Re Power Minerals Ltd

[2024] WASC 121

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   RE POWER MINERALS LTD; EX PARTE POWER MINERALS LTD [2024] WASC 121

CORAM:   HILL J

HEARD:   8 MARCH 2024

DELIVERED          :   8 MARCH 2024

PUBLISHED           :   11 APRIL 2024

FILE NO/S:   COR 27 of 2024

MATTER:   IN THE MATTER OF POWER MINERALS LTD

EX PARTE

POWER MINERALS LTD

Plaintiff

Catchwords:

Corporations law - Securities - Application for declaratory relief to validate trading in shares issued without a valid cleansing notice - 61 instances of securities being issued without a valid cleansing notice - Where no blatant or flagrant disregard of obligations - Where no substantial injustice if orders made - Turns on own facts

Legislation:

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

Result:

Application granted

Category:    B

Representation:

Counsel:

Plaintiff : M Holler

Solicitors:

Plaintiff : Steinepreis Paganin

Cases referred to in decision:

Blaze Asset Pty Ltd v Target Energy Ltd [2009] FCA 698; (2009) 177 FCR 488

Re Elemental Minerals Ltd (2010) 79 ACSR 277

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 Imdex Ltd [2020] WASC 298

Re Jaxsta Ltd; Ex parte Jaxsta Ltd [2018] WASC 390

Re Poseidon Nickel Ltd [2018] FCA 1063; (2018) 129 ACSR 57

Re Strike Energy Ltd [2012] FCA 725

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

Re Westpac Banking Corporation (2004) 53 ACSR 288

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

HILL J:

1. On 1 March 2024, the plaintiff, Power Minerals Limited (ACN 101 714 989) (Power Minerals), filed an originating process seeking orders under s 1322(4)(d), s 1322(4)(a) and s 254E of the Corporations Act 2001 (Cth) (Act) relating to contraventions of s 707(3) of the Act. The contraventions occurred as a result of 61 separate instances of shares being issued between 4 April 2018 and 27 December 2023 (Share Issues) without a valid cleansing notice, pursuant to s 708A(5)(e) and s 708A(6) of the Act.

2. At the hearing, Power Minerals sought orders under s 1322(4) of the Act extending the timeframe under which a cleansing notice may be lodged pursuant to s 708A(5) of the Act and validating any offers or sales of shares in respect of the Share Issues.

3. Despite the number of instances where shares were issued without a valid cleansing notice, Power Minerals 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 under the Act.

4. In light of the urgency with which the application was brought, I made orders at the conclusion of the hearing on 8 March 2024 granting the primary relief sought and said that I would subsequently publish reasons for my decision.  These are the reasons for my decision. 

Evidence on the application

1. In support of its application, the plaintiff relied on five affidavits:

   (a)an affidavit of David Turvey, a former director of the plaintiff, filed 6 March 2024;

   (b)an affidavit of Mena Habib, the managing director of the plaintiff, filed 6 March 2024;

   (c)an affidavit of Pamela Gaye Sayers, the company secretary of the plaintiff, filed 6 March 2024;

   (d)an affidavit of Christiaan Andries Wessels, a former director of the plaintiff, filed 7 March 2024; and

   (e)an affidavit of Madeline Sky Ardon, a solicitor employed at Steinepreis Paganin, the plaintiff's solicitors, filed 8 March 2024. 

Part 6D.2 of the Corporations Act

1. Part 6D.2 of the Act imposes disclosure obligations in relation to the issue and sale of shares.

2. 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 2001 (Cth) s 708A(5).

   [2] Corporations Act 2001 (Cth) s 707(3). See also ReGolden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17.

Factual background

1. The plaintiff is an Australian public mineral resources company whose securities are listed on the ASX.  The plaintiff has projects in Argentina and South Australia.[3]

   [3] Affidavit of Pamela Gaye Sayers filed 6 March 2024 [8] - [11]. 

2. As of 3 March 2024, the plaintiff had 87,376,101 fully paid ordinary shares on issue, a market capitalisation of approximately $18.34 million, and 3,651 shareholders.[4]

   [4] Affidavit of Pamela Gaye Sayers filed 6 March 2024 [12].

