FEDERAL COURT OF AUSTRALIA Direct Share Purchasing Corporation Pty Ltd v LM Investment Management Limited [2011] FCA 165 Citation: Direct Share Purchasing Corporation Pty Ltd v LM Investment Management Limited [2011] FCA 165 Parties: DIRECT SHARE PURCHASING CORPORATION PTY LTD (ACN 114 693 168) v LM INVESTMENT MANAGEMENT LIMITED (ACN 007 208 461) File number: VID 935 of 2010 Judge: GORDON J Date of judgment: 2 March 2011 Date of hearing: 25 February 2011 Date of last submissions: 25 February 2011 Place: Melbourne Division: GENERAL DIVISION Category: No Catchwords Number of paragraphs: 42 Counsel for the Plaintiff: IG Waller SC Solicitor for the Plaintiff: Piper Alderman Counsel for the Defendant: S Doyle SC with AC Stumer Solicitor for the Defendant: Allens Arthur Robinson IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 935 of 2010 IN THE MATTER OF LM INVESTMENT MANAGEMENT LIMITED (ACN 007 208 461) BETWEEN: DIRECT SHARE PURCHASING CORPORATION PTY LTD (ACN 114 693 168) Plaintiff AND: LM INVESTMENT MANAGEMENT LIMITED (ACN 007 208 461) Defendant JUDGE: GORDON J DATE OF ORDER: 2 MARCH 2011 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The application is dismissed. 2. No order as to costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 935 of 2010 IN THE MATTER OF LM INVESTMENT MANAGEMENT LIMITED (ACN 007 208 461) BETWEEN: DIRECT SHARE PURCHASING CORPORATION PTY LTD (ACN 114 693 168) Plaintiff AND: LM INVESTMENT MANAGEMENT LIMITED (ACN 007 208 461) Defendant JUDGE: GORDON J DATE: 2 MARCH 2011 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 The plaintiff, Direct Share Purchasing Corporation Pty Ltd (Direct Share), was registered on 9 June 2005. Mr David Tweed (Mr Tweed) is its sole shareholder, director and secretary. 2 Direct Share admits that: 1. it conducts a business of acquiring financial products from members of the public; and 2. it sends offers to the holders of shares in public companies or the holders of units in a managed investment scheme and invites the holders to accept the offer by completing an acceptance form and returning it to Direct Share in a reply paid envelope provided by Direct Share. 3 By an application dated 1 November 2010, Direct Share sought an order pursuant to s 1303 of the Corporations Act 2001 (Cth) (the Act) or an injunction under s 1324 of the Act, to compel LM Investments Management Limited (LM Investments) to provide to Direct Share a copy of the list of member unitholders (the Register) of LM First Mortgage Income Fund (the Fund). Direct Share alleged that LM Investments contravened s 173(3) of the Act by failing to provide Direct Share with a copy of the Register. 4 LM Investments is the responsible entity and trustee of the Fund. The Fund is a unit trust and a registered managed investment scheme under Ch 5C of the Act. The Fund has net assets of approximately $487 million. As at 23 December 2010, the calculated unit price was $1.00. A significant number of investors in the Fund are elderly: 595 investors are aged 70 or over, 290 investors are aged 80 or over and 55 investors are aged 90 or over. 5 On 30 September 2010, Direct Share, by its agent (EC Legal) sent a letter to LM Investments requesting a copy of the Register (the Request). On 4 October 2010, EC Legal sent a further letter to LM Investments stating that as LM Investments had received the Request on 1 October 2010, the seven day period, pursuant to s 173(3) of the Act, in which the Register was to be provided expired on 8 October 2010. LM Investments did not provide a copy of the Register. 6 On 20 October 2010, EC Legal sent a further letter to LM Investments requesting a copy of the Register to be provided by 25 October 2010 and stating that "failure to produce [the Register] would result in proceedings being commenced to compel production". LM Investments did not respond to Direct Share's letter and did not provide a copy of the Register. Proceedings were commenced by Direct Share on 1 November 2010. 7 At the time of the Request, s 173(1) and (3) of the Act provided: (1) A company or registered scheme must allow anyone to inspect a register kept under this Chapter … … (3) The company or scheme must give a person a copy of the register (or a part of the register) within 7 days if the person: (a) asks for the copy; and (b) pays any fee (up to the prescribed amount) required by the company or scheme. 