\ CATCHWORDS CORPORATIONS LAW - expression of intention to issue a Part C statement when undecided that take-over offer or take-over announcement to be effected - whether necessary to determine that Ch.7 or any other law relating to trading or securities contravened before jurisdiction of Court to make order under s.1114 enlivened. Securities Industry Act 1970 sub-s.5B(2) Companies (Acquisition of Shares) (Victoria) Code sub-s.14(1) Corporations Law Ch.6, 7; Pt C; ss.603 674, 675, 746, 750, 995, 1114; sub-ss.746(2), (8), 995(2), 1005(1), 1114(1), (4); paras.746(2)(a), 1114(1)(a), (f), (h); sub- paras .995(2)(b)(ii), (iv), 1114(1)(a)(i) Gjergja v. Cooper [1987] V.R. 167 N.C.S.C. v. Monarch Petroleum [1984] V.R. 733 Waldron v. M.G. Securities [1975] V.R. 508 AUSTRALIAN SECURITIES COMMISSION V. MOUNT BURGESS GOLD MINING COMPANY NL A.C.N. 009 067 476 AND MARK RICHARDS & ASSOCIATES PTY. LTD. A.C.N. 005 980 718 AND JOHN GEORGIOPOULOS (ALSO KNOWN AS JOHN GEORGE) AND AUSTRALIAN STOCK EXCHANGE LIMITED A.C.N. 008 624 691 AND HOGAN & PARTNERS AND NERGAR NOMINESS PTY. LTD. A-C.N. 008 831 829 WAG3037 OF 1994 LEE J. PERTH 8 DECEMBER 1994 RECEIVED 20 FEB 1995 FEDERAL COURT OF AUSTRALIA PRINCIPAL REGISTRY ae JUDGMENT No. cul 22S srl nA ee IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION BETWEEN: JUDGE MAKING ORDER: DATE OF ORDER: WHERE MADE: LIMITED DISTRIBUTION NO. WAG3037 OF 1994 AUSTRALIAN SECURITIES COMMISSION Applicant and MOUNT BURGESS GOLD MINING COMPANY NL A.C.N. 009 067 476 First Respondent and MARK RICHARDS & ASSOCIATES PTY. LTD. A.C.N. 005 980 718 Second Respondent and JOHN GEORGIOPOULOS (ALSO KNOWN AS JOHN GEORGE) Third Respondent and AUSTRALIAN STOCK EXCHANGE LIMITED A.C.N. 008 624 691 Fourth Respondent and HOGAN & PARTNERS AND NERGAR NOMINEES PTY. LTD. A.C.N. 008 831 829 Fifth Respondents MINUTE OF ORDER LEE J. 8 DECEMBER 1994 PERTH THE COURT ORDERS AND DECLARES THAT: The contracts for the sale and purchase of the shares in the first respondent are to be declared voidable at the option of the purchasers, such option to be exercised until 14 December 1994. The second and third respondents jointly, and severally, indemnify the vendors for consequential losses suffered by reason of the exercise by a purchaser of the option to treat a transaction for the purchase of shares in the first respondent as void. Any interest in the shares or in the proceeds of the sale of shares in the first respondent held by either the second or third respondent, as unpaid vendors, are to vest in the applicant until further order. There is liberty to apply in respect of the foregoing. The second and third respondents jointly, and severally, pay the costs of the applicant, the fourth respondent and fifth respondent. if i § y g The second and third respondents jointly, and severally, pay on an indemnity basis the reasonable costs incurred by the applicant. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION wee ew BETWEEN: CORAM: LEE J. DATE : 8 DECEMBER 1994 PLACE: PERTH LIMITED DISTRIBUTION NO. WAG3037 OF 1994 AUSTRALIAN SECURITIES COMMISSION Applicant and MOUNT BURGESS GOLD MINING COMPANY NL A.C.N. 009 067 476 First Respondent and MARK RICHARDS & ASSOCIATES PTY. LTD. A.C.N. 005 980 718 Second Respondent and JOHN GEORGIOPOULOS (ALSO KNOWN AS JOHN GEORGE) Third Respondent and AUSTRALIAN STOCK EXCHANGE LIMITED A.C.N. 008 624 691 Fourth Respondent and HOGAN & PARTNERS AND NERGAR NOMINEES PTY. LTD. A.C.N. 008 831 829 Fifth Respondents REASONS FOR JUDGMENT This is an application by the Australian Securities Commission ("the Commission") for orders under para.1114(1)(f£) of the Corporations Law ("the Law") declaring contracts relating to the sale and purchase of shares in Mount Burgess Gold Mining Company NL ("Mt. Burgess") effected on the Australian Stock Exchange ("ASX"), between 10.47 a.m. and 11.41 a.m. (W.S.T.) 2 November 1994 or in "off market transactions" made between 10.47 a.m. 2 November 1994 and 11.21 a.m. (W.S.T.) 3 November 1994, to be void, or voidable at the option of the purchaser. On 1 November 1994 the third respondent ("George") purportedly, as Managing Director of the second respondent ("Mark Richards") contacted one Forrester, the Managing Director of Mt. Burgess and advised that Mark Richards "and associated persons" had established a shareholding in Mt. Burgess and intended to make a takeover offer for Mt. Burgess shares. On 2 November 1994, by facsimile transmissions made before 8.00 a.m. (W.S.T.), a letter addressed to Mt. Burgess on a letterhead entitled "Cherry Lane Group" was delivered to Mt. Burgess and to Sons of Gwalia Limited. It is said that Mark Richards carries on business under the name Cherry Lane Group. The base of the letterhead bore the following printed statement: "Associated Companies Mark Richards & Associates Pty. Ltd. A.C.N. 005 980 718 Thirty Seventh Fiddle Pty. Ltd. A.C.N. 006 795 026 Carrington Pty. Ltd. A.C.N. 007 057 776" The letter read as follows: "Attention: Mr.Nigel Forrester Dear Sir, Following our conversation last night we are writing to you to advise you of our intention to issue a Part C pitched at .40¢ a share. We urge you to accept this, in the intrest (sic) of all concerned with Mt.Burgess. If you have any questions please do not hesitate to ring me. Yours faithfully, (Signed) JOHN P.GEORGE MANAGING DIRECTOR" In compliance with the Australian Stock Exchange Listing Rules 3A(1) and 3R(2) Forrester advised the Perth office of the ASX of the receipt of the facsimile and forwarded a copy to the ASX for release to the market. To allow the market to consider that information the ASX suspended trading in Mt. Burgess shares for approximately one hour. The suspension was lifted 10.47 a.m. and thereafter Mt. Burgess shares were traded at prices ranging between 37 cents and 42.5 cents. Prior to the release of the information Mt. Burgess shares had traded between 31 and 34 cents. Between 10.47 a.m. and 11.41 a.m. there were 96 transactions on the ASX in which 3,143,000 Mt. Burgess shares were traded for a total value of $1,213,360. Shortly before 11.41 a.m. George made two telephone calls to the Executive Director of the Perth branch of the ASX and stated that notwithstanding the content of the facsimile letter forwarded to Mt. Burgess, the issue of a "Part C" was "still subject to negotiation". George was advised that the market was trading on the basis that Mark Richards had announced an intention to make a takeover bid. George was told he should obtain advice and advise the ASX forthwith. In the absence of further information from George, trading in Mt. Burgess shares was suspended again at 11.41 a.m. The suspension remained in place until 11 November 1994, On 3 November 1994, again on a letterhead entitled Cherry Lane Group, George as "Managing Director" caused the following letter to be transmitted to Mt. Burgess. by facsimile: "Attention: Mr Nigel Forrester Dear Sir I refer to my letter yesterday and our subsequent telephone conversations. I understand that you have released my letter yesterday to the Australian Stock Exchange, purportedly in compliance with Listing Rule 3R(2)- As I made clear in our discussions before and after my letter yesterday, I wished my communications concerning a possible future takeover bid to be kept strictly private and confidential until the basis of a bid which your directors would be prepared to recommend had been concluded. My letter was issued yesterday at your specific request merely to demonstrate my bona fides in wishing to negotiate with you. It was a private letter provided to you in confidence and you were not authorised to release it to the Australian Stock Exchange or to any other person. My intention has always been clearly expressed to you in our discussions. The group had and has no present intention of making a takeover bid for your company, and the release of my letter yesterday to the Australian Stock Exchange was quite premature to say the least. You should therefore consider yesterday's letter withdrawn. Could you please ensure that this letter is released to the Australian Stock Exchange immediately to clarify our position. Yours faithfully (Signed) John George Managing Director" Mt. Burgess sent a copy of the letter with the following response to the ASX: "Attention: Graeme Faulkner Dear Sir, Cherry Lane Group I am enclosing a letter received this morning from the Cherry Lane Group which states that the group had and has no present intention of making a takeover bid for the Company. There are certain allegations in this letter which need to be clarified as they are both misleading and incorrect. With reference to the first paragraph. I have only had one telephone conversation with Mr George and that was on the evening of November lst 1994. Since the receipt of his letter on November 2nd 1994 we have not had any telephone conversations. With reference to the third paragraph, again I should like to point out that we have not had any discussions since the receipt of his letter. So far as the one conversation was concerned at no time was there any reference to confidentiality. The entire conversation consisted of Mr George informing me that he, as part of a group of shareholders representing 7.5 million shares, intended making a bid for the . Company at 40 cents per share whereupon he asked me if I would accept the offer. I told him that I was not interested. There was absolutely no discussion whatsoever with regard to the Directors of Mount Burgess negotiating a basis for a bid which could be recommended. With reference to the fourth paragraph at no time during my one and only conversation with Mr George did I request any letter. Yours faithfully, (Signed) N R Forrester Chairman & Managing Director" The two letters were released to the market by the ASX at 11.21 a.m. on 3 November 1994. On 4 November 1994, upon the application of the Commission, the Court made an order that