Federal Court of Australia

Locality Planning Energy Holdings Limited, in the matter of Locality Planning Energy Holdings Limited [2020] FCA 1887

ORDERS

THE COURT ORDERS THAT:

1.    In respect of the offer made by Locality Planning Energy Holdings Limited (LPE) to eligible shareholders on 11 August 2020 to subscribe for up to 4,000,000 ordinary fully paid shares in LPE under a share purchase plan:

(a)    pursuant to s 1322(4)(d) of the Corporations Act 2001 (Cth) (the Act), the period of not more than 30 days before the offer, which period is referred to in s 7(f)(i) of the ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547, is extended to 20 August 2020;

(b)    pursuant to s 1322(4) of the Act, a notice to the Australian Securities Exchange Limited (the ASX) under s 708A(5)(e) of the Act, given within the period stipulated in subparagraph (a) above, is deemed to take effect as if it was given not more than 30 days before the offer;

(c)    pursuant to s 1322(4)(a) of the Act, the Court declares that the offer is not invalid by reason of any contravention of ss 706 or 727 of the Act in relation to the offer.

2.    In respect of the 12,000,000 ordinary fully paid shares in LPE which were issued on 12 August 2020 pursuant to a placement:

(a)    pursuant to s 1322(4)(d) of the Act, the period of five business days referred to in s 708A(6)(a) of the Act is extended to 20 August 2020;

(b)    pursuant to s 1322(4) of the Act, a notice to the ASX under s 708A(5)(e) of the Act in respect of the 12,000,000 shares, given within the period stipulated in subparagraph (a) above, is deemed to take effect as if it was given within 5 business days after the date of issue;

(c)    pursuant to s 1322(4)(a) of the Act, the Court declares that any offer for sale, or sale, of the 12,000,000 shares, during the period after their issue to the date of the Court orders, is not invalid by reason of any contravention of ss 707 or 727 of the Act;

(d)    pursuant to s 1322(4)(c) of the Act, any persons to whom any of the 12,000,000 shares were issued, or have been sold, and who have in turn on-sold any of those shares, is relieved in whole from any civil liability in respect of any contravention of ss 707 or 727 of the Act in relation to such sale.

3.    As soon as reasonably practicable after the date these orders are made, LPE is to:

(a)    serve a sealed copy of the orders on:

(i)    the ASX;

(ii)    the Australian Securities and Investments Commission;

(iii)    the persons to whom the shares referred to in Orders 1 and 2 above were issued; and

(b)    publish an announcement to the ASX in which a sealed copy of the orders is included.

4.    For a period of 28 days from the date of publication of these orders on the ASX website, any person who claims to have suffered substantial injustice or is likely to suffer substantial injustice by the making of any or all of the orders has liberty to apply to vary or to discharge them within that period.

5.    No order as to costs.

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

REASONS FOR JUDGMENT

REEVES J:

INTRODUCTION

1    On 11 September 2020, Locality Planning Energy Holdings Limited (LPE) applied on an urgent ex parte basis under s 1322 of the Corporations Act 2001 (Cth) (the Act) for orders directed to remedying its failure to comply with certain provisions of Part 6D.2 of the Act which concern disclosure to investors about securities, as well as the requirements of the ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547 (the Instrument).

2    Because of the need to resolve this issue promptly, I made the orders sought on 11 September 2020 and indicated that I would publish my reasons in due course. The following are those reasons.

FACTUAL BACKGROUND

3    LPE is a publicly listed company on the Australian Securities Exchange (the ASX). Mr Justin Pettettt is the Chairman of its Board of Directors and Mr Daniel Seeney is its Company Secretary. Both Mr Pettettt and Mr Seeney made affidavits in support of this application.

4    In his affidavit, Mr Pettettt described the factual background to LPE’s application in the following terms:

2.    On 5 August 2020:

(a)    [LPE] announced:

i.    a placement to institutional / sophisticated / professional investors to raise $3 million through the issue of 12,000,000 fully paid ordinary shares in LPE at an issue price of $0.25 (Placement); and

ii.    a share purchase plan offer to eligible shareholders to raise up to $1 million through the issue of 4,000,000 fully paid ordinary shares in LPE at an issue price of $0.25 (SPP).