8 Reference must also be made to s 177(1) and (1A) of the Act. At the time of the Request they provided (and continue to provide): (1) A person must not: (a) use information about a person obtained from a register kept under this Chapter to contact or send material to the person; or (b) disclose information of that kind knowing that the information is likely to be used to contact or send material to the person. Note: An example of using information to send material to a person is putting a person's name and address on a mailing list for advertising material. (1A) Subsection (1) does not apply if the use or disclosure of the information is: (a) relevant to the holding of the interests recorded in the register or the exercise of the rights attaching to them; or (b) approved by the company or scheme. (Emphasis added.) 9 On 13 December 2010, the Corporations Amendment (No 1) Act 2010 and the Corporations Amendment Regulations 2010 (No 10) commenced. Those Acts introduced a new s 173(3A) which provides: An application is in accordance with this subsection if: (a) the application states each purpose for which the person is accessing the copy; and (b) none of those purposes is a prescribed purpose; and (c) the application is in the prescribed form. 10 Prescribed purposes are set out in the Regulations. Regulation 2C.1.03(d) prescribed the following purpose: Making an offer or invitation to which Division 5A of Part 7.9 of the Act applies. 11 Division 5A of Pt 7.9 of the Act is governed by s 1019D(1) of the Act. Section 1019D(1) states: This Division applies to an offer in relation to which the following paragraphs are satisfied: (a) the offer is an unsolicited offer to purchase a financial product made by a person (the offeror) to another person (the offeree); (b) the offer is made otherwise than on a licensed market; … (d) the offer is not: … (iv) to acquire securities under an off-market bid; … (e) the offer is made or received in this jurisdiction. 12 The new s 173(3A) is not retrospective: see s 1516(1) of the Act for the transitional provisions relating to the amendment. The amendment only applies to applications made after 13 December 2010. However, the use of the Register and the prohibition attached to the use to which it might be put does apply whether the request for the register was made before, at, or after the commencement of s 177(1AA) of the Act: s 1516(2) of the Act. 13 The amended s 177(1AA) states: A person must not: (a) use information obtained from a register kept under this Chapter for any purpose prescribed by regulations made for the purposes of paragraph 173(3A)(b); or (b) disclose information of that kind knowing that the information is likely to be used for any such purpose. 14 Direct Share's application for the Register was opposed by LM Investments. Before turning to the facts and the grounds of objection, a number of other matters should be noted. 15 On 21 February 2011 (some 4 days before trial), LM Investments filed written submissions in support of their contention that: 1. there was no obligation on LM Investments to produce the Register because the request was for an unlawful purpose because at the time that Direct Share requested the Register, Direct Share intended to use the information on the Register to engage in unconscionable conduct by making unsolicited, off-market offers to vulnerable and inexperienced persons on the Register in contravention of s 51AC of the Trade Practices Act 1974 (Cth) (the TPA) and s 12CA of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act); and 2. as a matter of statutory construction, there was no contravention of s 173(3) of the Act because the obligation to provide a register is qualified by the prohibition expressed in s 177(1)(b) of the Act. 16 At the end of its written submissions, LM Investments made the following open offer: If Direct Share is willing to give such an undertaking, appropriate orders in [the] matter would be as follows: Upon the undertaking of the plaintiff to: 1. use information obtained from the Register of the First Mortgage Income Fund (the Fund) for no purpose other than to make offers in New Zealand to purchase units in the Fund from persons with registered addresses in New Zealand; 2. make any such offers in the form annexed to this order as Annexure A [Annexure A was exhibited as Annexure A to the affidavit of Mr Morris sworn on 17 February 2011]; 3. make any such offers within three months of the date of this order; 4. stipulate a price in any such offers of $0.90 per unit in the Fund; 5. not disclose the Register or a copy of the Register, or any information contained on the Register to any person (except that the name and address of each recipient of an offer may be included on the offer sent to that person); The Court orders that: 1. within 7 days, [LM Investments] provide to [Direct Share] a copy in readable form of that part of the Register which shows the name and addresses of persons with addresses in New Zealand; 2. the application otherwise be dismissed; 3. [Direct Share] pay [LM Investments] costs of and incidental to the application on the standard basis up to and include the day on which [Direct Share] gives the above undertaking and thereafter there be no order as to costs. 