Re Murchison Holdings Limited
[2009] VSC 528
•18 November 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
CORPORATIONS LIST
List E
No. 8203 of 2009
RE MURCHISON HOLDINGS LIMITED (ACN 004 707 260)
BETWEEN:
| MURCHISON HOLDINGS LIMITED (ACN 004 707 260) | Plaintiff |
| v | |
| JULIAN LEE (also known as KOK CHEE LEE) ; CHOW LOU LOW and KAM YOKE LOW | First Defendant Second Defendant Third Defendant |
List E
No. 8205 of 2009
QUEST INVESTMENTS LIMITED (ACN 004 749 044)
BETWEEN:
| QUEST INVESTMENTS LIMITED (ACN 004 749 044) | Plaintiff |
| v | |
| JULIAN LEE (also known as KOK CHEE LEE) and CHOW LOU LOW | First Defendant Second Defendant |
---
JUDGE: | ROBSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 14 and 28 August 2009 | |
DATE OF JUDGMENT: | 18 November 2009 | |
CASE MAY BE CITED AS: | Re Murchison Holdings Limited | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 528 | |
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CORPORATIONS - tracing beneficial ownership of shares under s 672A of the Corporations Act 2001 – whether notice under s 672A(1)(a) may be given to a former member in respect of shares no longer held – meaning of member under s 9 – whether notice may be given in respect of options – discretion of court to enforce notice under s 1325A – ss 9, 627A, 627B, 1325A Corporations Act 2001
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Ms C Reigo | Mills Oakley Lawyers |
| For the Defendants | Mr Julian Lee appeared in person. There was no appearance for Chow Lou Low or Cam Yoke Lee |
Cases cited
Australian Securities Commission v Bank Leumi Le-Israel (Switzerland) (1996) 139 ALR 527; (1996) 21 ACSR 474
Blossomtree Pty Ltd v Brunswick NL (1991) 4 WAR 480.
Brunswick NL v Blossomtree Pty Ltd (1992) 10 ACSR 542.
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384.
Project Blue Sky v ABA (1998) 194 CLR 355.
Re Bligh Ventures Ltd; ASIC v Merkin Investments Ltd and Another (2001) 38 ACSR 648.
Re North Broken Hill Holdings Limited (1986) 4 ACLC 131.
Re Village Roadshow Limited (2004) 52 ACSR 238.
HIS HONOUR:
INTRODUCTION AND SUMMARY
On 7 August 2009, Murchison Holdings Limited (MCH) commenced proceedings against Julian Lee, Chow Lou Low and Kam Yoke Low. Mr Lee and Ms Lou Low are husband and wife. Ms Yoke Low is the sister of Ms Lou Low. On the same day, Quest Investments Limited (QIL) commenced proceedings against Mr Lee and Ms Lou Low. Each of the plaintiffs filed an originating process seeking orders pursuant to s 1325A of the Corporations Act 2001 (the Act), requiring the defendants to comply with directions given by the plaintiffs under s 672A of the Act. The two applications were heard together.
The two applications were first heard on 14 August 2009 and were adjourned part-heard to 28 August 2009. The adjournment was to allow the plaintiffs to file further affidavit material on the question of whether Mr Lee was a person upon whom a s 672A notice could be served in accordance with s 672A of the Act as he no longer appeared to be a member of MCH.
The applications concern three sets of s 672A notices served by MCH and QIL on some or all of the defendants.
For the reasons that follow, I find that insofar as the s 672A(1)(a) notices relate to ordinary shares that are no longer registered in the name of the recipient of the notice, the notices are invalid. I find that insofar as the s 672A(1)(a) notices relate to options, the notices are invalid. Insofar as the s 672A(1)(a) notices relate to shares currently registered in the name of the recipient, I am not prepared to make the orders sought.
Insofar as the notices are given under s 672A(1)(b), and relate to shares no longer registered, they are invalid. Insofar as the s 672A(1)(b) notices relate to options, they are invalid. Insofar as the s 672A(1)(b) notices relate to a current holding of ordinary shares, I am not prepared to make the orders sought.
Accordingly, I dismiss the application with costs, if any.
RELEVANT FACTS
MCH and QIL are public companies whose shares are listed on the Australian Stock Exchange. MCH is the holding company of QIL. The two companies are managed together by managing directors, namely K C Koh and Grant Anthony Robertson. The chairman of MCH is Mr Wee Tiong Chiang (referred to as ‘WT’ in all the email correspondence), an investment banker operating in Asia, Europe and China. The MCH group deals primarily in investment banking, while its subsidiary, QIL, carries out stock trading throughout Hong Kong, Japan, China, Australia, New Zealand, Singapore, Malaysia, Indonesia and Thailand.
