322(4)(a) of the Act are satisfied in that:

   (a)the proposed validation order is framed in a declaratory form;

   (b)the act, matter or thing is the resignation of Stantons and the appointment of Pitcher Partners as auditor of Metalicity from 26 November 2020 pursuant to Chapter 2M.4 of the Act;

   (c)the contravention is the failure by Stantons, the plaintiff and its directors to comply with s 329(5) of the Act.

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

1. The plaintiff submitted that, while only one of the preconditions in s 1322(6) of the Act needs to be satisfied, each of s 1322(6)(a)(ii) and s 1322(6)(a)(iii) were satisfied.

2. Turning 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.[39]  Relevantly, Banks-Smith J considered that:

   [39] 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;[40]

   (b)the concept of acting honestly can embrace:[41]

   (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.[42]

   [40] Re ICandy Interactive Ltd [54], [106] - [107].

   [41]Re ICandy Interactive Ltd [55].

   [42] Re ICandy Interactive Ltd [60] - [104].

3. In this case, on the basis of the evidence of Mr Barton, which I accept, there was no failure of any relevant person to act honestly. The failure arose through inadvertence. Specifically, Stantons failed to lodge the Form 342 notice of resignation and to follow up with ASIC as to whether consent had been given to their resignation as auditor. The plaintiff's inadvertence followed on from this, namely their failure to follow up ASIC to determine whether their consent had been given. For these reasons, I accept the precondition in s 1322(6)(a)(ii) of the Act is satisfied.

4. I am also satisfied that it would be just and equitable to make the orders sought. Section 1322(6)(a)(iii) gives the court a wide discretion in exercising its powers under s 1322 of the Act.[43]

   [43] Re Bellevue Gold Ltd [2021] WASC 80 [64] and the authorities cited therein.

5. In my view, the making of the order sought by the plaintiff would be consistent with the public policy of ch 2M of the Act, which is to ensure that public companies appoint independent auditors to audit or review the companies' accounts and that financial accounts are lodged within the timeframes specified by the Act. 

6. It is relevant that all relevant parties (Stantons, Pitcher Partners, Metalicity and its shareholders) proceeded on the basis that Pitcher Partners had been appointed auditor.  No issue or complaint has been raised in relation to the half-year report for the period ended 31 December 2020 or the conduct of the review undertaken by Pitcher Partners.  

7. In my view, the granting of the relief sought will remove any doubt as to the compliance by Pitcher Partners with its financial reporting obligations and the potential impact on the operations of the company.

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

1. I have considered the classes of persons who may be impacted by the making of these orders being Metalicity, the shareholders of the plaintiff, Stantons and Pitcher Partners.

2. I find 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 orders.

3. I accept that if the orders sought are not made, there may be substantial injustice to each of the plaintiff, Stantons, Pitcher Partners and the plaintiff's shareholders.  In addition to the specific matters raised above at [43], in the event that Pitcher Partners' appointment is not validated and a complaint was raised about the work they had done, it is possible that a legal issue could be raised as to whether an auditor who is not appointed at law is liable for the work performed by them and whether the work is covered by their professional indemnity insurer. 

No other discretionary reason to withhold relief

1. I accept and find that there is no evidence of any substantial misconduct, serious wrongdoing or flagrant disregard of the Act so as to warrant refusal of the relief sought.  

2. 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 as well as the ASX and ASIC have been notified of the plaintiff's contraventions of the Act and given notice of this hearing.    No shareholder or either regulator has sought to intervene in the hearing or given notice that they want to be heard on the application.

3. In exercising the discretion to grant relief under s 1322(4)(a), a relevant factor is the promptness with which the plaintiff has sought to remedy the irregularity once it was identified. In this case, on 25 May 2021, the plaintiff became aware that the consent of ASIC was only provided to Stantons on 14 May 2021. The plaintiff immediately sought external legal advice and commenced these proceedings on 28 May 2021. I accept and find that the plaintiff has acted diligently in seeking to remedy the matters the subject of the application.

Conclusion

1. For these reasons, I was satisfied that, in the circumstances of this case, relief should be granted in terms of the relief sought by the plaintiff, subject to the minor amendments discussed at the hearing.  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

27 JULY 2021