17 Direct Share did not respond to the offer. Instead, after each party had closed their case (which included cross examination of the executive director of LM Investments), Counsel for Direct Share, in response to a question from the Court, for the first time informed the Court and LM Investments that it was willing to give the undertaking in accordance in the terms proposed by LM Investments and agreed with paragraph 1 of the proposed orders but did not agree that the application should be dismissed or with the proposed costs orders. In short, Direct Share stated that it wanted its costs of the application and wished to pursue paragraph 1 of its Application filed on 1 November 2010, namely: A declaration that [LM Investments], by failing to provide [Direct Share] with a copy of the register of members of the LM First Mortgage Income Fund (the Register) contravened section 173(3) of the Act. 18 It is to those two questions – a declaration and costs – that are left for determination. I will address the parties' respective contentions about the contravention of the Act, then the question of the declaratory relief and finally the question of costs. Contravention of s 173(3) of the Corporations Act? 19 Direct Share submits that LM Investments contravened s 173(3) of the Act by failing and refusing to give Direct Share a copy of the Register in October 2010. Before turning to the proper construction of the Act, two matters should be noted. The Court is concerned with the legislation as it stood at the time of the request – 8 October 2010. The Act has since been substantively amended: see [9] above. The question of contravention of s 173(3) of the Act falls to be determined under the law as it existed at 8 October 2010. Secondly, resolution of the proper statutory construction of s 173 of the Act must start with the text of the statute: Spencer v Commonwealth (2010) 269 ALR 233 at [50] and the authorities there cited. 20 Section 173(3) of the Act provided that a company, such as LM Investments, must give a person a copy of the register (or part of the register), within seven days of a person asking for a copy and paying the prescribed fee: s 173(3) (see above at [7]). Here, Direct Share asked for a copy and paid the prescribed fee on 30 September 2010: see [5] above. 21 Notwithstanding the request, LM Investments did not respond to the Request: see [5] above. At trial it submitted that the obligation under s 173(3) was qualified by the prohibition in s 177(1)(b) of the Act and, further or alternatively, there was no obligation on LM Investments to produce the Register because the request was for an unlawful purpose because at the time that Direct Share requested the Register, Direct Share intended to use the information on the Register to engage in unconscionable conduct by making unsolicited, off-market offers to vulnerable and inexperienced persons on the Register in contravention of s 51AC of the TPA and s 12CA of the ASIC Act. Direct Share rejected those contentions and submitted that the obligation was unqualified. 22 In my view, as at 8 October 2010, the obligation on LM Investments was unqualified. That conclusion requires explanation. Corporations Act – ss 173 and 177 23 Section 173(1) is in mandatory terms. A failure to comply with s 173(3) is a strict liability offence: s 173(9A) of the Act. Chapter 2C of the Act (of which s 173(3) forms part) was intended to facilitate "rapid and easy access to information": Explanatory Memorandum to the First Corporate Law Simplification Bill 1994, para 7.13 and the Second Reading Speech, House of Representatives, 8 February 1995, 708-9 and 712. 