FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Astra Resources PLC [2015] FCA 759

THE COURT ORDERS THAT:

1.    The matter be adjourned to a date to be fixed.

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

REASONS FOR JUDGMENT

1    The plaintiff, the Australian Securities and Investments Commission (ASIC), alleges that the first and second defendants have breached s 727 of the Corporations Act 2001 (Cth) (the Act) by, respectively, distributing application forms for an offer of shares, and by making offers of shares, without lodging the requisite disclosure document with it.

2    The first defendant is Astra Resources PLC (Astra Resources), a company incorporated on 3 May 2011 in the United Kingdom. The second defendant is Astra Consolidated Nominees Pty Ltd (Astra Nominees), a company incorporated on 25 August 2011 in Australia. Each of the third, fourth and fifth defendants (Dr Biswas, Ms De Cianni and Mr Meerkin) was, at relevant times, a director of Astra Resources. Mr Meerkin was also a director of Astra Nominees but ceased to be a director of both that company and Astra Resources on 16 April 2013. It is convenient to refer to the defendants other than Mr Meerkin as “the Astra Defendants”.

3    In relation to Astra Resources, ASIC alleges that, in the period between about 5 October 2011 and 8 September 2012, Astra Resources contravened s 727(1) by distributing application forms for offers of shares in itself. In relation to Astra Nominees, ASIC alleges that it contravened s 727(1) in the period between about 8 September 2011 and 8 September 2012 by making offers for the sale of shares it held in Astra Resources.

4    ASIC seeks declarations with respect to the contraventions of Astra Resources and Astra Nominees and orders under s 206E of the Act that each of the individual defendants be disqualified from managing a corporation for such period as the Court thinks appropriate. It also seeks orders under s 1324B requiring Astra Resources and Astra Nominees to notify shareholders, by letters and published advertisements, of the contraventions and of the potential rights of those shareholders in the light of their contraventions. Finally, ASIC seeks an order under s 1101B of the Act with respect to the voidability of the transactions by which the shareholders purchased their shares.

5    Section 206E of the Act provides that, on the application by ASIC, the Court may disqualify a person from managing corporations for a period which the Court considers appropriate if the person has at least twice been an officer of a corporation which has contravened the Act while they were an officer and, on each occasion, the person has failed to take reasonable steps to prevent the contravention. The Court must also be satisfied that the disqualification of the person is justified.

6    ASIC and Mr Meerkin reached agreement on all aspects of the claim against him, other than the question of disqualification. They provided a statement of agreed facts. The question of whether any order for disqualification under s 206E should be made against Mr Meerkin has been deferred pending the resolution of ASIC’s claims against the Astra defendants.

7    At the commencement of the trial, the Astra defendants sought an adjournment of the trial. I refused that adjournment and the trial then proceeded in the absence of those defendants. On the morning of the second day of trial, the Astra defendants renewed the application for an adjournment which again I refused. Dr Biswas and Ms De Cianni then represented themselves. There was no representation on behalf of Astra Resources and Astra Nominees, but I treated the submissions of Dr Biswas and Ms De Cianni as being made, in effect on behalf of all Astra defendants.

8    During the course of its opening and in the absence of the Astra defendants, ASIC sought a two stage hearing. It sought to have heard and determined in the first stage all aspects of its claim for relief other than the issue of whether, under s 206E(1)(b), the disqualification of the individual defendants is justified. I accepted at that time that that course was appropriate. However, for reasons which I will give later, I have decided that the only issues to be determined in this judgment are ASIC’s allegations concerning the contraventions of s 727(1).

9    Accordingly, this judgment concerns ASIC’s claims for declarations with respect to the alleged contraventions of s 727(1). Its remaining claims will be determined separately.

10    For the reasons which follow, I consider that ASIC’s claims with respect to the contraventions of s 727(1) should be upheld.

The statutory provisions

11    Section 727(1) of the Act provides as follows:

(1)    A person must not make an offer of securities, or distribute an application form for an offer of securities, that needs disclosure to investors under Part 6D.2 unless a disclosure document for the offer has been lodged with ASIC.

12    As can be seen, s 727(1) contains two distinct prohibitions: a prohibition against the making of an offer of securities and a prohibition against the distribution of an application form for an offer of securities, if in either case disclosure to investors is required under Pt 6D.2 and a disclosure document for the offer (a prospectus) has not been lodged with ASIC.

13    Part 6D.2 of the Act identifies the circumstances in which an offer of securities requires disclosure to investors. Section 706 specifies that such an offer of securities for issue needs disclosure unless s 708 or s 708AA provide otherwise. By s 707, an offer of securities for sale needs disclosure to investors under Pt 6D.2 only if disclosure is required by subss (2), (3) or (5). ASIC relies on subs (3) in this case. It provides:

(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.

As can be seen, s 707(3) requires disclosure in relation to offers of securities for sale within 12 months of their issue if the body issuing the securities did so without disclosure under Pt 6D.2, and either the body issuing the securities did so with the purpose of the recipient selling or transferring the securities, or the recipient body acquired them for the purpose of selling or transferring the securities.

14    By s 707(4), securities are, in the absence of proof to the contrary, to be taken to be issued or acquired, as the case may be, with the requisite purpose if there are reasonable grounds for concluding that the securities were issued or acquired for that purpose (whether or not there may have been other purposes for the issue or acquisition). Put slightly differently, when there is an issue and on-sale of shares within 12 months, there is a presumption that both the issuer of the shares and their recipient intended to on-sell them. That presumption can be rebutted by proof that the circumstances of the issue and the subsequent sale or offers of the shares are not such as to give rise to reasonable grounds for concluding that the issue or acquisition were for the defined purpose.

15    The proviso in the last line of s 707(3) indicates that an offer of securities to which the provision would otherwise apply will not need disclosure if any of the exemptions in ss 708 and 708A are applicable. Section 708A has no application presently.

16    Section 708 of the Act identifies some 11 kinds of share offers for which disclosure is not required. The defence of Astra defendants seeks to invoke five of these 11 circumstances, namely, subss (5)(b), (8), (10), (11), and (12). Subsections (1) and (5)(b) relate to small scale offerings and provide:

708    Offers that do not need disclosure

(1)    Personal offers of a body's securities by a person do not need disclosure to investors under this Part if:

(a)    none of the offers results in a breach of the 20 investors ceiling (see subsections (3) and (4)); and

(b)    none of the offers results in a breach of the $2 million ceiling (see subsections (3) and (4)).

This subsection does not apply to an offer for sale to which subsection 707(3) (sale amounting to indirect issue) or (5) (sale amounting to indirect sale by controller) applies.

Note 1: Subsection 727(4) makes it an offence to issue or transfer securities without disclosure to investors once 20 issues or transfers have occurred or $2 million has been raised.

…

(5)    In counting issues and sales of the body's securities, and the amount raised from issues and sales, for the purposes of subsection (1), disregard issues and sales that result from offers that:

…

(b)    are not received in Australia; or

….

As can be seen from the terms of subs (1), the exemption relating to small scale offerings has no application to an offer for sale to which s 707(3) applies.

17     Subsection (8) relates to sophisticated investors and provides:

(8)    An offer of a body's securities does not need disclosure to investors under this Part if:

(a)    the minimum amount payable for the securities on acceptance of the offer by the person to whom the offer is made is at least $500,000; or

(b)    the amount payable for the securities on acceptance by the person to whom the offer is made and the amounts previously paid by the person for the body's securities of the same class that are held by the person add up to at least $500,000; or

(c)    it appears from a certificate given by a qualified accountant no more than 6 months before the offer is made that the person to whom the offer is made:

(i)    has net assets of at least the amount specified in regulations made for the purposes of this subparagraph; or

(ii)    has a gross income for each of the last 2 financial years of at least the amount specified in regulations made for the purposes of this subparagraph a year; or

(d)    the offer is made to a company or trust controlled by a person who meets the requirements of subparagraph (c)(i) or (ii).

18    Subsection (10) relates to offerings through a financial services licensee and provides:

(10)    An offer of a body's securities does not need disclosure to investors under this Part if:

(a)    the offer is made through a financial services licensee; and

(b)    the licensee is satisfied on reasonable grounds that the person to whom the offer is made has previous experience in investing in securities that allows them to assess:

(i)    the merits of the offer; and

(ii)    the value of the securities; and

(iii)    the risks involved in accepting the offer; and

(iv)    their own information needs; and

(v)    the adequacy of the information given by the person making the offer; and

(c)    the licensee gives the person before, or at the time when, the offer is made a written statement of the licensee's reasons for being satisfied as to those matters; and

(d)    the person to whom the offer is made signs a written acknowledgment before, or at the time when, the offer is made that the licensee has not given the person a disclosure document under this Part in relation to the offer.

19    Subsection (11) relates to professional investors and provides:

(11)    An offer of securities does not need disclosure to investors under this Part if it is made to:

(a)    a person covered by the definition of professional investor in section 9 (except a person mentioned in paragraph (e) of the definition); or

(b)    a person who has or controls gross assets of at least $10 million (including any assets held by an associate or under a trust that the person manages).

20    Finally, subs (12), which relates to offers to associates of the issuing body, provides:

(12)    An offer of a body's securities does not need disclosure to investors under this Part if it is made to:

(a)    a senior manager of the body or a related body or their spouse, parent, child, brother or sister; or

(b)    a body corporate controlled by a person referred to in paragraph (a).

Background

21    In this section of the reasons, I make findings regarding the circumstances giving rise to the issues for determination. For the most part these matters were not contentious.

22    Astra Mining Limited was incorporated in Australia on 4 September 2009. It was a publicly listed company and had approximately 558 million shares on issue. By reason of events to be described shortly, it is now Astra Mining Pty Ltd. Except when it is necessary to make the distinction, I will refer to it as “Astra Mining”.

23    ASIC’s records show the appointment of Dr Biswas as a director of Astra Mining on 14 November 2012 but there is evidence of him acting as one of its directors before that date. He ceased his directorship on 16 September 2013. Ms De Cianni has been a director of Astra Mining since 28 January 2010.

24    Astra Nominees is a related company of Astra Resources and Astra Mining. It was incorporated on 25 August 2011. Neither Dr Biswas nor Ms De Cianni has been a director of Astra Nominees but Mr Meerkin was a director in the period between 25 August 2011 and 16 April 2013.

25    Michael Sing Lawyers (MSL) was at material times a firm of lawyers retained to advise and act for Astra Resources and Astra Nominees. Mr Meerkin, the fifth defendant, was an employed solicitor within that firm. He was the principal person with responsibility for the care and conduct of matters on behalf of Astra Resources and Astra Nominees.

26    In 2011, Astra Mining Limited contemplated listing on an overseas stock exchange and ultimately decided to list on the secondary board of the Frankfurt Stock Exchange (the FSE). Astra Resources PLC was incorporated for that purpose on 3 May 2011. It is a “body”, as defined in s 9 of the Act, for the purposes of ss 707 and 708. Both Dr Biswas and Ms De Cianni were directors of Astra Resources from 13 June 2011 to 21 May 2014. Mr Meerkin was a director of Astra Resources from 3 May 2011 until his resignation on 16 April 2013. Mr Raj, the Astra defendants’ solicitor, was a director of Astra Resources from 29 July 2013 until at least 12 August 2014. The evidence did not indicate whether he has continued as a director since that date.

27    At the same time that Astra Resources was established, it was proposed that there be a form of share swap (sometimes referred to as a “rollover” or a “roll up”) with the effect that every shareholder in Astra Mining Limited would be issued with an equivalent number of shares in Astra Resources and their shares in Astra Mining then cancelled. This was to facilitate the listing of Astra Resources on the FSE.

28    On 15 June 2011, an extraordinary general meeting of the members of Astra Mining was held in Adelaide. The members voted on a series of resolutions which had the following effect:

(a)    Each of the existing shareholders in Astra Mining would be issued with an equivalent number of shares in Astra Resources;

(b)    All of the existing shares in Astra Mining would then be cancelled;

(c)    120 new shares in Astra Mining would be issued to Astra Resources;

(d)    Astra Mining would thereby become a wholly owned subsidiary of Astra Resources.

Members also resolved that the “rollover” shares would be subject to a 12 month escrow period so as to maintain share prices after listing.

29    Between 1 July and 18 September 2011, Astra Mining issued a further 383 million shares.

30    The share swap was approved by resolutions of the directors of each of Astra Resources and Astra Mining on 22 August 2011.

31    Effect was given to the resolutions of 15 June 2011 on 8 September 2011. Together with other transactions, the position then was:

(a)    Astra Resources had issued 1,009,986,466 shares;

(b)    As part of the share swap the shareholders in Astra Mining received one share in Astra Resources for each share they held in Astra Mining;

(c)    Astra Mining cancelled all of its issued shares;

(d)    Astra Mining issued 120 new shares to Astra Resources and thereafter became a wholly owned subsidiary of Astra Resources and a proprietary company.

32    A document entitled “Return of Allotment of Shares” was lodged at the Companies House in the UK on 17 April 2012 recording that 1,009,988,446 shares in Astra Resources were allotted on 8 September 2011. A later document lodged at Companies House on 23 February 2013 showed a slightly different number (1,009,986,466) but it was not suggested that anything turned on this discrepancy.