Mr Lee’s background is in share trading. He was employed as an investment manager with QIL on a part-time basis.[1] There is, however, some inconsistency in the evidence tendered as to the actual date when Mr Lee commenced employment with QIL and therefore, his total length of employment at the company. Mr Lee gave evidence that his period of employment commenced on 3 March 2004 and that his employment was terminated on 28 May 2009.[2] The affidavit of Mr Robertson, on the other hand, states Mr Lee’s employment commenced in about April 2005 and finished in about May 2009. A third piece of relevant evidence, the letter of recommendation prepared by Chiang Wee Tiong of MCH, indicates that Mr Lee had been employed with the company since 2004, which corroborates Mr Lee’s statement. The same letter of recommendation indicates that Mr Lee had informed QIL of a prior conviction. On the other hand, Mr Robertson states in his affidavit the company did not become aware of Mr Lee’s conviction until after he had been employed. [3]
[1]See GAR-27, email dated 9 April 2007, from Lee to ‘WT’ (Mr Chiang).
[2]See GAR-27, email from Lee to Reigo, dated 13 August 2009, page 2.
[3]Paragraph 7 of the affidavit.
On the evidence tendered, which comprised mainly of email correspondence, it would appear that Mr Lee’s salary was approximately $1,200 per month, for the duration of his employment. The evidence does not make it clear whether Mr Lee was also entitled to any commission on profits from share trading, although the email correspondence makes repeated reference to a 3 per cent commission.[4]
[4]See GAR-27, email from Lee to Reigo dated 13 August 2009, page 5.
For reasons not explained by any of the parties, it appears that Mr Lee, Ms Lou Low and Ms Yoke Low purchased shares on behalf of Mr Chiang from time to time, for the purpose of holding them ‘on trust’ for MCH. Mr Lee said in an email to Ms Reigo, the solicitor for the plaintiffs:[5]
Item 20: As in item 9 and item 18(4), I will be responsible for Kam Yoke Low even as Mr Chiang had requested that these MCH shares be placed in various names other than in our name as you are a staff of MCH Group, even as these are part payment of your placement fees.
[5]Item 20 on page 4 of the exhibit GAR-27.
This and various other references to purchases of shares by Mr Lee, Ms Lou Low and Ms Yoke Low, suggest how a dispute might have arisen about their ownership of MCH shares. The reason for these dealings has not been revealed to the court. The plaintiffs’ only reference to these dealings is a brief statement by Mr Robertson in his further affidavit:
Mr Chiang has provided complete responses to each allegation made against him in writing, but I do not consider it appropriate to exhibit those responses to my affidavit as I respectfully submit that those issues have no bearing on the facts and law relevant to the plaintiff’s applications now before this Honourable Court for determination.[6]
[6]Paragraph 43.
THE APPLICATIONS
By its originating process of 7 August 2009, MCH claims an order that each of Mr Lee, Ms Lou Low and Ms Yoke Low respectively be required to comply with the directions of MCH under s 672A of the Corporations Act 2001 by disclosing to MCH in writing the information prescribed by s 672B of the Corporations Act 2001 within two days of the date the order being made.
By its originating process of 7 August 2009, QIL claims an order that each of Mr Lee and Ms Lou Low respectively be required to comply with the directions of QIL under s 672A of the Corporations Act 2001 by disclosing to QIL in writing the information prescribed by s 672B of the Corporations Act 2001 within two days of the date of the order being made.
THE PLAINTIFFS’ CASE
The plaintiffs’ case against the defendants can be summarised as follows. On 9 July 2009, the plaintiffs sought to ascertain the nature of the relevant interests in MCH shares held by Mr Lee, his wife Ms Lou Low and her sister, Ms Yoke Low. The plaintiffs issued each of the defendants with a s 672A notice, requiring disclosure of their interest under the Act. The plaintiffs allege that s 672A applied to each of the defendants since each was or had been a member of the company or scheme. In addition, the plaintiffs contend Mr Lee was named in a previous disclosure as having a relevant interest in voting shares in the company. Following the issuing of the first set of notices, the defendants acknowledged their receipt, but failed to provide the information sought.
On 17 July 2009, the plaintiffs issued a second set of s 672A notices to each of the defendants. The plaintiffs contend the defendants again failed to respond and refused to talk to the representative of the plaintiffs, Mr Robertson, when he attempted to make contact by telephone.
On 22 July 2009, the plaintiffs issued a third set of s 672A notices to each of the defendants. The plaintiffs contend that again, the defendants failed to comply with the requests for disclosure of their interest in MCH and QIL held by others named in the notices.
The plaintiffs submit that from the issuing of the first set of notices until the commencement of proceedings, the defendants did not seek to be made exempt from the requirements of the notices, nor did they assert that the notices were vexatious. Thus, no reasonable excuse has been offered for the defendants’ failure to respond to the notices.
The plaintiffs contend that the failure of the defendants to comply with the notices issued under s 672A is contrary to the Act. In such a case, the Act provides, by s 1325A, that the court may make remedial orders in respect of the non-compliance. Such orders include the orders sought by the plaintiffs, instructing the defendants to provide the information sought.
Both applications relied on two affidavits of Grant Anthony Roberson, a director of MCH and QIL.