3. On 27 February 2024, Ms Sayers and Mr Habib received an email from Steinepreis Paganin informing them that, in respect of various share issues undertaken by the plaintiff, it had failed to lodge cleansing notices within five business days after the day of each respective share issue.  Until that time, the plaintiff was unaware there was any issue in respect of the share issues that had been undertaken.  Steinepreis Paganin advised them that a review would need to be undertaken of all share issues since 2017 on the ASX to confirm whether further breaches had occurred.[5]

   [5] Affidavit of Pamela Gaye Sayers filed 6 March 2024 [60] - [61]; Affidavit of Mena Habib filed 6 March 2024 [13] - [14].

4. Following this review, 61 share issues (as set out in the annexure to the orders, which are annexed to these reasons) were identified as having occurred without a cleansing notice being lodged.  Of these, Ms Holland- Kennedy, the former managing director of the plaintiff, was responsible for the first 28 of these share issues, with Ms Sayers responsible for the remainder. 

5. In respect of the share issues for which Ms Holland-Kennedy was responsible, the evidence of Mr Turvey and Mr Wessels is that the directors of the plaintiff relied on Ms Holland-Kennedy for compliance matters such as the issuing of cleansing notices.  Ms Holland-Kennedy was not willing to provide an affidavit for the purpose of these proceedings.[6]  From the review that was undertaken of all share issues, Ms Sayers confirmed that between 30 March 2017 and 23 November 2021, cleansing notices were lodged by Ms Holland-Kennedy for 13 share issues undertaken by the plaintiff.  On this basis, the plaintiff says the failure to lodge cleansing notices in respect of the Share Issues the subject of this application was a result of inadvertence on the part of Ms Holland-Kennedy.

   [6] Affidavit of Madeline Sky Ardon filed 8 March 2024 [14].

6. In respect of the remaining 33 share issues, Ms Sayers was responsible for lodging documentation with Australian Securities and Investments Commission (ASIC) and the ASX in relation to each of these share issues. However, as a result of a combination of various factors, Ms Sayers failed to lodge the cleansing notices pursuant to s 708A(5)(e) of the Act. Ms Sayers' evidence is that this was inadvertent and a result of two primary factors. First, the competing priorities of Ms Sayers, who is the company secretary for six other companies, and distraction by other urgent tasks.[7]  Second, in respect of shares issued upon the exercise of options, Ms Sayers did not know at the time that a cleansing notice was required to be given in respect of these share issues (although Ms Sayers now understands it is a requirement).[8]

   [7] Affidavit of Pamela Gaye Sayers filed 6 March 2024 [57] - [58].

   [8] Affidavit of Pamela Gaye Sayers filed 6 March 2024 [59].

7. After being alerted to these issues by their solicitors, on 29 February 2024, the plaintiff's shares were placed into a trading halt.[9]

   [9] Affidavit of Mena Habib filed 6 March 2024 [20]; Affidavit of Pamela Gaye Sayers filed 6 March 2024 [63], 'PGS-38'.

8. On 1 March 2024, the plaintiff's solicitors:

   (a)wrote to the ASX and ASIC to notify them of the error and the plaintiff's intention to commence this application;[10] and

   (b)wrote to the court to seek an urgent hearing of the application.[11]

   [10] Affidavit of Mena Habib filed 6 March 2024 [21]; Affidavit of Pamela Gaye Sayers filed 6 March 2024 [70], 'PGS-41', 'PGS-42'.

   [11] Affidavit of Mena Habib filed 6 March 2024 [22].

9. On 5 March 2024, the plaintiff notified all recipients of the Share Issues of the issue that had arisen and the plaintiff's intention to commence these proceedings.[12]

   [12] Affidavit of Mena Habib filed 6 March 2024 [23]; Affidavit of Pamela Gaye Sayers filed 6 March 2024 [69], 'PGS-40'.

10. On 8 March 2024, before the hearing of the application, the plaintiff issued a cleansing notice in respect of the Share Issues pursuant to s 708A(5)(e) and s 708A(6) of the Act.[13]

    [13] Affidavit of Mena Habib filed 6 March 2024 [24]; Affidavit of Madeline Sky Ardon filed 8 March 2024 [16], 'MSA-09'.

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

1. In considering an application under s 1322 of the Act, the principles are well-known and can be summarised as follows:[14]

   (a)the prescriptive requirements of the wording in s 1322(4) and the pre‑conditions in s 1322(6) of the Act need to be satisfied;[15]

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

   (c)the broad powers that are granted to the court under s 1322 of the Act 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;[16]

   (d)limitations to the broad powers in s 1322 of the Act will not be readily implied.[17]  This section is remedial in character and should be applied broadly;

   (e)the court can make orders under s 1322(4)(a) of the Act on conditions and make such consequential and ancillary orders as it thinks fit; and

   (f)an order can be made under s 1322(4)(a) of the Act notwithstanding that the contravention or failure concerned resulted in the commission of an offence.[18]

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

   [15] Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 [43], [53], [64].

