Federal Court of Australia

Aus Tin Mining Limited, in the matter of Aus Tin Mining Limited [2020] FCA 1888

ORDERS

THE COURT ORDERS THAT:

1.    In respect of the 51,111,111 ordinary fully paid shares of the applicant, which were issued on 7 August 2020:

(a)    pursuant to s 1322(4)(d) of the Corporations Act 2001 (Cth) (the Act), the five business days referred to in s 708A(6)(a) of the Act is extended to 8 September 2020;

(b)    pursuant to s 1322(4)(a) of the Act, it is declared that a notice under s 708A(5)(e) of the Act given to the Australian Securities Exchange Limited (the ASX) in respect of the shares referred to in Order 1, within the period provided for in Order 1(a), is deemed to take effect as if it had been given to the ASX on 7 August 2020;

(c)    pursuant to s 1322(4)(a) of the Act, it is declared that any offer for sale, or sale of, the shares referred to in Order 1 during the period after their issue to the date of these orders is not invalid by reason of:

(i)    any failure of a notice under s 708A(5)(e) of the Act to exempt the sellers from the obligation of disclosure under the Act; and

(ii)    the sellers’ consequent failure to comply with ss 707(3) or 727(1) of the Act; and

(d)    pursuant to s 1322(4)(c) of the Act, any person to whom any of the shares referred to in Order 1 were issued, or have been sold, and who have in turn onsold any of those shares, is relived in whole from any civil liability in respect of:

(i)    any failure of a notice under s 708A(5)(e) of the Act to exempt the sellers from the obligation of disclosure under the Act; and

(ii)    the sellers’ consequent failure to comply with ss 707(3) or 727(1) of the Act.

2.    In respect of the 60,000,000 ordinary fully paid shares of the applicant, which were issued on 11 August 2020:

(a)    pursuant to s 1322(4)(d) of the Act, the five business days referred to in s 708A(6)(a) of the Act is extended to 8 September 2020;

(b)    pursuant to s 1322(4)(a) of the Act, it is declared that a notice under s 708A(5)(e) of the Act given to the ASX in respect of the shares referred to in Order 2, within the period provided for in Order 2(a), is deemed to take effect as if it had been given to the ASX on 11 August 2020;

(c)     pursuant to s 1322(4)(a) of the Act, it is declared that any offer for sale, or sale of, the shares referred to in Order 2 during the period after their issue to the date of these orders is not invalid by reason of:

(i)    any failure of a notice under s 708A(5)(e) of the Act to exempt the sellers from the obligation of disclosure under the Act; and

(ii)    the sellers’ consequent failure to comply with ss 707(3) or 727(1) of the Act; and

(d)    pursuant to s 1322(4)(c) of the Act, any person to whom any of the shares referred to in Order 2 were issued, or have been sold, and who have in turn onsold any of those shares, is relived in whole from any civil liability in respect of:

(i)    any failure of a notice under s 708A(5)(e) of the Act to exempt the sellers from the obligation of disclosure under the Act; and

(ii)    the sellers’ consequent failure to comply with ss 707(3) or 727(1) of the Act.

3.    In respect of the 55,555,556 ordinary fully paid shares of the applicant, which were issued on 21 August 2020:

(a)    pursuant to s 1322(4)(d) of the Act, the five business days referred to in s 708A(6)(a) of the Act is extended to 8 September 2020;

(b)    pursuant to s 1322(4)(a) of the Act, it is declared that a notice under s 708A(5)(e) of the Act given to the ASX in respect of the shares referred to in Order 3, within the period provided for in Order 3(a), is deemed to take effect as if it had been given to the ASX on 21 August 2020;

(c)    pursuant to s 1322(4)(a) of the Act, it is declared that any offer for sale, or sale of, the shares referred to in Order 3 during the period after their issue to the date of these orders is not invalid by reason of:

(i)    any failure of a notice under s 708A(5)(e) of the Act to exempt the sellers from the obligation of disclosure under the Act; and

(ii)    the sellers’ consequent failure to comply with ss 707(3) or 727(1) of the Act; and

(d)    pursuant to s 1322(4)(c) of the Act, any person to whom any of the shares referred to in Order 3 were issued, or have been sold, and who have in turn onsold any of those shares, is relived in whole from any civil liability in respect of:

(i)    any failure of a notice under s 708A(5)(e) of the Act to exempt the sellers from the obligation of disclosure under the Act; and

(ii)    the sellers’ consequent failure to comply with ss 707(3) or 727(1) of the Act.

