Re Sprint Energy Ltd

Case [2012] FCA 1354

FEDERAL COURT OF AUSTRALIA

Sprint Energy Limited, in the matter of Sprint Energy Limited [2012] FCA 1354

Citation: Sprint Energy Limited, in the matter of Sprint Energy Limited [2012] FCA 1354
Parties: SPRINT ENERGY LIMITED (ACN 119 749 647)
File number: WAD 308 of 2012
Judge: MCKERRACHER J
Date of judgment: 30 November 2012
Catchwords: CORPORATIONS – application for declaratory relief to validate share trades and relieve sellers of shares from civil liability – erroneous representations by applicant company to the ASX and the public that disclosure was not required for offers for sale and sale of shares – contraventions of sections 707(3) and 708A of the Corporations Act 2001 (Cth) because cleansing notices not issued and the company was suspended from trading on the ASX for more than five days in the year preceding the share transfers – whether the applicant company had acted honestly– whether sellers had relied on applicant company's representations in good faith – whether any purchaser of the shares would suffer substantial injustice by the granting of declaratory relief
Legislation: Corporations Act 2001 (Cth) ss 707(3), 708A(5), 708A(6), 708A(11), 1322(4)(a), 1322(4)(c) 
Cases cited: Re Centennial Coal Co Ltd (2006) 226 ALR 341
Re Chameleon Mining NL [2009] NSWSC 660
Re Charter Hall Ltd [2007] FCA 1316
Re Commonwealth Bank of Australia (2005) 57 ACSR 28
Re Diversified United Investment Limited [2008] FCA 720
Elderslie Finance Corporation Ltd v Australian Securities Commission (1993) 11 ACSR 157
Re Golden Gate Petroleum Ltd (2004) 50 ACSR 659
Re Golden Gate Petroleum Ltd (2010) 77 ACSR 17
Re Insurance Australia Group Ltd (2003) 128 FCR 581
Jordan v Avram (1997) 141 FLR 275
Re MLC Ltd (2006) 60 ACSR 187
NRMA Ltd v Gould (1995) 18 ACSR 290
Primelife Corporation Ltd v Aevum Ltd (2005) 53 ACSR 283
Re RCR Tomlinson Ltd [2009] FCA 1130
Re Silver Lake Resources Ltd (2012) 87 ACSR 436
Re Wave Capital Ltd (2003) 47 ACSR 418
Re Westpac Banking Corporation (2004) 53 ACSR 288
Date of hearing: 15 November 2012
Place: Perth
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 59
Counsel for the Applicant: NE Gvozdin
Solicitor for the Applicant: Frichot & Frichot

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

WAD 308 of 2012

SPRINT ENERGY LIMITED (ACN 119 749 647)
Applicant

JUDGE:

MCKERRACHER J

DATE OF ORDER:

15 NOVEMBER 2012

WHERE MADE:

PERTH

THE COURT ORDERS THAT:

1.Pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) (Act), any offer for sale or sale of the quoted securities being 48,735,000 ordinary shares in the Applicant during the period after the date of their issue on 30 December 2011 until 6 November 2012 is not invalid by reason of the failure of a notice, purportedly issued by the Applicant on 4 January 2012 pursuant to s 708A(5)(e) of the Act, to exempt the seller from the obligation of disclosure under the Act and the seller’s consequent failure to comply with s 707(3) and s 727(1)…

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AGLC
Sprint Energy Limited, in the matter of Sprint Energy Limited [2012] FCA 1354
Case
[2012] FCA 1354
Decision Date

CaseChat Overview and Summary

In the Federal Court of Australia, Sprint Energy Ltd applied for declaratory relief to validate share trades and relieve sellers of shares from civil liability. The applicants, Sprint Energy Ltd, a public company listed on the Australian Securities Exchange (ASX), had issued shares to several persons between 30 December 2011 and 19 September 2012. The shares issued during this period, referred to as the Relevant Share Issues, were the subject of this application. The applicants submitted that the shares issued were subject to erroneous representations made by the company to the ASX and the public, stating that disclosure was not required for offers for sale and sale of shares. The applicants sought relief under sections 1322(4)(a) and (c) of the Corporations Act 2001 (Cth). The legal issues that the court had to decide included whether the applicants had acted honestly, whether sellers had relied on the applicants' representations in good faith, and whether any purchaser of the shares would suffer substantial injustice by the granting of declaratory relief.