33    ASIC said that it did not have evidence of the means by which the assets held by Astra Mining were transferred to Astra Resources, save only that the Annual Report of Astra Resources for the 2012 year referred to “the roll-up of the existing assets and liabilities of Astra Mining Limited” on 8 September 2011.

34    As noted, Astra Nominees was incorporated on 25 August 2011. On 26 August 2011, Astra Mining and Astra Nominees entered into a share subscription agreement by which Astra Mining allotted 40 million ordinary shares to Astra Nominees to hold on trust for the Astra Consolidated Nominees Trust (ACN Trust). On the same day, by a document entitled “Bare Trust Deed”, Astra Nominees made a declaration of trust in favour of Astra Mining, declaring that it would hold the 40 million shares on trust for Astra Mining and deal with the shares as directed by Astra Mining. I will refer to the content of these documents more shortly.

35    The evidence did not indicate whether Astra Mining did actually issue the 40 million shares to Astra Nominees. Some evidence of Dr Biswas in his cross-examination suggested that there had been no actual issue, only a notional issue. Nevertheless, the parties conducted themselves on the basis Astra Mining had issued 40 million shares to Astra Nominees and that, on 8 September 2011, those shares were cancelled as part of the share swap and replaced by the shares which Astra Resources then issued to Astra Nominees.

36    The documents tendered by ASIC at trial include a number of further share subscription agreements to which I will refer later.

37    On or about 7 March 2012, Astra Resources issued a further 30 million shares to Astra Nominees. The evidence indicates these shares were held by Astra Nominees on the same terms and conditions as the original 40 million shares.

38    It is the on-sale of the shares in Astra Resources which were issued to Astra Nominees which gives rise to ASIC’s claims.

39    Between 3 May 2011 and 9 February 2012, Astra Resources (sometimes by itself and sometimes with Astra Project Finance Pty Ltd (Astra Finance), a subsidiary of Astra Mining) appointed brokers to assist in raising investment funding, in particular, by selling shares in Astra Resources. In some, but not all cases, the agreements with the brokers contemplated expressly the sale of the shares in Astra Resources issued to Astra Nominees. Two brokers were appointed by more than one agreement. The appointment of the brokers is summarised in the following table:

40    The brokers distributed application forms for the offer of shares to potential investors. Those investors taking up the offer returned the application forms directly to Astra Resources in most cases, sometimes with a cheque or some other form of payment for the amount of shares for which the investor had subscribed and sometimes by a payment to the trust account of MSL. The shares issued to the investor in each case were shares in Astra Resources which had been held by Astra Nominees.

41    I will identify shortly the conduct of Astra Resources and Astra Nominees relied upon by ASIC for the contraventions of s 727 which it alleges.

42    It was common ground that no prospectus or other form of disclosure document in relation to the share offers had been lodged with ASIC. That fact was in any event established by the evidence of Mr McCabe, an ASIC investigator.

The issues

43    ASIC’s case is that s 707(3) and (4) of the Act required that there be a disclosure document because there had been an on-sale of the shares in Astra Resources within 12 months of their issue to Astra Nominees. It contended that, not only was there no evidence rebutting the s 707(4) presumption, the evidence established positively that both Astra Resources and Astra Nominees had the purpose at the time that the shares were issued that they should be on-sold. None of the exemptions under s 708 pleaded by the defendants were applicable with the effect, it submitted, that the contraventions of s 727(1) were established.

44    Against that background, the principal issues relating to the alleged contraventions are these:

(1)    Did Astra Resources issue shares to Astra Nominees?

(2)    Did each of Astra Resources and Astra Nominees have the purpose at the time that the shares were issued to Astra Nominees that the latter would transfer them to investors?

(3)    Did Astra Nominees offer for sale its shares in Astra Resources within 12 months of them being issued to it?

(4)    Did Astra Resources distribute application forms for the offer of shares in itself?

(5)    Did the offer of shares require disclosure under Pt 6D.2 of the Act?

The resolution of the fifth issue turns principally on whether either Astra Resources or Astra Nominees had the purpose to which s 707(3) refers and whether any of the exemptions pleaded by the defendants are applicable.

45    The evidence relating to these issues tended to overlap.

The issue of shares by Astra Resources to Astra Nominees

46    The Astra Resources share register was maintained by Computershare Investor Services PLC in the United Kingdom. It shows the issue of 40 million shares in Astra Resources on 19 September 2011 and 30 million shares on 7 March 2012. I accept ASIC’s submission that each of these transactions was an issue of shares to Astra Nominees.

47    These are the issues of shares by Astra Resources upon which ASIC relied for the purposes of s 707(3) (b) of the Act.

48    I will refer later to the share subscription agreements pursuant to which these issues occurred, which, amongst other things, are evidence of the purpose of the transfers.

Transfers of shares by Astra Nominees

49    ASIC tendered electronically a large number of application forms, share transfer forms, share certificates and accountant’s certificates relating to shares in Astra Resources which had been produced to it by Astra Mining in response to a notice issued by it under s 33 of the ASIC Act on 10 October 2013. ASIC also tendered a spreadsheet forming part of the records of Astra Resources recording the details of purchasers of shares in the period between 1 September 2011 and 30 June 2012, the number of shares purchased and the price paid. This spreadsheet also included the name of the “Capital Raiser” in relation to each investor. These were the names of the brokers to whom I will refer later. In about 80 cases, no broker was identified.

50    The spreadsheet indicated that, as at 30 June 2012, some 45,702,804 shares had been transferred to investors.

51    I indicate now my satisfaction that this material indicates that Astra Nominees transferred shares in Astra Resources to subscribing investors; that the shares which it transferred were those which Astra Resources had issued to it on 19 September 2011 and 7 March 2012 and that with the exception of the 80 or so purchasers for whom no broker was identified, the investors made their application for shares using application forms provided to them by the brokers appointed by Astra Resources and Astra Project Finance. I will refer later to evidence warranting these findings.

52    The explanation for the 80 or so cases in which the records of Astra Resources did not identify a “Capital Raiser” may be that these persons had obtained an application form from MSL or Astra Resources directly, or that there was a shortcoming in Astra Resources’ record keeping in that this detail was not kept. The inference arises very strongly, and I so find, that all of those investors had received an application form from some source and at least in some cases from, or through, the brokers appointed by Astra Resources and Astra Project Finance.

53    When an investor returned an application form, Astra Resources would attend to its processing. This involved providing a transfer form to the investor for transfer from Astra Nominees and in due course the issuing of a share certificate. If MSL or Astra Nominees received the subscription monies, they remitted them to Astra Resources.

54    Dr Biswas and Ms De Cianni signed the share certificates issued to investors. Dr Biswas said that these were electronic signatures which were applied administratively and not by either Ms De Cianni or himself.

The purpose of Astra Resources and Astra Nominees

55    As already noted, Astra Resources issued 40 million shares to Astra Nominees on 8 September 2011 and a further 30 million shares on or about 7 March 2012. ASIC claims that Astra Resources made the issues to Astra Nominees for the purpose of it transferring the shares to investors as part of capital raising and, accordingly, that s 707(3) and (4) were engaged.

56    There is a good deal evidence indicating that Astra Resources issued its shares to Astra Nominees, and that Astra Nominees acquired them, for the purpose alleged by ASIC.

57    The contemporaneity of the incorporation of Astra Nominees on 25 August 2011 and its entry into a share sale agreement with Astra Resources on the following day gives rise, by itself, to an inference that the purpose for which Astra Nominees was established was the acquisition of shares in Astra Resources. No other purpose for its establishment is suggested by the evidence. Dr Biswas confirmed this purpose in the examination conducted by ASIC pursuant to s 19 of the ASIC Act to which I will refer shortly.

The Share Subscription Agreements

58    The terms of a number of share subscription agreements executed by Astra Mining and Astra Nominees, and later by Astra Resources and Astra Nominees, and associated trust deeds, are particularly revelatory of the purpose of the issue and acquisition of the shares.

59    The first share subscription agreement (First SSA) was between Astra Mining and Astra Nominees and stated, on its face, that it was “effective 26 August 2011”. It included the following terms described as “Conditions for Completion”:

2.1.1    The Purchaser is only acquiring the Subscribed Shares solely in its capacity as trustee of the Trust to exclusively assist the Issuer with procuring investment funding for its working capital requirements in the period between the date of this Agreement and the compliance listing of the Issuer through its UK parent company Astra Resources PLC CN 7620218 on the Frankfurt Stock Exchange.

2.1.2    The Issuer acknowledges that the Purchaser is acquiring the Subscribed Shares solely and exclusively in its capacity as trustee of the Trust, ...

2.1.2    Each party must accept any escrow requirements imposed, pursuant to which the shareholders’ rights to dispose of their shares are limited for a period of time regardless of the escrow period imposed by a major stock exchange ...

(Emphasis added)

The numbering of two subclauses as 2.1.2 was plainly an error, but nothing turns on that. Astra Mining was the “Issuer”, Astra Nominees the “Purchaser” and the ACN Trust was the trust to which the first two subclauses referred. The “Subscribed Shares” were defined in cl 1 to be 40 million shares in Astra Mining.

60    Under the heading “Subscribed Shares” cl 3 provided:

3.1    Subject to the terms and conditions contained in this Agreement, the Purchaser and/or nominee hereby subscribes for and agrees to purchase from the Issuer, and the Issuer hereby accepts said subscription, allots and agrees to issue to the Purchaser and/or nominee the Subscribed Shares free and clear of all liens upon execution of the Trust by the Parties to the Agreement.

3.2    The Issuer acknowledges that the Purchaser is purchasing the Subscribed Shares solely in its capacity as trustee of the Trust to exclusively assist the Issuer with procuring investment funding for its working capital requirements in the period between the date of this Agreement and the compliance listing of the Issuer through its UK parent company Astra Resources PLC CN 7620218 on the Frankfurt Stock Exchange.

61    The representations and warranties in cl 7 are also pertinent:

....

7.2    The Purchaser represents and warrants to the Issuer that it is acquiring the Subscribed Shares solely in its capacity as trustee of the Trust to exclusively assist the Issuer with procuring investment funding for its working capital requirements in the period between the date of this Agreement and the compliance listing of the Issuer through its UK parent company Astra Resources PLC CN 7620218 on the Frankfurt Stock Exchange.

7.3    The Purchaser represents and warrants to the Issuer that it is not acquiring the Subscribed Shares with any intent of being the beneficial owner of such shares, and that the ultimate and beneficial owner of the Subscribed Shares will be the beneficiary as disclosed in the Trust.

62    As can be seen, each of Astra Mining and Astra Nominees stipulated expressly that Astra Nominees was acquiring the shares only in its capacity as trustee and for the exclusive purpose of assisting Astra Mining to procure “investment funding for its working capital requirements” until Astra Resources was listed on the FSE. Plainly enough, this was a reference to Astra Mining’s capital raising requirements. Astra Nominees acknowledged expressly that it was not acquiring the shares with the intention that it should become their beneficial owner. Instead, beneficial ownership was to remain with Astra Mining.

63    Although Astra Nominees is described as a “purchaser” and cl 3.1 contemplated its “purchase” of the shares from Astra Mining, the First SSA otherwise made no provision with respect to purchase by, for example, identifying a purchase price or arrangements for payment. It was not in reality an agreement for purchase in the strict sense of the shares in Astra Mining.

64    The trust deed to which cl 1.2.1 referred is the Bare Trust Deed made between the same parties on the same day.

65    The effect of cl 2 of the Bare Trust Deed was that the only property which Astra Nominees would acquire would be shares in Astra Mining, unless the two parties agreed otherwise. Clause 6 of the Bare Trust Deed obliged Astra Nominees to deal with the shares in Astra Mining in the manner directed by Astra Mining from time to time.

66    Both documents were prepared by Mr Meerkin at MSL. The signatories to the First SSA and the Bare Trust Deed were Ms De Cianni on behalf of Astra Mining and Mr Meerkin on behalf of Astra Nominees.

67    In combination, the First SSA and the Bare Trust Deed provided for the issue of 40 million shares in Astra Mining to Astra Nominees; for Astra Nominees to hold those shares solely in the capacity of a trustee; for Astra Nominees to acquire the shares solely for the purpose of assisting Astra Mining with capital raising; and for Astra Nominees to act in accordance with the directions of Astra Mining.

68    In his cross-examination, Dr Biswas said that Astra Mining had not in fact issued 40 million shares to Astra Nominees after 26 August and before the “roll up” on 8 September 2011. He considered that there had been some form of notional issue of 40 million shares from Astra Mining to Astra Nominees which, immediately upon the “roll up” on 8 September, became shares in Astra Resources. He had understood at the time that the shares issued to Astra Nominees by Astra Resources were to be held by it on the same terms as it had held notionally the shares issued by Astra Mining and for the purpose of reselling them to raise working capital for Astra Resources.

69    I observe that minutes of a meeting of the directors of Astra Resources held on 19 August 2011 signed by Mr Meerkin the same day purport to approve shares on issue at the listing of Astra Resources which included 40 million shares described as “Stock held in Trust by lawyer”.

70    Whether Dr Biswas’ understanding about the issue of shares by Astra Mining be correct is not presently material. It is however, apparent that those involved in Astra Resources and Astra Nominees proceeded at the time on the basis that the first issue by Astra Resources to Astra Nominees was made on the terms of the First SSA and the Bare Trust Deed. Later documents confirm that was so.