24 As noted above, the first qualification to this mandatory obligation relied upon by LM Investments was said to be s 177 of the Act. Section 177 provides: (1) A person must not: (a) use information about a person obtained from a register kept under this Chapter to contact or send material to the person; or (b) disclose information of that kind knowing that the information is likely to be used to contact or send material to the person. Note: An example of using information to send material to a person is putting a person's name and address on a mailing list for advertising material. (1A) Subsection (1) does not apply if the use or disclosure of the information is: (a) relevant to the holding of the interests recorded in the register or the exercise of the rights attaching to them; or (b) approved by the company or scheme. (Emphasis added.) 25 LM Investments submitted that s 177(1)(b) prohibits the disclosure of a register when the person making the disclosure knows that information from the register is likely to be used to contact or send material to a person on the register and that on a plain reading of the two provisions, the prohibition on disclosure in s 177(1)(b) qualifies the duty of disclosure in s 173(3). That is, that a company or a scheme is under no obligation to disclose its register if it knows that information from the register is likely to be used to contact or send material to persons on the register. 26 This is not however the first time that this question has arisen. It was considered by Byrne J in O'Brien v Sporting Shooters Association of Australia (Vic) [1999] 3 VR 231 and by Heenan J in Westgold Resources NL v Precious Metals Australia Ltd (2002) 171 FLR 20. The reasons for decision are not consistent. In O'Brien, Byrne J held that "the rights to inspect a register and to get a copy of it which are conferred by s 173 [were] not to be read down except in so far as s 177(1) so provides" (at [19]). In Westgold, Heenan J did not address the issue directly but at paragraphs [25] and [26] of his Honour's reasons for decision, appears to have assumed that the production obligation under s 173 was not qualified by the use prohibitions in s 177(1). 27 In the end, this apparent inconsistency may be put to one side. Even if s 173(3) is qualified by s 177(1)(b) (about which I form no concluded view), the proposed use of the Register by Direct Share fell squarely within s 177(1A). That is, s 177(1) of the Act (the use prohibition) does not apply if the use or disclosure of the information is "relevant to the holding of the interests recorded in the register or the exercise of the rights attaching to them". In the present case, that is precisely what Direct Share stated that it intended to do with the Register and about which LM Investments complains – to use the information on the Register to contact the unitholders and seek to have them exercise their rights in relation to those units by selling them to Direct Share. 28 For those reasons, I reject LM Investments' contention that because its obligation to provide the Register to Direct Share was qualified by s 177 of the Act, it was not obliged to provide a copy of the Register to Direct Share. ASIC ACT AND TPA 29 The second basis for qualification contended for by LM Investments was said to be s 12CA of the ASIC Act and s 51AC of the TPA. 30 At the time Direct Share asked for a copy of the Register, it intended to use the information in the Register to make unsolicited offers to unitholders resident in Australia for the purchase of their units in the Fund in accordance with the existing laws, including Pt 7.9 of Div 5A of the Act. ASIC Act 31 Unconscionable conduct and consumer protection under the ASIC Act was considered by the Full Court in Australian Securities Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132 at [26] – [45] (on appeal from Emmett J in Aevum Ltd v National Exchange Pty Ltd (2004) 142 FCR 316). 32 National Exchange was another David Tweed entity. Emmett J described the provisions as follows: 16 Under s 12BAB(1)(h) of the ASIC Act, a person provides a financial service if that person engages in conduct of a kind prescribed in regulations made for the purposes of that provision. Section 12BAB(2)(b) provides that the regulations may set out the circumstances in which persons are taken to provide, or are taken not to provide, a financial service. The Australian Securities and Investments Commission Regulations 2001 (Cth) have been made under the ASIC Act ('the ASIC Regulations'). Regulation 2C(1) of the ASIC Regulations relevantly provides that a person (Person 1) provides a financial service if Person 1 makes an unsolicited offer to purchase shares from another person (Person 2), other than through a licensed financial market, and Person 2 acquired the shares as a retail client. Under reg 2C(2) of the ASIC Regulations a person to whom reg 2C(1) applies (as Person 1) is taken not to provide a financial service if Person 1 tells Person 2 in a clear and concise written statement that is part of the offer that the offer remains open for a period that is at least one month and not more than 12 months, unless the offer is withdrawn in writing before the end of that period. 