Australian Securities and Investments Commission - PDF

Australian Securities and Investments Commission v Padbury Mining Limited [2016] FCA
990
Case introduction
Facts
As per the facts,
Padbury Mining Limited (Padbury) (1st Defendant) is a public company who shares are normally
listed at the Australian Stock Exchange. The 1st defendant aims at constructing and developing a
deep water port at Oakajee and along with it an associated railway network. On 8th April 2014,
there were several contracts that were made by the 1st Defendant with several parties. One of the
party to the contract was Superkite Pty Ltd (Superkite), which agreed to provide $6 billion to a
subsidiary of Padbury provided there are few pre conditions which must be comply with by the
1st defendant. The money was required for the funding of the construction of the Oakajee project.
After 3 days, that is, 11th April 2014, an announcement is made by the 1st Defendant at the ASX
wherein it made a declaration that the company has acquired $6 billion for the
development and construction of the Oakajee project, but, nothing was disclosed regarding the
pre conditions that must be fulfilled by the company in order to secure the money from
Superkite. Nothing was also disclosed regarding the entities that agreed to comply with the pre
conditions as mentioned by Superkite.
When all these proceedings were going on, at that time, the 2nd (Managing Director) and 3rd
(executive director and chairman) defendant were the directors of the 1st defendant and were part
of the drafting of the funding announcement and the responsible for the release of the said
announcement. The 1st defendant also request ASX to halt the trading of the shares till the
announcement is made which resulted in the increase of the trading of the shares from $0.02 per
share to $0.045 a share.
However, on 29th April 2014, the agreement to secure funding was terminated, funds were never
raised and the project was never constructed.
Because of the above facts there were several duties that were violated. The duties which were
violated are discussed below along with the reasons as to why the duties were violated.
The duties/responsibilities breached (ex. CA sections 181 or 588G) and
explain why the duties were breached.
As per the facts, the directors were authorized to make the disclosure but the acts of the directors
are in violation of section 180 (1) and section 674 (2A) of the Corporation Act 2001.
For 1st Defendant (Padbury Mining Limited)

I. That there is violation of Section 1041 H (1) of the Corporation Act 2001
Reasons
That 1st defendant has violated Section 1041 H (1) of the Corporation Act 2001. The
violation is incurred because the defendant has procured the publication of the
announcement that was made in the market by the Australian Stock Exchange on 11th
April 2014 which was known as Оakajee Funding Announcement. The
announcement carries with it a secured funding representation that the 1st defendant
has attained funding of $6 billion which is required to build a deep water port and
related rail network at Oakajee.
However, the representation was misled and deceptive or likely to mislead or deceive.
The deception is likely to deceive or mislead mainly because the representation that
was made by the 1st defendant requires it has to comply with certain pre conditions
which are likely not to be comply with by the its defendant. The inability of the
defendant to comply with the conditions exists when the announcement was made.
II. That pursuant to section 1317E, there is violation of sub section 674 (2) of the
Corporation Act 2001.
Reason
That the 1st defendant has not notified to the Australian Stock Exchange Limited any
information regarding the funding pre conditions that the defendant is required to be
comply with and that are mentioned under Paragraph 22 and 31 of the statement of
claim. The information must be provided amid the date of release of the Oakajee
Funding Announcements, that is, 9:40 am AEST and at or about 2:15 pm AEST on
11 April 2011.
For 2nd Defendant (Gary Wayne Stokes)
I. That pursuant to section 1317E, there is violation of sub section 674 (2) of the
Corporation Act 2001.
Reasons
That the 2nd defendant was involved with the 1st defendant, when the contravention of
sub section 674(2) was incurred by the 1st defendant.
II. Violation of section 180 (1) of the Corporation act 2001
Reasons
That the 2nd director being associated as a director with the 1st defendant was found to
be in contravention of section 180 (1) of the corporation act 2001. The degree of care
and skill that is required from the 2nd defendant wile complying with his duties are not
met as what is expected from a normal prudent man. Te position, responsibilities and
the duties that are associated with the post of the Managing Director of the 1st
defendant was not met by the 2nd defendant when compared with a normal prudent
man. He approved and authorized the release of the Oakajee funding Announcement
and thus resulted in allowing the 1ts defendant to make a Secured Funding
Representation which is nothing but the violation of section 1041H of the corporation
Act 2001.
For 3rd Defendant (Terence Martin Quinn)
I. That pursuant to section 1317E, there is violation of sub section 674 (2) of the
Corporation Act 2001.
Reasons