71    A second Bare Trust Deed (the Second Bare Trust Deed) also bears the date 26 August 2011. Ms De Cianni on behalf of Astra Mining and Mr Meerkin on behalf of Astra Nominees were its signatories.

72    The Second Bare Trust Deed related to 87 million shares in Astra Resources, rather than 40 million in Astra Mining. It provided that Astra Nominees was to hold the shares on trust for Astra Mining (cl 3) and that it was not to have any beneficial interest in them (cl 4). Clause 6.1 required Astra Nominees to deal with the shares as directed by Astra Mining from time to time and cl 6.3 required it to transfer legal title in the shares to any third party as directed by Astra Mining.

73    There is a real question as to the authenticity of the Second Bare Trust Deed. It is very probable that it was brought into existence some time after 26 August and backdated to that date. This was confirmed by Dr Biswas in his evidence. He said that Mr Meerkin had brought the Second Bare Trust Deed into existence on 29 January 2013, had backdated it, and had then provided it to KPMG, the auditors of Astra Resources. I consider that that evidence is likely to be correct, but it is not necessary to reflect a final view. It is sufficient to record that the Second Bare Trust Deed was not acted upon.

74    The second share subscription agreement (the Second SSA) bears the date 5 September 2011 and was executed by Ms De Cianni and Mr Meerkin on behalf of Astra Mining and Astra Nominees respectively. It appears to be identical with the First SSA, save only for the difference in date and that Astra Nominees was to subscribe for 75,702,804 shares and not 40 million shares. Again, it is probable that this is a backdated document. I observe that Dr Biswas said that this document had no effect.

75    A third share subscription agreement (the Third SSA) is dated 22 December 2011, which was well after the share swap on 8 September 2011. This also appears to be in the same terms as the First SSA, apart from the date, the parties to it (Astra Resources and Astra Nominees) and that the shares to be transferred were shares in Astra Resources and not in Astra Mining. It was executed on behalf of Astra Resources by Dr Biswas and on behalf of Astra Nominees by Mr Meerkin. The Third SSA contains the same provisions as to the trust and the purpose of the share issues as did the First SSA. Dr Biswas said that he could not explain the Third SSA, but thought it had not had any effect.

76    It is probable, and I so find, that the Third SSA was executed as a result of advice which Mr Meerkin provided to Dr Biswas and Ms De Cianni on 21 December 2011, to which I will refer shortly. Astra Resources and Astra Nominees did not execute any additional Trust Deed on 22 December 2011.

77    The next share subscription agreement (the Fourth SSA) states that it was effective from 2 September 2011. It was between Astra Mining and Astra Nominees. It is highly probable, and I so find, that the 2 September 2011 date is not authentic and that the document was backdated in an attempt to satisfy questions asked in 2012 by KPMG, the auditors of Astra Resources. The Fourth SSA was executed by Ms De Cianni on behalf of Astra Mining and Mr Meerkin on behalf of Astra Nominees. It is identical to the first, save only for the date and that it provides for Astra Nominees to subscribe for 30 million shares in Astra Mining. Astra Mining and Astra Nominees (by Ms De Cianni and Mr Meerkin respectively) also executed another trust deed bearing the same date. This was in the same terms as the first Bare Trust Deed.

78    Evidence that the Fourth SSA was not executed until July 2012, but backdated to 2 September 2011, is seen in emails passing to and from Ms Giustozzi on 5 and 6 July 2012. Ms Giustozzi sent the emails on the Astra Resources letterhead and described herself as “Executive Manager – Corporate Services”. I note that in her s 19 examination (at which she was represented by Mr Raj), Ms Giustozzi said that her wages were paid by Astra Mining but that her main duty was liaising with Computershare and ensuring that share transfers were registered with that company. I will refer later to the admissibility of the statements made by Ms Giustozzi, Dr Biswas and Ms De Cianni at their respective s 19 examinations.

79    In an email of 5 July 2012 to Mr Meerkin and to Ms Lim (another lawyer at MSL) and copied to Dr Biswas and Ms De Cianni, Ms Giustozzi said:

Please find attached the Share Subscription Agreement and Bare Trust Deed in respect of the 30 million shares executed by Silvana and Adele.

Also attached is the executed Board resolution.

Please countersign and return to me.

I am satisfied that “Silvana” and “Adele” were Silvana De Cianni (the fourth defendant) and Adele De Cianni who also worked at Astra Resources.

80    Ms Lim responded to Ms Giustozzi the following day saying:

Please find attached the fully executed documents relating to the subscription of the 30 million shares by Astra Consolidated Nominees Pty Ltd.

The email indicated that Ms Lim attached a share subscription agreement for 30 million shares, a fully executed Bare Trust Deed for 30 million shares, a fully executed Board resolution of Astra Nominees and a Board resolution of Astra Mining. The inference which arises strongly from these documents is that the SSA and the Bare Trust Deed relating to 30 million shares were not executed until July 2012 but were backdated so as to seem to have been effective from 2 September 2011, that is, before the share swap took place and before the issue of the 30 million shares on 7 March 2012.

81    The lapse of time between the stated date of 2 September 2011 on the Fourth SSA and the issue of shares in March 2012 also suggests that the date 2 September 2011 is not authentic. It is consistent with action being taken retrospectively to justify what had occurred in March 2012.

82    Ultimately, it is not necessary to make findings about this. What is significant is that Astra Nominees received the 40 million shares in September 2011 subject to the terms of the First SSA and the terms of the Bare Trust Deed. The belated execution of the Fourth SSA in terms which were identical to the first is evidence of the parties’ purpose in March 2012 that Astra Nominees was to receive the 30 million shares on the same terms.

83    The common directorships of Astra Resources and Astra Mining, the purpose of the share swap arrangement and the subsequent conduct of Astra Resources and Astra Nominees also justify a finding that Astra Resources’ purpose in issuing each parcel of shares to Astra Nominees was the same as that which Astra Mining had agreed with Astra Nominees in the First SSA and Bare Trust Deed as replicated in the later documents, whenever they were executed.

Correspondence from Mr Meerkin

84    There is other evidence which justifies the same conclusion. The letter of Mr Meerkin of 21 December 2011 to which I referred earlier is pertinent in this respect.

85    On 20 December 2011, Dr Biswas sent an email to Mr Meerkin with the subject heading “Fund raising advice”. The content of the email was as follows:

Barrie

Need to cover

1.    PLC Pty Ltd and DB

2.    12/20 rule applicability

3.    Need for AFSL

4.    Funds raising from Australian residents into solicitors trust acc of PLC

5.    Funds raised from non-residents to Australia and non-residents to UK

6.    Funds raised from UK residents

7.    Confirmation we are not restricted to professional investors

8.    Confirmation that raising funds off market (from shares held in Astra Consolidated in your trust acc prior to listing) can [be] sold below traded price.

It seems that, by this email, Dr Biswas was seeking a written advice from Mr Meerkin and was identifying the topics which he wished Mr Meerkin to address, and, possibly, the nature of his advice on those topics. As can be seen, item 8 in this email referred expressly to the sale of shares held by Astra Nominees.

86    Dr Biswas said that he was prompted to seek the advice from Mr Meerkin after reading reports that a foreign company, Firepower, may have breached funding raising provisions in the Act. He said that he had discussed the matter first with Mr Meerkin on the phone and that his email was in the nature of a reminder to Mr Meerkin of the topics which they had discussed and on which he sought advice.

87    Mr Meerkin responded by email to Dr Biswas and Ms De Cianni on the following day. His email contained a description of the share transfers which were occurring, the arrangements pursuant to which they were being made, and the lawfulness of the arrangements. Relevantly for present purposes, Mr Meerkin said:

Advice has been sought to confirm the manner and particulars of the receipt of share application funds from share transfer sales entered into by Astra Consolidated Nominees Pty Ltd (“ACN”).

ACN was established as the trustee of a bare trust on behalf of Astra Mining Pty Ltd (at the time such was a public limited company). The purpose of the trust was for ACN to be able to sell shares it acquired in Astra Mining, and from such proceeds exclusively assist Astra Mining with its working capital requirements while it prepared for its listing on the Frankfurt Stock Exchange. Upon the listing of Astra Mining on the Frankfurt Stock Exchange on 28 September 2011 through Astra Resources PLC, ACN was to provide the benefit of the funds it received to Astra Resources PLC to assist its working capital requirements.

As such, ACN in its capacity as trustee executed a Share Subscription Agreement with Astra Mining on 26 August 2011 for forty million shares, of which such shares were issued to ACN but are being paid for under the terms of the Share Subscription Agreement as and when such shares are sold by ACN to investors pursuant to share application forms it receives.

The forty million shares subscribed to by ACN in Astra Mining were converted to ordinary shares in Astra Resources PLC when the rollover of shares of Astra Mining shareholders into Astra Resources PLC occurred on 8 September 2011 (which was pursuant to a Resolution of Members passed at the Extraordinary Meeting of the Astra Mining held on 15 June 2011).

Consequently, upon sales being effected of shares in Astra Resources PLC by ACN after the rollover, and after clearance of such funds, ACN executes shares transfers in favour of the respective investor and remits the funds received to Astra Resources PLC pursuant to the terms of the Share Subscription Agreement.

...

88    This was a clear statement by Mr Meerkin to Dr Biswas and Ms De Cianni that Astra Nominees was at the time acting pursuant to the First SSA and the Bare Trust Deed, that its purpose was to sell the shares issued to it by Astra Mining (which Mr Meerkin said had “converted to ordinary shares in Astra Resources” on the rollover), and that Astra Nominees was in fact transferring its shares to purchasers of shares in Astra Resources. At the time Mr Meerkin provided this advice, he was a director of both Astra Resources and Astra Nominees. There is no reason why his admissions should not be attributed to each and be taken to be evidence of the purpose of each. Although the statements were made after the issue of shares by Astra Resources in September, I am satisfied that they reflect the purpose of Astra Resources and Astra Nominees which existed at that time and which was continuing. It will be necessary to return again to Mr Meerkin’s letter of advice of 21 December 2011.

89    In effect, Astra Nominees was acting as an intermediary by which shares in Astra Resources were transferred to investors who subscribed for shares in Astra Mining and later Astra Resources. Each of Astra Mining, Astra Resources and Astra Nominees had this purpose.

The appointment of brokers

90    Earlier in these reasons, I set out a table summarising the appointment of brokers in relation to the sale of shares in Astra Resources. The terms of the appointments are also relevant to the purpose of Astra Resources and Astra Nominees.

91    The first appointment was of Milton Papadopoulos of Aurillia Pty Ltd on 3 May 2011 (the same day on which Astra Resources was incorporated in the United Kingdom) by a letter on the Astra Resources letterhead and signed by Dr Biswas. The letter stated:

To whom it may concern,

We hereby confirm Milton Papadopoulos of Aurillia Pty Ltd as a company representative of Astra Resources PLC with effect from 3 May 2011, to explore, discuss and organise capital raising opportunities on our behalf in accordance with our terms and conditions.

92    This letter made no reference to Astra Nominees. This is unsurprising as Astra Nominees was not incorporated until 25 August 2011. However, Astra Resources’ own records indicate that Aurillia procured some of the applications for shares in Astra Resources which were satisfied by transfers by Astra Nominees. This letter is accordingly probative of ASIC’s contention that, when Aurillia provided share application forms to investors, it did so on behalf of Astra Resources.

93    There were two appointments of Kea Funds Corporate Pty Ltd (Kea Funds). The first appointment was by both Astra Mining and Astra Resources and was by a document entitled “Brokerage agreement” shown as having been executed on 5 July 2011. Astra Mining and Astra Resources were defined collectively in the agreement as “Astra”. Clause 1 stated relevantly:

1.    BROKERAGE: Astra appoints the Broker on an exclusive basis as its Broker for the Term solely for the purpose of the provision of services with regard to a Transaction securing investment funding, either by equity and/or debt funding, for Astra from sophisticated investors, and/or from investors entitled to acquire Securities in Astra Resources PLC upon its listing on the Frankfurt Stock Exchange and/or any subsequent listings on other Stock Exchanges during the Term, in accordance with the terms of this Agreement.

The agreement then went onto to provide for different brokerage fees to be payable depending upon whether investors were “sourced” by Kea Funds or otherwise.

94    Although the term in the first appointment of Kea Funds was 24 months, Astra Mining made a further appointment of it by letter dated 2 September 2011. The letter commenced with the paragraph:

Astra Mining Ltd (the Company) intends to seek applications from investors for equity contributions by way of a transfer of its shares (Shares) from its wholly owned subsidiary Astra Consolidated Nominees Pty Ltd (ACN).

The letter then referred to the capacity in which ACN had acquired the shares and its obligations under the Bare Trust Deed and continued:

We confirm Kea Funds Corporate Pty Ltd (the Licensee) has agreed to act as the Australian financial services licensee in accordance with section 911A(2)(b) of the Corporations Act 2001 (Cth) (the Act) in relation to the disposal of the Shares on behalf of the Company by ACN on the following basis:

1.    Authorisation – The Company appoints the Licensee to act as the Australian financial services licensee for the disposal of the Shares and authorises the Licensee to act as the authorised intermediary of the Company and ACN for the disposal of Shares. The Licensee accepts this appointment and authorisation.