Mt. Burgess be restrained until further order from registering any transfer of shares in the company pursuant to any transaction effected on the ASX between 10.47 a.m. and 11.41 a.m. 2 November 1994, or off-market between 10.47 a.m. 2 November 1994 and 11.21 a.m. on 3 November 1994. On 8 November 1994 the Court made a further order that the ASX be joined as a party to the proceedings and that the ASX be restrained from facilitating the settlement of any transfers of shares in Mt. Burgess pursuant to any transaction effected on the ASX between 10.47 a.m. and 11.41 a.m. 2 November 1994. Also, an order was made directing the Commission to forward a letter to brokers involved in the trading of shares in Mt. Burgess in the relevant periods requesting the brokers to advise their clients that the clients should inform the Commission of any matters the clients would like the Commission to take into account when making submissions in the matter. On 14 November 1994 a further order was made that the brokers Hogan and Partners and Nergar Nominees Pty. Ltd. be joined as a fifth respondent to represent the interests of vendors who opposed the orders sought by the Commission. Section 603 of the Law defines "Part C statement" as a written statement that complies with the requirements of Part C in s.750 of the Law. Part C in s.750 sets out in mandatory terms the text of the statement to be given by the offeror under a takeover announcement. Sections 674 and 675 set out the procedure for making a takeover announcement to the market. Section 1114 of the Law is contained in Ch.7 which provides for the regulation of dealings in securities. relevant parts of s.1114 are as follows: "Where: (a) (d) (e) (f£) (g) (h) on the application of the Commission, it appears to the Court that a person: (i) has contravened this Chapter, or any other law relating to trading or dealing in securities; the Court may grant such order or orders as it thinks f1t, including, but without limiting the generality of the foregoing, one or more of the following orders: an order restraining a person from acquiring, disposing of or otherwise dealing with any securities that are specified in the order; an order appointing a receiver of the property of a dealer or of property that is held by a dealer on behalf of another person, whether in trust or otherwise; an order declaring a contract relating to securities to be void or voidable; for the purpose of securing compliance with any other order under this section, an order directing a person to do or refrain from doing a specified act; any ancillary order considered to be just and reasonable in consequence of the making of an order under any of the preceding provisions." The The Commission contends that the conduct engaged in by Mark Richards and George on 2 and 3 November 1994 was conduct likely to mislead or deceive in connection with dealings in Mt. Burgess shares and, therefore, contravened sub-paras .995(2)(b)(ii), (iv) contained in Ch.7. Sub-section 995(2) relevantly reads as follows: "A person shall not, in or in connection with: (a) any dealing in securities; or (b) without limiting the generality of paragraph (a): (i) the allotment or issue of securities; (ii) any prospectus issued, or notice published, in relation to securities; (Lii) the making of takeover offers or a takeover announcement, or the making of an evaluation of, or of a recommendation in relation to, takeover offers or offers constituted by a takeover announcement; or (iv) the carrying on of any negotiations, the making of any arrangements or the doing of any other act preparatory to or in any other way related to any matter referred to in subparagraph (i), (ii) or (il); engage in conduct that is misleading or deceptive or is likely to mzslead or deceive." The Commission also contends that by sending the facsimile to Mt. Burgess and Sons of Gwalia Limited on 2 November 1994, Mark Richards and George made a public announcement to the effect that they proposed to cause a takeover offer or takeover announcement to be made where both - 10 - the second and third respondents knew that the announcement was false or was recklessly indifferent to whether it was true or false and contravened para.746(2)(a) of the Law. Section 746 appears in Ch.6 of the Law dealing with the acquisition of shares. The Commission submitted that s.746 was "any other law relating to trading or dealing in securities" referred to in para.1114(1)(a). The Commission submitted that the phrase "public announcement" should be given a broad construction. A narrow construction of the phrase, it was submitted, would negate the the protection intended to be provided by s.746. The power of the Court to make an order pursuant to s.111¢4 is discretionary and is enlivened where "it appears" to the Court that a person has contravened Ch.7 or any other law relating to trading or dealing in securities. It is not necessary for the Court to determine as a fact that