Detailed Report on ASIC v Padbury Mining Limited [2016] FCA 990 Case

This report provides an in-depth analysis of the ASIC v Padbury Mining Limited [2016] FCA 990 case, focusing on the breaches of director's duties under the Corporations Act 2001 (Cth). The report examines the background of the case, where the directors of Padbury Mining Limited were found liable for making misleading and deceptive announcements regarding a $6 billion funding deal for the Oakajee port and rail project. The analysis includes a detailed discussion of the specific sections of the Corporations Act violated, namely sections 180(1) and 674(2A), and the implications of these breaches. The court's decision, including the penalties imposed on the directors (fines and disqualification), is critically evaluated. The report also discusses the impact and relevance of the case, emphasizing the importance of director's duties and continuous disclosure obligations for listed companies, as well as the consequences of non-compliance. The report concludes by summarizing the key findings and reiterating the significance of adhering to the Corporations Act to protect the interests of the public and the company.

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Business and Corporations
Law
ASIC v Padbury Mining Limited [2016] FCA 990

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Table of Contents
Introduction................................................................................................................................2
Background of the Case.............................................................................................................3
Infringement of Director’s Duties..............................................................................................3
Analysis of the Court’s Decision...............................................................................................5
Impact of the Decision...............................................................................................................5
Conclusion..................................................................................................................................7
References..................................................................................................................................8

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Introduction
The aim of this report is to evaluate the ASIC v Padbury Mining Limited [2016] FCA 990
case and analyse the duties breached by the directors. In this case, the Australian Securities
and Investments Commission (ASIC) held two directors of the Padbury Mining Limited
liable for breaching duties provided by the Corporations Act 2001 (Cth) which include
section 180 (1) and section 674 (2A). The directors held liable by the Australian Securities
Exchange (ASX) include Gary Stokes and Chairman Terence Quinn. The directors admitted
to breaching their duties as given under section 180 (1) and section 674 (2A) by providing
misleading and deceptive announcement (Jade, 2016). The company announced in 2014 that
is had secured a deal for $6 billion which is provided to them for development of Oakajee
port and rail project. The news shocked the securities market, and it resulted in increasing the
shares of Padbury Mining Limited up by 170 percent. After the news, over 200 million shares
were traded. After some time, it was found that the funding announced by the corporation
was contingent and the corporation is not in the position to satisfy the announcement. The
announcement was considered as misleading and deceptive, and the Federal Court fined both
the directors $25,000 each and ordered them to contribute $200,000 as the court costs of
ASIC and disqualifying them from acting as directors for three years. This report will focus
on analysing the facts of the case and evaluate the duties of directors as per CA 2001 (Cth)
and why they were breached. Furthermore, this report will critically evaluate the decision of
the court and analyse the relevance of this case.

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Background of the Case
The ASIC has taken civil action against Padbury Mining Limited along with two more
directors including Gary Stokes and Chairman Terence Quinn regarding funding deals of the
company with the Oakajee port and rail project (ABC, 2016). For some time, the corporation
has been trying to develop a project of deep water port at Oakajee in Western Australia and
the project would be associated with the railway network. On 11th April 2014, the company
made an announcement to the ASX at 9.40am stated that it has “successfully secured” the
funding of $6 billion for the purpose of developing the project. However, the announcement
did not include the conditions based on which the funding was issued, and it also did not
include the name of parties who are providing the funding. The conditions play an important
role since based on them Padbury Mining Limited would be able to obtain a bank guarantee
that would match the funding provided by the proposed funder. Before this announcement,
the last share price of the company was $0.02 per share, and right after the announcement, the
shares started trading at $0.045.
After the announcement, shares are traded between the range of $0.032 and $0.052 per share,
and 209,366,987 shares were traded. On the same day, at 2.15pm, based on the request of the
company, the shares went into trading halt where they were pending until the corporation
provides more details regarding the funding. Until 29th April 2014, the shares remained
suspended or in the trading halt after which the announcement was made that the parties to
the funding agreement had cancelled their contract with the firm. It was disclosed that the
firm never obtained the funding for the project of developing a deepwater port and the project
has never been constructed (Latimer, 2015). After the disclosure, the ASIC prosecuted the
corporation along with the two directors who were involved in authorising the first
announcement made by the enterprise on 11th April 2014. The two directors included the
managing directors and the chairman of the company, Gary Stokes and Terence Quinn
respectively.
Infringement of Director’s Duties
The directors were found guilty of breaching section 180 (1) and 674 (2A) of the
Corporations Act 2001 (Cth). Section 180 provided duties of the director of a company for
ensuring care and diligence while making business decisions. This duty creates online civil