That the 3rd defendant was involved with the 1st defendant, when the contravention of
sub section 674(2) was incurred by the 1st defendant.
II. Violation of section 180 (1) of the Corporation act 2001
Reasons
That the 3rd director being associated as a director with the 1st defendant was found to
be in contravention of section 180 (1) of the corporation act 2001. The degree of care
and skill that is required from the 2nd defendant wile complying with his duties are not
met as what is expected from a normal prudent man. The position, responsibilities
and the duties that are associated with the post of the Executive Director and
chairman of the 1st defendant was not met by the 2nd defendant when compared with
a normal prudent man. He approved and authorized the release of the Oakajee
funding Announcement and thus resulted in allowing the 1ts defendant to make a
Secured Funding Representation which is nothing but the violation of section 1041H
of the corporation Act 2001.
Discuss and critically ANALYSE the court/tribunal decision and the reason
for the decision in view of the Corporations Act.
The decision of the Court tribunal
The court makes the following order
i. Against 2nd defendant – Taking into consideration section 1317G of the Corporation
Act 2001, the 2nd defendant is found to be in violation of section 180 (1) ad section
674 (2A) of the Corporation Act and thus he must be penalized with pecuniary
penalty for $25,000. He is also disqualified from the post of the Managing Director
for 3 years from the date of the orders by applying section 206C
ii. Against 3rd defendant – Taking into consideration section 1317G of the Corporation
Act 2001, the 2nd defendant is found to be in violation of section 180 (1) ad section
674 (2A) of the Corporation Act and thus he must be penalized with pecuniary
penalty for $25,000. He is also disqualified from managing the corporation for 3
years from the date of the orders by applying section 206C
iii. Against 2nd and3rd Defendant – that both the defendant will pay the cots of the
proceedings, that is, a fixed sum of $200,000.
Reasons for the decisions of the court
The decision is laid down on 19th August 2016 by Siopis J.
I. Misleading conduct – The defendant admitted that the acts that are carried out by
them were misleading and deceptive in conduct. It is admitted by the 1st defendant
that the publication that is made to ASX regarding the funding announcement actually
makes the potential inventors to believe that the company has secured $6 billion to
construct the Oakajee project which was not true. The representation was deceptive
and misleading in nature because in reality in order to secure the funds the 1st

defendant needs to comply with certain conditions which were not discoed along with
the announcement.
Thus, the acts of the defendant were misleading and deceptive in conduct which
resulted in the violation of the provisions of section 1041H the Corporation Act 2001
II. It is also admitted by the 2nd and 3rd defendant that their conduct through which they
authored the publication to the ASX regarding the funding announcement was an act
of deception and misleading the potential investors and thus are in violation of the
provisions of section 1041H the Corporation Act 2001.
III. Section 674 (2) of the Corporation Act 2001 - The 1st Defendant along with 2nd and 3rd
defendant agreed that section 674 (2) of the corporation Act 2001 was violated by
them mainly when:
a. It was agreed that the information that the 1st defendant requires to comply with
few pre conditions before securing findings from the third party was not made
available to the public amid 9:40 am to about 2:15 pm on 11 April 2014. This was
the information which has the influence over the proposed investors before
making their investment decisions and has a significant effect over the share price
of the 1st defendant company.
There is an obligation on the 1st defendant under section 674(2) of the
Corporations Act and 3.1 of the ASX Listing Rules to bring such information in
the notice of ASX which was not complying with which resulted in the violation
of section 674 (2) of the Corporation Act 2001.
b. That the 1st defendant also not available any information regarding the party or the
parties who are responsible for providing funding under the agreement and the
non-disclosure has resulted in the violation of section 674 (2) of the Corporation
Act 2001.
IV. Section 180 (1) of the Corporation Act 2001 – the 2nd and 3rd defendant agreed that
they are in violation of section 180 (1) of the Corporation Act 2001. They agreed that
on 10th April 2014 when the approval of the funding announcement at ASX was made
then they must be aware that:
a. non disclosure of all the information regarding the funding announcement will
likely to deceive and mislead and which is untimely result in the violation of
section 1041 H of the Corporation Act 2001.
b. That if the misleading and deceptive acts of the defendant will be disclosed then it
will hamper the good will of the company and will deteriorate its funding
requirements. It will also result in litigation and regulatory actions against the
company;
c. That failure to disclose information as per section 674 of the Corporation Act is
nothing but contravention of section 674 of the Act and will ultimately hamper
the reputation of the business and will hamper its ability to raise finance for the
project.

d. That the defendants must be aware that no disclosure of the information regarding
the funding requirements is nothing but failure on their part to act with careful and
in diligent manner resulting in the violation of section 180 (1) of the Corporation
Act 2001.
The relevance of the decision to the development of Australian Corporations law or the
impact of the decision on the operation of companies in Australia
After the decision of Australian Securities and Investments Commission v Padbury Mining
Limited [2016] FCA 990, it is clear that responsibly is imposed on the managing director ,
executive director and chairman on the company that their acts must be such that does nit result
in any kind of misleading and deceptive conduct. It is necessary that all relevant information
must be provided by them in order to avoid any kind of breach under section 674 and section 180
of the corporation Act 2001.

Reference List
Books/Articles/Journals
Australian Securities and Investments Commission v Padbury Mining Limited [2016] FCA 990 <
http://download.asic.gov.au/media/3985403/asic-v-padbury-mining-2016-fca-990.pdf>.
Case law
Australian Securities and Investments Commission v Padbury Mining Limited [2016] FCA 990