Federal Court of Australia Australian Securities and Investments Commission v Australian Mines Limited (No 2) [2023] FCA 468 File number: WAD 84 of 2022 Judgment of: COLVIN J Date of judgment: 12 May 2023 Catchwords: CORPORATIONS - applications for declarations, a pecuniary penalty and a disqualification order under s 1317G and s 206C of the Corporations Act 2001 (Cth) - where statements made by the second respondent which he knew to be false or ought to have known were materially misleading - where admission of breach of s 180 of the Corporations Act 2001 (Cth) - consideration of appropriate disqualification period start date - where applicant and second respondent have agreed on proposed orders - orders made in terms of proposed orders Legislation: Corporations Act 2001 (Cth) ss 180, 1317G Cases cited: Australian Securities and Investments Commission v Australian Mines Limited [2023] FCA 9 Australian Securities and Investments Commission v Blue Star Helium Limited (No 4) [2021] FCA 1578 Division: General Division Registry: Western Australia National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Number of paragraphs: 18 Date of hearing: 12 May 2023 Counsel for the Plaintiff: Mr Y Shariff SC with Mr T Chalke Solicitor for the Plaintiff: Australian Government Solicitor Counsel for the First Defendant: The first defendant did not appear Counsel for the Second Defendant: Mr PD Evans Solicitor for the Second Defendant: HFW Australia ORDERS WAD 84 of 2022 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff AND: AUSTRALIAN MINES LIMITED (ACN 073 914 191) First Defendant BENJAMIN JOHN BELL Second Defendant order made by: COLVIN J DATE OF ORDER: 12 MAY 2023 BY CONSENT BETWEEN THE PLAINTIFF AND THE SECOND DEFENDANT THE COURT DECLARES THAT: 1. Pursuant to s 1317E(1) of the Corporations Act 2001 (Cth) (Corporations Act), the second defendant contravened s 180(1) by failing to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in the first defendant's circumstances; and occupied the office held by, and had the same responsibilities within the corporation as, the second defendant: (a) by making the following representations, while he was aware, or ought reasonably to have been aware, that the representations were false in a material particular or were materially misleading: (i) at presentations given at conferences in Hong Kong on 23 April 2018 and London on 17 May 2018: A. that the first defendant had secured finance for the construction of its processing plant (Plant) for the Sconi Project, a cobalt, nickel and scandium resource in North Queensland; and B. that SK Innovation Co Ltd (SKI) had committed to funding construction of the Plant (Funding Commitment Representations); (ii) at presentations given at conferences in Hong Kong on 23 April 2018 and London on 17 May 2018, that the value of the Term Sheet for an Offtake Agreement with SKI dated 9 February 2018 (Offtake Agreement) to the first defendant, based upon the tonnes per annum of nickel sulphate and cobalt sulphate to be supplied under the Offtake Agreement, was $5 billion (Value Representation); and (iii) at a presentation given in London on 17 May 2018, that it was a condition of the Offtake Agreement that SKI commit to funding construction of the Plant (Offtake Condition Representation), (collectively, the Representations); (b) having made the Funding Commitment Representations and Offtake Condition Representation, by failing to cause the first defendant to correct those representations, or to tell the Australian Securities Exchange (ASX) that: (i) the first defendant had not secured finance for the construction of the Plant, and SKI had not committed to funding construction of the Plant; and (ii) it was not a condition of the Offtake Agreement that SKI commit to funding construction of the Plant, and SKI did not have any other obligation to fund construction of the Plant, (together, the SKI Funding Information); (c) by making the Value Representation notwithstanding that he was aware that the making of similar $5 billion statements by the first defendant on the ASX Market Announcement Platform on 21 February 2018, had resulted in the ASX making inquiries of the first defendant as to its compliance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code) and led to the first defendant issuing a retraction via the ASX Market Announcement Platform on 28 February 2018; (d) by failing to take reasonable steps to determine or ensure that the Value Representation would not lead to the ASX again requiring the first defendant to make corrective statements and issue retractions in respect of its compliance with the JORC Code; (e) having made the Value Representation, by failing to cause the first defendant to correct that representation, or to inform the ASX of: (i) the modifying factors and other matters required by the JORC Code; and (ii) the value of the Offtake Agreement to the first defendant was reduced by a buyer's discount of 15% on the base price to be paid for cobalt and nickel; and (f) by causing the first defendant to contravene s 674(2) of the Corporations Act by: (i) between 23 April 2018 and 27 June 2018, failing to notify the ASX that the first defendant: A. had not secured finance for the construction of its processing plant for the Sconi Project; and B. SKI had not committed to funding construction of the processing plant, where this was information that was material and not generally available, within the meaning of ASX Listing Rule 3.1 and Chapter 6CA of the Corporations Act, in circumstances where, at presentations given at conferences in Hong Kong on 23 April 2018 and London on 17 