The court found that the applicants had acted honestly in issuing the shares and making the representations to the ASX and the public. The court noted that the applicants had made the representations in good faith and had not acted with any intention to deceive or mislead the ASX or the public. The court also found that the sellers had relied on the applicants' representations in good faith. The sellers had not been aware of any issues with the representations made by the applicants and had acted in reliance on those representations. Finally, the court found that no purchaser of the shares would suffer substantial injustice by the granting of declaratory relief. The court held that the relief sought was appropriate in the circumstances and would not cause any substantial injustice to any party.

The court granted the relief sought by the applicants. The court declared that any offer for sale or sale of the quoted securities in question was not invalid by reason of the failure to issue a notice exempting the seller from the obligation of disclosure under the Act. The court also relieved any seller from any civil liability arising out of a contravention of the relevant sections of the Act or by reason of the applicants' failure to satisfy certain requirements. The court ordered that sealed copies of the orders be served upon the Australian Securities and Investments Commission (ASIC) and that the applicants publish an announcement to the ASX including a copy of the orders. The applicants were also ordered to make a request to the ASX for the reinstatement of the class of securities in question. Finally, the court made no order as to costs.

Orders

Orders of the court

1. Pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) (Act), any offer for sale or sale of the quoted securities being 48,735,000 ordinary shares in the Applicant during the period after the date of their issue on 30 December 2011 until 6 November 2012 is not invalid by reason of the failure of a notice, purportedly issued by the Applicant on 4 January 2012 pursuant to s 708A(5)(e) of the Act, to exempt the seller from the obligation of disclosure under the Act and the seller’s consequent failure to comply with s 707(3) and s 727(1) of the Act.

2. Pursuant to s 1322(4)(c) of the Act, any seller in Order 1 above be relieved from any civil liability arising out of a contravention of s 707(3) and s 727(1) of the Act or by reason of the Applicant’s failure to satisfy s 708A on 4 January 2012.

3. Pursuant to s 1322(4)(a) the Act, any offer for sale or sale of the quoted securities being 17,970,000 ordinary shares in the Applicant quoted on 16 January 2012 during the period after the date of their issue on 16 January 2012 until 6 November 2012 is not invalid by reason of the failure of a notice, purportedly issued by the Applicant on 16 January 2012 pursuant to s 708A(5)(e) of the Act, to exempt the seller from the obligation of disclosure under the Act and the seller’s consequent failure to comply with s 707(3) and s 727(1) of the Act.

4. Pursuant to s 1322(4)(c) of the Act, any seller in Order 3 above be relieved from any civil liability arising out of a contravention of s 707(3) and s 727(1) of the Act or by reason of the Applicant’s failure to satisfy s 708A of the Act on 16 January 2012.

5. Pursuant to s 1322(4)(a) of the Act, any offer for sale or sale of the quoted securities being 7,380,000 ordinary shares in the Applicant quoted on 7 February 2012 during the period after the date of their issue on 7 February 2012 until 6 November 2012 is not invalid by reason of the failure of the Applicant to issue a notice pursuant to s 708A(5)(e) of the Act, to exempt the seller from the obligation of disclosure under the Act and the seller’s consequent failure to comply with s 707(3) and s 727(1) of the Act.

6. Pursuant to s 1322(4)(c) of the Act, any seller in Order 5 above be relieved from any civil liability arising out of a contravention of s 707(3) and s 727(1) of the Act or by reason of the Applicant’s failure to satisfy s 708A on 7 February 2012.

7. Pursuant to s 1322(4)(a) of the Act, any offer for sale or sale of the quoted securities being 67,500,000 ordinary shares in the Applicant quoted on 28 February 2012 during the period after the date of their issue on 28 February 2012 until 6 November 2012 is not invalid by reason of the failure of a notice, purportedly issued by the Applicant on 28 February 2012 pursuant to s 708A(5)(e) of the Act, to exempt the seller from the obligation of disclosure under the Act and the seller’s consequent failure to comply with s 707(3) and s 727(1) of the Act.

8. Pursuant to s 1322(4)(c) of the Act, any seller in Order 7 above be relieved from any civil liability arising out of a contravention of s 707(3) and s 727(1) of the Act or by reason of the Applicant’s failure to satisfy s 708A on 28 February 2012.

9. Pursuant to s 1322(4)(a) of the Act, any offer for sale or sale of the quoted securities being 10,000,000 ordinary shares in the Applicant quoted on 23 May 2012 during the period after the date of their issue on 22 May 2012 until 6 November 2012 is not invalid by reason of the failure of the Applicant to issue a notice, pursuant to s 708A(5)(e) of the Act, to exempt the seller from the obligation of disclosure under the Act and the seller’s consequent failure to comply with s 707(3) and s 727(1) of the Act.