...

95    There was thus an express appointment of Kea Funds to sell the Astra Mining shares held by Astra Nominees. This is particularly significant because this appointment was made before the issue of Astra Resources’ shares to Astra Nominees and supports ASIC’s claims as to the purpose of the respective issues, namely, on-sale to investors.

96    There were three appointments of Oxcorp Pty Ltd (which was at one stage known as Utorr Pty Ltd). The first is in the form of a letter from Oxcorp to Astra Resources dated 26 August 2011 (the day after the incorporation of Astra Nominees and the date of the First SSA and the Bare Trust Deed). The letter was marked for the attention of Dr Biswas and Ms De Cianni. It too contemplated Oxcorp arranging the sale of shares in Astra Resources held by Astra Nominees, as the following passages indicate:

Following recent communications we confirm that, as from the date of this correspondence, we are authorised to act as financial advisor to AR, AM and ACN in connection with offer[s] of shares in those companies to third parties, the acquisition of financing, the acquisition of assets by share consideration and the sale of such shares held by ACN.

1.    Transaction

We are authorised to offer Two Hundred Million (200,000,000) ordinary shares in AR and a minimum of AU$0.50 each (the “Placement Shares”) either directly or from shares held by ACN. ...

97    The appointments summarised so far were all made before the issue of the shares to Astra Nominees on 8 September. They constitute persuasive evidence of the purpose of Astra Resources at that time.

98    The second appointment of Oxcorp was a by a document entitled “Agency Agreement” executed on 12 December 2011 by which Astra Project Finance appointed Utorr Pty Ltd as its non-exclusive agent for the purpose of securing investment funding for Astra Resources “from sophisticated investors only”. Dr Biswas and Ms De Cianni executed the Agency Agreement on behalf on both Astra Project Finance and Astra Resources. However, Astra Project Finance was named as the appointor. The agreement made no reference to Astra Nominees but as Astra Resources was not itself issuing shares to investors, it must have contemplated Oxcorp procuring purchasers of shares held by Astra Nominees.

99    Astra Project Finance as appointor and Astra Resources entered into another agreement entitled “Agency Agreement” with Utorr Pty Ltd on 9 January 2012. Ms De Cianni and Dr Biswas executed the agreement on behalf of both Astra Resources and Astra Project Finance. Dr Biswas, in his capacity as chairman of Astra Resources, also signed a resolution that Astra Resources should enter into the agency agreement.

100    Clause 1 of the agreement contained an appointment of Utorr as a non-exclusive agent for the purpose of securing investment funding to assist Astra Resources in its working capital requirements. It then continued:

It is agreed by the parties that any application sourced for equity in the Company pursuant to this Agreement shall be satisfied by a transfer of shares held in the Company by Astra Consolidated Nominees Pty Ltd ACN 512 869 353. Astra Consolidated Nominees Pty Ltd has acquired the shares in the Company solely in its capacity as trustee of the Astra Consolidated Nominees Trust to assist the Company in its working capital requirements as outlined above.

This was after the issue of the 40 million shares but before the issue of the 30 million shares. It is highly probative of the purpose of the issue of the shares in Astra Resources to Astra Nominees.

101    The separate appointments of Michael Knobel and David Baird on 9 December 2011 and 19 January 2012 respectively contained the same description of the agency, namely, an appointment by Astra Project Finance of the agent as its non-exclusive agent solely for the purpose of securing investment funding, either by equity and/or debt funding, for Astra Resources from “sophisticated investors” only. Both Dr Biswas and Ms De Cianni executed the agency agreement with Mr Knobel on behalf of Astra Project Finance and Astra Resources. Mr Baird’s agency agreement was unexecuted but it was not suggested that anything turned on that for present purposes.

102    The last appointment of a broker in the period to which these proceedings relate, namely, September 2011 to September 2012, was that by Astra Project Finance of Leisuretime Media Pty Limited (Leisuretime) by an agency agreement executed on 9 February 2012, that is, before the issue of the 30 million shares on 7 March 2012. This contained the same description of the agency as did the appointments of Mr Knobel and Mr Baird and was executed on behalf of Astra Project Finance by Dr Biswas and Ms De Cianni. Although Astra Resources is shown as a party to the agreement, it did not execute the agency agreement.

103    None of the last three agency agreements referred to Astra Nominees but the observation made earlier with respect to the third Oxcorp agreement is just as applicable in these cases.

104    Dr Biswas confirmed in cross-examination that the brokers named earlier were appointed for the purpose of on-selling the shares owned by Astra Nominees in Astra Resources, although he did say that he regarded them as having been appointed by Astra Project Finance rather than by Astra Resources itself.

Statements to Brokers and Financial Advisors

105    The evidence of statements made in 2011 and 2012 concerning the authority of the agents is relevant both to the purpose for which the shares were issued to, and acquired by, Astra Nominees and to the conduct of each of Astra Resources and Astra Nominees said to be contravention of s 727(1).

106    By an email dated 1 September 2011 addressed to Mr Critchley at Kea Funds, Dr Biswas and Ms De Cianni, Mr Meerkin said “I just wished to confirm it has been agreed that funds will be raised by the transfer of Astra Consolidated Nominee’s shareholding (as trustee for Astra Mining) in Astra Mining to investors”.

107    As noted earlier, Michael Knobel was appointed a broker for the sale of shares in Astra Resources on 9 December 2011. On 14 December 2011, a financial advisor at Morgan Stanley sent an email to Astra Resources enquiring on behalf of a client about the authority of Mr Knobel and about the terms on which he was offering the shares for sale. Mr Meerkin provided advice on 22 December 2011 by an email which indicates (and I so find) that he had spoken to Dr Biswas before doing so. Mr Meerkin advised that a response be given to the Morgan Stanley financial advisor as follows:

Thank you for your enquiry.

I wish to confirm that Mike Knobel is an agent of Astra, and has been authorised by the company to secure investors on its behalf.

There is a misunderstanding though from your perspective – Mike Knobel is not selling any shareholding he may have – he is in fact arranging for the transfer of shares by Astra Consolidated Nominees Pty Ltd, as trustee for Astra Mining Pty Ltd, which has been established solely to raise working capital for Astra Resources Plc whilst the company is preparing its IPO on the Frankfurt Stock Exchange, which is due in the forthcoming 3-5 months.

The shares are being sold off market and at a discount to the current on market price in order to secure definitive project capital for Astra Resources Plc, but the shares are subject to escrow, and once acquired by any investor, cannot be sold till 28 September 2012 (the extent of the escrow period is a further reason for the discounted off market share price).

108    As can be seen, Mr Meerkin intended that confirmation be given that Mr Knobel was an agent of “Astra” and had been authorised by it to secure investors on its behalf. In context, the “Astra” to which Mr Meerkin referred must have been Astra Resources. Mr Meerkin also intended that confirmation be given that Astra Nominees had been established for the sole purpose of raising working capital for Astra Resources until it obtained its listing on the FSE and that the shares in respect of which Mr Knobel acted as agent were those held by Astra Nominees in Astra Resources.

109    It is not clear whether the advice in the terms proposed by Mr Meerkin was ever provided to the Morgan Stanley financial advisor. Nevertheless, I consider that the contents of the letter constitute admissions admissible against both Astra Resources and Astra Nominees. An admission by words or conduct remains an admission even if it is uncommunicated. The general principle concerning uncommunicated admissions is that stated by Phipson on Evidence (18th ed, Malek et al (eds), 2013) at [4-14]:

It is, in general, immaterial to whom the admission was made. Thus, an admission made to a stranger is as receivable as one made to an opponent. So, private memoranda, never communicated to the opposite side, or to third persons, are evidence against a party, as are admissions made to himself in mere soliloquy.

See also Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 at [106].

110    In any event, Mr Meerkin sent an email direct to the Morgan Stanley financial advisor on 23 December 2011 (also copied to Dr Biswas and Ms De Cianni). Mr Meerkin said:

I am legal counsel for Astra Resources Plc, and have been requested by the company to contact you so as to clarify certain matters you have raised.

Astra Resources Plc (a UK public liability company) listed on the Frankfurt Stock Exchange on 28 September 2011 (this was a compliance listing only), and it is the company’s intention to issue a Prospectus for its IPO in the forthcoming three-five months.

The listing of Astra Resources Plc emanated from the rollover of all shareholders in Astra Mining Ltd, an Australian registered company (which is now a proprietary limited company) on a one for one basis for shares in Astra Resources Plc, which occurred on 8 September 2011.

At the time of the rollover, and prior to the listing, there was an allocation of shares made to Astra Consolidated Nominees Pty Ltd, as trustee for the Astra Consolidated Nominees Trust, which was established solely for the purpose of raising working capital for Astra Resources Plc.

Post listing of Astra Resources Plc, the transfer of shares by Astra Consolidated Nominees Pty Ltd to investors are all off market transfers, and have been substantially discounted to the market price for various reasons.

The prime reasons are the lack of liquidity in the trading of the company’s stock on the Frankfurt Stock Exchange, and the need for the company to maintain funding for its projects prior to its forthcoming IPO.

...

(Emphasis added)

111    Further evidence of the arrangements and their purpose is contained in Mr Meerkin’s email to a Mr Konjevic at the United Bank of Switzerland on 21 March 2012. Mr Meerkin commenced the email by saying that he was legal counsel for Astra Resources PLC and had been requested by its executive directors “at the behest of Colin Oxlade” to respond to a query he had made. Mr Oxlade was a principal in Oxcorp Pty Ltd, one of the brokers appointed by Astra Resources and Astra Finance to sell the shares in Astra Resources. After recounting some of the history to the establishment of Astra Resources and the share swap, Mr Meerkin continued:

There has only been one class of shares issued in Astra Resources Plc, such being ordinary shares. However, immediately prior to the rollup of shares on 8 September 2011, a large parcel of shares in Astra Mining was issued to Astra Consolidated Nominees Pty Ltd (as trustee for Astra Consolidated Unit Trust) so as such shares could be transferred to applicants for shares in Astra Resources post listing and prior to the issue of the IPO to provide working capital to Astra Resources in such interim period.

(Emphasis added)

112    Each of these emails was an explicit statement and admission by Mr Meerkin, who was a director of both Astra Resources and Astra Nominees, of the purpose of the issue of the shares to Astra Nominees.

Statements to KPMG

113    Statements by Mr Meerkin to KPMG who were appointed as Astra Resources auditors also confirmed the arrangements. In an email of 19 July 2012, Mr Meerkin confirmed that Astra Nominees had been established to hold the shares as trustee for Astra Mining and for Astra Resources upon its listing on the FSE. He went on to say that the purpose of the ACN Trust was for the transfer by Astra Nominees of shares in Astra Resources so as to provide working capital for Astra Resources pending the registration of a prospectus for the raising of capital on the FSE. He confirmed that no shares had been issued in Astra Resources post the “roll up” and that in the main all transfers had been by Astra Nominees in its capacity as trustee. There appear to have been some inaccuracies in the information provided by Mr Meerkin to KPMG but they are not material for present purposes.

114    I draw the inference that it was queries from KPMG at about this time which prompted the preparation and execution of the Fourth SSA and associated documents to which I referred earlier.

115    In a later email to KMPG on 29 January 2013 (copied to Dr Biswas and Ms De Cianni), Mr Meerkin said, amongst other things:

6.    I can confirm that at all times the shares issued to Astra Consolidated Nominees Pty Ltd as trustee for Astra Consolidated Nominees Trust were shares in Astra Resources Plc and not shares in Astra Mining Ltd. Such shares were issued to Astra Consolidated Nominees Pty Ltd on the date of roll up. The reference in Schedule 1 of the trust deed to the property being owned of forty million Astra Mining Ltd shares is a technical error in the Trust Deed, and should be correctly referenced to forty million shares of Astra Resources Plc. A Deed of Variation correcting such misreference will be provided to you.

Further I can confirm that as a consequence of the technical error in the Trust Deed as above referred, the Board Resolution of 1 September 2011 is incorrect. I will have this resolution appropriately cancelled by a corrective board resolution, and a copy provided to you for your record.

7.    The Board Resolution of 5 September 2011 to which you refer and the associated Share Subscription Agreement and Bare Trust Deed for 75,702,804 shares did not proceed, and the issue of these shares never occurred. These agreements were cancelled by a subsequent resolution of the Board. I will have the office in Adelaide send through a copy of this resolution for your record.

116    Again, there may be some inaccuracies in the information which Mr Meerkin provided but it seems clear enough that he was indicating that Astra Nominees held its shares in Astra Resources on the same terms as it had held the shares in Astra Mining.

Statements at s 19 Examinations

117    ASIC also relied upon statements made by Dr Biswas and Ms De Cianni at examinations conducted pursuant to s 19 of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act).

118    In his examination, Dr Biswas made the following statements:

Q:    So in relation to Astra Consolidated Nominees, what is the company currently doing?

A:    Barrie Meerkin set it up purely to hold shares in the parent company, Astra Resources PLC, to raise working capital. So if you look at the share application forms they created at that time, it was purely to hold shares in the parent company – eventually Astra Resources – for placing in the market, to raise working capital. ... There’s no other purpose or reason, yes, for that, as far as I know.

....

Q:    So, over the last say 12 months, would the company, Astra Consolidated Nominees, have generated revenue or conducted any recent business?