May 2018, the first defendant and second defendant made the Funding Commitment Representations. (ii) between 17 May 2018 and 27 June 2018, by failing to notify the ASX that: A. it was not a condition of the Offtake Agreement that SKI commit to funding construction of the Plant; and B. SKI did not have any other obligation to fund construction of the Plant, where that information was material and not generally available, within the meaning of ASX Listing Rule 3.1 and Chapter 6CA of the Corporations Act in circumstances where, at a presentation given at a conference in London on 17 May 2018, the first defendant and second defendant made the Offtake Condition Representation. (iii) between 23 April 2018 and 27 June 2018 by failing to notify the ASX that the value of the Offtake Agreement was reduced by the quantum of the Buyer's Discount where this was information that was material and not generally available, within the meaning of ASX Listing Rule 3.1 and Chapter 6CA of the Corporations Act in circumstances where, at presentations given at conferences in Hong Kong on 23 April 2018 and London on 17 May 2018, the first defendant and second defendant made the Value Representation, and thereby exposing the first defendant to the risk of proceedings for contraventions of the Corporations Act, legal costs and penalties, which were in fact commenced. 2. The contravention referred to in paragraph 1 was serious within the meaning of s 1317G(1)(b)(iii) of the Corporations Act. THE COURT ORDERS THAT: 3. Pursuant to s 1317G of the Corporations Act, the second defendant pay to the Commonwealth of Australia a pecuniary penalty in the amount of $70,000. 4. Pursuant to s 206C of the Corporations Act the second defendant be disqualified from managing a corporation for a period of two years commencing on 12 May 2023. 5. The second defendant contribute to the plaintiff's costs of these proceedings in the agreed amount of $60,000. THE COURT DIRECTS THAT: 6. An officer of the Registry provide an electronic copy of the joint submissions upon request by any person. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (Revised from the transcript) COLVIN J: 1 In 2018, Mr Benjamin Bell was the managing director of Australian Mines Limited (AML). He also held a shareholding in AML, being 1.5% of the issued capital. At that time, AML was a 'small cap' mining company seeking to develop a cobalt, nickel and scandium resource in North Queensland, known as the Sconi Project (Project). It acquired that Project in September 2017. 2 Mr Bell gave presentations concerning the Project in Hong Kong on 23 April 2018 and in London on 17 May 2018. In those presentations, he made statements about (a) the finance and funding for the Project; (b) the existence of a commitment to fund the construction of a plant for the Project by a buyer who had entered into an offtake agreement for nickel sulphate and cobalt sulphate produced by the Project; and (c) the value of the purchase commitment by the buyer under the offtake agreement. 3 The statements made in those presentations were inconsistent with earlier information that had been provided to the market by AML in respect of the position concerning the Project. In May 2022, the Australian Securities and Investment Commission (ASIC) commenced proceedings against AML and Mr Bell, claiming that in certain respects, the statements made at the presentations were false or materially misleading. 4 At the time the statements were made about the commitment to funding of the Project and the commitment to fund the construction of a plant under the offtake commitment, Mr Bell knew that those statements were false, and at the time he made the statements about the value of the purchase commitment under the offtake agreement, he ought to have known that the statement was materially misleading. In addition, Mr Bell did not take steps to immediately correct those statements when a query was raised by the ASX. A corrective statement was made by AML on 27 June 2018. Therefore, the statements had operative effect for about two months. 5 Manifestly, Mr Bell's conduct fell well short of the degree of care and diligence that a reasonable person in his position would exercise in the discharge of their duties as a managing director of a company such as AML. Mr Bell now admits that by his conduct, he contravened s 180 of the Corporations Act 2001 (Cth). He has agreed facts and joined in submissions to the Court by which he consents to declarations of contravention, the imposition of a pecuniary penalty of $70,000, and disqualification from managing a corporation for a period of two years. The Court is asked to make orders in those terms. 6 There is one issue that is not agreed, and that is the starting date for the disqualification from involvement in management of any company. As to the setting of the start date, Mr Bell submits that some allowance should be made for the fact that he has been, in effect, disqualified by reason of the proceedings. In support of that submission, Mr Bell relies upon his evidence before the Court to the effect that his employment with the company was terminated shortly after the commencement of these proceedings and since that time he has been unemployed except for a few short-term contract geologist jobs. 7 Further details of the conduct that amounts to the contravention may be found in reasons given at the time that orders were made against AML based upon its admissions of contravention: Australian Securities and Investments Commission v Australian Mines Limited [2023] FCA 9 (ASIC v AML). The conduct is also described in the joint submissions provided by the parties in support of the orders sought by consent, which reflect the terms of agreed facts provided to the Court by the parties. 