cCh.7, or any other law relating to trading or dealing in securities, has been contravened before jurisdiction to make an order under s.1114 is obtained. Sub-sections 746(8) and 1005(1) of the Law provide private rights of remedy for persons who suffer loss or damage as a result of contraventions of ss.746 and 995 of the Law. Those rights are not pursued in these proceedings, either by ~ li - persons affected or by the Commission on their behalf, and a declaration that either section has been contravened should not be made in the absence of appropriate parties where rights of those parties may be affected by such declarations. It is readily apparent that the conduct of Mark Richards and George on 1, 2 and 3 November 1994 in respect of the possible announcement of the takeover bid for shares in Mt. Burgess was in connection with the doing of any act preparatory to the making of a takeover offer or takeover announcement and that, on its face, the conduct was such that it could be said that it was likely to mislead or deceive any person relying upon that conduct. Therefore, it appears to the Court that there has been a contravention of sub- para.995(2)(b)(iv) of the Law, being a contravention to which sub-para.1114(1)(a)(i) of the Law applies. It may also be said that on the information presently before the Court it appears that a public announcement was made to the effect that a takeover offer or takeover announcement would be made when, at the time of that announcement, it had not been decided that such an offer or announcement would be made and, therefore, a contravention of sub-s.746(2) of the Act occurred. - 12 - Such material as has been adduced by Mark Richards and George, falls well short of an explanation of the conduct engaged in and leaves room for considerable speculation as to its purpose. In a commercial context the conduct is bizarre. The conduct of Mark Richards and George leading to the inevitable release of the letter of 2 November 1994 to the market, deceived the market to such an extent that the consequence differed little from a fraudulent act. The declaration of an imminent bid introduced a floor price for the shares that created a false market. George deposed that the letter of 2 November 1994 addressed to Mt. Burgess "was a purely introductory letter and was intended to lead to further discussions with Mr. Forrester regarding the possible sale to me of Mt. Burgess shares held by Mr. Forrester." There is little or no material in the letters to support such a construction. The question, therefore, is what order or orders should be made pursuant to s.1114 of the Law. It is not relevant to the operation of s.1114 whether the conduct engaged in was a deliberate breach of the Law, or committed in ignorance of its terms. -13- The Court must exercise its discretionary powers under s.1114 with the purpose and object of the Law firmly in mind. In particular, the orders should be fashioned to meet the objects of the legislation. The purpose of the Law is to ensure "that the acquisition of shares in a company takes place in an efficient, competitive and informed market". (See: Gjergja v. Cooper [1987] V.R. 167 at 215.) In other words the Law seeks to establish and preserve the integrity of the market. The legislative purpose behind s.746 is to restrict the making of a public announcement to the effect that a takeover bid is to be made in relation to a target company without the offerer following through with the offer. Section 995 is a general provision prohibiting misleading or deceptive conduct. Both these sections are directed to preventing distortion of the market. I am satisfied that the Court should exercise its discretion in favour of making the orders sought by the applicant. It is in the public interest, and in keeping with the objects of the Law, that the transactions effected on 2 and 3 November 1994 be set aside, subject to the consideration o£ sub-s.1114(4). It is in the public interest that the community should have confidence that any attempt to distort the market is rendered fruitless and that investors be - 14 - confident that they do not bear the consequences of participating in a market falsified by misinformation or manipulation. (See: N.C.S.C. v. Monarch Petroleum [1984] V.R. 733 at 741.) Sub-section 1114(4) provides that the Court shall not make an order under sub-s.1114(1) "if it is satisfied that the order would unfairly prejudice any person" In Gjergja, McGarvie and Ormiston JJ. gave detailed consideration to sub- s.14(1) of the Companies (Acquisition of Shares) (Victoria) Code, an equivalent to sub-s.1114(4) of the Law. Their Honours applied the reasoning of Pape J. in Waldron v. 4M.G. Securities [1975] V.R. 508 who considered the effect of sub- s.5B(2) of the Securities Industry Act 1970 which was, in turn, identical to sub-s.14(1) of the Companies (Acquisition of Shares) (Victoria) Code. Pape J. said of sub-s.5B(2) at 532: "The Act gives no