A:    Only by the placement of shares. They’ve not done any business.

This was an explicit statement that Astra Nominees’ function was to place shares in Astra Resources in the market for capital raising purposes.

119    Later, Dr Biswas made the following statements:

Q:    Did each of those three entities – Astra Mining, Astra Resources and Astra Consolidated Nominees – did they treat those shares as if they were bound by the terms of the share subscription agreement that we’ve just gone over and the Bare Trust Deed?

A:    Look, I can’t go into Barrie’s head now because he was the director. Do you understand? The only place he wasn’t a director was Astra Mining.

Q:    No, but from that point in time, though, you were a director of Astra Resources.

A:    I was.

Q:    So the shares in Astra Resources – the shares in your company at that time – were you treating them as if they were part of the share subscription agreement and part of the deed with Astra Consolidated Nominees?

A:    I assumed they were part, yes. I would’ve asked him the question, “that’s the deed between Astra Mining and Astra Consolidated Nominees, did that deed effectively roll over?” and he would have said, “yes”. ... Yeah, that’s how I acted. I mean, I would’ve asked him the question, “does everything roll over; assets, agreements, everything rolled over?” and he would have said, “yes”, because otherwise I would’ve said, “can you create another document?” right, if it wasn’t the case.

Q:    Yep, so for all intents and purposes you ...

A:    Yes, I would’ve asked. I’m certain I would’ve asked at the time, yeah.

Q:    And so you carried on as if that agreement was in place, and applied to the ...

A:    Yeah, I would’ve asked him specifically, “does everything roll over, Barrie? I’m not a lawyer, but does everything roll over?” and he would have said, “yes”.

120    Dr Biswas made the position even more explicit in a later passage of the examination:

Q:    But in effect that means that Astra Mining and Astra Resources – the shares that – the Astra Mining shares and the Astra Resources shares that were held by ACN there was always the intention that they be on-sold within the 12 month period, to raise immediate capital.

A:    That’s correct. Well, it’s stated in those documents

    ...

Q:    And obviously you can’t speak on behalf of ACN, but your understanding, through speaking with Barrie Meerkin, was that that’s the reason why ACN acquired those shares? The exact opposite of what Astra Mining and Astra Resources were selling them to ACN for is that ACN acquired them for the purpose of then on-selling them.

A:    Raising working capital.

Q:    Yeah.

A:    Yeah, to raise working – exactly as stated on the share application form.

121    Ms De Cianni’s statements in her s 19 examination, although less explicit, are to similar effect:

Q:    These shares which appear to be issued – well, on various dates but the majority on 8 September 2011, in issuing those shares did Astra Mining intend for them to be swapped for shares in Astra Resources?

A:    Obviously whatever Astra Mining had, it had to go across to Astra Resources. That was always the – why we were doing it.

Q:    So that was the intention?

A:    The intention.

122    Later, Ms De Cianni made the following statements:

Q:    In relation to those shares that were swapped, did those three entities, Astra Mining, Astra Resources and Astra Consolidated Nominees – did they each treat those shares which had been swapped as if they were bound by the terms of the share subscription agreement and the Bare Trust Deed, both dated 26 August? That’s these documents we’ve just looked at here at Tabs ...

A:    Yeah, yeah, yeah. Yeah.

Q:    Sorry, at tabs ...

A:    I never dealt with that, but all I know is that I believed everything was done right.

123    Later still, Ms De Cianni made the following statements:

Q:    Did you understand that those Astra Resources shares would be dealt with in the same way under these agreements as the Astra Mining ones would be, so in effect nothing changes, it’s just that the shares in Astra Mining become shares in Astra Resources and that ACN ...

A:    That’s correct.

Q:    ... Still deals with those shares in accordance with these two agreements?

A:    That’s correct.

Q:    ... And that’s the reason why those shares were placed with ACN, so they could be sold and provide capital?

A:    I would say so.

124    ASIC’s initial submission was that the statements made by Dr Biswas and Ms De Cianni at their s 19 examinations were admissible pursuant to s 76 of the ASIC Act against each of them respectively and, in addition, against Astra Resources. In the same vein, it submitted that the statements made by Ms Giustozzi at her s 19 examination were admissible against Astra Resources because she had acted at relevant times on behalf of Astra Resources. I do not accept that the statements of any of these persons are admissible pursuant to s 76 of the ASIC Act against Astra Resources. Section 76(1) provides that a statement which a person makes at a s 19 examination is admissible in evidence against the person in a proceeding when certain conditions are satisfied. On its face therefore, s 76 does not permit the admission of statements made by an examinee at a s 19 examination against any other person.

125    Faced with this difficulty, ASIC then submitted that the s 19 transcripts were admissible under s 87 of the Evidence Act 1995 (Cth) as admissions against Astra Resources in particular. It noted in this respect that the provisions in the ASIC Act concerning evidentiary use of statements made at s 19 examinations are not a code: see s 83 of the ASIC Act and Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 2) [2009] FCA 424; (2009) 176 FCR 529 at [11].

126    I am satisfied that each of Dr Biswas, Ms De Cianni and Ms Giustozzi were persons to whom s 87(1)(b) of the Evidence Act refers. Accordingly, I accept that the statements which they made at their s 19 examinations are admissible against Astra Resources.

Summary on purpose

127    As I have mentioned, there is some uncertainty as to whether Astra Mining did ever issue the contemplated 40 million shares to Astra Nominees. However, it was non-controversial that Astra Resources had issued 40 million shares to Astra Nominees on 8 September 2011 and a further 30 million shares on or about 7 March 2012.

128    The evidence summarised above indicates that, when issuing the shares, Astra Resources did so for the purpose of Astra Nominees transferring them to investors who applied to Astra Resources for shares, and that Astra Nominees acquired the shares for that purpose. It is accordingly not necessary to consider the presumption in s 707(4)(b) of the Act, although had it been necessary to do so, I would have found that the presumption had not been displaced.

129    Accordingly, I am satisfied that s 707(3) of the Act is applicable. This means that, subject to consideration of the exemptions in s 708 which the defendants have pleaded, the application of shares in Astra Resources in the period to 8 September 2012 (at the least) needed disclosure to investors under Pt 6D.2 of the Act.

Did Astra Resources distribute application forms for offers of shares?

130    As noted earlier, ASIC’s case against Astra Resources is that it distributed application forms for offers of shares in itself. Distributing an application form for an offer of securities which requires disclosure to investors under Pt 6D.2 is one of the two ways in which s 727(1) may be contravened.

131    ASIC alleges that on one occasion Astra Resources distributed an application form directly to an investor and that on other occasions it did so through the appointed brokers.

132    Mr Meerkin’s agreement with ASIC included an acknowledgement that, in the period between 8 September 2011 and 8 September 2012, Astra Resources had distributed application forms for offers of shares, either itself or through an agent to the investors alleged by ASIC in the Amended Statement of Claim. Of course, that acknowledgement does not bind the remaining defendants.

133    The verb “distribute” is not defined in the Act. In its ordinary meaning it includes (relevantly), “to disburse through a space or over an area; spread; scatter”: Macquarie Dictionary.

134    The decision of Gilmour J in Australian Securities and Investments Commission v Axis International Management Pty Ltd (No 5) [2011] FCA 60; (2011) 81 ACSR 631 at [200]-[201] indicates that a person may distribute application forms for offers of shares even though the person is not the owner or controller of the securities; even when the person is acting as an agent; and even when the person acts without knowledge that the offers need disclosure. It may also be taken that a person may distribute an application form for an offer of securities by causing or authorising the distribution to occur: see s 52 of the Act. This means that a person may contravene s 727 by distributing application forms both to, and by means of, an agent.

135    Before making findings about the conduct upon which ASIC relied for its contention that Astra Resources had distributed application forms for offers of shares in itself, it is appropriate to make findings about the application forms which were used, whoever it was who distributed them.

The share application forms

136    A number of forms for applications for shares in Astra Resources were in evidence. The content of these forms varied. For reasons which I will give later, I am satisfied that each of the different forms was prepared by, or at least approved by, MSL and was adapted to the circumstances in which it was contemplated that they would be used. It is convenient to make findings first about those forms for which there is direct evidence as to their provenance.

137    The first application form in evidence was that sent by Ms De Cianni to Mr Critchley at Kea Funds (copied to Dr Biswas) on 1 July 2011. This was an application for shares in Astra Mining and was adapted for use by Kea Funds. It contained the certificate to be completed by an accountant certifying as to matters establishing that the investor was a sophisticated investor.

138    By an email on 6 September 2011, Mr Meerkin suggested a minor modification to this form which it is not necessary presently to note.

139    The next two versions (which were also applications for shares in Astra Mining) were sent by Mr Meerkin on MSL letterhead to Dr Biswas and Ms De Cianni on 29 August 2011. Mr Meerkin said in the accompanying email:

Please find attached the revised Application Forms (Australia and Foreign) to be used when shares are being transferred to an applicant from the nominee company, Astra Consolidated Nominees Pty Ltd.

When executing the trade, all that is required is the standard Off Market Transfer form with Astra Consolidated Nominees Pty Ltd – ACN 152 869 353 noted as the Transferor for a share price of $0.50 per share being transferred.

The form Mr Meerkin attached for use in Australia required applicants to certify that they were “sophisticated investors” within the meaning of s 708(8) of the Act and attached a form of “Accountant’s Certificate” for use in that respect. The form for foreign use had the endorsement “Foreign Investors Only”, included the same references to sophisticated investors, but did not include any form of accountant’s certificate. In each case, the application required payment to be made to “Astra Mining Ltd Share Application Account”, whether by cheque, bank draft or electronic lodgement.

140    Both applications provided for an acknowledgment by investors that they may receive a transfer of shares from Astra Nominees in satisfaction of their application:

The Applicant/s acknowledge that he/she/they are applying to acquire the Shares of the Company, and will accept in satisfaction of such application, a transfer of the Shares held in Astra Mining Ltd held by Astra Consolidated Nominees Pty Ltd – ACN 152 869 353. Astra Consolidated Nominees Pty Ltd has acquired the Shares solely in its capacity as trustee of the Astra Consolidated Nominees Trust to exclusively assist Astra Mining Ltd with procuring investment funding for its working capital requirements in the period between the date of this Application and the compliance listing of Astra Mining Ltd through its UK parent company Astra Resources PLC – CN 7620218 on the Frankfurt Stock Exchange.

141    Both forms also provided for investors to give confirmation of their experience in investing in shares in the following terms:

The Applicant/s further confirm to Astra Mining Ltd that I/we have previous experience in investing in financial products that enables me/us to make my/our own assessment of the merits of an investment in Astra Mining Ltd, and the risks associated with such an investment. I/We further confirm that Astra Mining Ltd has not provided me/us with any document that would be required to be given to me/us in accordance with the Corporations Act 2001 (Cth) (Act) if the investment by me/us in shares of Astra Mining Ltd was being made by me/us as a retail client in accordance with the Act, and that the application for shares by me/us has been made in accordance with section 708(8) of the Act.

142    The next version of a share application form was sent by Mr Meerkin to Mr Critchley at Kea Funds on 2 September 2011. The attachments to Mr Meerkin’s email included a share application form, a share transfer form and a revised intermediary agreement. This share application form also related to Astra Mining Ltd and not to Astra Resources. It was tailor made for use by Kea Funds in that it provided for applications to be lodged with Kea Funds, for investor enquiries to be made to Kea Funds, and for share subscription amounts to be paid to the bank account of Kea Funds.

143    Evidence that Dr Biswas also contributed to the content of the share application forms is seen in an email he sent to Mr Meerkin on 8 September 2011, pointing out that the “Foreign form” did not need the reference to “sophisticated investors” whereas the “Australian forms” required the accountant’s signature.

144    The next two versions were provided by email from Ms Lim at MSL to Dr Biswas, Ms De Cianni and Adele De Cianni (Ms De Cianni’s daughter) on 5 October 2011 at 12.24pm. The evidence did not disclose the capacity in which Ms Adele De Cianni worked, but it is apparent that she was engaged by Astra Resources as her email address was at Astra Resources. The terms of Ms Lim’s email (“I have attached the further revised Share Application Forms”) suggest that MSL had either drafted or settled the application forms which Ms Lim was providing. The two versions which Ms Lim attached were the first relating to Astra Resources rather than Astra Mining.

145    The first of the two forms stated that it was for use by “Foreign Investors Only”, but this was probably a mistake. It specified that the share application should be returned to the post office box address of Kea Funds in Brisbane, for enquiries by investors to be made to Mr Critchley at Kea Funds, and for payment of the subscribed amounts to be by cheque or bank draft made out to Astra Resources or to the trust account of MSL. Investors were required to give a number of declarations, including:

The Applicant/s further confirm to Astra Resources PLC that I/we have previous experience in investing in financial products that enables me/us to make my/our own assessment of the merits of an investment in Astra Resources PLC, and the risks associated with such an investment.

As can be seen, unlike the previous versions, this confirmation was to be given to Astra Resources and not to Astra Mining. It may have been an attempt to attract the exemption of s 708(8) of the Act but, if so, it was not adequate for that purpose.