17 Section 12CA(1) of the ASIC Act provides that a person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories. However, s 12CA(1) does not apply to conduct prohibited by s 12CB. 18 Section 12CB(1) of the ASIC Act provides that a person must not, in trade or commerce, in connection with the supply or possible supply of financial services to a person, engage in conduct that is, in all the circumstances, unconscionable. However, under s 12CB(5), a reference in s 12CB to financial services is a reference to financial services of a kind normally acquired for personal, domestic or household use. The Commission accepted that, by reason of s 2CB(5), s 12CB has no application in the present circumstances. 19 Section 12CC(1)(a) provides that a person must not, in trade or commerce, in connection with the supply or possible supply of financial services to another person engage in conduct that is, in all the circumstances, unconscionable. Section 12CC(2) sets out a number of matters to which the Court may have regard for the purpose of determining whether a person has contravened s 12CC(1) in connection with the supply or possible supply of financial services to another person. Section 12CC(6) provides that a reference in s 12CC to the supply or possible supply of financial services is a reference to the supply or possible supply of financial services to a person whose acquisition or possible acquisition of the financial services is, or would be for the purpose of trade or commerce. 20 Section 12DF(1) of the ASIC Act provides that a person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose or the quantity of any financial services. (Emphasis in original.) 33 For present purposes, ss 12CC and 12DF may be put to one side. LM Investments relied upon s 12CA. As noted above (see [32]), s 12CA(1) of the ASIC Act provides that a person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories. 34 LM Investments submitted that Direct Share's conduct would be in contravention of s 12CA of the ASIC Act. The allegation had to be prospective because, unlike the steps taken by National Exchange in Aevum, at the time of the hearing Direct Share had not obtained access to the Register and had not sent out unsolicited offers to unitholders in the Fund whether at market price, below market price or well below market price. It seems to me that it is only when Direct Share ultimately communicates with unitholders that its conduct can be judged by reference to the unwritten law. I accept that by that time, any unconscionable conduct might have already occurred. However, that is not necessarily the outcome. One can envisage circumstances where a Court might grant an interlocutory injunction seeking to restrain anticipatory unconscionable conduct on the part of a company about to send out unsolicited offers to persons on a register. Such an application would of course need to be filed and would then be considered on its merits by reference to a very different standard: Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 at [65] – [72]. That did not occur here. LM Investments did not apply for an injunction. 35 Before leaving this aspect, reference should be made to the decision of the Full Court in National Exchange. That Court was not dealing with s 12CA. That Court was concerned only with s 12CC of the ASIC Act: see (2005) 148 FCR 132 at [27] and [28]. 36 In any event, it is not altogether clear how notions of unconscionability could intersect with s 173 of the Act. It is however not necessary to explore those issues or express any view about them. Section 51AC of the TPA 37 For the same reasons, I reject LM Investments' contention that s 173 of the Act was, at the time of the request, qualified by s 51AC of the TPA. The conduct is prospective. If LM Investments intended to assert that Direct Share's conduct was likely to be contrary to s 51AC of the TPA (as it then stood), it was open to it to seek an interlocutory injunction. It did not. DECLARATORY RELIEF 38 That leaves the issue of Direct Share's application for a declaration that LM Investments contravened s 173 of the Act. The making of a declaration and the terms in which it should be framed are in the Court's discretion: see Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 at 437-9; [1972-73] ALR 1303 at 1313 per Gibbs J; Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-2 and 596-7; 106 ALR 11 at 21-2 and 33-4 and AWB Ltd v Cole (No 6) (2006) 235 ALR 307; [2006] FCA 1274 at [5]. 