guidance as to what constitutes unfair prejudice and it would appear that the Court is left at large to determine each case according to the justice and equity of the circumstances." In formulating the appropriate order in the circumstances of the case the Court should have regard to the various interests to be reconciled. In this case the purchasers and vendors of the shares in the first respondent were equally deceived by acting on the faith of the representation contained in the facsimile of 2 November 1994. It is difficult to distinguish the extent to which prejudice suffered by one party will outweigh the prejudice suffered by another party in the circumstances of this case. It was submitted that unless an order were made declaring the transactions to be void, the vendors would receive a "windfall" profit. I have not been persuaded that such a consideration outweighs all others. The effect of making an order in the terms sought by the Commission would be that the vendors could not obtain the benefit of selling Mt. Burgess shares at an inflated price and the purchasers would be returned to the same position they would have been in if the transactions had not been effected thereby saving them from apparent loss. However, in the course of these proceedings, the vendors have been unable to re-sell their shares whilst the transactions have remained on foot, although at all times the vendors and purchasers may have made an agreement to set the transactions aside. In determining the appropriate orders to be made I have taken into account the words of Ormiston J. in Gjergja where his Honour states at 216: - 16 - "Where a contravention occurs and it seems likely that one or more of those objects will be defeated if an acquisition is allowed to stand, then prima facie any exercise of the discretions given to the Court under the Code which enables all parties to return to the positions they were in before the impugned acquisition took place is a proper exercise of that discretion." It is possible, however, that certain purchasers may wish to complete their contracts for the purchase of Mt. Burgess shares and the order to be made should be limited to a declaration that the relevant transactions are to be made voidable at the option of the purchasers, such options to be exercised until 14 December 1994, four working days from today's date. To enable the vendors to be put in the position they were in prior to 2 and 3 November 1994 there should be an ancillary order pursuant to para.1114(1)(h) of the Law that Mark Richards and George jointly, and severally, indemnify the vendors for any consequential losses suffered by reason of the exercise by a purchaser of the option to treat a transaction for the purchase of Mt. Burgess shares as void. Further, any interest in shares, or in the proceeds of the sale of shares in Mt. Burgess, now held by Mark Richards or George, as unpaid vendors, are to vest in the Commission until further order. -17- In respect of the foregoing orders there will he liberty to apply. As to the matter of the costs of this application, Mark Richards and George jointly, and severally, are to pay the costs of the Commission, the ASX, and the fifth respondent. Compliance by Mt. Burgess with the ASX Listing Rules alerted the Commission to possible contravention of the Law and the need to commence proceedings. Mt. Burgess thereupon incurred costs aS a respondent to these proceedings. Persons who possess information relevant to due enforcement of the Law should not be dissuaded from complying with Listing Rules or the Law by the threat of incurring costs by reason of such compliance. It is appropriate that the order for costs in favour of Mt. Burgess recognise the degree to which the conduct of Mark Richards and George interfered with the affairs of Mt. Burgess. Further, the shareholders of Mt. Burgess should not have to carry any additional financial burden. For those reasons I will accede to the request by Mt. Burgess that there be an order that Mark Richards and George - 18 - jointly, and severally, pay on an indemnity basis the reasonable costs incurred by Mt. Burgess. I certify that this and the preceding seventeen (17) pages are a true copy of the Reasons for Judgment of his Honour Justice Lee. Associate: € Puakehord Dates BS Recombrryr (AGA - - 19 - APPEARANCES Counsel for the Applicant: F.E. Low Solicitors for the Applicant: Regional General Counsel (W.A.) Australian Securities Commission Counsel for the First Respondent: A.F. Mizen Solicitor for the First Respondent: Alan Mizen Counsel for the Second and Third Respondents: P.C. Doherty Solicitors for the Second and Third Respondents: Minter Ellison Northmore Hale Counsel for the Fourth Respondent: W.E. Moncrieff Solicitor for the Fourth Respondent: W.E. Moncrieff Counsel for the Fifth Respondent: P. Jooste Solicitor for the Fifth Respondent: Parker and Parker 8 December 1994 8 December 1994 Date of Hearing Date of Judgment