10. Pursuant to s 1322(4)(c) of the Act, any seller in Order 9 above be relieved from any civil liability arising out of a contravention of s 707(3) and s 727(1) of the Act or by reason of the Applicant’s failure to satisfy s 708A of the Act on 23 May 2012.

11. Pursuant to s 1322(4)(a) of the Act, any offer for sale or sale of the quoted securities being 205,400,537 ordinary shares in the Applicant quoted on 29 June 2012 during the period after the date of their issue on 29 June 2012 until 6 November 2012 is not invalid by reason of the failure of the Applicant to issue a notice, pursuant to s 708A(5)(e) of the Act, to exempt the seller from the obligation of disclosure under the Act and the seller’s consequent failure to comply with s 707(3) and s 727(1) of the Act.

12. Pursuant to s 1322(4)(c) of the Act, any seller in Order 11 above be relieved from any civil liability arising out of a contravention of s 707(3) and s 727(1) of the Act or by reason of the Applicant’s failure to satisfy s 708A of the Act on 29 June 2012.

13. Pursuant to s 1322(4)(a) of the Act, any offer for sale or sale of the quoted securities being 24,910,114 ordinary shares in the Applicant quoted on 13 August 2012 during the period after the date of their issue on 13 August 2012 until 6 November 2012 is not invalid by reason of the failure of the Applicant to issue a notice, pursuant to s 708A(5)(e) of the Act, to exempt the seller from the obligation of disclosure under the Act and the seller’s consequent failure to comply with s 707(3) and s 727(1) of the Act.

14. Pursuant to s 1322(4)(c) of the Act, any seller in Order 13 above be relieved from any civil liability arising out of a contravention of s 707(3) and s 727(1) of the Act or by reason of the Applicant’s failure to satisfy s 708A on 13 August 2012.

15. Pursuant to s 1322(4)(a) of the Act, any offer for sale or sale of the quoted securities being 76,880,000 ordinary shares in the Applicant quoted on 19 September 2012 during the period after the date of their issue on 19 September 2012 until 6 November 2012 is not invalid by reason of the failure of the Applicant to issue a notice, pursuant to s 708A(5)(e) of the Act, to exempt the seller from the obligation of disclosure under the Act and the seller’s consequent failure to comply with s 707(3) and s 727(1) of the Act.

16. Pursuant to s 1322(4)(c) of the Act, any seller in Order 15 above be relieved from any civil liability arising out of a contravention of s 707(3) and s 727(1) of the Act or by reason of the Applicant’s failure to satisfy s 708A on 19 September 2012.

17. A sealed copy of these Orders is to be served upon the Australian Securities and Investments Commission (ASIC) as soon as reasonably practicable and upon service of these Orders on ASIC, ASIC is to include these Orders on its database.

18. A copy of these Orders be given to each person to whom the securities were issued and as soon as reasonably practicable the Applicant is to publish an announcement to the Australian Securities Exchange Limited (ASX) in which a copy of these Orders is included.

19. For a period of 28 days from the date of reinstatement by the ASX of the class of securities “SPS” and the publication by the ASX of these Orders on the ASX website, any person who claims to have suffered substantial injustice or is likely to suffer substantial injustice by the making of any or all of Orders 1 to 16 has liberty to apply to vary or to discharge them within that period.