(b)    [LPE] lodged an Appendix 3B (Proposed issue of securities) in connection with the Placement and the SPP on the ASX.

…

3.    On 11 August 2020, [LPE] issued an offer booklet in relation to the SPP. Exhibited hereto and marked “JP-4” is a true copy of an announcement released by [LPE] on the ASX entitled “Share Purchase Plan Offer Booklet” dated 11 August 2020. Inadvertently, the offer was made prior to the issue of a cleansing notice in connection with the Placement due to a misinterpretation of the requirements under the ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547.

4.    On 12 August 2020, LPE issued 12,000,000 fully paid shares to participants under the Placement.

…

6.    On 20 August 2020, being the sixth business day after the issue of the Placement shares:

(a)    [LPE] lodged an Appendix 2A (Application for quotation of securities) in connection with the Placement;

(b)    [LPE] lodged a notice under section 708A(5)(e) of the Corporations Act 2001 (Cth) in connection with the Placement (Cleansing Notice).

…

7.    Between 12 August 2020 and 20 August 2020, there were trades in respect of some of the shares issued under the Placement. Exhibited hereto and marked “JP-7” is a true copy of a movements report, which I obtained from [LPE’s] share registry. The report confirms there have been movement of shares issued in the Placement …

(Emphasis in original)

5    A review of “JP-7”, being the movements report mentioned at [4(7)] above, reveals that some 32 shareholders, approximately half of which were individuals, traded on the placement shares between their issue on 12 August 2020 and 7 September 2020.

6    Mr Pettett then went on to describe the circumstances in which he became aware of the non-compliance with the disclosure provisions as mentioned above and the immediate steps he took to address it:

8.    On 2 September 2020, [LPE] announced on the ASX the results of the SPP …

9.    On 7 September 2020, [LPE] lodged an Appendix 2A (Application for quotation of securities) in connection with the SPP …

10.     Also on 7 September 2020:

(a)    I received a phone call from Alex Sutton, [LPE’s] ASX adviser, who informed me and I verily believe that [LPE] had not complied with 708A of the Corporations Act as it did not lodge the Cleansing Notice within 5 business days after 12 August 2020 (i.e. the day [LPE] paid shares under the Placement);

(b)    I was informed by Daniel Seeney, [LPE’s] Company Secretary, and I verily believe, that the Cleansing Notice was not lodged within 5 business days after [LPE] issued the 12,000,000 ordinary fully paid shares under the Placement due to an administrative oversight;

(c)    I spoke with [LPE’s] solicitor, Khilen Devani of Gadens Lawyers and:

i.    I informed Mr Devani the ASX had notified [LPE] that there was a potential issue in connection with the Cleansing Notice as it was not lodged within 5 business days after 12 August 2020;

ii.    Mr Devani advised me:

A.    this was likely to be an issue; and

B.    there may be an issue in relation to the SPP as well;

(d)    at 12.31 pm, Mr Devani on behalf of [LPE] sent an email to Alex Sutton of the ASX, in relation to whether non-compliance had occurred …

(e)    at approximately 5.00 pm, I had a telephone conversation with Alex Sutton of the ASX, during which Mr Sutton advised me that it remained the ASX’s view that a noncompliance had occurred;

(f)    a discussion was arranged between me, Mr Devani and Alex Sutton and Adrian Smythe of the ASX to discuss how to best address the non-compliance;

(g)    at approximately 8.15 pm, I had a teleconference with Mr Devani and Messrs Sutton and Smythe of the ASX, during which:

i.    Mr Sutton and Mr Smythe confirmed the ASX’s position was that a technical breach had occurred;

ii.    it was agreed that [LPE] would request a voluntary suspension in the trading of its shares prior to the opening on 8 September 2020.