4.    The applicant, as soon as reasonably practicable, is to:

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

(i)    the Australian Securities and Investments Commission;

(ii)    the ASX; and

(iii)    each person to whom the shares in Orders 1 to 3 were issued; and

(b)    publish an announcement to the ASX including a sealed copy of these orders.

5.    For a period of 28 days from the date of publication of a copy 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 these orders has liberty to apply to vary or to discharge them within that period.

6.    There is 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 21 September 2020, Aus Tin Mining Limited (Aus Tin Mining) 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. In the course of doing so it also sought orders relieving certain shareholders from civil liability under the Act in relation to the issue of shares the subject of this application.

2    Because of the need to resolve this issue promptly, I made the orders sought on 23 September 2020 and indicated that I would publish my reasons in due course. The following are those reasons.

FACTUAL BACKGROUND

3    Aus Tin Mining is a publicly listed company on the Australian Securities Exchange (the ASX). Mr Karl Schlobohm is its company secretary. He is assisted in his role by his son, Mr Nicholas Schlobohm. Both filed affidavits in support of this application.

4    On 7 August 2020, 11 August 2020 and 21 August 2020 fully paid shares were issued in Aus Tin Mining pursuant to two agreements:

(a)    A convertible security funding agreement between Aus Tin Mining and The Australian Special Opportunity Fund, LP (Lind and the Lind Facility respectively); and

(b)    A convertible notes trust deed between Aus Tin Mining and Centec Securities Pty Ltd, in respect of which Bizzell Capital Partners Pty Ltd were appointed as lead manager for the placement of up to $500,000 worth of convertible notes (BCP and the BCP Facility respectively).

5    Aus Tin Mining failed to lodge valid cleansing notices with respect to each of the issues mentioned in [4] above.

6    Mr Nicholas Schlobohm described the factual background to the non-compliance as follows:

21.    During August and September 2020, I was directed by my father to prepare announcements and compliance documents for lodgement with the ASX for the following issues of shares by [Aus Tin Mining]:

(a)    issue of 55,555,556 fully paid ordinary shares on 6 August 2020;

(b)    issue of 51,111,111 fully paid ordinary shares on 7 August 2020;

(c)    issue of 60,000,000 fully paid ordinary shares on 11 August 2020;

(d)    issue of 55,555,556 fully paid ordinary shares on 21 August 2020; and

(e)    issue of 111,111,111 fully paid ordinary shares on 2 September 2020.

…

23.    Whilst I did prepare and lodge the Appendix 2A announcement and Form 484 documentation for each of the share issues by [Aus Tin Mining] listed in paragraphs 21(a) to [sic - and] 21(e) above … I inadvertently did not lodge a cleansing notice for the issue of shares by [Aus Tin Mining] listed in paragraphs 21(b) to 21(d) above.

24.    On 8 September 2020 I received an email from my father which forwarded an email that he had received from Danielle Polemeni-Hegarty of Lind ... It was implicit as part of my role as Secretarial Assistant that when I received an email relating to the lodgement of compliance documentation from my father that I was to attend to the lodgement of that compliance documentation and confirm with my father when I had done so.

25.    Following my receipt of that email, I began preparing a cleansing notice in relation to the shares issued by [Aus Tin Mining] on 2 September 2020. It was at this time that I realised that I had not lodged cleansing notices for the shares issued by [Aus Tin Mining] on 7, 11 and 21 August 2020.

26.    I included the issue of shares by [Aus Tin Mining] on 7, 11 and 21 August 2020 in the cleansing notice lodged with the ASX on 8 September 2020 as I believed the inclusion of those share issues by [Aus Tin Mining] in that cleansing notice would ensure [Aus Tin Mining] was compliant with its obligation to lodge cleansing notices following the issue of shares.

27.    It did not occur to me on 8 September 2020 that that date was approximately 32 days after 7 August 2020. At that time, it occurred to me that a cleansing notice had not been lodged for the issue of shares by [Aus Tin Mining] on 7, 11 and 21 August 2020 and that that was something that usually was done close to the date of issue. The fact that lodgement of a cleansing notice is usually done close to the date of issue of shares and such lodgement had not occurred in accordance with the usual practice caused me stress and I was focused on getting the cleansing notice lodged with the ASX.

28.    I did not speak to anyone about the fact that cleansing notices had not been lodged for the issue of shares by [Aus Tin Mining] on 7, 11 and 21 August 2020 as I believed that including those share issues in the cleansing notice lodged on 8 September 2020 was sufficient to meet [Aus Tin Mining’s] obligations.