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obligation over the director. Section 180 (1) provides that it is necessary that the director or
any other officer with similar powers and responsibility in a company have to exercise such
powers by maintaining a level of care and diligence which is ordinary to be maintained by a
reasonable person in the situation (Section 180 (1) (a)) or the person who is acting as the
director (Section 180 (1) (b)) (Austlii, 2018). Furthermore, Section 180 (2) held that
fulfilment of the requirement of section 180 (1) is mandatory for a director while making any
business judgment. This section creates a civil obligation over the director and penalty can be
imposed on the director in case of a breach. Section 1041H (1) provides that a person must
not engage in conduct regarding any financial product or service that is misleading or
deceptive or likely to do so. Section 674 (2) provides provisions regarding continuous
disclosure requirements which are necessary to be fulfilled by a listed enterprise. Section 674
(2A) provides provisions regarding an individual who is involved in the listed disclosing
contravention of a company’s continuous disclosure requirements and who also contravenes
the Act (ASX, 2018). The definition of “involved” is given under section 79 which referred
to a person who aided, counselling, procured, abetted or have knowledge regarding the
contravention is the disclosure requirement. This section is a civil penalty provision, and
section 1317S provides provisions regarding relief of such liability.
In case of Padbury Mining Limited, the directors breached the duties given under section 180
(1) and 674 (2A). It was the responsibility of the managing directors and the chairman to
ensure that they properly check whether the announcement made by the company is correct
or not. They have to take due diligence to ensure that the enterprise does not make any
misleading or deceptive announcement. However, they failed to fulfil such duty because
Padbury Mining Limited made a false announcement that it had received a funding of $6
billion to develop the deepwater port project. They are liable under section 1041H (1) for
making a misleading and deceptive announcement due to which the trading of shares was
influenced (Jade, 2016). The directors breached section 674 because the announcement did
not contain all information which is required as per continuous disclosure obligations.
Furthermore, it is directors’ duty to make a continuous disclosure regarding any price
sensitive information, however, the directors of Padbury Mining Limited breached their duty
by not making disclosure regarding the terms of the funding and the name of the proposed
funder (Dagge, 2015). Due to failure to provide proper information and making a misleading
and deceptive announcement, the directors of Padbury Mining Limited held liable for

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breaching section 180 (1) and 674 (2A). Furthermore, directors accepted that they did breach
these sections due to their failure to take appropriate care.
Analysis of the Court’s Decision
The judgment of the court was given after the parties accepted that they breached their duties
along with submission to appropriate penalties as given by the court in the circumstances.
The court held Padbury Mining Limited liable for breaching section 1041H of the CA 2001
(Cth) because of making a misleading and deceptive announcement regarding securing a $6
billion funding for the project of constructing a deep water port. The corporation also
admitted that the information is likely to influence a number of people who invest in
securities and decides whether to invest in the shares of Padbury Mining Limited. Gary
Stokes and Terence Quinn held liable for breaching their duties as given under section 180
(1) and 674 (2A) due to authorising the announcement which is misleading and deceptive.
The court ordered that each director have to pay a penalty of $25,000, and they are also
required to pay together $200,000 for the costs of proceeding suffered by the ASIC.
Judge Siopis provided in his judgement that the making of the declaration is constituted as
the breach which supports the claim of contravening conduct made by the ASIC. He further
stated that it serves as a judgement to prevent other corporations and directors to engage in
unlawful conduct (ASIC, 2016). Furthermore, the judge said that the actions of both the
directors are considered as a serious departure from the standards which are expected from
directors of public companies in this situation. His Honour further penalised the directors by
disqualifying them to acting as directors for corporations for a period of three years. The
judgement shows that directors are responsible for maintaining a degree of care while taking
business decisions in order to ensure that their actions did not breach the duties. The duties
laid down by the Act ensure directors did not use their powers to mislead or deceive public
who rely on their information. In case of a listed enterprise, the responsibilities of a director
are more significant since people purchase and sell securities based on the information
provided by them. The judgement given by the Federal Court is justified in this scenario and
Impact of the Decision
This case is relevant because it focuses on the role of directors and their duties. It provides
that directors’ duties are important, and they are required to follow these duties in order to