20. The Applicant make a request of the ASX forthwith that the class of the securities “SPS” be reinstated.

21. There be no order as to costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Copies of the application and the affidavits were provided to ASIC and ASX. Written responses from both ASIC and ASX provided in evidence on the urgent return date of the application indicated that neither entity opposed or wished to be heard in relation to the relief sought. Each made the point, correctly, (and which Sprint accepts) that it was not the duty of either of those bodies to inform Sprint of its obligations at law. BACKGROUND Sprint is a public company listed on the ASX. Its shares have been quoted on the ASX since 21 November 2007. Between 30 December 2011 and 19 September 2012, inclusive, Sprint issued fully paid ordinary shares to a number of persons through multiple share issues. The shares the subject of eight separate share issues during this period (Relevant Share Issues) were the subject of this application (Shares). The Relevant Share Issues took place for a number of reasons including issuing shares to convert debt, raise capital generally, to holders of convertible notes, and also as consideration for settlement of claims and proceedings against Sprint. The total number of Shares issued pursuant to the Relevant Share Issues was 363,415,650. Details of, amongst other things, the dates on which the Shares were issued and the circumstances in which the Shares were issued were set out in the affidavit evidence. During the period of the Relevant Share Issues some of the subscribers sold a number of the Shares to various purchasers. The total number of shares sold was 85,244,037. Upon issue, the Shares the subject of each of the Relevant Share Issues were the subject of applications for quotation on the ASX by virtue of Sprint lodging with the ASX an Appendix 3B notice for each of the Relevant Share Issues (3B Notices). The 3B Notices were published by the ASX on its website on or about the date that each 3B Notice was lodged. Section 707(3) and s 1012C(6) CA respectively provide:707Sale offers that need disclosure…Sale amounting to indirect issue(3)An offer of a body’s securities for sale within 12 months after their issue needs disclosure to investors under this Part if:(a)the body issued the securities without disclosure to investors under this Part; and(b)either:(i)the body issued the securities with the purpose of the person to whom they were issued selling or transferring the securities, or granting, issuing or transferring interests in, or options over, them; or(ii)the person to whom the securities were issued acquired them with the purpose of selling or transferring the securities, or granting, issuing or transferring interests in, or options over, them;and section 708 or 708A does not say otherwise.1012CObligation to give Product Disclosure Statement — offers related to sale of financial products…Sale amounting to indirect issue(6) This subsection covers the circumstances in which:(a)the offer is made within 12 months after the issue of the financial product; and(b)the product was issued without a Product Disclosure Statement for the product being prepared; and(c)either:(i)the issuer issued the product with the purpose of the person to whom it was issued selling or transferring the product, or granting, issuing or transferring interests in, or options or warrants over, the product; or(ii)the person to whom the product was issued acquired it with the purpose of selling or transferring the product, or granting, issuing or transferring interests in, or options or warrants over, the product.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Sprint submits that the Cleansing Prospectus complies with the requirements of s 708A(11) CA. Accordingly, any offers for sale of the Shares after the lodgement date of the Cleansing Prospectus do not require disclosure. Therefore the orders sought in Sprint’s application were in respect of sales of Shares that occurred prior to that date, and in particular prior to 7 November 2012 being the commencement date of the current suspension of Sprint’s shares. OTHER STATUTORY CONSIDERATIONSChapter 6D Chapter 6D CA is concerned with fundraising. As I stated in Re Golden Gate Petroleum Ltd (2010) 77 ACSR 17 (at [24]):Chapter 6 is designed to ensure that investors are provided with all information that they and their professional advisers would reasonably require to make an informed assessment in connection with securities offered for issue or sale. This includes the rights and liabilities attaching to securities (and the underlying securities in the case of interests in or options over securities) and the assets, liabilities, financial position and performance, profits and losses and prospects of the body that is to issue or issued securities (or the underlying securities in the case of interest in or options over securities) that are offered for issue and, in certain cases, for sale to investors. The starting point is that an offer of securities for issue requires disclosure to investors under Pt 6D.2 CA: s 706 CA. The manner of disclosure is provided for in s 709 CA. Section 708 and s 708AA contain a number of exceptions to that general rule: Golden Gate (at [26]). Sprint considered that the circumstances of the Relevant Share Issues fell within exceptions in s 708 CA. Pursuant to s 707(1) CA an offer of securities for sale only requires disclosure to investors under Pt 6D.2 CA if required by any of s 707(2), (3) or (5) CA. Section 707 is an anti-avoidance provision to prevent the avoidance of disclosure requirements including those under s 706 CA. In Golden Gate (at [27]) I described the purposes of s 707 as being to:... prevent the policy of Chapter 6D being circumvented by the issue of securities or offer of sale of securities to a party to whom disclosure is not required (under s 708 or s 708AA) and that party then offering those securities for sale to investors without disclosure. As noted, s 707(3) CA provides that offers of sale or the sale of securities in a body needs disclosure to investors within 12 months in certain circumstances. In Golden Gate (at [29]) I noted that:Pursuant to section 707(4)(b), securities are taken to have been issued or acquired with the purposes referred to in sub-paragraphs 707(3)(b)(i) and (ii) if any of the securities are subsequently sold, or offered for sale, within 12 months after issue, unless it is proved that the circumstances of the issue and the subsequent sale or offer are not such as to give rise to reasonable grounds for concluding that the securities were issued or acquired with that purpose. In other words, s 704(b) CA reverses the onus of proof.Section 708A – Exemptions for Sale Offers