ASIC v Padbury Mining Limited [2016]

A
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>