11.    On 8 September 2020:

(a)    [LPE] requested a voluntary suspension in the trading of its shares and the ASX granted the suspension from quotation accordingly; and

(b)    [LPE] made an announcement on the ASX stating “Due to an administrative oversight, there is a technical compliance issue in connection with the timing of the lodgement of the cleansing notice in connection with the Placement and SPP...”

7    Mr Pettettt concluded his affidavit by stating:

[LPE] recognises [the] need for compliance and has commenced a review of its internal risk and compliance protocols and obtain [sic] external advice in relation to those protocols to ensure it does not occur again.

8    In his affidavit, Mr Seeney described the circumstances of his failure to comply with the provisions of the Act in question in the following terms:

8.    As the Company Secretary I was responsible for the Company lodging the cleansing notice. The cleansing notice was unintentionally lodged one day later than required in connection with the Placement due to my miscalculation of the due date for lodgement. On 20 August 2020 I received a reminder from an external professional adviser of the Company that the cleansing notice needed to be lodged with the ASX, after which I immediately arranged for the cleansing notice to be lodged that same day. I did not realise that anything more was required until 7 September 2020, when I received a voicemail message from Alex Sutton of the ASX advising that the lodgement was late and that further steps were necessary.

9.    As the Company Secretary I was also responsible for the timing of the Company’s offer under the SPP. The sale offer was unintentionally made before the cleansing notice was issued as I was unaware that the ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547 required that the Company have issued, not more than 30 days before the offer, the cleansing notice. I was unaware that anything more was required than lodging the cleansing notice for the connected Placement.

9    Mr Seeney concluded his affidavit by stating:

I now understand the proper process the Company should have followed when issuing the shares under the Placement and SPP. The Company has since commenced a review of its internal risk and compliance protocols to ensure this does not occur again.

10    Both the Australian Securities and Investments Commission (ASIC) and the ASX were notified of LPE’s application and both indicated through LPE’s lawyer that they did not wish to appear at the hearing of the application and that they neither opposed nor consented to it.

CONTENTIONS

11    LPE submitted it was an interested person for the purposes of s 1322(4) and, as such, has standing to bring the application. It further submitted that the relief it sought under s 1322(4) was “otherwise self-explanatory”. LPE contended that only Mr Seeney was involved in LPE’s contravention and that it was clear from the contents of his affidavit that the contravention was a result of inadvertence, as opposed to any dishonesty. In making that contention, LPE submitted the Court is entitled to rely on the absence of any evidence of dishonesty. LPE further contended that there was no basis to suspect any dishonesty on the part of the shareholders, and that the Court may readily infer that the shareholders concerned had acted honestly in onselling the shares. It also contended that that the absence of dishonesty also supports a finding that it is in the interests of justice to remedy the non-compliance to relieve the affected shareholders of any actual or potential consequences of the non-compliance.

12    LPE also contended that no substantial injustice would arise if the relief sought were granted. Rather, it submitted, that if the orders were not made, injustice may be suffered by those shareholders who may have inadvertently contravened their own disclosure obligations in reliance on the disclosure made to them. In any case, it contended, that the usual course in an ex parte application of this kind is to provide a window of time for any affected persons to apply to vary or set aside the orders made. In this respect it pointed out that the orders it sought included an order to this effect.

13    Finally, it submitted that there were no discretionary factors weighing against the grant of the orders.

THE ISSUES

14    As is apparent above, this application concerns two particular issues of shares: the issue of placement shares made on 12 August 2020 (the placement shares) and the issue of shares made under a share purchase plan on 11 August 2020 (the SPP shares). In both instances, LPE gave a warranty that disclosure under s 707(3) would not be required with respect to the onsale of the shares concerned within 12 months after their issue. That warranty was in the form of Appendix 2A to the ASX Listing Rules, as mentioned at [4(6)(a)] above, which provides:

An offer of the securities for sale within 12 months after their issue will not require disclosure under section 707(3) or section 1012C(6) of the Corporations Act.

