FEDERAL COURT OF AUSTRALIA

MLC Limited, in the matter of MLC Limited [2006] FCA 1357

CORPORATIONS – validation of irregularities – not limited to procedural irregularities

Corporations Act 2001 (Cth), ss 259C, 259E, 1322(4)(a), s 1322(6)

Australian Hydrocarbons NL v Green (1985) 10 ACLR 72 referred to

Commissioner of Taxation v Comcorp Australia Ltd (1996) 70 FCR 356 discussed

Cordiant Communications (Australia) Pty Ltd v Communications Group Holdings Pty Ltd (2005) 194 FLR 322; (2005) 55 ACSR 185 cited

Jordan v Avram (1997) 141 FLR 275; (1997) 25 ACSR 153 cited

Re Commonwealth Bank of Australia (2005) 57 ACSR 28 cited

Re Westpac Banking Corporation (2004) 53 ACSR 288 followed

IN THE MATTER OF MLC LIMITED, MLC LIFETIME COMPANY LIMITED, NATIONAL AUSTRALIA FINANCIAL MANAGEMENT LimiTeD AND MLC INVESTMENTS LIMITED

MLC LIMITED (ABN 90 000 000 402), MLC LIFETIME COMPANY LIMITED (ABN 94 000 000 420), NATIONAL AUSTRALIA FINANCIAL MANAGEMENT

LIMITED (ABN 56 000 176 116), MLC INVESTMENTS LIMITED (ABN 30 002 641 661), NATIONAL AUSTRALIA BANK LIMITED (ABN 12 004 044 937) AND NATIONAL NOMINEES LIMITED (ABN 51 004 278 899)

NSD 1984 OF 2006

GYLES J

18 OCTOBER 2006

SYDNEY

IN THE MATTER OF MLC LIMITED, MLC LIFETIME COMPANY LIMITED, NATIONAL AUSTRALIA FINANCIAL MANAGEMENT LimiTeD AND MLC INVESTMENTS LIMITED

REASONS FOR JUDGMENT

1                     On 17 October 2006, orders were made pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) (the Act) validating certain transactions entered into in breach of s 259C of the Act. These are the reasons for those orders.

2                     Part 2J.2 of the Act deals with self-acquisition and control of shares. Section 259C of the Act deals with the topic of issuing or transferring shares to a controlled entity. Section 259E sets out when a company controls an entity. Section 259C(1) of the Act provides that the issue or transfer of shares (or units of shares) of a company to an entity it controls is void with exceptions which are immaterial to the present case. Section 259C(2) of the Act provides that the Australian Securities and Investments Commission (ASIC) may exempt a company from the operation of the section. The exemption has to be in writing and may be granted subject to conditions.

3                     For relevant purposes, National Australia Bank Limited (NAB) (the fifth plaintiff) controls each of the other plaintiffs. Those companies are all involved in acquiring shares listed on the Australian Stock Exchange in the course of management of funds of various kinds for the benefit of others including life insurance. ASIC provided the NAB group with an exemption from the operation of s 259C(2) of the Act by virtue of an exemption dated 29 June 2000 and varied on 1 August 2000. The first problem was that the exemption expired on 29 June 2001 and was not renewed until 10 April 2003. The plaintiffs acquired a large volume of shares in NAB during the period in which there was no exemption in force.

4                     I am satisfied that the circumstances are appropriate for an order to be made pursuant to s 1322(4)(a) (Re Westpac Banking Corporation (2004) 53 ACSR 288; and Re Commonwealth Bank of Australia (2005) 57 ACSR 28) if the plaintiffs satisfy the conditions in s 1322(6).

5                     I am satisfied that the failure to renew was due to inadvertence. The relevant circumstances were disclosed to ASIC in the course of applying for the further exemption, which came into force on 10 April 2003. I am satisfied that the failure to seek orders pursuant to s 1322 of the Act prior to this application was also due to inadvertence. I am satisfied that there was no failure to act honestly. I am also satisfied that prejudice would be occasioned to the plaintiffs and/or the ultimate beneficiaries of funds involved if an order were not made. I am also satisfied that no substantial injustice has been or is likely to be caused to any person by the making of the orders.