FIRST NOTICES OF MCH
By notice dated 9 July 2009, MCH sought information from Mr Lee in relation to MCH ordinary shares and options for the period commencing on or about 12 August 2005 to “the date hereof.” The notice stated:
Murchison Holdings Limited, a company listed on the ASX requires that you disclose information under subsection 672A(1)(a) of the Corporations Act regarding your holding of ordinary shares and options (hereinafter jointly and severally called “the shares”) listed on the ASX for the period commencing from on or about 12 August 2005 to the date hereof. An extract of your holdings issued to us by the Company’s share registrar is attached.
Your statement should be in accordance with subsection 627B of the Corporations Act, returned within 2 business days after receipt of this notice and disclose:
1. full details of your relevant interest in the shares and of the circumstances that gave rise to that interest, and
to the extent to which you know:
2. the name and address of each other person who has a relevant interest in any of the shares together with full details of
2.1 the nature and extent of the interest, and
2.2 the circumstances that gave rise to the other person’s interest; and
3. the name and address of each person who has given you instructions about:
3.1 the acquisition or disposal of the shares; or
3.2 the exercise of any voting or other rights attached to the shares; or
3.3 any other matter relating to the shares;
Together with full detail of those instructions (including the date or dates on which they were given).
The attached extract indicated that Mr Lee had acquired 1,075 MCH ordinary shares on 12 August 2005, 21 shares on 27 September 2005, 61 shares on 28 September 2005 and 10,000 shares on 13 January 2006. He had sold all but 1540 MCH ordinary shares by 5 April 2006. He sold the balance of his holding of MCH ordinary shares on 12 April 2006. The attached abstract did not refer to any options.
By notice dated 9 July 2009, MCH sought information from Ms Lou Low in relation to MCH ordinary shares and options for the period commencing on or about 16 February 2004 to “the date hereof.” The attached extract showed a lengthy list of acquisitions and dispositions beginning with an acquisition on 18 February 2004 and ending with a disposition of 1,238 MCH ordinary shares on 8 January 2008, at which time the balance of her holding of ordinary shares was nil. Some of the recorded acquisitions were off market transfers. The extract also gave her holdings of options. The record began on 10 January 2005 and concluded with an entry on 10 January 2009 with a notation that her holding of 11,254 options had expired leaving a nil balance.
By notice dated 9 July 2009, MCH sought information from Ms Yoke Low in relation to MCH ordinary shares and options for the period commencing on or about 20 January 2005 to “the date hereof.” The attached extract indicated that she had acquired MCH ordinary shares beginning 20 January 2005 and the last transaction was on 2 July 2008 leaving a balance holding of 5000 MCH ordinary shares. The extract of her trading history of MCH also showed that she acquired 5000 MCH options through a bonus issue on 13 May 2009. That was the only transaction of options shown on the abstract. The inference being she still held the 5000 MCH options.
FIRST NOTICES OF QIL
By notice dated 9 July 2009, QIL sought information from Mr Lee in relation to QIL ordinary shares and options for the period commencing on or about 16 September 2005 to “the date hereof.” The attached extract entitled trading history shows acquisitions commencing 16 September 2009 and concluding with a disposal on 13 March 2009 leaving a balance held of 5,900 QIL ordinary shares. He is also recorded as holding 5,900 QIL options issued on 13 May 2009.
By notice dated 9 July 2009, QIL sought information from Ms Lou Low in relation to QIL ordinary shares and options for the period commencing on or about 30 August 2004 to “the date hereof.” The trading history extract showed a balance of 48,750 QIL ordinary shares being held on 2 July 2008 and 48,750 QIL options being held on 13 May 2008.
SECOND NOTICES OF MCH AND QIL OF 17 JULY 2009
On 17 July 2008, a second set of notices were given by MCH and QIL to the defendants. This time each notice said:
We also enclose $5.00 cash being the amount prescribed by the Corporations Regulations 2001 for compliance with a direction under section 672A.
The extracts relating to MCH and QIL attached to the second notices were the same as those attached to the first notices. No explanation has been given for the service of the second notices. I assume they were served to overcome any irregularity through failure to serve $5.00 with each of the first notices.
THIRD MCH AND QIL NOTICES OF 22 JULY 2009
Four notices dated 22 July 2009 are exhibited to Mr Robertson’s first affidavit.[7]
[7]GAR-15 and GAR-16.
By notice dated 22 July 2009, MCH sought information from Mr Lee in relation to MCH shares and options registered in the name of Ms Lou Low for the period commencing on or about 16 February 2004 to “the date hereof.” The extract of Ms Lou Low’s transaction history disclosed she held no MCH ordinary shares or options at the date of the notice but a series of transactions over the period referred to.
By notice dated 22 July 2009, MCH sought information from Mr Lee in relation to MCH shares and options registered in the name of Ms Yoke Low for the period commencing on or about 20 January 2005 to “the date hereof.” The extract of Ms Yoke Low’s transaction history disclosed she held 5000 MCH ordinary shares and 5000 MCH options at the date of the notice and a series of MCH ordinary share transactions over the period referred to.
By notice dated 22 July 2009, MCH sought information from Ms Lou Low in relation to MCH shares and options registered in the name of Ms Yoke Low for the period commencing on or about 20 January 2005 to “the date hereof.” The extract of Ms Yoke Low’s transaction history disclosed she held 5000 MCH ordinary shares and 5000 MCH options at the date of the notice and a series of MCH ordinary share transactions over the period referred to.