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

   [17] Weinstock v Beck [43], [55] - [56], [60], [64].

   [18] Corporations Act2001 (Cth) 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) of the Act.[19]

Position of ASX and ASIC

[19] Re Wave Capital Ltd 426 [29]. 

1. As at the date of the hearing, neither the ASX nor ASIC opposed the application, nor did any shareholder of the plaintiff seek to be heard.[20]

Extension of time under s 1322(4)(d) of the Act

[20] Plaintiff's submissions [41](d).

1. The test under s 1322(4)(d) was set out by Vaughan J in Re Jaxsta Ltd:[21]

   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)

   [21] Re Jaxsta Ltd [2018] WASC 390 [41] ‑ [43].

2. The period to be extended may be extended even if it has expired.  In this case, the relevant periods for the Share Issues expired on various dates between 2018 and 2023, with the earliest expiry date being 11 April 2018.

3. 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 the cleansing notice until 8 March 2024. 

4. First, I accept, for the reasons set out below at [35], that the failure to lodge cleansing notices was inadvertent. 

5. Second, in the absence of an extension, there are adverse consequences for the plaintiff and its shareholders.  Unless orders are made by the court, the plaintiff's shares will continue to be suspended from trading which will deny the shareholders the opportunity to trade their shares. 

6. Third, shareholders who have purchased shares on market since 4 April 2018 may have purchased some of the shares from the 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.

7. Fourth, each of the recipients of the Share Issues have been notified of the error.

8. Fifth, in facilitating the transaction as originally contemplated, the making of the orders sought is consistent with the conduct of commerce generally.[22] 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.[23]

   [22] Re Jaxsta Ltd [50].

   [23] Blaze Asset Pty Ltd v Target Energy Ltd [2009] FCA 698; (2009) 177 FCR 488 [33].

9. Sixth, the plaintiff brought the application without delay.  The plaintiff first became aware of the error on 27 February 2024, approached the court on 1 March 2024, and the matter came on for hearing on 8 March 2024. 

10. Seventh, the additional orders sought by the plaintiff provide for notice to be given to all persons affected and the ability for them to apply to raise any matters with the court. 

11. Eighth, neither the ASX nor ASIC oppose the application, nor do any shareholders of Power Minerals.

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

1. Power Minerals submitted that each of the pre-conditions in s 1322(6)(a) of the Act was satisfied, but noted that only one need be met.[24]

   [24] Plaintiff's submissions [45]. See also Re Westpac Banking Corporation (2004) 53 ACSR 288 [27].

2. Turning first to the pre-condition in s 1322(6)(a)(i) of the Act, I am satisfied that the act, namely the failure to lodge a cleansing notice, is essentially of a procedural nature.[25]

   [25] Re Strike Energy Ltd [2012] FCA 725 [15]; Re Elemental Minerals Ltd (2010) 79 ACSR 277 [36] - [39].

3. Second, looking to the pre-condition in s 1322(6)(a)(ii) of the Act, Banks-Smith J in Re ICandy Interactive Ltd 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.[26]  Relevantly, Banks-Smith J considered that:

   [26] 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;[27]

   (b)the concept of acting honestly can embrace:[28]

   (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.[29]

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

   [28]Re ICandy Interactive Ltd [55].

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

4. In this case, I find that the actions of Ms Sayers in failing to lodge the cleansing notices (described at 29 to 61 of the annexure to the orders) as required by s 708A(5)(e) of the Act were honest and inadvertent. In relation to the remaining share issues, there is no direct evidence in respect of why the failure occurred. However, from the evidence before the court that cleansing notices were issued in respect of other share issues undertaken at similar times, I infer that the failure to lodge cleansing notices was due to inadvertence.

5. I am also satisfied, in the circumstances of the case, that it would be just and equitable to make the orders sought.  For the reasons set out above, I consider that it would be just and equitable to grant relief to the extent necessary to reasonably protect the interests of current shareholders and for the integrity of future trading in the plaintiff's shares.

6. Despite the number of share issues that are the subject of these proceedings, I accept this is not a case where there has been a failure by the directors of Power Minerals to take an active interest in the company's compliance with the Act or to properly define the roles of company officers.  I accept that the directors of Power Minerals delegated responsibility for compliance to the managing director from 2007 to 25 November 2021, and subsequently to the company secretary.

