ASIC v Padbury Mining Limited [2016]

This document provides an overview of the ASIC v Padbury Mining Limited [2016] case. It includes the case introduction, background, facts, legal issues, breaches of director's duties, analysis of the court's decision, and the relevance of the court's decision. The case involves a misleading funding announcement, failure to disclose important information, and the imposition of penalties on the directors. The court's decision serves as a reminder to directors about the importance of acting in care and diligence and complying with the Corporations Act.

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SIC v Padbury Mining Limited [2016]1
CASE INTRODUCTION
Background of the Case
Padbury Mining Limited is a public company in Australia whose shares have always
been listed on the Australian Stock Exchange (ASX). It had been trying to develop a
deep-water port at Oakajee in Western Australia and a railway network between 2013
and early 2014. On 8th April 2014, Padbury entered into a shareholders agreement with
several parties including Superkite Pty Limited that agree to provide a $6billion funding
to the construction of the Oakajee project upon certain conditions.
Facts of the case
On 11th April, Padbury Limited announced the Australian Stock Exchange to the market
that it had a successful secured a $6Billion funding for the Oakajee project. However,
the announcement failed to disclose the underlying pre-conditions upon which the
funding was obtained as well as the company responsible for the funding obligation.
Australian Securities Investments Commission, a corporate regulator, undertook
proceedings relating to the Oakajee project funding and sued Padbury together with its
two directors.
Mr Gary Wayne Stokes, is the second defendant, in this case, was the managing
director of Padbury Limited at the time the announcement was made to ASX while Mr
Terrence Quinn was the chairman. Both directors were responsible for the drafting of
the publication and authorization of its release. Padbury Limited requested a halt on the
company's trading shares before the announcement as explained below.
1 ASIC v Padbury Mining Limited (2016) FCA 990

On 29th April, the shareholders' agreement was terminated after the parties agreed to do
so and consequently Padbury limited received no funding. Later the same day, in the 4
hours’ time difference between the ASX announcement and a trading halt (following the
request of Padbury pending an announcement disclosing the substantial terms of the
shareholder agreement, to include the names of the parties, shareholder approval, and
security details), Padbury’s shares traded within a range of 3.2 c and 5,2c per share
which was above the 2c that had been announced before. At the end 209,366,987
shares were sold (Oakajee project was never constructed).
The Australian Securities and Investments Commission sued the company and the two
directors for contravention of corporation laws and breach of contractual, statutory
duties.
Legal Issues
a) Whether Padbury’s funding announcement was misleading and deceptive to the
market.
b) Whether the directors breached their duties for failure to authorize the disclosure
of the party responsible for the funding of the Oakajee project and the pre-
conditions upon which the funding depended.
c) Whether a penalty would be imposed on Mr. Stokes and Mr. Quinn for breach
company duties as provided under Corporations Act 2001.
d) Whether Mr. Stokes and Mr. Quinn were responsible for infringement by the
Padbury Limited of s 1041h of the Corporations Act.
e) Whether declarations for breach of duties would be granted to the ASIC.
f) Whether it was essential to disqualify Mr. Quinn and Mr. Stokes as directors of a
corporation for some time.
BREACHES OF DIRECTOR’S DUTIES UNDER THE CORPORATIONS’ ACT 2001
(CTH)
Facts that led to charges against the directors
 Directors took part in the drafting of a misleading announcement that was
released to the public on the 11th of April 2014.