By notice dated 22 July 2009, QIL sought information from Mr Lee in relation to QIL shares and options registered in the name of Ms Lou Low for the period commencing on or about 30 August 2004 to “the date hereof.” The extract of Ms Lou Low’s transaction history disclosed she held 48,750 QIL ordinary shares and 48,750 QIL options at the date of the notice and a series of QIL ordinary share and QIL option transactions over the period referred to.
Each of the four notices request that the recipient disclose information under s 672A(1)(a). No reference is made to s 672A(1)(b). On the face of the notices, however, it appears the relevant provision might be s 672A(1)(b) as the notice treats a person other than the recipient as the “member.” On the other hand, the notices do not state that the recipient is “a person named in a previous disclosure under s 672B as having a relevant interest in, or having given instructions about, voting shares in the company” or words to that effect.
Mr Robertson deposes that a similar notice was given to Mr Lee by MCH in relation to MCH ordinary shares held by John Giampiccolo. The notice does not appear to be exhibited or otherwise tendered in evidence.
As indicated above, when the matter first came on for hearing, the matter was adjourned and the plaintiffs were given leave to file a further affidavit on the question of whether Mr Lee is a person upon whom a s 672A notice can be served in accordance with s 672A of the Corporations Act 2001.
Accordingly, Mr Roberson swore a further affidavit of 26 August 2009. By this affidavit the plaintiffs sought to tender evidence of the MCH share holdings of John Giampiccolo. I will return to the relevant evidence of this shortly.
Mr Robertson also tendered an email from Jacqueline Hainsworth of Computershare dated 21 August 2009 regarding share movement in each of MCH and QIL. The email confirms the information in the extracts in relation to Mr Lee. That is, that he holds no MCH ordinary shares or options. As to QIL, her email confirms his holding of 5,900 QIL ordinary shares and 5,900 QIL options.
As to Lou Chow, the email states that of her holding of 48,750 QIL ordinary shares she disposed of 20,000 on each of 7 August 2009 and 17 August 2009.
The email did not disclose any change in Ms Yoke Low’s MCH holdings.
Mr Robertson deposes that Mr Giampiccolo was served with a notice on 9 July 2009. The extract attached recorded 15,000 MCH ordinary shares were transferred into his name on 22 September 2004 in an off market transfer and disposed through Chess on 9 February 2005. He replied on 14 July 2009. In his reply, Mr Giampiccolo states that he presumes Mr Lee sent him the forms/instructions to acquire the shares.[8]
[8]GAR-20.
Mr Robertson deposes as to further communications with and notices given to Mr Giampiccolo. It appears that in the past Mr Giampiccolo held shares in MCH on behalf of Mr Lee.
Mr Robertson deposes to communications with Mr Lee which he says constitutes an admission that the shares and options held in MCH and QIL by Ms Lou Low and Yoke Low are being held on behalf of Mr Lee.
CURRENT HOLDINGS OF ORDINARY SHARES
For reasons I discuss below, I find that s 672A does not relate to options but only to shares that carry membership of the company.
I find the relevant holdings of ordinary shares as at the date of the hearing are as follows:
MCH ordinary shares QIL ordinary shares Mr Lee Nil 5,900 Ms Lou Low Nil 8,750 Ms Yoke Low 5,000 Nil
THE RELEVANT LEGISLATION
Section 672A provides:
(1) ASIC, a listed company or the responsible entity for a listed managed investment scheme, may direct:
(a) a member of the company or scheme; or
(b) a person named in a previous disclosure under section 672B as having a relevant interest in, or having given instructions about, voting shares in the company or interests in the scheme
to make the disclosure required by section 672B.
(2) ASIC must exercise its powers under this section if requested to do so by a member of the company or scheme unless it considers that it would be unreasonable to do so in all the circumstances.
Section 672B provides:
(1) A person given a direction under section 672A must disclose to the person giving the direction:
(a) full details of their own relevant interest in the shares or interests in the scheme and of the circumstances that gave rise to that interest; and
(b) the name and address of each other person who has a relevant interest in any of the shares or interests together with full details of:
(i) the nature and extent of the interest; and
(ii) the circumstances that gave rise to the other person’s interest; and
(c) the name and address of each person who has given the person instructions about:
(i) the acquisition or disposal of the shares or interests; or
(ii) the exercise of any voting or other rights attached to the shares or interests; or
(iii) any other matter relating to the shares or interests; together with full details of those instructions (including the date or dates on which they were given).
(1A) However, a matter referred to in paragraph (1)(b) or (c) need only be disclosed to the extent to which it is known to the person required to make the disclosure.
(1B) An offence based on subsection (1) is an offence of strict liability.
(2) The disclosure must be made within 2 business days after:
(a) the person is given the direction; or
(b) if the person applies for an exemption under section 673 from the obligation to make the disclosure and ASIC refuses to grant the exemption – ASIC notifies the person of its decision on the application; or
(c) if the direction is given by a company or responsible entity – the company or responsible entity pays any fee payable under the regulations made for the purposes of section 672D.