8 As I intend to direct that those submissions, which state the material agreed facts within them, are to be made available for anyone who seeks to read them, and I am satisfied that they accurately present the relevant matters of fact and law, there is no need to recount them. Orders sought should be made 9 As I am satisfied that the conduct contravenes s 180, the declaration of contravention must be made: see Australian Securities and Investments Commission v Blue Star Helium Limited (No 4) [2021] FCA 1578 at [36] (Banks-Smith J). 10 A declaration is also sought to the effect that the contravention was serious within the meaning of s 1317G(1)(b)(iii) of the Corporations Act. The significance of a declaration to that effect is that a pecuniary penalty may be imposed for a serious contravention. I accept the written submissions to the effect that the Court should conclude that the contravention by Mr Bell was serious. 11 The next issue to determine is whether the period of disqualification from managing a corporation is appropriate. In my view, even taking account of the fact that there has already been a period during which Mr Bell has not been employed, I am satisfied that the proposed period is appropriate on the basis that it takes effect from today. It would be an unusual circumstance, in my view, in which the alleged consequences of the proceedings during a period of time in which, for the most part, Mr Bell had indicated that he intended to defend the proceedings, ought to be taken into account in a way which involves some form of counting of that time in determining the appropriate period for any disqualification from managing a corporation. 12 Otherwise, significant for the conclusion that two years is an appropriate period of disqualification is the absence of any contention that there was any actual shareholder loss occasioned by the conduct of Mr Bell as distinct from exposure to a risk of such loss. Nor is it claimed that there was any dishonesty. Nevertheless, capital markets depend upon the provision of accurate information, particularly as to matters of the kind the subject of the statements in the present case. Information about the funding and offtake contracts for mining projects undertaken by small cap mining companies is fundamental for investors in those companies. 13 No explanation has been given for the conduct. 14 Taking those matters into account and having regard to the principles identified in the authorities referred to in the written submissions, I am satisfied that the proposed period of disqualification is appropriate. 15 The final issue concerns the quantum of penalty. The maximum penalty that may be imposed is $200,000. The parties are agreed that $70,000 is appropriate. I dealt with the relevant principles in relation to determining civil pecuniary penalties in my earlier reasons concerning the penalty for AML (see ASIC v AML at [30]-[31]). 16 Of particular significance in relation to Mr Bell are the following: (1) he will be subject to the period of disqualification from managing a corporation, which is a significant matter of specific and general deterrence; (2) Mr Bell was the managing director of AML at the time; (3) the conduct involved the making of statements that Mr Bell knew to be false; (4) the statements were not immediately corrected when the issue was drawn to the attention of Mr Bell; (5) the conduct was of a kind that is difficult for a regulator to detect; (6) the conduct concerned a fundamental obligation to ensure the market was accurately informed and for there to be continuous disclosure; (7) there was no suggestion of dishonesty; (8) although, for a time, Mr Bell indicated that he would defend the claim, he has now admitted his contravention; (9) in an affidavit provided to the Court, Mr Bell has stated as follows: I unreservedly apologise to this Honourable Court and to stakeholders of the Company for not discharging my duties as Managing Director of Australian Mines with the required degree of care and diligence. My actions, which resulted in these proceedings, have caused me significant personal hardship and embarrassment. (10) Mr Bell resigned as managing director of AML and his employment was terminated; (11) Mr Bell has, since the proceedings were commenced, not been able to secure employment as a senior manager of a resource company; (12) though it may be inferred that the conduct has caused harm to AML in a general reputational sense and there was a risk of loss to shareholders from the conduct, ASIC does not lead any evidence of actual loss or damage to shareholders; (13) Mr Bell's conduct resulted in proceedings being brought against AML and the imposition of a penalty of $450,000 upon the company; (14) there is no claim that there was any direct personal benefit to Mr Bell; and (15) Mr Bell has not previously been found to have contravened the Corporations Act. 17 Synthesising those factors as I must and having regard to the maximum penalty that may be imposed, I consider the proposed penalty to be reasonable and appropriate to achieve both specific and general deterrence and to reflect the other factors to which the Court must have regard, as outlined in the joint written submissions. 18 For those reasons, I will make the orders sought and will further direct that an officer of the registry provide an electronic copy of the joint submissions upon request by any person. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin. Associate: Dated: 15 May 2023