 Conditions precedent given by Superkite Pty Limited at the time of signing of the
shareholders' agreement were not disclosed to the public.
 The directors failed to disclose the name of the party that was responsible for the
project funding in the drafting of the announcement to the Australian Stock
Exchange.
 Mr. Stokes and Mr. Quinn failed to discharge their duties to the best interests of
the company.
Breaches of directors’ duties include;
1. Duty of care and diligence under section 180 of the Corporations Act requires a
director or any other corporate officer to discharge their duties with the degree of
care and diligence. Mr. Stokes and Mr. Quinn authorized the release of the ASX
deceptive announcement with the knowledge that it would be adversely harmful
to Padbury’s reputation and impact negatively on its ability to procure future
funding of its projects.2
2. Breach of Section 1041H of the Corporations Act 2001. Padbury Limited drafted
an announcement titled ‘Oakajee Funding Secured’ that was misleading and
deceptive to the market. Failure to disclose the party responsible for the funding
and the underlying pre-conditions upon which the funding was based resulted in
a misleading announcement to the market.
3. Padbury Limited breached its continuous disclosure obligations by failing to
inform the public of the existing conditions which Superkite Pty Limited had
provided before the agreement to fund the Oakajee project was made resulting in
a breach of Section 674(2). These conditions were necessary for determining
whether Padbury was in a position to secure funding.
4. Mr. Stokes and Mr. Quinn breached Section 674(2A) for getting involved in a
contravention of section 674(2) of the Corporations Act. Section 674(2A) states
that any person involved in the failure of disclosure of a necessary provision to
the public market commits an offence under that section.
2Rodd Levy, 'Implications Of Padbury’S Misleading ASX Announcement' (Herbert Smith Freehills | Global
law firm, 2016) <https://www.herbertsmithfreehills.com/latest-thinking/implications-of-padbury
%E2%80%99s-misleading-asx-announcement>

ANALYSIS OF THE COURT’S DECISION
ASIC v Padbury Mining Limited was brought before Judge Siopsis J, of the Federal
Court of Australia. Following material statements of facts presented before the court by
both the plaintiff and the defendants, the court made several declarations.
a) The court found Padbury Mining Limited to have acted in contravention various
sections of the Corporations Act. Firstly, it contravened sub-section 1041H of
the Corporations Act 2001 for procuring the publication of an announcement by
the ASX to the market which constituted successful funding of $6Billion from a
disclosed party. Secondly, Padbury Limited breached sub-section 674(2) for not
notifying ASX of the funding conditions presented to the directors at the time
the shareholders' agreement was signed. Moreover, it also failed to disclose
the identity of the funding party to the market during the announcement.
b) Against the managing director, Mr. Wayne Stokes, the court found him to have
contravened section 674(2A) for involving himself in Padbury's contravention of
section 674(2). Mr. Stokes was involved in the drafting of the deceptive
announcement that did not disclose conditions precedent and the identity of the
funder of the Oakajee project. In addition to that, Mr Stokes contravened
section 180(1) of the Corporations Act 2001 for failure to exercise duties with
the degree of care and diligence as stipulated by the article.
c) The court found Mr. Quinn in contravention of section 674(2A) for getting
involved in the drafting of the deceptive announcement released to the public
on the 11th of April 2014. Moreover, just like Mr. Stokes, he contravened section
180(1) of the Corporations Act 2001 for authorizing the release of the ASX
announcement to the public.
d) The court ordered Mr Stokes and Mr Quinn to pay a monetary penalty of
$25000 to the Commonwealth of Australia for acting in contravention of
subsection 180(1) and 674(2) of the Corporations Act 2001. Section 1317G of
the Corporations Act provides that a court may impose a penalty in cases
where there has been a severe infringement of civic duty. The purpose of this
financial penalty is to ensure deterrence on a person. At [330], Sackville AJA

stated that ‘pecuniary penalty should be imposed on the appellants only from
an order of disqualification but upon serious contraventions should warrant an
additional penalty.’ 3 Similar to the Gillfillan case where the directors were
ordered to pay a penalty of $25,000, Mr. Stokes and Mr. Quinn were ordered to
do the same.
e) The court also ordered that the two directors be disqualified from managing a
corporation for three years from the court order date4
f) The two directors were ordered to pay ASIC’s costs of proceedings in a fixed
sum of $200,000.
g) Judge Siopis J noted that it was essential to making declarations for one; it
would identify the wrongful conduct the defendants have engaged. Secondly,
the statements served to vindicate ASIC's allegations on breach of
Corporations Act and also to allow it to perform its function as a regulator of
corporate conduct.
Mr. Stokes and Mr. Quinn admitted their authorization of the misleading and deceptive
announcement. They further declared that they ought to have known that the released
report of the Oakajee funding was likely to deceive the public market and failure into
disclosing some provisions would be harmful to Padbury in that it would jeopardize its
market perceptions.
The directors also ought to have been aware that Padbury had not obtained any third
party verification about the capacity of Superkite Pty Limited to meet its funding
responsibility. The Judge used a reference case to state that, defendants may make
submissions to the court of the relevant penalties, but these submissions should have
regard to the public interest.5 Also, he noted that each case must be considered on its
material statements of facts. Mr Stokes and Mr Quinn, therefore, ought to have been
aware of the events that would have rendered the ASX announcement misleading, but
they recognized this and admitted how critical the infringement was.
3 Gillfillan v Australian Securities and Investments Commission (2012) 92 ACSR
4 — section 206C of the Corporations Act 2001.
5 Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate (2015) 326 ALR 476