(3) The person does not have to comply with a direction given by the company or the responsible entity if the person proves that the giving of the direction is vexatious.
MAY NOTICES BE SERVED ON FORMER MEMBERS UNDER s 672A(1)(a)?
As indicated above, several of the notices relate to shares and options previously held by one or other of the defendants. The plaintiffs contend that a member referred to in s 672A(1)(a) of the Act includes a person who was member of the company but no longer is a current member.
Under s 9 of the Act a member in relation to a company is defined to be a person who is a member under s 231 (my emphasis). Section 231 provides:
A person is a member of a company if they:
(a) are a member of the company on its registration; or
(b) agree to become a member of the company after its registration and their name is entered on the register of members; or
(c) become a member of the company under section 167 (membership arising from conversion of a company from one limited by guarantee to one limited by shares).
The matters referred to in each of (a), (b) and (c) are the means by which a person can become a member. Section 231 does not deal with how a person ceases to be a member.
The plaintiffs submit that each of Mr Lee, Ms Lou Low and Ms Yoke Low respectively became members of MCH after its registration and each of their names were entered on the MCH register of members, and that they remain a member for the purposes of s 672A even though they in fact ceased to be a current member. They make the same submission in respect of Mr Lee and Ms Lou Low with respect to QIL.
The plaintiffs cited no authority for the proposition that a person who is no longer a current member of a company nevertheless “is” a member because at some stage in the past they were a member for the purposes of s 672A.
The plaintiffs referred the court to cases where s 672A or its predecessor has been examined by the courts. In Re North Broken Hill Holdings Limited,[9] Fullagar J of the Supreme Court of Victoria stated in relation to the predecessor of s 672A that:
The purpose of the legislation in Div 4 of Pt V of the Code is to promote an informed market for the shares in public companies, and to prevent substantial transactions on an uninformed market. A practical means adopted for effecting this purpose is to compel disclosure of all links in the chain between the purchaser on the record and the person who controls the shares purchased, and requiring registration of the facts disclosed.[10]
[9](1986) 4 ACLC 131 (‘Broken Hill Holdings’).
[10]Ibid, 142.
It should be noted that Fullagar J referred to the chain back to the “purchaser on the record.” This tends to support the view that member means a current member “on the record.”
In Brunswick NL v Blossomtree Pty Ltd[11] the Full Court of the Supreme Court of Western Australia held that the purpose of the legislation, of keeping an informed market, was not limited to companies involved, or potentially involved, in takeover activities. The Full Court cited with approval the statement of Fullagar J cited above.[12] This finding does not assist in a construction that member includes a former member.
[11](1992) 10 ACSR 542, Malcolm CJ, Rowland and Franklyn JJ (‘Blossomtree’).
[12]Ibid at 549.
The Full Court also referred to a secondary purpose, that of ascertaining whether any shares were acquired illegally.[13] With respect to this secondary purpose, the plaintiffs alleged that it was possibly applicable to their case, since “it may be that at least some of the transactions in respect of which the s 672A notices were served on each of Lee, Lou Low and Yoke Low were illegal.”[14] The plaintiffs did not reveal the grounds for this allegation.
[13]Franklyn J in Blossomtree, at 554.
[14]Paragraph 42 of the plaintiffs’ written submissions.
The plaintiffs also rely on a passage from the judgment of Owen J of the Supreme Court of Western Australia in Blossomtree Pty Ltd v Brunswick NL[15] at first instance, as follows:
Counsel for the respondent argued that the grant of an injunction would be futile because it would give information as to the state of the register some 14 months ago. I do not accept that argument. The purpose of the legislation, namely to ensure that there is an informed market, does not apply solely to the current and the future market. There are considerations (which I have mentioned earlier) which suggest that in some circumstances a retrospective view of the conditions in which the market has operated would be appropriate.[16]
[15](1991) 4 WAR 480; (1991) 4 ACSR 675.
[16]Ibid at 687.
Nevertheless, although market conditions had altered, the notices in the above case related to current shareholdings.
FAILURE TO COMPLY WITH A NOTICE
Failure to comply with a Notice under s 672A results in a breach of s 672B. The Act imposes a civil liability upon persons breaching s 672B, via s 672F, which provides:
(1) A person who contravenes section 672B is liable to compensate a person for any loss or damage the person suffers because of the contravention.
(2) It is a defence in proceedings brought under this section if the person who contravenes section 672B proves that they contravened that section:
(a) because of inadvertence or mistake; or
(b) because they were not aware of a relevant fact or occurrence.
In determining whether the defence is available, disregard the person's ignorance of, or a mistake on the person's part concerning, a matter of law.
(3) If 2 or more persons each contravene section 672B because of the same act or omission, their liability under this section for the contravention is joint and individual.
The Takeover Panel in Re Village Roadshow Limited[17] stated that tracing notice breaches ought to be treated as serious, citing a number of cases where the Courts have taken action to enforce compliance.[18] In one of these cases, Australian Securities Commission v Bank Leumi Le-Israel (Switzerland),[19] the court ruled that the tracing notice was enforceable even though the respondent, a Swiss bank, would have breached Swiss Bank Laws by complying.