(Note omitted)

15    The issues that arise with respect to each share issue are as follows. Firstly, disclosure under s 706 was not required with respect to the placement shares since they were issued to sophisticated and professional investors (ss 708(8) and (11)). However, unless a cleansing notice was given to the ASX under s 708A(5)(e) within five business days of the issue, subsequent sellers were required under s 707(3) to make disclosure. Any subsequent sellers that did not make disclosure would have breached s 727.

16    Secondly, while disclosure was required with respect to the SPP shares, those shares would have been exempted under the Instrument if a cleansing notice had been given to the ASX within the prescribed time. None of the SPP shares was onsold between their issue and the voluntary trading suspension, however, any future sellers (after the suspension is lifted) would be required to make disclosure for 12 months after issue.

17    The cleansing notice was issued on 20 August 2020 making it one business day late with respect to the placement shares and 10 days late with respect to the SPP shares. The application therefore seeks to cure the lateness of the cleansing notice, thereby making good the warranty mentioned above and absolving past sellers of liability under s 727.

RELEVANT STATUTORY PROVISIONS

18    Chapter 6D Part 6D.2 of the Act imposes disclosure obligations concerning the issue and sale of securities or shares. That Part relevantly provides:

706    Issue offers that need disclosure

An offer of securities for issue, other than a [Crowd-sourced funding] offer, needs disclosure to investors under this Part unless section 708 or 708AA says otherwise.

707    Sale offers that need disclosure

Only some sales need disclosure

(1)    An offer of securities for sale needs disclosure to investors under this Part only if disclosure is required by subsection (2), (3) or (5).

…

Sale amounting to indirect issue

(3)    An offer of a body’s securities for sale within 12 months after their issue needs disclosure to investors under this Part if:

(a)    the body issued the securities without disclosure to investors under this Part; and

(b)    either:

(i)    the body issued the securities with the purpose of the person to whom they were issued selling or transferring the securities, or granting, issuing or transferring interests in, or options over, them; or

(ii)    the person to whom the securities were issued acquired them with the purpose of selling or transferring the securities, or granting, issuing or transferring interests in, or options over, them;

and section 708 or 708A does not say otherwise.

…

708    Offers that do not need disclosure

…

Sophisticated investors

(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).

…

Professional investors

(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).

    …

708A    Sale offers that do not need disclosure

Sale offers to which this section applies

(1)    This section applies to an offer (the sale offer) of a body’s securities (the relevant securities) for sale by a person if:

(a)    but for subsection (5), (11) or (12), disclosure to investors under this Part would be required by subsection 707(3) for the sale offer; and

(b)    the securities were not issued by the body with the purpose referred to in subparagraph 707(3)(b)(i); and

(c)    a determination under subsection (2) was not in force in relation to the body at the time when the relevant securities were issued.

…

Sale offer of quoted securities—case 1

(5)    The sale offer does not need disclosure to investors under this Part if:

(a)    the relevant securities are in a class of securities that were quoted securities at all times in the 3 months before the day on which the relevant securities were issued; and

(b)    trading in that class of securities on a prescribed financial market on which they were quoted was not suspended for more than a total of 5 days during the shorter of the period during which the class of securities were quoted, and the period of 12 months before the day on which the relevant securities were issued; and

(c)    no exemption under section 111AS or 111AT covered the body, or any person as director or auditor of the body, at any time during the relevant period referred to in paragraph (b); and

(d)    no order under section 340 or 341 covered the body, or any person as director or auditor of the body, at any time during the relevant period referred to in paragraph (b); and

(e)    either:

(i)    if this section applies because of subsection (1)—the body gives the relevant market operator for the body a notice that complies with subsection (6) before the sale offer is made; or

…

(6)    A notice complies with this subsection if the notice:

(a)    is given within 5 business days after the day on which the relevant securities were issued by the body; and

(b)    states that the body issued the relevant securities without disclosure to investors under this Part; and

(c)    states that the notice is being given under paragraph (5)(e); and

(d)    states that, as at the date of the notice, the body has complied with:

(i)    the provisions of Chapter 2M as they apply to the body; and

(ii)    section 674; and

(e)    sets out any information that is excluded information as at the date of the notice (see subsections (7) and (8)).