29.    I am aware that cleansing notices are issued under section 708A of the Corporations Act 2001 (Cth) as the section is mentioned in the cleansing notice itself. However, it did not occur to me to read that section to see if it mentioned any timeframe for lodgement as I was using a previous cleansing notice lodged by [Aus Tin Mining] as a template … and because I had assumed it would be 28 days as mentioned in paragraph 20 above.

30.    It also did not occur to me that there could be serious or significant consequences for lodging the cleansing notice late.

(Errors in original)

7    The uncleansed shares were traded on most days between 7 August 2020 and 18 September 2020 when Aus Tin Mining entered a trading halt on the ASX, including one day where over 50,000,000 shares were traded.

8    In his affidavit, Mr Karl Schlobohm described 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:

47.    At approximately 10:25 PM on 7 September 2020 I received an email from Lind noting that no Cleansing Notice appeared to have being lodged in respect of the 2 September Issue, and querying whether a Cleansing Notice would be lodged …

48.    At 7:05 AM on 8 August 2020, I forwarded that email to Nicholas [Schlobohm] with a view to him preparing a Cleansing Notice in respect of the 2 September Issue …

49.    At 10:57 AM on 8 September 2020, I received a reply from Nicholas [Schlobohm] saying “Ok, done.” …

50.    I have inspected the records of [Aus Tin Mining] and a Cleansing Notice in respect of each of the 7 August Issue, the 11 August Issue, the 21 August Issue and 2 September Issue was uploaded to MAP on 8 September 2020 …

51.    Due to my involvement with a range of other matters as referred to in paragraph 63 below, I did not review that Cleansing Notice either before or after it had been lodged. Accordingly, I was unaware that the Cleansing Notice also purported to “cleanse” each of the 7 August Issue, the 11 August Issue and the 21 August Issue (the Uncleansed Share Issues). I did not investigate these matters further as Nicholas [Schlobohm] had previously prepared and lodged Cleansing Notices for me before without error or incident and I assumed that Cleansing Notices had previously been lodged for the Uncleansed Share Issues.

52.    On 17 September 2020, I received a message to call [Aus Tin Mining’s] ASX listing manager, James Fisher.

53.    I called James back the same day with the phone on speaker and with Nicholas [Schlobohm] in the room, as he was working at the same location was me that day. During that conversation:

(a)    James advised that he was a new adviser who had been assigned to [Aus Tin Mining] and said words to the effect that:

i.    he was calling in relation to the Cleansing Notice lodged on 8 September 2020;

ii.    the Cleansing Notice referred to the 7 August Issue, the 11 August Issue and the 21 August Issue as well as the 2 September Issue;

iii.    he wanted to know whether that was [Aus Tin Mining’s] standard practice.

This was the first time that I realised that there had been an oversight with respect to the lodging of the Cleansing Notices in respect of the Uncleansed Share Issues.

(b)    I looked at Nicholas [Schlobohm], as I was not familiar with what James was referring to. Nicholas [Schlobohm] whispered to me that this was lodged in order to catch up on the Cleansing Notices required for the Uncleansed Share Issues;

(c)    I passed that information on to James and confirmed that:

i.    this was not [Aus Tin Mining’s] standard practice; and

ii.    it would not be repeated in this fashion.

54.    Later that day, I missed another call from James.

55.    I once again called James back with the phone on speaker with Nicholas [Schlobohm] in the room. During that conversation:

(a)    James said words to the effect that:

i.    [Aus Tin Mining] was technically in breach of the Corporations Act because the Cleansing Notice lodged on 8 September was out of time in respect of the Uncleansed Share Issues;

ii.    this was not an uncommon occurrence, particularly in recent times, and that it had happened recently to a company called Locality Planning Energy Holdings Limited (LPE) and it should be able to be fixed within a week;

iii.    LPE had applied to the Federal Court for orders under section 1322 of the Corporations Act and the Federal Court in Brisbane had made orders within about the last week;

iv.    [Aus Tin Mining] would need to enter suspension voluntarily, or the ASX would take steps to suspend [Aus Tin Mining];

v.    if [Aus Tin Mining] was able to get Court orders rectifying the late lodgement within 10 days, the Current Entitlement Offer would be able to proceed;

(b)    I said that I would have to look into exactly what had happened, confirm who the ANW Shares were issued to, whether they were still retained, and revert back to him about [Aus Tin Mining’s] proposed course of action, which would likely be to follow the example of LPE which he had pointed out and had encouraged [Aus Tin Mining] to follow.