[17](2004) 52 ACSR 238.
Re North Broken Hill Holdings Ltd (1986) 4 ACLC 131, Australian Securities Commission v Bank Leumi Le-Israel (Switzerland) and Others (1996) 139 ALR 527 and Brunswick NL v Blossomtree Pty Ltd (1992) 10 ACSR 542.
[19] (1996) 139 ALR 527.
COURTS POWERS AND REMEDIES
The court may under s 1325A of the Act make any order that it considers appropriate, including a remedial order, if a person:
(a) contravenes a provision of Chapter 6, 6A, 6B or 6C; or
(b) contravenes a condition on a consent given by ASIC under section 652B; or
(c) states in a notice under section 672B about securities that they do not know particular information about:
(i) the securities; or
(ii) someone who has a relevant interest in, or has given instructions in relation to, the securities.
Further to the powers in s 1325A, the Act permits the court to specify the act or acts that a person must undertake, or refrain from undertaking, so as to ensure compliance with a court order. Section 1325E provides:
In order to secure compliance with an order under section 1325A, 1325B or 1325C, the Court may direct a person to:
(a) do a specified act; or
(b) refrain from doing a specified act.
The nature and scope of remedial orders that a Court might make are contained in s 9 of the Act, definitions. Section 9 provides, insofar as it is relevant:
A remedial order means an order that:
(a) restrains a person from exercising any voting or other rights attached to securities; or
(b) directs a body corporate not to make or to defer payment of an amount due from the body corporate in respect of securities; or
(c) restrains a person from acquiring securities or an interest in securities; or
(d) directs a person to dispose of, or not to dispose of, securities or interests in securities; or
(e) directs the disposal referred to in paragraph (d):
(i) to be made within a specified time; or
(ii) to be made subject to specified conditions; or
(iii) not to be made to a specified person or persons or to a specified class or classes of persons;
(f) directs a specified person to pay to the body corporate an amount equal to any profit or benefit that the person obtains because of the disposal referred to in paragraph (d); or
(g) vests securities, or an interest in securities, in ASIC; or
(h) directs a body corporate not to register the transfer or transmission of securities; or
(i) cancels securities issued as consideration for offers under a takeover bid; or
(j) declares that an exercise of the voting or other rights attached to securities be disregarded; or
(k) cancels or declares voidable:
(i) an agreement or offer relating to a takeover bid, or a proposed takeover bid; or
(ii) any other agreement or offer in connection with the acquisition of securities or relevant interests in securities;
(l) directs a person to give specified information to the holders of securities of a body corporate; or
(m) directs a body corporate not to issue securities to a person; or
(n) if an order of a kind referred to in paragraphs (a) to (m) is in force in respect of securities--directs the registered holder of the securities to give written notice of the order to any person whom the holder knows to be entitled to exercise a right to vote attached to those securities; or
(o) directs a body corporate to repeal or modify its existing constitution or adopt a particular constitution; or
(p) if a person has failed to comply with a requirement of Chapter 6, 6A, 6B or 6C -- directs that person to comply with that requirement.
The Court therefore has wide discretionary powers with regards to enforcing compliance with s 672B.
RELIEF FOR NON-COMPLIANCE
The Act provides for circumstances where non-compliance with a s 672A notice can be excused. Section 1325D(3) and (4) provide:
(3) If the Court is satisfied that in all the circumstances a contravention of a provision of Chapter 6, 6A, 6B or 6C ought to be excused, the Court must not make an order under section 1325A, 1325B or 1325C other than:
(a) an order restraining the exercise of voting or other rights attached to securities; or
(b) an order that an exercise of voting or other rights attached to securities be disregarded.
(4) In determining whether or not a contravention of a provision by a person ought to be excused, have regard to the contravention being caused by any of the following:
(a) the person's inadvertence or mistake;
(b) the person not having been aware of a relevant fact or occurrence;
(c) circumstances beyond the control of the person.
(5) This section applies notwithstanding anything contained in any other provision of this Chapter.
These provisions were examined by this Court in Re Bligh Ventures Ltd; ASIC v Merkin Investments Ltd and Another.[20] In that case the respondent, Merkin Investments Ltd, failed to provide evidence as to its controlling clients in response to a s 672 A notice, and later sought to rely on the excuse of inadvertence or mistake provided for in s 1325D. In refusing to apply the provisions, Mandie J reasoned that there was insufficient evidence before him to determine whether inadvertence or a mistake had been made, commenting that:
[f]or all the evidence shows, the failure may have been intentional. … For most of the period involved, there is no reason to think that Revo, and hence Merkin, was not aware of the relevant facts, and the evidence from Karae about the state of Merkin’s files is vague and unsatisfactory.[21]
[20](2001) 38 ACSR 648 (‘Merkin Investments’).
[21] Ibid, 659.