39 In Plaintiff M61/2010E v Commonwealth of Australia; Plaintiff M69 of 2010 v Commonwealth of Australia (2010) 85 ALJR 133, the Court had the following to say about declaratory relief: 1. The power to grant declaratory relief is a power which "[i]t is neither possible nor desirable to fetter ... by laying down rules as to the manner of its exercise" [Forster v Jododex Aust Pty Ltd (1972) 127 CLR 421 at 437; [1972-73] ALR 1303 at 1311-12; [1972] HCA 61 (Forster); Ainsworth [1992] HCA 10; (1992) 175 CLR 564 at 581-582.] As pointed out in Ainsworth v Criminal Justice Commission [[1992] HCA 10; (1992) 175 CLR 564 at 582. See also Pape [2009] HCA 23; (2009) 238 CLR 1 at 68 [152]] it is a form of relief that is confined by considerations which mark out the boundaries of judicial power. 1. In the circumstances of this litigation it cannot be said that a declaratory order by the Court will produce no foreseeable consequences for the parties [Gardner v Dairy Industry Authority (NSW) (1977) 52 ALJR 180 at 188 per Mason J, 189 per Aickin J; 18 ALR 55 at 69, 71.] Declaratory relief is directed here to determining a legal controversy; it is not directed to answering some abstract or hypothetical question [Bass v Permanent Trustee Co Ltd [1999] HCA 9; (1999) 198 CLR 334 at 355-356 [46]- [47]; [1999] HCA 9.] Each plaintiff has a "real interest" [Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438 at 448, quoted with approval in Forster [1972] HCA 61; (1972) 127 CLR 421 at 437-438] in raising the questions to which the declaration would go. In these cases, the procedures which are said to be infirm were conducted for the purpose of informing the Minister of matters directly bearing upon the exercise of power to avoid breach by Australia of its international obligations. The statutory powers to the exercise of which the inquiries were directed are placed in the statutory and historical context earlier described. That context demonstrates the importance attached to the performance of the relevant international obligations by both the legislative and executive branches of the Government of the Commonwealth. Moreover, there is a considerable public interest in the observance of the requirements of procedural fairness in the exercise of the relevant powers [Cf Gedeon v Commissioner of New South Wales Crime Commission [2008] HCA 43; (2008) 236 CLR 120 at 134 [25]; [2008] HCA 4] 40 The circumstances of the present case are far removed from the issues in Plaintiff M61. Here, a declaratory order will produce no foreseeable consequences for the parties. So much is made clear by the fact that Direct Share did not pursue its application for a mandatory injunction against LM Investments. Why? Because Direct Share now has that part of the Register it wants. Analogous to the first consideration, the declaration sought is not to determine a legal controversy that remains a live controversy between the parties; it is directed to answering what has now become a hypothetical question. Why? Again, because Direct Share now has that part of the Register it is entitled to have. The fact that LM Investments contravened s 173 of the Act in October 2010 is past. The law in force at that time was not the law in place at the time the issue came to be determined by the Court. That was common ground. To make a declaration of what was the legal position in the past is of no relevance to the rights and duties of these parties as they now stand. 41 In those circumstances, I refuse Direct Share's application for a declaration. COSTS 42 That leaves Direct Share's contention that it should have its costs of the proceedings. As is apparent, the circumstances of this case are unusual. The history of the proceedings is unusual. LM Investments contravened the law as it stood on 8 October 2010. The law then changed and it was not required to provide 94% of its Register. On the other hand, Direct Share did not respond to an open offer prior to trial which gave it all of the relief it ultimately sought. Instead, it maintained its claim to the whole of the Register until closing submissions and, even then, continued to seek a declaration which has now been refused. In all the circumstances, I consider that each party should bear its own costs of and incidental to the application. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon. Associate: Dated: 2 March 2011