Note 1:    A person is taken not to contravene section 727 if a notice purports to comply with this subsection but does not actually comply with this subsection: see subsection 727(5).

…

19    Issuers may also seek an exemption from those disclosure obligations under the Instrument which, relevantly, provides:

6    Exemptions for issuers

…

Shares—disclosure and advertising relief

(2)    A body (the issuer) which is admitted to the official list of ASX does not have to comply with Part 6D.2 or 6D.3 of the Act (other than sections 736 and 738) for an offer of shares for issue under a purchase plan.

…

7    Requirements

The exemptions in subsections 6(2) and (3) apply to a written offer for the issue of shares or interests and to the issue of shares or interests under such an offer where the following requirements are met at the time that the offer is made:

(a)    the shares or interests are in a class (the class) which:

(i)    is quoted on the financial market operated by ASX; and

(ii)    is not suspended from trading and was not suspended from trading on that market for more than a total of 5 days during the shorter of the period during which the class was quoted, and the period of 12 months before the day on which the offer is made;

(b)    a determination under subsection 708AA(3), 708A(2), 1012DAA(3) or 1012DA(2) of the Act is not in force in relation to the issuer;

(c)    no exemption under section 111AS or 111AT of the Act covered the issuer, or any person as director or auditor of the issuer, at any time in the shorter of the period during which the class was quoted, and the period of 12 months before the day on which the offer is made;

(d)    no order under section 340 or 341 of the Act (other than an excluded order) covered the issuer, or any person as director or auditor of the issuer, at any time in the shorter of the period during which the class was quoted, and the period of 12 months before the day on which the offer is made;

(e)    the offer document contains the following information:

(i)    the method used to calculate the issue price and the time when this price will be determined; and

(ii)    a statement describing the relationship between the issue price and the market price; and

(iii)    disclosure of the risk that the market price may change between the date of the offer and the date when the shares or interests are issued to an applicant under the purchase plan, and the effect this would have on the price or value of the shares or interests which the applicant would receive; and

(f)    the issuer has either:

(i)    not more than 30 days before the offer, given a notice to ASX that complies with subsection 708A(6) or 1012DA(6) of the Act in relation to an issue of shares or interests in the class made otherwise than under a purchase plan; or

20    It can be seen from these provisions that:

(a)    an offeror of securities for issue needs to make a disclosure to investors under Part 6D.2 of the Act unless s 708 says otherwise (s 706);

(b)    an offeror of a body’s securities for sale within 12 months after issue needs to make a disclosure to investors under Part 6D.2 if they were issued without disclosure, or acquired for the purpose of being sold, and ss 708 and 708A do not say otherwise (ss 707(1) and (3));

(c)    disclosure under s 707 is not required where the investor is a sophisticated investor (s 708(8)), or a professional investor (s 708(11));

(d)    where disclosure would otherwise be required by s 707(3) for a sale offer, disclosure is not required if the conditions of s 708A(5) are met, including giving ASIC a cleansing notice under s 708A(6) before the sale offer is made (s 708A); and

(e)    similarly, under ss 6 and 7 of the Instrument, the issuer of shares issued under a share purchase plan is exempted from providing disclosure where the issuer gives a compliant cleansing notice to the ASX within the prescribed time and where the shares are “in relation to an issue of shares or interests in the class made otherwise than under a purchase plan” (s 7(f)(i) of the Instrument).

21    Failure to comply with these disclosure obligations, where required, is an offence under s 727 of the Act.

22    Section 1337B(1) of the Act confers jurisdiction on this Court to deal with civil matters arising under the Act.

23    Section 1322 sets out the relief the Court may grant. That section relevantly provides:

[Orders Court may make]

(4)    Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:

(a)    an order declaring that any act, matter or thing purporting to have been done… under this Act or in relation to a corporation is not invalid by reason of any contravention of this Act…;

…

(c)    an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a);

(d)    an order extending the period for doing any act, matter or thing… under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made)…;

[Effect of contravention or failure]

(5)    An order may be made under paragraph 4(a) or (c) notwithstanding that the contravention or failure referred to in the paragraph concerned resulted in the commission of an offence.