PURPOSE OF TRACING NOTICES
The purpose of tracing notice provisions within Part 6C.2 of the Act is enunciated within the Act itself, in s 602. Section 602 provides:
The purposes of this Chapter is to ensure that:
(a) the acquisition of control over:
(i) the voting shares in a listed company, or an unlisted company with more than 50 members; or
(ii) the voting shares in a listed body; or
(iii) the voting interests in a listed managed investment scheme;
takes place in an efficient, competitive and informed market; and
(b) the holders of the shares or interests, and the directors of the company or body or the responsible entity for the scheme:
(i) know the identity of any person who proposes to acquire a substantial interest in the company, body or scheme; and
(ii) have a reasonable time to consider the proposal; and
(iii) are given enough information to enable them to assess the merits of the proposal; and
(c) as far as practicable, the holders of the relevant class of voting shares or interests all have a reasonable and equal opportunity to participate in any benefits accruing to the holders through any proposal under which a person would acquire a substantial interest in the company, body or scheme; and
(d) an appropriate procedure is followed as a preliminary to compulsory acquisition of voting shares or interests or any other kind of securities under Part 6A.1.
In Re Village Roadshow Limited,[22] a Takeover Panel referred to s 602, noting that the section also contained an implied purpose of ‘[enabling] companies to ascertain relevant interests in their shares and in turn protect against any breach of the substantial holding disclosure requirements of Part 6C.1.’[23] Such a purpose would not be furthered by obtaining information about a previous holding.
[22][2004] ATP 4 (16 February 2004).
[23]Ibid, 52.
STATUTORY INTERPRETATION
Section 15AA of the Acts Interpretation Act 1901 (Cth) provides that:
In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object.
Section 15AB permits reference to extrinsic material. The High Court has explained the importance of context to interpretation in CIC Insurance Ltd v Bankstown Football Club Ltd:[24]
It is well settled that at common law, apart from any reliance upon s 15AB of the Acts Interpretation Act 1901 (Cth), the court may have regard to reports of law reform bodies to ascertain the mischief which a statute is intended to cure. Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses "context" in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy. Instances of general words in a statute being so constrained by their context are numerous. In particular, as McHugh JA pointed out in Isherwood v Butler Pollnow Pty Ltd, if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent. (footnotes omitted)[25]
[24](1997) 187 CLR 384.
[25]Ibid at 408 per Brennan CL and Dawson, Toohey and Gummow JJ.
In Project Blue Sky v ABA[26] the High Court again confirmed the importance of context where it said:
However, the duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have. Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning of the provision. But not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning. (footnotes omitted)[27]
[26](1998) 194 CLR 355.
[27]Ibid at 384, [78] per McHugh, Gummow, Kirby and Hayne JJ.
Section 672A falls within Part 6C.2 of Chapter 6C entitled “Information about ownership of listed companies and managed investment schemes. Part 6C.1 concerns substantial holdings and is entitled “Substantial Holding Information.” Part 6C.2, where s 672A lies, is entitled “Tracing Beneficial Ownership of Shares.” Part 6C.3 deals with ASIC’s power to exempt and modify the application of the Chapter and is entitled “ASIC Powers.”
Australian Corporation Law Principles and Practice[28] in its chapter entitled “Tracing Beneficial Ownership of Shares” describe the objectives of the tracing provisions contained in Part 6C.2 as follows:
The objective … is to maintain an informed market. This has been noted by the courts and the Panel in, for example, Australian Securities and Investment Commission v Bank Leumi Le-Israel[29] and Re Gribbles Group Ltd.[30]
The tracing provisions also assist in achieving the objectives of the substantial holding provisions in s 671B, since a listed company or the responsible entity for a managed investment scheme can use the tracing provisions to compel disclosure of the identity of substantial holders and thus determined whether they have observed the substantial holding provisions.[31]
[28]Koster B, and T Schupp “Tracing Beneficial Ownership of Shares”, Australian Corporation Law, Principles and Practice, Butterworths.
[29](1995) 134 ALR 101 at 136; 18 ACSR 639; BC9501504.
[30][2004] ATP 15; BC200405009.
[31]Koster B, and T Schupp “Tracing Beneficial Ownership of Shares”, Australian Corporation Law, Principles and Practice, Butterworths, 69411.
The service does not suggest that the “direction” or formerly the “tracing notice’ could be given to former members.
Ford’s Principles of Corporations Law[32] contains a brief discussion on tracing beneficial ownership of shares. It does not suggest s 672A applies to former members.
[32]Ford’s Principles of Corporations Law, Butterworths, [23.660].
Section 672A(1)(b) refers to person named in a previous disclosure under s 672B “as having a relevant interest in” in the relevant shares. The relevant test is a current test of having not a past test of had. This tends to suggest that the section is concerned with the current position and not the past.
CONCLUSION ON “MEMBER”
As indicated previously, only the plaintiffs were legally represented. Accordingly, I have not had the benefit of competing legal submissions on the construction of s 672A. Bearing this and the other matters referred to above in mind, in my opinion, s 672A would be virtually unworkable if it applied to shares or interests acquired in the past but disposed of. The transactions could be myriad and relate back for many years. The purposes of Chapter 6 Takeovers, as set out in s 602, would not be advanced by enabling a company to obtain information from former members as such. I can see no statutory purpose in giving the section such a wide meaning.