146    Under the heading “General declarations” on the third page of the application form, the following declarations were required:

The Applicant/s acknowledge that he/she/they are applying to acquire the Shares of the Company, and will accept in satisfaction of such an application, a transfer of the Shares held in Astra Resources PLC ... held by Astra Consolidated Nominees Pty Ltd ... . Astra Consolidated Nominees Pty Ltd has acquired the Shares solely in its capacity as trustee of the Astra Consolidated Nominees Trust to exclusively assist Astra Resources PLC with procuring investment funding for its working capital requirements.

...

Kea Funds Corporate Pty Ltd acknowledges to the Applicant/s that any and all applications received are pursuant to a Placement Agreement that exists between it and Astra Resources PLC dated 5 September 2011 which was prior to the listing of Astra Resources PLC.

I/We confirm to Astra Resources PLC that I/we have the knowledge, expertise and experience in financial matters to evaluate the risks of investing in the Company, am/are aware of the risks inherent in investing in the assets in which the Company would invest and the method by which these assets will be held and/or traded, and can bear the loss of my/our entire investment in the Company.

147    The second version attached to Ms Lim’s her email of 5 October 2011 was identical to the first save only that it provided for cheques or bank drafts to be made payable to Astra Consolidated Nominees Pty Ltd rather than to Astra Resources, gave Astra Resources’ details for lodgement and enquiries, rather than Kea’s, and did not include any acknowledgement by Kea Funds that the application would be pursuant to the placement agreement between it and Astra Resources PLC dated 5 September 2011. From this is can be inferred that the first version was intended for use by Kea Funds and the second for more general use.

148    Later on 5 October 2011 (at 1.04pm), Ms Lim sent an email to Mr Critchley at Kea Funds. She said that she was attaching “the Share Application and Share Transfer Forms” to be used by Kea Funds. This email was copied to Dr Biswas, Ms De Cianni, Adele De Cianni and Mr Meerkin. The attachments to this email were not in evidence but in context they must have included, and I so find, the version which was specific for use by Kea Funds described above.

149    Mr Critchley responded almost immediately asking whether “the attached” were still suitable. The documents Mr Critchley attached were not in evidence, but it can be inferred from the responses he received that it must have included a version of the application form which was for shares in Astra Mining.

150    Mr Critchley received three separate answers to his query. Dr Biswas answered saying “we are Plc”; Mr Meerkin answered saying “No Matthew – not to be used anymore”; and Adele De Cianni responded saying “No, please do not use Astra Mining any more. These forms cannot be accepted. All forms are now from Astra Resources PLC.” In his evidence, Dr Biswas said that he had sent his response to Mr Critchley in his capacity as director and chief executive officer of Astra Resources.

151    From this exchange, the inference can be drawn, and I so find, that before 5 October 2011, Kea Funds was using application forms in the name of Astra Mining and that it was now being told by persons in Astra Resources as well as by Mr Meerkin to use forms in the name of Astra Resources.

152    Later on 5 October 2011 (at 3.36pm), Ms Lim revised the share application and share transfer forms again and sent copies to both Ms Adele De Cianni and Ms Giustozzi at Astra Resources. The change related to the form which was not specific to Kea Funds and involved the deletion of the endorsement “Foreign Investors Only”. In the email, Ms Lim said:

Apologies for the previous error.

Please find attached the revised Share Application and Share Transfer Forms to be used.

Again, this email is suggestive of MSL drafting, or at least settling, the application forms.

153    On 6 October 2011, Dr Biswas, using the letterhead of Astra Mining, sent an email to Ms Lim asking her to send him the “final share appl forms”. Ms Lim responded on the following day, attaching what she described as “the final Share Application Forms for Astra Consolidated Nominees Pty Ltd and Kea Funds Corporate Pty Ltd”. These were different versions again. Neither contained the endorsement “Foreign Investors Only”. That which related to Kea Funds provided for cheques and bank drafts to be payable to “Astra Resources PLC”, whereas that intended for use more generally provided for cheques or bank drafts to be payable to “Astra Consolidated Nominees Pty Ltd”. The form to be used by Kea Funds required it to acknowledge that the applications it had received were pursuant to the “placement agreement” into which it had entered on 5 September 2011, whereas the application intended for more general use did not include that acknowledgement. Both application forms provided for the acknowledgement by investors that they would accept in satisfaction of their application shares in Astra Resources held by Astra Nominees.

154    On 2 November 2011, MSL distributed further revised share application forms. In an email to Ms Adele De Cianni at Astra Resources and Mr Papadopoulos at Aurillia on 2 November 2011 (copied to Dr Biswas and Mr Meerkin), Ms Lim attached an application form. Ms Lim pointed out that it replaced the details of the cheque recipient. This application form was not specific to Kea Funds, asked for cheques or bank drafts to be made payable to the MSL Trust Account, asked for application forms to be returned to Astra Resources PLC at its registered office at North Adelaide, and asked that investor enquiries be made to Astra Resources PLC. It included the same acknowledgment by investors that they would accept in satisfaction shares held by Astra Nominees.

155    Astra Resources’ records indicate that the first transfer of shares to an investor procured by Aurillia occurred on 7 November 2011, so that it is possible that it was made using this revised form, rather than any previous form provided to Aurillia.

156    Also on 2 November 2011, Ms Lim sent by email to Mr Critchley at Kea Funds a revised share application form. Ms Lim pointed out that the alteration was to the details of the cheque recipient, namely, that cheques or bank drafts should be made payable to the MSL Trust Account. Otherwise the form was in the same terms as previously provided to Kea Funds.

157    The next version of the application form was that attached by Ms Giustozzi in an email of 7 May 2012 on the Astra Resources PLC letterhead. As noted previously, Ms Giustozzi described herself as the “Executive Manager – Corporate Services”. Ms Giustozzi said in the email (relevantly):

Please find attached the revised Astra Resources Plc share application form. Please ensure that you discard past application forms.

All shares in Astra Resources PLC are AU$1.00 as of 7th May 2012.

This will be followed up with notification from management.

158    This application form has the curiosity that, although purporting to be an application form for shares in Astra Resources PLC, it required cheques or bank drafts to be made payable to “Astra Mining Pty Ltd – Share Application Account” or for the subscribed monies to be deposited into the Commonwealth Bank Account of Astra Mining. It also specified the issue price per share at $1.00 per share whereas the earlier versions had not stated the issue price. Otherwise it was in the same terms as the last application form distributed. Until 7 May, shares had been issued at a price of $0.50 per share.

159    I note that the broker, David Baird, produced a copy of this version of the application form to ASIC pursuant to a Notice to Produce, from which it can be inferred that it had been distributed to him.

160    In her s 19 examination, Ms Giustozzi said that she had sent her email of 7 May 2012 “probably to all the agents”. Other evidence indicates that, after 7 May 2012, applications for shares were received only from the clients of Mr Baird and of Leisuretime. The inference is open therefore that it was only Mr Baird and Leisuretime to whom Ms Giustozzi had sent the revised application form on 7 May 2012.

161    The last distribution of an application form on which ASIC relied occurred on 12 June 2012. Ms Giustozzi sent an email to an email address which I find was that of Mr Baird using the Astra Resources letterhead and again describing herself as “Executive Manager – Corporate Services”. In the email Ms Giustozzi said (relevantly):

Please ensure the attached revised Share Application Form is the only form used in future. We have made an amendment of the Declaration.

162    The revision was the inclusion of a declaration by investors in the following terms:

I/We further confirm that Astra Resources Plc has not provided me/us with any document that would be required to be given to me/us in accordance with the Companies Act 2006 (UK).

This declaration is not pertinent for present purposes.

163    Dr Biswas also tendered some share application forms, but it is not necessary for present purposes to refer to them.

164    The evidence relating to the application forms was almost entirely documentary. It does not depend upon findings of credit and was not challenged in material respects by the Astra defendants. As noted, their principal contention was that in all material respects they acted upon the advice of Mr Meerkin or others at MSL.

The evidence of investors

165    ASIC led evidence from ten of the approximately 350 investors who had subscribed for shares in Astra Resources between November 2011 and 30 June 2012. Their evidence was provided by way of affidavits. None was required to attend for cross-examination.

166    The following table summarises the evidence of the investor witnesses which is material for present purposes.

167    In all but one case, the application forms used by these investors differed in minor respects from those issued by MSL or Astra Resources to which I have referred above. However, the differences are often matters of format only, or are otherwise immaterial. The inference can be made, and I so find, that the application forms used by these investors also emanated from MSL.

168    The involvement of Troy Beer is explained in the next section of these reasons. He was in effect a sub-agent of Leisuretime.

169    Each of the ten investors deposed to being provided with an application form by the named broker or agent. The inference can be drawn readily that the relevant broker was provided with the application forms by Astra Resources, Astra Nominees or MSL. The very nature of the application forms contemplated that they would be provided to investors.

170    In his evidence, Dr Biswas acknowledged that every investor, and not just those from whom ASIC adduced evidence, must have received a share application form and that there were three sources from which the application form may have been obtained: from one of the brokers; from Astra Resources; or from MSL acting (as he said) on behalf of Astra Nominees.

Broker s 19 examinations

171    ASIC also sought to rely on statements made by two of the brokers (Mr Critchley and Mr Barnett) in their examinations conducted pursuant to s 19 of the ASIC Act.

172    In his examination, Mr Critchley from Kea Funds said that Mr Meerkin “drafted all application forms for us”. Later, Mr Critchley said:

Q:    I think you mentioned the solicitor who drafted the application forms was Barrie Meerkin. Who engaged Barrie Meerkin? Was it Kea or was it Astra Mining?

A:    I’m not sure if he was billing us or not, because I know that when Robbie passed away they sent us a bill for legal work, but I think they were employed by Astra and, whenever Robbie or I had questions, we’d ring Jaydeep and he’d just say to us, “Ring and speak to Barrie. Barrie will clear it up”. So whenever we had queries or questions or anything from investors, we’d just ring and speak to Barrie. And then any of the forms and stuff we needed would come from Barrie.

Q:    Those forms would be sent to you directly from Barrie Meerkin. Is that right?

A:    Yep, yep.

I am satisfied that the reference to “Robbie” in Mr Critchley’s answer was to Mr Robert Keir and that the reference to Jaydeep was to Dr Biswas.

173    Mr Critchley also confirmed receiving a revised version of the application form after the share swap on 8 September 2011 which indicated that it was an application form for Astra Resources PLC.

174    In his s 19 examination, Mr Barnett explained his approach to potential investors:

I would let them know that I had an agency agreement with a company called Astra and that I was assisting them in raising capital ... I would give them an overview verbally and then, to the extent that they were interested in finding out more, I would – and if it was face to face, I would have what I believed were the approved documents from MS Lawyers on my computer and I’d show them either some or all of them, but if it was over the phone I would just send it through to them digitally for them to review ... and to the extent that they had any other – any outstanding questions, I would generally as a focal point direct them back to Jaydeep, if there was anything I was unclear about or that I needed clarification on ... and on occasion we would even have a three-way conversation ... with the potential investor, Jaydeep and myself.

Again, I am satisfied that the Jaydeep to whom Mr Barnett referred was Dr Biswas.

175    Mr Barnett also explained his relationship with Mr Beer to whom the investors Funnell, Earnshaw, Gallen and Stark had referred. He said that he had engaged Mr Beer to make introductions of potential investors to him. In addition, he had provided Mr Beer with application forms which, he said, had all come from Astra or its lawyers.

176    Mr Barnett confirmed that he had himself sent application forms to investors and that he had received application forms from Ms Giustozzi.

177    I agree that this material is relevant to the issue concerning the distribution of share application forms. It was admitted without objection by the Astra defendants. However, the material is hearsay and cannot be regarded as admissions of Astra Resources. ASIC did not attempt to justify the admission of the evidence pursuant to s 77 of the ASIC Act. It relied instead on s 79. It had given the notices to which s 79 refer and not received any responses. ASIC contended that this being so, the specified portions of the s 19 examination transcripts of which it had given notice could be admitted present to s 79.

178    ASIC’s submissions assumed that s 79 is a freestanding means by which statements made at a s 19 examination may be admitted as evidence. That view is open, but an alternative view of s 79 is that it is in the nature of a facilitative provision, that is to say, that it provides a procedure by which statements at s 19 examinations which are otherwise admissible may be proved at trial.

179    The Court did not hear any submissions about these issues. In that circumstance, I would prefer not to express a concluded view. The absence of objection by the Astra defendants to the material being admitted into evidence means that the Court can act on the statements of Mr Critchley and Mr Barnett, without deciding the effect which arises under s 79.

Direct distribution to one investor?

180    ASIC submitted that the evidence of an eleventh investor, Mr Chen, indicated that in October 2011 he had been provided with an application form by email from Ms Giustozzi. In his affidavit, Mr Chen does make a statement to that effect. However, Mr Chen also said that he did not have a copy of Ms Giustozzi’s email. He did not explain why that was so given that he did exhibit to his affidavit another email from Ms Giustozzi dated 5 October 2011 by which she provided to him a “Stock Transfer Form” in relation to an earlier purchase.

181    I consider that, while there is little reason to doubt Mr Chen’s evidence, it is not appropriate to make a finding of direct distribution by Astra Resources of an application form on the basis of it. The potential for some confusion on Mr Chen’s part cannot be overlooked.

Other acts of distribution

182    Nevertheless, the evidence indicates that Astra Resources did distribute application forms for the offer of shares in itself.