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protest the interest of the public and the corporation (Levy, 2016). Judge Siopis applied the
judgement of Commonwealth of Australia v Director, Fair Work Building Industry
Inspectorate [2015] HCA 46 case. In this case, it was found that a civil penalty can be
imposed based on a proposed miniature of consent orders. While providing their judgement,
the court is required to analyse the appropriateness of the penalties. Before issuing penalties,
the court is required to evaluate whether the penalties are appropriate and whether it is in the
public interest. In Padbury Mining Limited case, the court cites this case to determine the
appropriateness of the penalties imposed on the directors. It shows that breach of such duties
can result in negatively affecting a number of people, especially which company are public
and listed on a stock exchange.

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Conclusion
From the above observations, it can be concluded that the duties imposed by the Corporations
Act 2001 (Cth) on the directors of a company are mandatory to be followed by them for
protecting public and company’s interest. This report evaluated the case of ASIC v Padbury
Mining Limited in which the court held the managing directors and the chairman liable for
breaching their duties as given in the Corporations Act 2001 (Cth). Padbury Mining Limited
made an announcement on ASX regarding a secured deal for developing a deep water port at
Oakajee and an association with the railway network. Directors were held liable for breaching
section 180 (1) and 684 (2A) of the Act. The Federal Court held directors liable and ordered a
penalty of $25,000 to each director. The court ordered the directors to pay together $200,000
for the cost of ASIC proceedings. Further, directors were disqualified by the court from
acting as directors for a period of three years. This case is relevant because it shows that the
ASX continuous disclosure requirements are mandatory to be followed by companies, and
they are required to treat them with great care. Failure to comply can lead to class action suit,
as shows in Padbury case, and directors can be penalised for their actions.

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References
ABC. (2016) Padbury Mining directors fined over 'misleading' $6b Oakajee announcement.
[Online] ABC. Available at: http://www.abc.net.au/news/2016-08-19/padbury-mining-
directors-fined-and-banned/7768184 [Accessed on 14th May 2018].
ASIC v Padbury Mining Limited [2016] FCA 990
ASIC. (2016) 16-263MR Padbury Mining directors banned for three years due to 'Oakajee
Funding Secured' announcement. [Online] ASIC. Available at: http://asic.gov.au/about-
asic/media-centre/find-a-media-release/2016-releases/16-263mr-padbury-mining-directors-
banned-for-three-years-due-to-oakajee-funding-secured-announcement/ [Accessed on 14th
May 2018].
ASX. (2018) Continuous Disclosure: an Abridged Guide. [PDF] ASX. Available at:
https://www.asx.com.au/documents/about/abridged-continuous-disclosure-guide-clean-
copy.pdf [Accessed on 14th May 2018].
Austlii. (2018) Corporations Act 2001 - Sect 180. [Online] Austlii. Available at:
http://www5.austlii.edu.au/au/legis/cth/num_act/ca2001172/s180.html [Accessed on 14th May
2018].
Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015]
HCA 46
Dagge, J. (2015) ASIC takes action against Padbury. [Online] Herald Sun. Available at:
http://www.heraldsun.com.au/business/asic-takes-action-against-padbury/news-story/
24e5faea512ed229e9048cfefcbaa646 [Accessed on 14th May 2018].
Jade. (2016) Australian Securities and Investments Commission, in the matter of Padbury
Mining Limited v Padbury Mining Limited [2016] FCA 990. [Online] Jade. Available at:
https://jade.io/article/488646 [Accessed on 14th May 2018].
Latimer, C. (2015) ASIC takes Padbury Mining to court. [Online] Australian Mining.
Available at: https://www.australianmining.com.au/news/asic-takes-padbury-mining-to-court/
[Accessed on 14th May 2018].

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Levy, R. (2016) Implications Of Padbury’s Misleading ASX Announcement. [Online] Herbert
Smith Freehillls. Available at:
https://www.herbertsmithfreehills.com/latest-thinking/implications-of-padbury
%E2%80%99s-misleading-asx-announcement [Accessed on 14th May 2018].