RELEVANCE OF THE COURT’S DECISION
ASIC v Padbury Mining Limited case is a strong case in the corporate world of Australia.
It has continuously ensured the development of corporate law and has also impacted
positively on the operation of companies in Australia. The court’s decision provided
various principles and warnings to directors of companies as a whole in the exercise of
their duties.Failure to comply with the Corporations Act of 2001 may result in
prosecutions which are likely to disqualify directors who act in contravention of the Act.
The court decision is a constant and timely reminder to directors about the importance
of acting in care and diligence in the exercise of their duties and a caution to those who
fail to comply with section 180(1) of the Corporations Act 2001.6 The commissioner of
the ASIC noted that company directors must at all times ensure that they do not
authorize the release of misleading announcements; rather they should ensure all the
relevant information is given to the public market.7 When corporations acknowledge
contravention of various sections of the Corporations Act or any other legal provisions
that outline their duties and principles, lengthy and complex litigation is often avoided.8
The court decision assists ASIC to perform its obligations as a regulator of corporate
conduct and as a way to deter other corporations from engaging in unlawful acts in the
future.
Conclusion
When a misleading ASX announcement is made by an entity, ASIC can prosecute the
perpetrator and the officers authorizing the announcement. Serious consequences
follow when the officers are pronounced guilty as seen Padbury case of 2016.
6 McCullough Robertson, 'Misleading and Deceptive Conduct by Directors - A Timely Reminder of the
Repercussions of Making a Misleading Market Announcement | Lexology' (Lexology.com, 2016)
<https://www.lexology.com/library/detail.aspx?g=7dc465a9-2cdf-4c2c-a48e-52fc6c97ed87>
7 "16-263MR Padbury Mining Directors Banned For Three Years Due To 'Oakajee Funding Secured'
Announcement | ASIC - Australian Securities And Investments Commission", Asic.Gov.Au (Webpage,
2016) <https://asic.gov.au/about-asic/news-centre/find-a-media-release/2016-releases/16-263mr-
padbury-mining-directors-banned-for-three-years-due-to-oakajee-funding-secured-announcement/>.
8 NW Frozen Foods Pty Limited v Australian Competition and Consumer Commission (1996) 71 FCR 285

Bibliogrpahy
Articles/ Books/ Reports
Levy, Rodd, "Implications Of Padbury’S Misleading ASX Announcement", Herbert Smith
Freehills | Global Law Firm (Webpage, 2016)
<https://www.herbertsmithfreehills.com/latest-thinking/implications-of-padbury
%E2%80%99s-misleading-asx-announcement>
Robertson, McCullough, "Misleading and Deceptive Conduct by Directors - A Timely
Reminder of the Repercussions of Making a Misleading Market Announcement |
Lexology", Lexology.Com (Webpage, 2016)
<https://www.lexology.com/library/detail.aspx?g=7dc465a9-2cdf-4c2c-a48e-
52fc6c97ed87>
"16-263MR Padbury Mining Directors Banned For Three Years Due To 'Oakajee
Funding Secured' Announcement | ASIC - Australian Securities And Investments
Commission", Asic.Gov.Au (Webpage, 2016) <https://asic.gov.au/about-asic/news-
centre/find-a-media-release/2016-releases/16-263mr-padbury-mining-directors-banned-
for-three-years-due-to-oakajee-funding-secured-announcement/>
Cases
ASIC v Padbury Mining Limited [2016] FCA 990.
NW Frozen Foods Pty Limited v Australian Competition and Consumer Commission
(1996) 71 FCR 285.
Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate (2015)
326 ALR 476.
Gillfillan v Australian Securities and Investments Commission (2012) 92 ACSR.
Legislation
Corporations Act 2001 sections 180(1), 206(C), 206(C1), 674, 674(2), 674(2A), 1041H
and 1317E.