[Where Court may not make order]

(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 … 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

(b)    in the case of an order referred to in paragraph 4(c)––that the person subject to the civil liability concerned acted honestly;

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

24    It is to be noted that an order can be made under s 1322(4)(a) notwithstanding the fact that the contravention, or failure, concerned resulted in the commission of an offence (s 1322(5)).

25    The Court need only be satisfied that one of the three conditions under s 1322(6)(a) applies (see Sprint Energy Limited, in the matter of Sprint Energy Limited [2012] FCA 1354 (Sprint Energy) at [32] per McKerracher J and the cases cited therein).

RELEVANT PRINCIPLES

26    This Court has made orders under s 1322(4) on many occasions to cure a range of transactions which would have otherwise breached the disclosure provisions of the Act, including the following:

(a)    granting an extension of time to provide a cleansing notice (see, for example, Spectur Limited, in the matter of Spectur Limited (2019) 136 ACSR 542; [2019] FCA 867 per Colvin J; Micro-X Limited, in the matter of Micro-X Limited [2019] FCA 1154 (Micro-X) per Moshinsky J);

(b)    deeming a cleansing notice to have been issued within the prescribed time (see, for example, Azure Minerals Limited, in the matter of Azure Minerals Limited [2013] FCA 63 (Azure Minerals) per Barker J and Micro-X);

(c)    validating the onsale of shares the subject of an application (see, for example, Force Commodities Ltd, in the matter of Force Commodities Ltd (2019) 140 ACSR 408; [2019] FCA 1815 per McKerracher J; Superior Resources Limited, in the matter of Superior Resources Limited (2020) 144 ACSR 677; [2020] FCA 635 per Jackson J); and

(d)    relieving third parties from civil liability with respect to a contravention, or a failure to have done an act, matter of thing under the Act in relation to shares the subject of an application (see, for example, Micro-X). However, it should be noted that such an order has been held to be inappropriate where the non-compliance arose in an attempt to avoid the non-disclosure obligations (see Poseidon Nickel Ltd, in the matter of Poseidon Nickel Ltd (2018) 129 ACSR 57; [2018] FCA 1063 (Poseidon Nickel) at [82] and [88] per Colvin J).

27    For present purposes, the following relevant principles are established by the authorities to which I was referred. First, an “interested person” may apply for relief under s 1322(4). That term is wide enough to include applicants whose material legal rights, or pecuniary, or other economic interests, are, or may be, substantially affected by the matter in issue (see Golden Gate Petroleum Ltd (ABN 090 074 785), in the matter of Golden Gate Petroleum Ltd (ABN 090 074 785) (2010) 77 ACSR 17; [2010] FCA 40 at [44] per McKerracher J). An applicant who brings an application for the benefit of shareholders and not as to any potential liability of its own may still be an interested person (see Caeneus Minerals Ltd, in the matter of Caeneus Minerals Ltd [2018] FCA 560 at [38] per Banks-Smith J and Sprint Energy at [40] per McKerracher J).

28    Secondly, in determining whether someone has acted honestly for the purposes of s 1322 of the Act, the Court is entitled to rely on the absence of any evidence of dishonesty in the sense of conscious impropriety or flagrant disregard of the Act’s requirements (see ICandy Interactive Limited, in the matter of ICandy Interactive Limited (2018) 125 ACSR 369; [2018] FCA 533 (ICandy) at [54] per Banks-Smith J). Inadvertence, or a failure to turn one’s mind to the relevant issue, may be encompassed in the concept of acting honestly (see ICandy at [55] per Banks-Smith J). Mere carelessness, or imprudence, in respect of complying with disclosure obligations will not amount to dishonesty (see Poseidon Nickel at [72] per Colvin J).