6                     I would require persuasion, however, that that which is to be regularised is ‘essentially of a procedural nature’ within the meaning of s 1322(6)(a)(i). If it is not, then the question arises as to whether the conditions set out in s 1322(6)(a) are cumulative in whole or in part, or independent. The section is as follows (so far as is relevant):

‘(6) The Court must not make an order under this section unless it is satisfied:

(a) in the case of an order referred to in paragraph (4)(a):

(i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature;

(ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or

(iii) that it is just and equitable that the order be made; and

…

(c) in every case—that no substantial injustice has been or is likely to be caused to any person.’

7                     In Commissioner of Taxation v Comcorp Australia Ltd (1996) 70 FCR 356 Sheppard J (at 373E) (in dissent as to the result) expressed the opinion that only irregularities of a procedural kind are able to be cured by s 1322. Carr J (with whom Lockhart J agreed) seemed to proceed upon the same basis but took a wide view of matters which were essentially of a procedural nature (398–400). The issue that arises here does not appear to have been argued.

8                     In Jordan v Avram (1997) 141 FLR 275; (1997) 25 ACSR 153 Gillard J accepted that the conditions are not cumulative, relying upon Australian Hydrocarbons NL v Green (1985) 10 ACLR 72 at 83, but without noticing Comcorp. I have difficulty in seeing how the decision of Hodgson J in Australian Hydrocarbons establishes the proposition in question. However, in Re Westpac Banking Corporation, Emmett J, having referred to Comcorp, said (at [27]):

‘I consider that the syntax of s 1322(6)(a) is quite clear in contemplating that only one of the three paragraphs of s 1322(6)(a) needs to be satisfied in order to authorise the making of an order.’

9                     In Cordiant Communications (Australia) Pty Ltd v Communications Group Holdings Pty Ltd (2005) 194 FLR 322; (2005) 55 ACSR 185, Palmer J expressed the opinion that s 1322(4) can be utilised to validate a substantive rather than a procedural irregularity ([97] and [134]) without referring to authority.

10                  Whilst the syntax of the provision is not as clear to me as it was to Emmett J, the appropriate course is to follow his Honour’s decision, which was operative in the case before him, rather than what amounts to obiter dicta of the members of the Full Court in Comcorp. Judges of the Supreme Courts of New South Wales and Victoria have taken a view similar to that of Emmett J and consistency of decisions in this area is desirable.

11                  It was appropriate to make the order without any other party being joined. Each of ASIC and Australian Prudential Regulatory Authority (APRA) has been advised about the proceedings and neither has indicated any substantive opposition to the making of the order. There is no other natural contradictor.

12                  There was a second problem. One of the conditions of exemption was that the plaintiffs would not exercise votes attached to NAB shares nor control or influence the exercise of votes attached to NAB shares. This condition was breached on a number of occasions, essentially because of the operation of an automated proxy voting system in relation to the Annual General Meeting of NAB held on 30 January 2006. There have been substantial purchases of NAB shares by the plaintiffs since 30 January 2006.

13                  The relief sought assumes that non-compliance with the condition of exemption results in the exemption ceasing to operate. Emmett J took that view in Re Commonwealth Bank of Australia at [15] and ASIC takes the same view. On that basis, relief pursuant to s 1322(4)(a) is appropriate if the conditions pursuant to s 1322(6) are met. I am satisfied that the casting of the votes did not affect the result of the vote taken upon any resolution. I am satisfied that the relevant non-compliance was inadvertent and that the persons concerned acted honestly. I am satisfied that no substantial injustice has been or is likely to be caused to any person by the making of the order. I am also satisfied that it is just and equitable that the order be made. The conditions pursuant to s 1322(6) are satisfied. I am satisfied that it was appropriate to make the order in the absence of the joinder of another party.

14                  For those reasons I made the orders sought in substance. The orders followed the form of the section by validating the transactions. The effect of those orders is that the transactions are not void.

Associate:

Dated: 18 October 2006