No substantial injustice (s 1322(6)(c) of the Act)

1. I have considered the classes of persons who may be impacted by the making of these orders.  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 proposed orders.

2. If the orders sought are not made, the shareholders who were issued the impugned shares may be prejudice as any sales of the impugned shares may be void or voidable for want of compliance with the statutory requirements.[30]

   [30] Re Poseidon Nickel Ltd [2018] FCA 1063; (2018) 129 ACSR 57, 67 [63].

3. In addition, 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 shareholders of the plaintiff, as they will not be able to trade their shares on an open market if the current suspension from trading is not lifted.

4. 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 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 corporate law or the company's constitution so as to warrant refusal of the relief sought.[31]

   [31] Re Wave Capital Ltd, 426 [29].

2. There is nothing in the evidence before me that suggests that any minority shareholder might be oppressed.  I am satisfied that all shareholders impacted by the contravention as well as the ASX and ASIC have been notified of the plaintiff's contravention 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) of the Act, a relevant factor is the promptness with which the plaintiff has sought to remedy the irregularity once it has been identified.[32]  In this case, the plaintiff was alerted to the failure to lodge cleansing notices on 27 February 2024.  The plaintiff immediately took steps to remedy the issue, including by seeking a trading halt on 29 February 2024.[33]  Shortly after on 1 March 2024, the plaintiff commenced these proceedings.  I accept and find that the plaintiff has acted diligently in seeking to remedy the matters the subject of the application.

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

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

[33] Affidavit of Pamela Gaye Sayers filed 6 March 2024 [60] - [66].

1. The plaintiff also sought two separate declarations under s 1322(4)(a) of the Act. First, in respect of the Share Issues, a declaration that the cleansing notice given on 8 March 2024 be deemed to take effect as if it had been given to the ASX on the respective dates of issue of these shares, and second, that any offer for sale or sale of the Share Issues not be invalid, by reason of the failure of the plaintiff to issue a cleansing notice pursuant to s 708A(5)(e) and s 708A(6) of the Act and the sellers' consequent failure to comply with s 707(3) of the Act.

2. In this case, for the following reasons, I declined to make the first order. 

3. In Re Imdex Ltd, I set out my views as to whether and when deeming orders should be made.[34]  Relevantly, I expressed the view that where there is no evidence that there has been any trading in the shares or evidence that a cleansing notice has been lodged, I did not consider there was any utility in making a deeming order. 

   [34] Re Imdex Ltd [2020] WASC 298 [55] - [58].

4. In this case, it is unclear from the evidence before me as to the extent to which there have been sales of the shares the subject of the Share Issues.  The only evidence before the court was the evidence of Ms Sayers that there 'has been trading' in relation to 'some of' the shares the subject of the Share Issues.[35]  This evidence does not descend to any detail as to whether this trading occurred within 12 months of the issue of the relevant shares (which, I accept, would be a contravention of the Act) or after 12 months (which would not be).  Given the number of Share Issues that are the subject of this application, this evidence, which is at a high level of generality, does not assist in determining whether this order was required.[36]

   [35] Affidavit of Pamela Gaye Sayers filed 6 March 2024 [67].

   [36] ts 3-6.

5. Given the absence of any specific evidence as to the nature and extent of the sales of the shares the subject of the Share Issues, I do not consider that a deeming order is necessary or will have any utility. The effect of the order sought by the plaintiff under s 1322(4)(a) of the Act is to validate any offers or sales of shares the subject of the Share Issues from their respective dates of issue, until the lodging of the cleansing notice on 8 March 2024. For this reason, any sales of the relevant shares that have occurred within 12 months of their issue are declared not to be in breach of the Act. In these circumstances, it was and is my view that the deeming order would be of little utility and should not be made.

6. In relation to the second order, 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; and

   (c)the contravention is the offering of securities for sale or sales without proper disclosure in contravention of s 707(3) of the Act.[37]

   [37] Re Caeneus Minerals Ltd [39] - [40]; Re Classic Minerals Ltd [35] - [36]. 

7. For the reasons set out above in respect of the extension of time, I considered that it was appropriate to make this order.

Conclusion

1. For these reasons, I was and am satisfied that in the circumstances of this case, relief should be granted in the terms sought by the plaintiff, apart from order 2.  Accordingly, at the conclusion of the hearing on 8 March 2021, 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.

KC

Associate to the Honourable Justice Hill

11 APRIL 2024