56.    Immediately following that telephone conversation I attempted to call Peter Burge [Aus Tin Mining’s] in-house counsel several times. He returned my call about half an hour later. After a brief discussion with him about my calls with the ASX, I commenced drafting an email briefing [Aus Tin Mining’s] Board and BCP as to the matter …

57.    Early on the morning of 18 September 2020 I again spoke to James Fisher from the ASX. I advised that instead of voluntarily suspending trading, [Aus Tin Mining] would instead seek a two day trading halt from the commencement of trading on 18 September 2020, with a view to then seeking a voluntary suspension of trading of [Aus Tin Mining’s] securities until this application had been heard and dealt with by the Court. James said that he was ok with that approach, but recommended that [Aus Tin Mining] issue an announcement to the ASX following the trading halt regarding the delayed lodgement of the Cleansing Notices (again James cited the LPE example).

58.    After that conversation, I lodged a request for a trading halt on MAP before trading commenced on 18 September … In accordance with that request, [Aus Tin Mining] went into a two day trading halt from the commencement of trading on 18 September 2020.

59.    Shortly after announcing the trading halt, and in accordance with the suggestion of James Fisher, [Aus Tin Mining] issued an announcement to the ASX regarding the delayed lodgement of the Cleansing Notices for the Uncleansed Share Issues …

…

(Errors and emphasis in original)

9    Aus Tin Mining then entered a voluntary trading suspension on 22 September 2020.

10    Mr Karl Schlobohm concluded his affidavit by taking responsibility for the failure and the steps he intended to implement to avoid its reoccurrence as follows:

95.    I deeply regret that this error occurred. It was entirely my responsibility and my fault that the Cleansing Notices were not lodged on time. This was a failure of my supervision of the tasks Nicholas [Schlobohm] was undertaking.

96.    After having examined the causes of the error, I intend to implement the following actions to [Aus Tin Mining] to ensure that this does not occur again:

(a)    I am currently working on and/or supporting initiatives to reduce the number of companies for which I have “front-line” company secretarial responsibility;

(b)    I will consider the recruitment of another more experienced assistant company secretary/co-company secretary, should my commitments not be adequately reduced in the short term;

(c)    I will ensure the habitual use of written checklists for all matters associated with share issues, specifically including the requirements and timeframes for the preparation and lodgement of Cleansing Notices;

(d)    I will ensure that, as appropriate, the internal registers that are currently maintained by [Aus Tin Mining] for share issues and ASIC compliance contains an additional column noting the date of lodgement of a Cleansing Notice;

(e)    I will personally review all of the compliance paperwork associated with the issue of securities and related matters from this point forward.

11    Both the Australian Securities and Investments Commission (ASIC) and the ASX were notified of Aus Tin Mining’s application and both indicated through Aus Tin Mining’s lawyer that it did not wish to appear at the hearing of the application. The ASX neither consented to, nor opposed, the application. ASIC neither consented to, nor opposed, the application on the proviso that the relief sought under proposed orders 1(d), 2(d) and 3(d) would not relieve Aus Tin Mining, its directors, officers or agents from liability under the Act. Further, the BCP and Lind noteholders were informed of the application and indicated they supported it. The BCP noteholders waived their rights, but Lind reserved its rights under the Lind Facility regarding the default.

CONTENTIONS

12    Aus Tin Mining submitted it was an interested person for the purposes of s 1322(4) and, as such, has standing to bring this application. It further submitted that the orders sought were in a standard form and were appropriate in the circumstances.

13    It submitted there was no reason which would have prevented it from issuing a valid cleansing notice and that its failure to do so was the result of an honest mistake. It submitted that only Mr Nicholas Schlobohm was involved in Aus Tin Mining’s contravention and that his failure was a result of a misunderstanding of the Act, as opposed to a deliberate disregard of its requirements. In any event, in oral submissions, it clarified that the orders sought were not intended to, and would not, relieve Aus Tin Mining or its agents from civil liability under the Act.

14    In acting to address the non-compliance, it submitted it did so promptly and has taken steps to ensure non-compliance of this kind does not occur again. It also pointed out that it has not been the subject of any previous trading halt or suspension since being listed on the ASX in October 2010.