The structure of s 672A suggests that the scheme is for a notice to be given to a current registered member and then trace control back by giving further notices to persons named by the current member or person named by him or her to the ultimate controlling party. I fail to see how a market would be assisted by enabling the tracing of the former ownership of shares from a person who no longer has an interest in the company. I fail to see how information about a past shareholding could assist the market as to the present position of the company.
In my opinion, for the purposes of s 672A(1)(a), member means a current registered member.
NOTICES UNDER S 672A(1)(b)
For similar reasons, a previous disclosure under s 672B referred to in s 672A(1)(b) must also relate to a current shareholding. In my opinion, the power to issue a notice under s 672A(1)(b) can not be enlivened by a disclosure relating to a prior but no longer existing shareholding. As indicated above, s 672A(1)(b) refers to a person “having” a relevant interest.
OPTIONS
In my view, s 672A does not apply to options. Options do not confer membership of the company on an option holder. Nothing in Division 1 of Part 7.11 dealing with shares suggests options are shares. In my option, options are not shares for the purposes of s 672B. Section 672A(1)(b) specifically refers to voting shares. On the other hand, s 672A does not.[33] No authority was put forward to suggest that section s 672A applies to options.
[33]Koster B, and T Schupp Tracing Beneficial Ownership of Shares, Australian Corporation Law, Principles and Practice, Butterworths, 69413, 6.11.0030.
FIRST AND SECOND NOTICES GIVEN BY MCH
For these reasons, the first and second notices given by MCH to Mr Lee and Ms Lou Low were invalid. They had no current shareholding.
MCH gave first and second notices to Ms Yoke Low who holds 5000 shares in MCH. The notice calls on her to give information about shares she previously held but has since disposed of. In my opinion, the first and second notices given to Ms Yoke Low were misleading and confusing. In my view, a s 672A(1)(a) notice can not be given in relation to shares she has disposed of. The notice suggests that she is obliged to give information concerning previous shareholdings. Even if the notice is valid, which I doubt, in my discretion I am not prepared to make orders under s 1325A, where the notice is confusing and misleading.[34] In any event, I hardly think information about the ownership of 5000 MCH shares is relevant to the purposes referred to in s 602. If my discretion is enlivened, in the exercise of my discretion, I am not prepared to make the orders sought in relation to Ms Yoke Low.
[34]On discretion generally under these provisions see Australian Securities Commission v Bank Leumi Le-Israel (Switzerland) (1996) 139 ALR 527; (1996) 21 ACSR 474 at 486-489 per Lehane J (with whom Lockhart and Foster JJ agreed).
FIRST AND SECOND NOTICES GIVEN BY QIL
The first and second notices given by QIL to Mr Lee and Ms Lou Low related to both existing and previous shareholdings. In my opinion, the notices were misleading and confusing. Even if the notices are valid, which I doubt, in my discretion I am not prepared to make orders under s 1325A, where the notice is confusing and misleading.
THIRD NOTICES GIVEN BY MCH AND QIL UNDER s 672A
As to the third notice given by MCH to Mr Lee in relation to Ms Lou Low’s ordinary shares in MCH: in my opinion, there is no requirement on Mr Lee to respond to it. Ms Lou Low was not a current member of MCH.
As to the third notice given by MCH to Mr Lee in relation to Ms Yoke Low’s ordinary shares in MCH: in my opinion, there is no requirement on Mr Lee to respond to it. No evidence was tendered that Ms Yoke Low had disclosed the name of Mr Lee under s 672B as having a relevant interest in or having given instructions about, voting shares as required under s 672A(b). Further, the notice did not allege as such and did not refer to s 672A(1)(b). Further, it referred to a series of holdings and for the reasons expressed above was misleading as to what was required, if anything, of Mr Lee.
As to the third notice given by MCH to Ms Lou Low in relation to Ms Yoke Low’s ordinary shares in MCH: in my opinion, there is no requirement on Ms Lou Low to respond to it. No evidence was tendered that Ms Yoke Low had disclosed the name of Ms Lou Low under s 672B as having a relevant interest in or having given instructions about, the 5000 voting shares she held in MCH as required under s 672A(b). Further, the notice did not allege as such and did not refer to s 672A(1)(b). Further, it referred to a series of holdings and for the reasons expressed above was misleading as to what was required, if anything, of Ms Lou Low.
As to the third notice given by QIL to Mr Lee in relation to Ms Lou Low’s ordinary shares in QIL: in my opinion, there is no requirement on Mr Lee to respond to it. No evidence was tendered that Ms Lou Low had disclosed the name of Mr Lee under s 672B as having a relevant interest in or having given instructions about, the 48,750 voting shares she held in QIL as required under s 672A(b). Further, the notice did not allege as such and did not refer to s 672A(1)(b). Further, it referred to a series of holdings and for the reasons expressed above was misleading as to what was required, if anything, of Mr Lee.
CONCLUSION
For the above reasons, I am not prepared to make any orders on the three sets of notices issued by MCH and QIL as sought in the applications of 7 August 2009.
The order in each application will be: application dismissed with costs, if any.
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