183    First, I refer to the emails sent by Ms Giustozzi on 7 May 2012 and 12 June 2012 referred to earlier. Ms Giustozzi said in each that she was attaching “revised” share application forms and gave instructions as to their use. There is no reason why Ms Giustozzi’s conduct should not be attributed to Astra Resources: she sent the emails on Astra Resources’ letterhead; used an Astra Resources email address from which to send the emails; and described herself in the emails as “Executive Manager – Corporate Services”.

184    As noted earlier, Mr Barnett from Leisuretime confirmed in his s 19 examination that he had received application forms from Ms Giustozzi.

185    Next, ASIC relied upon Astra Resources’ own records of the share transactions. As noted earlier, the spreadsheet maintained by Ms Giustozzi included the identity of the “Capital Raiser” being the broker who had procured the investment. In 19 cases, Ms Giustozzi included the entry “In-house” in the Capital Raiser column. In relation to these entries, Dr Biswas gave the following evidence:

Q:    Now, does that mean that this was a pre-existing investor who received an application form direct from Astra Resources?

A:    That could’ve been. I mean, I – I – I can’t identify each one in turn.

Q:    Yes?

A:    And there’s only two scenarios. That would be an investor who was a shareholder of Astra Mining prior to roll up who came back for more shares, and they contacted the company because they didn’t have a relationship with a broker.

Q:    Yes?

A:    Or secondly, for some reason which is not normal – let’s say, an investor contacted the company, and we had the forms, and despite the evidence that you pointed to, we had the tacit approval of Mr Meerkin of Astra Consolidated Nominees to hand out those forms if we were contacted.

This evidence was an acknowledgement by Dr Biswas that Astra Resources had issued share application forms directly to some investors.

186    Dr Biswas also said:

Astra Resources had permission from Michael Sing Lawyers from the share application forms that, if investors contacted our office, they could provide the forms, with the condition of the exception that there was no disclosure documents.

187    By this evidence, Dr Biswas appeared to be suggesting that Astra Resources and its employees had merely acted on behalf of Astra Nominees or MSL when it had distributed the forms. This view of the matter, even if accepted, would not avail Astra Nominees. As the decision in Axis International Management referred to earlier indicates, a person may distribute application forms for the purposes of s 727(1) even when the person is acting as an agent without knowledge that the offers to which the application forms relate require a disclosure under Pt 6D.2.

188    Generally, Dr Biswas was not willing to acknowledge in his cross-examination that Astra Resources had distributed share application forms. He attributed this to the fact that it had been done by MSL or by Astra Nominees and neither he nor Ms De Cianni had been directors of Astra Nominees.

189    However, Dr Biswas did make the following acknowledgements:

Q:    Do you say you played no part at all in the production and distribution of those forms, you personally?

A:    No. I – I – I am sure I emailed forms from Mr Meerkin to people who requested them.

...    

Q:    I want to clarify your answer to my question. Your answer to my question is yes, you personally did play a part in the distribution of those forms?

A:    For Astra Consolidated Nominees, I ...

Q:    But you weren’t an officer or a director of Astra Nominees, were you?

A:    We – no. I wasn’t. But Mr Meerkin gave authority to pass those forms. And then the affidavits – if my – if the affidavits are allowed into evidence later, they described the process.

...

Q:    You say ... Mr Meerkin authorised you to act on behalf of Astra Nominees?

A:    Yes.

Q:    Okay. When and how did he do that?

A:    Well, from 8 September 2011, when they distributed and we received emails from the law firm saying, “These forms can be sent to investors”. There – there’s any number of emails from Lenice Lim and Barrie Meerkin to the company.

190    As can be seen, in these passages Dr Biswas admitted that he had emailed application forms provided by Mr Meerkin or Ms Lim to people who had requested them but said, that in doing so, he had been acting on behalf of Astra Nominees. He said that Astra Nominees had provided an authority for him to do so by the emails from Mr Meerkin and Ms Lim at MSL which had stated, in effect, that the forms could be sent to investors.

191    When challenged, Dr Biswas was not able to identify any email which, in terms, granted him an authority to act on behalf of Astra Nominees in distributing forms. Instead, the emails are more consistent with the retained legal advisors telling Dr Biswas and others at Astra Resources that the forms which they attached could be distributed in the sense that they were satisfactory. It was in that sense that Mr Meerkin and Ms Lim “authorised” their use.

192    In any event, as already noted, a finding that Astra Resources distributed the forms for and on behalf of Astra Nominees would not really avail it. I note again that a person may distribute forms for the purposes of s 727(1) of the Act even if the person does so as the agent of another.

193    Dr Biswas also acknowledged that he had known that application forms were being sent to brokers and that the brokers would then be forwarding the forms to investors.

194    Much of Dr Biswas’ evidence that MSL was acting on behalf of Astra Nominees in the conduct said to comprise Astra Resources’ distribution of share application forms, was based on the circumstance that Mr Meerkin and Ms Lim, both employed lawyers at MSL, were also the directors of Astra Nominees. This had the effect, his evidence and submissions supposed, that the conduct of Mr Meerkin and Ms Lim, instead of being conduct of MSL in the discharge of a solicitor-client retainer, was instead conduct of Astra Nominees. Whilst this characterisation of the circumstances may not be impossible, it does seem implausible. It would involve accepting that Mr Meerkin and Ms Lim, as employed lawyers, had engaged in a considerable amount of activity in work time, and had used MSL facilities and letterhead, in pursuit of their own interests as directors of Astra Nominees, rather than in work for which MSL had been retained.

195    There is a considerable amount of evidence indicating that MSL had a retainer at relevant times for Astra Resources. It may also have had a retainer with Astra Nominees as a letter from MSL to Dr Biswas on 27 September 2011 indicates that MSL sought a signed costs agreement with Astra Nominees. The evidence does not include the response, if any, of Dr Biswas to MSL’s letter so that it is unclear whether Dr Biswas was making relevant decisions for Astra Nominees.

196    The evidence of an underlying retainer of MSL by Astra Mining and Astra Resources includes the following. Mr Meerkin was introduced at the extraordinary general meeting of Astra Mining Ltd on 15 June 2011 as a solicitor. He cannot then have been engaged at that time by Astra Nominees as it had not yet been incorporated.

197    Next, there is Mr Meerkin’s correspondence of 23 December 2011 to the Morgan Stanley Financial Advisor and his correspondence of 21 March 2012 to Mr Konjevic to which I referred earlier. As noted, Mr Meerkin described himself in each letter as “Legal Counsel for Astra Resources Plc”. There are other examples of this description in the evidence.

198    Dr Biswas tendered a letter from MSL signed by Mr Meerkin and dated 12 October 2012 which was addressed to Ms De Cianni and himself. In that letter, Mr Meerkin identified the matters on which MSL was presently acting, or on which it had acted in the 2012 financial year, for members of the Astra Group of Companies. MSL’s work for Astra Nominees was described as comprising only “General Corporate Advice”, whereas Mr Meerkin recorded an extensive range of work for Astra Resources. This included “General corporate advice in the day to day operations of the company”.

199    This letter suggested MSL may have been retained contemporaneously by both Astra Resources and Astra Nominees. It also suggests that there would be some artificiality in concluding that, in preparing and distributing the application forms, MSL was acting solely for Astra Nominees.

200    The objective circumstances all point to MSL acting at least principally on behalf of Astra Resources when preparing and distributing the application forms directly to brokers. Those objective circumstances include:

(a)    It was Astra Resources which was seeking to raise working capital from investors by having them purchase shares. It was the entity which stood to benefit from the arrangements;

(b)    Astra Nominees did not stand to benefit in any way from the sale of the shares. It was a bare trustee having only a legal interest in the Astra Resources shares it held, and was obliged to act in accordance with Astra Resources’ instructions. None of the share subscription agreements provided for Astra Nominees to be remunerated for its activities as trustee. From Astra Nominees’ perspective, it was a matter of no moment whether any of the Astra Resources shares it held were sold;

(c)    It was Astra Resources and not Astra Nominees which was party to several of the contracts with the brokers. That made it natural for Astra Resources to have a significant interest in the brokers being provided with application forms for their use and to have retained MSL for that purpose;

(d)    Astra Nominees had no participation in the appointment of the brokers and some (Aurillia, Kea Funds and Oxcorp in its first appointment) were appointed even before its incorporation;

(e)    Astra Resources involved itself in the interactions with brokers as is evidenced by the response of Dr Biswas and Ms Adelde De Cianni to Mr Critchley’s query of 5 October 2011 and by Ms Giustozzi’s communications of 7 May 2012 and 12 June 2012;

(f)    MSL provided copies of the respective application forms to Astra Resources. It is theoretically possible that it did this only so that Astra Resources could exercise some general oversight or so that it could be aware of what was happening but, in context, this seems unlikely. It is much more consistent with Astra Resources having engaged MSL to prepare and revise the application forms;

(g)    It was Dr Biswas who, on 20 December 2011, sought advice from Mr Meerkin as to matters bearing upon the lawfulness of the share offers. It was very evident that he was doing so on behalf of Astra Resources, and not Astra Nominees.

201    Having regard to all these matters, I am satisfied that MSL was acting at least partly on behalf of Astra Resources when it provided the share application forms to the brokers. It was acting in that respect as agent of Astra Resources. Alternatively, in the language of s 52 of the Act, Astra Resources had caused or authorised its conduct so that the distributions by MSL were distributions by Astra Resources.

202    ASIC submitted that the Court should draw the inference that each of the investors recorded in Astra’s own records as having invested through an identified “Capital Raiser” had received an share application form from the identified broker and that, in turn, the broker had received the share application forms directly from Astra Resources or from MSL on its behalf. Although the evidence did not disclose the precise source of the information for the record made by Astra Resources of the pertinent Capital Raiser in each case, I consider it appropriate to infer that the investors did receive the application form they used from the identified broker. That is consistent with normal practice. The evidence of the individual investors adduced by ASIC confirms that that is what occurred in their respective cases.

203    I also accept ASIC’s submission with respect to the means by which the brokers obtained the application forms. I find that the application forms were provided to the brokers either directly by Astra Resources or by MSL on its behalf.

204    Although the evidence does not establish an express authorisation of MSL by Astra Resources to provide application forms on behalf of Astra Resources, I consider, for the reasons given earlier, that such an authority can be inferred. As already noted, MSL did issue application forms to brokers and did so with the knowledge of Dr Biswas, Ms De Cianni and others in Astra Resources. There is no suggestion in the evidence that any action was taken to preclude it from doing so. On the contrary, by communications to which I have already referred, Astra Resources seems to have implicitly ratified the conduct of MSL.

205    In these circumstances, I think it likely that most of the investors who applied for shares through the medium of a broker, did so on forms which Astra Resources had itself distributed or which it had authorised to be distributed to the brokers.

206    ASIC submitted a different basis on which this conclusion could be reached. It contended that the evidence disclosed that there was an accepted practice between Astra Resources and MSL with respect to the distribution of application forms from which an inference as to conduct in a particular case could be drawn. He referred in this respect to Palios Meegan & Nicholson Holdings Pty Ltd v Shore [2010] SASCFC 21; (2010) 108 SASR 31 at [81]-[84] and the authorities therein reviewed. I am not prepared to act on that submission. I consider that it would be necessary to have much more detailed evidence about the “practice” before drawing this inference.

Summary on distribution by Astra Resources

207    Accordingly, I am satisfied that Astra Resources has distributed application forms for the offer of shares in itself. It did so by the conduct of Ms Giustozzi in distributing application forms to agents, by its provision of application forms to the 19 investors who enquired about the purchase of shares directly to Astra Resources (the so called in-house applicants) and by its distribution, whether directly or by MSL, of application forms to the brokers appointed to procure applications for shares in Astra Resources.

Did Astra Nominees make offers of securities?

208    ASIC contended that Astra Nominees had made offers for sale of securities of the kind contemplated by s 727(1).

209    In the facts which Mr Meerkin agreed with ASIC, he acknowledged that Astra Nominees had made offers to sell the shares which have been issued to it pursuant to the share swap arrangements and the share subscription agreements. Again, that agreement does not bind the remaining defendants.

210    ASIC referred to s 700(3) of the Act which provides:

(3)    For the purposes of this Chapter, the person who offers securities is the person who has the capacity, or who agrees, to issue or transfer the securities if the offer is accepted.

ASIC submitted that Astra Nominees was the entity which had the capacity to transfer the shares if the offers were accepted and, or in the alternative, which had agreed to transfer the shares if the offer was accepted. That agreement was said to be implicit in the obligations which Astra Nominees had accepted under the share subscription agreements.

211    ASIC went further and submitted that Astra Nominees was the only person with the capacity to which s 700(3) referred because it was the only entity which could transfer the shares.

212    There is force in that submission. Astra Resources seems to have accepted that it could not itself issue shares to investors until its listing on the FSE had been achieved. The raising of capital through the medium of Astra Nominees was the means by which it had sought to overcome that restriction. Astra Resources and Astra Nominees appear to have thought, mistakenly, that the raising of capital through transfers of shares from Astra Nominees was not the subject of any relevant restriction.

213    I accept that Astra Nominees was an entity which, at relevant times, had the capacity to transfer shares if the investors’ offers were accepted. That is an important consideration in determining whether Astra Nominees had made offers of securities to which s 727(1) refers.