29    Thirdly, a Court will look to the promptness with which the applicant sought to remedy the irregularity or non-compliance (see Azure Minerals at [12] per Barker J).

30    Finally, where shares are sold accompanied by a representation that they are not subject to further disclosure obligations under the Act, the Court may readily infer that shareholders acted honestly in on-selling those shares without making disclosure (see Silver Lake Resources Limited, in the matter of Silver Lake Resources Limited (2012) 87 ACSR 436; [2012] FCA 32 at [23] per Siopis J).

31    Section 1322 is remedial in nature and confers a broad power on the Court (see Weinstock v Beck (2013) 251 CLR 396; [2013] HCA 14 per French CJ at [39], Hayne, Crennan and Kiefel JJ at [53] and [56] and Gageler J at [60]). In Wave Capital Limited (2003) 47 ACSR 418; [2003] FCA 969, French J (as he then was) said (at [29]):

[T]he law should not inflict unnecessary liability or inconvenience or invalidate transactions because of non-compliance with its requirements where such non-compliance is the product of honest error or inadvertence and where the Court can avoid its effects without prejudice to third parties or to the public interest in compliance with the law. That broad policy does not authorise the Court lightly to set aside the requirements of the Act where they have not been observed. Each application for the exercise of the Court’s relieving power will require consideration of all the circumstances of the case to ensure that the indulgence sought is appropriate and does not undermine the requirements of the Act …

32    However, as Colvin J observed in EHR Resources Ltd, in the matter of EHR Resources Ltd [2018] FCA 997 (at [7]):

[C]are must be taken to confine relief in a manner which is consistent with the justification for the application. Ordinarily, it will not be appropriate for relief to be granted protecting those who have been involved in the breach of the disclosure provisions, unless it is necessary in order to protect the interests of current shareholders who hold shares. An order that any offer for sale or sale of shares is not invalid by reason of the failure to comply is of this character. In making such orders, there must be due regard for the interests of current shareholders who usually are not heard on the application due to the impracticality of giving separate notice to all such parties.

CONSIDERATION

33    Having regard to the principles set out above and Mr Seeney’s affidavit as briefly summarised earlier, I am satisfied that he acted honestly in failing to comply with the requirements of s 708A of the Act and those of the Instrument. It is clear to me that Mr Seeney’s failure to lodge the cleansing notice on time was inadvertent and I find no reason to suspect dishonesty on his part. While he does not expressly state how, or why, he miscalculated the five day period with respect to the placement, I infer that it was, at least in part, because of the intervening public holiday.

34    As for the shareholders who received the shares, I consider they were entitled to rely on the warranty that was provided and to on-sell the shares on the assumption that no disclosure was required by them. As such, I consider they, too, acted honestly and are entitled to relief from liability.

35    In respect of LPE itself, I consider it acted promptly in seeking to address the non-compliance. On the day it became aware of the non-compliance it, quite appropriately, sought legal advice and notified the ASX. On the following day, it entered a voluntary trading suspension. It then caused an announcement to be made on the ASX explaining its non-compliance.

36    Although s 727(5) relieves LPE of civil liability with respect to the non-compliant cleansing notice, its failure to make the disclosure resulted in it breaching the warranty provided under Appendix 2A of the Listing Rules. I am therefore satisfied it is an interested party that is substantially affected by the matter in issue. In any case, it was also entitled to bring the application on behalf of the affected shareholders.

37    Finally, having regard to the following matters, I am satisfied that it was just and equitable to make the orders:

(a)    as explained above, there is nothing to suggest any dishonesty;

(b)    there is no basis to believe that any substantial injustice will be suffered by the making of these orders and, in any event, the orders will provide a window of time for any affected third parties to make an application to set aside or vary the orders; and

(c)    the application is not opposed by either ASIC, or the ASX.

CONCLUSION

38    For these reasons, I made the orders sought by LPE on 11 September 2020.

Associate:    

Dated:    29 January 2021