15    Aus Tin Mining contended that no substantial injustice would be suffered by any party if the orders sought were made. 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. It submitted that the only issue which arises is the fact that its non-compliance resulted in a breach of the Lind Facility and BCP Facility as mentioned above. However, it contended no injustice could arise where the noteholders under the BCP Facility support the application and have waived any relevant rights under that facility; and, where Lind supports the application but reserves its rights. With respect to any other affected persons, it submitted that the orders sought provide sufficient opportunity for any affected persons to apply to vary or set aside the orders made.

16    In contrast, it contended that if the orders were not made, and the trading suspension continued for 10 days, it would be barred from relying on cleansing notices as an exemption to making disclosure under the Act. This is turn would result, it submitted, in difficulty raising further funds and its likely incurable breach of both the BCP Facility and Lind Facility. Finally, it submitted that there were no discretionary factors weighing against the grant of the orders.

THE ISSUES

17    As is apparent from these contentions, this application concerns three particular issues of shares made in August 2020 (see at [4] above). The issues that arise with respect to each share issue are as follows. Firstly, Aus Tin Mining was not required to make a disclosure under s 706 to either BCP or Lind as both are sophisticated and/or professional investors (ss 708(8) and (11)). However, unless Aus Tin Mining had lodged a cleansing notice with the ASX under s 708A(5)(e) within five business days of the original issue, subsequent sellers were required by s 707(3) to make disclosure. Any subsequent sellers that did not make disclosure would have breached s 727. Likewise, any future sellers (after the trading suspension is lifted) would be required to make disclosure for 12 months after issue.

18    Secondly, it is a condition of both the Lind Facility and the BCP Facility that Aus Tin Mining file a valid cleansing notice with respect to all issues made under the respective agreements. Failure to do so constitutes breach of the relevant facility.

19    Thirdly, although not raised by Aus Tin Mining in its submissions, for each of the disputed issues Aus Tin Mining filed an Appendix 2A to the ASX Listing Rules which provides a warranty in the following form:

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)

20    The cleansing notice was issued on 8 September 2020 making it 18 business days late with respect to the 7 August 2020 issue, 16 business days late with respect to the 11 August 2020 issue and 8 business days late with respect to the 21 August 2020 issue. The application therefore seeks to cure the lateness of the cleansing notice, thereby making good the warranty mentioned above, validating the onsale of any shares that have since occurred and absolving past sellers of liability under s 727.

RELEVANT STATUTORY PROVISIONS

21    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).

…

22    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)); and

(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).

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

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

25    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.

26    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)).

27    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

28    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)

(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).

29    For present purposes, the following relevant principles are established by the authorities to which I was referred. Firstly, 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 shareholder, 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; Sprint Energy at [40] per McKerracher J).

30    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 (Poseidon Nickel at [72] per Colvin J).

31    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).

32    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 (Silver Lake Resources Limited, in the matter of Silver Lake Resources Limited (2012) 87 ACSR 436; [2012] FCA 32 at [23] per Siopis J).

33    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 …

34    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

35    Having regard to the principles set out above and the contents of Mr Nicholas Schlobohm’s affidavit as briefly set out above, I am satisfied that he acted honestly in failing to comply with the requirements of s 708A of the Act. It is clear to me that his failure to lodge the cleansing notices on time was inadvertent as a result of inexperience, and I find no reason to suspect dishonesty on his part.

36    As for the noteholders under the BCP Facility and Lind Facility, I consider they were entitled to rely on the respective warranties and conditions of those Facilities and to onsell the shares on the assumption that no disclosure was required by them. As such, I consider they acted honestly and are entitled relief from liability. As already mentioned, I have taken into account the fact that Lind reserved its rights under the Lind Facility regarding the default (see at [11] above).

37    In respect of Aus Tin Mining itself, I consider it acted promptly in seeking to address the non-compliance. When it became aware of the non-compliance on 17 September 2020, it immediately, and quite appropriately, sought legal advice from its in-house counsel. Shortly thereafter it requested a trading halt of its shares and issued a public announcement on the ASX regarding the non-compliance, and on 22 September it entered a voluntary trading suspension.

38    Although s 727(5) relieves Aus Tin Mining of civil liability under s 727(1), I am satisfied that the orders sought do not relieve it from liability for breach of either facility mentioned above, or the warranty provided under Appendix 2A of the Listing Rules.

39    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 ASIC, the ASX, Lind or the noteholders under the BCP Facility.

CONCLUSION

40    For these reasons, I made the orders sought by Aus Tin Mining on 23 September 2020.

Associate:    

Dated:    29 January 2021