214    However, s 727(1) requires that there be conduct amounting to the making of an offer of securities, and not merely the capacity to transfer the shares if the offer is accepted. It would be doubtful that Astra Nominees had breached s 727(1) merely by acting as some form of stakeholder or repository of shares in Astra Resources to which Astra Resources had resort when it obtained a purchaser.

215    However, Astra Nominees’ role appears to have extended beyond this form of passive involvement. At the very least, in the terminology of s 52 of the Act, it can be said that it authorised the distribution of the share application forms by Astra Resources. As noted earlier, each of the share application forms provided for an express acknowledgement by investors that their application could be satisfied by transfers from Astra Nominees. Some of the application forms provided in addition for payment to Astra Nominees. The knowledge of Mr Meerkin and Ms Lim about these matters can reasonably be attributed to Astra Nominees. Accordingly, Astra Nominees can be taken to have authorised the inclusion of these terms and implicitly the distribution of the forms with these terms.

216    By allowing the printed acknowledgement to be included in the application forms and by allowing their distribution, I consider that Astra Nominees indicated that it was offering for sale its shares in Astra Resources to investors. It is pertinent in this respect, in my opinion, that the terms of the acknowledgement required of investors tended to convey that Astra Nominees was not seeking opportunistically to rid itself of unwanted shares but was instead a detached trustee offering shares which it held only for the purpose of Astra Resources capital raising purposes. This implicit representation adds to the impression that Astra Nominees was making an offer to sell its Astra Resources shares.

217    ASIC submitted in addition that the conduct of MSL in distributing the share application forms could also be attributed to Astra Nominees and that that too constituted the making of offers by it. It pointed out that it is possible for a person to engage in conduct in more than one capacity, and submitted that that is what had occurred here. This meant, it said, that the conduct of Mr Meerkin could be attributed to both Astra Resources and Astra Nominees and that the conduct of Ms Lim could be regarded as carried out both in her capacity as director of Astra Nominees and her capacity as solicitor in MSL for Astra Resources. To my mind, this involves a quite strained appreciation of the circumstances presently and I am not prepared to adopt it.

218    It is much more natural to attribute to Astra Nominees the knowledge of Mr Meerkin and Ms Lim that application forms were being distributed, that they expressly contemplated Astra Nominees transferring its shares, and that Astra Nominees would in some cases receive the payments paid in consideration of the shares. That is to say, it is appropriate in these circumstances to regard Astra Nominees as having knowledge that Astra Resources was distributing application forms for the offers of shares which it (Astra Nominees) held and that it was willing for that to occur. In fact, Astra Nominees ratified the conduct of Astra Resources by transferring the shares to the purchasers. By this conduct, it authorised the distribution of the share application forms and thereby offered for sale the shares it held.

219    There is no incongruity in concluding that this conduct amounts to the making of offers for sale of shares by Astra Nominees. A person may make an offer of shares by allowing others to distribute application forms for shares which it holds, especially when it is on terms that payment for the shares should be made to it. That is particularly so when the person later acts in accordance with the intimation it had given by transferring to purchasers the shares which it does hold.

220    Two further matters are pertinent. The first is s 700(2) of the Act which provides that “offering securities for sale includes inviting offers to purchase the securities”. Astra Nominees’ conduct answers that description.

221    The second is the admissions contained in Mr Meerkin’s correspondence. In his letter of 21 December 2011 to Dr Biswas and Ms De  Cianni and in his suggested response to the Morgan Stanley financial advisor to which I referred earlier, Mr Meerkin referred to the “sales” of the shares by Astra Nominees and to the shares being “sold off” by Astra Nominees. These admissions reflect an understanding of the position which I consider to be correct. Astra Nominees was selling the shares it held in Astra Resources through the medium of the brokers appointed by Astra Resources. It was making offers of those shares, in the sense contemplated by s 727(1) by this means.

222    Accordingly, I accept ASIC’s submission that Astra Nominees has made offers to sell securities in the sense contemplated by s 727(1) and s 707(3).

Did the offers of securities require disclosure under Pt 6D.2?

223    I have already indicated my satisfaction that s 707(3) was engaged in this case. This means that unless any of the exemptions for which s 708 provides are applicable, disclosure under Pt 6D.2 was required.

224    This makes it necessary to have regard to the Astra defendants’ plea that several of the s 708 exemptions are applicable. At a time when the Astra defendants were represented, they provided a document purporting to particularise their claim concerning the s 708 exemptions. This document was not adequate for that purpose but appeared to indicate a claim that the financial services licensee exemption for which subs (10) provides was applicable.

225    The Astra defendants have the onus of establishing that one or other of their pleaded exemptions is applicable: Australian Securities and Investments Commission v Cycclone Magnetic Engines Inc [2009] QSC 58; (2009) 71 ACSR 1 at [40].

226    Some of these pleas can be addressed only briefly because it is obvious that they have no application.

Small scale offerings

227    ASIC submitted that the Astra defendants’ pleaded reliance on s 708(5)(b) in relation to small scale offerings was a matter of no moment because it is concerned with the manner of application of subs (1), which the Astra defendants do not rely upon. Further, and in any event, the offers to investors did result in breaches of the 20 investors ceiling and the $2 million ceiling for which subs (1) provides. Further still, none of the offers on which ASIC relies related to offers received outside Australia.

228    I accept each of ASIC’s submissions about those matters.

Sophisticated investors

229    Section 708(8) provides that an offer of securities does not need disclosure to persons with substantial assets or substantial income (referred to as “sophisticated investors”). The exemption applies if the minimum amount payable for the shares on acceptance of the offer is at least $500,000, or the total which will be paid by the investor for shares of the same class is at least $500,000, or when an accountant has certified that the investor has either a minimum income or holds minimum assets in amounts specified by regulation.

230    The application forms relating to Astra Mining which were sent by Mr Meerkin to Dr Biswas and Ms De Cianni on 29 August 2011, to which I referred above, were seemingly drafted so as to attract the exemption in s 708(8). Investors were required to certify that their applications for shares were being made in accordance with s 708(8) of the Act and to provide a warranty that they were a “sophisticated investor” pursuant to that section. The application form contained, for the convenience of investors, the relevant portions of s 708(8) in order to assist their understanding of the concept of a “sophisticated investor”. Further still, the application forms to be used in Australia (but not those for foreign investors) included a pro forma certificate to be completed by an accountant certifying as to the matters specified in s 708(8)(c).

231    However, these provisions concerning the sophisticated investor exemption were not included in the later application forms issued with respect to Astra Resources. Nor was any pro forma accountant’s certificate sought or obtained.

232    The explanation for that may be a mistaken view that the Act did not apply to the shares in Astra Resources held by Astra Nominees which were being offered for sale. Mr Meerkin articulated this view in his email of 21 December 2011 to Dr Biswas and Ms De Cianni:

As Astra Resources PLC is a UK registered company, which is listed on the Frankfurt Stock Exchange, it is not governed by the Corporations Act 2001 (Cth) but the Companies Act (UK) 2006, and the listing rules of the Frankfurt Stock Exchange.

There is no need for Astra Resources PLC to maintain the relationship with an Australian Financial Services License holder, as it is neither an Australian company, nor is it issuing any shares or transferring any shares in the Australian jurisdiction for any securities for which the provisions of the Corporations Act 2001 relate.

It is only ACN which is selling, and not issuing shares, to third parties for its shareholding in Astra Resources PLC. It is entitled to sell such shares in the listed entity off market at whatever price it commercially agrees with any purchaser, despite the on market price of the securities of the Frankfurt Stock Exchange.

233    In giving this advice, Mr Meerkin overlooked the effect of s 700(4) of the Act, which provides:

(4)    This Chapter applies to offers of securities that are received in this jurisdiction, regardless of where any resulting issue, sale or transfer occurs.

As the shares were being offered in Australia to Australian investors, Pt 6D.2 was applicable, and its provisions could not be ignored.

234    Each of the investor witnesses from whom ASIC adduced evidence deposed to matters indicating that they were not “sophisticated investors” and that they had not provided any accountant’s certificate when subscribing for their shares.

235    Having regard to the descriptions of the investors, and the amounts they subscribed for shares, as recorded by Astra Resources in its record, it is probable that very few, if any, could have satisfied the definition in s 708(8) of a sophisticated investor.

236    In these circumstances, the Astra defendants have not established that the s 708(8) exemption is applicable.

Offers through a financial services licensee?

237    Next, the Astra defendants pleaded s 708(10) which establishes an exemption in respect of offers made through a financial services licensee when the licensee is satisfied on reasonable grounds that the investor has previous experience investing in securities which allows them to make an assessment of the merits and risks involved in the proposed investment.

238    As noted, each of the application forms required investors to confirm that they had previous experience in investing in financial products sufficient to allow them to make their own assessment of the merits of an investment in Astra Resources and the risks associated with it.

239    However, that was not sufficient to attract the operation of s 708(10). Subpara (c) requires in addition that the licensee give the investor, before or at the time the offer is made, a written statement of the licensee’s reasons for being satisfied about the investor’s previous experience and ability to assess the merits of the offer, and subpara (d) requires the investor to provide a signed acknowledgement before, or at the time when, the offer is made that the licensee has not given the investor a disclosure document under Pt 6D.2 in relation to the offer.

240    Those things did not occur in the present case. Each of the investors from whom ASIC adduced evidence deposed that they had not been given the written statement contemplated by subs (10)(c) and that they had not signed an acknowledgement of the kind contemplated by subpara (d). There is no evidence in any of the extensive material tendered by ASIC that these conditions were satisfied in relation to any one investor at all.

241    The mistaken view that the Act did not apply to the share offers provides an explanation for there having been no attempt to comply with the requirements of s 708(10). The Astra defendants’ reliance on the exemption in s 708(1) fails.

Professional investors

242    The Astra defendants did not point to any evidence indicating that this exemption (under s 708(11)) was applicable. Again, the descriptions of the investors and the amounts they invested as recorded by Astra Resources itself do not suggest that the purchasers of the shares could be characterised as “professional investors”. The evidence of each of the 10 individual investors indicates that they could not be regarded as “professional investors”.

Offers to associated persons?

243    Section 708(12) exempts an offer from the requirement for disclosure if it is made to a senior manager of the body or a related body or their spouse, parent, child, brother or sister or to a body corporate controlled by one of these persons.

244    The evidence did not establish that this exemption had any application in the present case.

Summary

245    I am accordingly satisfied that none of the exemptions for which s 708 provides are applicable. This has the effect that the offers of the shares in Astra Resources did require disclosure. That is a consequence of s 706 and s 707(3) of the Act.

246    As already noted, it was common ground that no disclosure document had ever been lodged with ASIC, and that was established in any event by ASIC’s evidence.

247    This means that ASIC has made good its claims that each of Astra Resources and Astra Nominees contravened s 727(1).

Declarations

248    ASIC seeks declarations by the Court as to the found contraventions.

249    The Court’s power to grant declarations under s 21 of the Federal Court of Australia Act 1976 (Cth) is discretionary. The authorities establish that a number of matters bear upon the exercise of discretion involved, including the public interest in this Court expressing its disapproval of conduct in disregard of the requirements of the Act, especially those requirements having a protective purpose; the public interest in promoting law enforcement by communicating to the defendants and to the public in a clear and concise way that the conduct involved did contravene s 727(1); and a warning to others about the need to provide disclosure when offering shares for sale, or distributing application forms for an offer of shares, to investors: Axis International Management Pty Ltd (No 5) at [283]-[284]; Australian Securities and Investments Commission v Stone Assets Management Pty Ltd [2012] FCA 630, (2012) 205 FCR 120 at [40]-[42].

250    Declarations are appropriate in the present case. They will constitute a clear finding of the contravening conduct of the defendants and will mark the Court’s disapproval of their behaviour. It is appropriate that those involved in making offers of shares to the public and in distributing applications for the offer of shares comply with the requirements of the Act, and the making of the declarations should reinforce that obligation.

251    Subject to hearing from the parties in relation to the precise terms, I will make declarations in the form proposed by ASIC.

Other relief

252    As noted earlier, I did during the trial accede to ASIC’s application that the Court hear and determine in the first stage of the trial all aspects of its claim other than that arising under s 206E(1)(b), namely, whether the Court is satisfied that disqualification of the individual defendants is justified. However, on reflection I consider it appropriate for all the remaining issues to be addressed in the second stage of the trial.

253    In part that is because the Court did not receive submissions from the Astra defendants regarding ASIC’s claims for publicity orders and orders under s 1101B of the Act concerning the voidability of the share purchases. That may have been because the Astra defendants were unrepresented.

254    The Astra defendants brought upon themselves the circumstance that the trial proceeded in part in their absence and in part while they were unrepresented. They did not give proper attention to the preparation of the matter for trial, despite having had some six months’ notice of the trial, and despite having had nearly the whole of ASIC’s evidence for some three months prior to trial. They made belated and inadequate applications for adjournments. Nevertheless, as there must be a second stage in the trial in any event, the defendants can be given a further opportunity to be heard in relation to the remaining issues without unduly prolonging the proceedings.

Summary

255    For the reasons given above, I will, subject to hearing from the precise terms, make declarations to the effect sought by ASIC.

256    I will hear from the parties further as to the remaining issues in the trial.

Associate:

Dated:    24 July 2015