IMF (Australia) Ltd v Sons of Gwalia Ltd (Administrator Appointed) [2005] FCAFC 75 (12 May 2005)

Last Updated: 12 May 2005

FEDERAL COURT OF AUSTRALIA

IMF (Australia) Ltd v Sons of Gwalia Ltd (Administrator Appointed)
[2005] FCAFC 75

CORPORATIONS – register of members– use of information contained in register – commercial litigation funder seeking to contact shareholders – proposed future use of information in register by litigation funder to invite shareholders to participate in proposed litigation against the company and company directors – declaration sought that proposed future use of information would not result in contravention of s 177 of Corporations Act 2001 (Cth) – whether use of information relevant to the holding of an interest or the exercise of a right attaching to an interest recorded in register


COURTS AND JUDICIAL SYSTEM – judicial power – declaration sought concerning lawfulness of proposed future conduct – whether the proceedings constitute a matter


WORDS AND PHRASES – 'holding', 'rights attaching to'


Corporations Act 2001 (Cth) ss 168, 169, 170, 171, 173, 177(1), 177(1A)

Abebe v Commonwealth [1999] HCA 14; (1999) 197 CLR 510 cited
Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564 cited
CIC Insurance Limited v Bankstown Football Club Limited [1997] HCA 2; (1997) 187 CLR 384 referred to
Commissioner of Taxation v Linter Textiles Australia Ltd (in liquidation) [2005] HCA 20 referred to
Grosvenor Hill (Qld) Pty Ltd v Barber [1994] FCA 921; (1994) 48 FCR 301 cited
Halwood Corporation Ltd v Roads Corporation 2 [1998] VR 439 cited
O'Brien v Sporting Shooters Association of Australia (Victoria) [1999] VSC 313; [1999] 3 VR 251 cited
Re Bolton; Ex parte Beane [1987] HCA 12; (1987) 162 CLR 514 cited
Saraswati v The Queen [1991] HCA 21; (1991) 172 CLR 1 cited
The Commonwealth v Sterling Nicholas Duty Free Pty Limited [1972] HCA 19; (1972) 126 CLR 297 cited
Westgold Resources NL v Precious Metals Australia Ltd (2002) 171 FLR 20; (2003) 21 ACLC 102; [2002] WASC 221 referred to



IMF (AUSTRALIA) LTD v SONS OF GWALIA LTD (ADMINISTRATOR APPOINTED) (ACN 008 994 287)
WAD 257 of 2004


MOORE, NORTH AND EMMETT JJ
12 MAY 2005
SYDNEY (HEARD IN PERTH)

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 257 OF 2004

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	IMF (AUSTRALIA) LTD APPELLANT
AND:	SONS OF GWALIA LTD (ADMINISTRATOR APPOINTED) (ACN 008 994 287) RESPONDENT
JUDGES:	MOORE, NORTH AND EMMETT JJ
DATE OF ORDER:	12 MAY 2005
WHERE MADE:	SYDNEY (HEARD IN PERTH)

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The appellant pay the respondent's costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 257 OF 2004

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	IMF (AUSTRALIA) LTD APPELLANT
AND:	SONS OF GWALIA LTD (ADMINISTRATOR APPOINTED) (ACN 008 994 287) RESPONDENT

JUDGES:	MOORE, NORTH AND EMMETT JJ
DATE:	12 MAY 2005
PLACE:	SYDNEY (HEARD IN PERTH)

REASONS FOR JUDGMENT

MOORE J

1 I have read the reasons for judgment of North J in a draft form which set out the relevant facts. For my part, it is unnecessary to resolve this appeal by reference to abstract notions of what the "law" might "resist". It is sufficient to identify and apply settled principles of construction used to ascertain the meaning of laws made by the Australian Parliament. The task of construing a statute does not involve the elaboration of principles of the common law or equity or the application of such principles: see the observations of Kirby J in Commissioner of Taxation v Linter Textiles Australia Ltd (in liquidation) [2005] HCA 20 at [181]. Similarly, abstractions about the content of the "law" are not relevant to that task.

2 Central to this appeal is s 177(1A)(a) of the Corporations Act 2001 (Cth) ("the Act"). The relevant parts of s 177 are:

(1) A person must not:

(a) use information about a person obtained from a register kept under this Chapter to contact or send material to the person; or

(b) disclose information of that kind knowing that the information is likely to be used to contact or send material to the person.

(1A) Subsection (1) does not apply if the use or disclosure of the information is:

(a) relevant to the holding of the interests recorded in the register or the exercise of the rights attaching to them; or

(b) approved by the company or scheme.

(1B) An offence based on subsection (1) is an offence of strict liability.

(2) A person who contravenes subsection (1) is liable to compensate anyone else who suffers loss or damage because of the contravention.

(3) A person who makes a profit from a contravention of subsection (1) owes a debt to the company or the scheme. The amount of the debt is the amount of the profit.

(4) If a person owes a debt under subsection (3) to the scheme:

(a) the debt may be recovered by the responsible entity as a debt due to it; and

(b) any amount paid or recovered in respect of the debt forms part of the scheme property.

3 The appellant did not take issue with the proposition that what it proposes to do is prohibited by s 177(1) unless it is comprehended by s 177(1A). Thus the appellant's proposed conduct will be lawful if the use of information in the register "is...relevant to the holding of the interests recorded in the register" or is relevant to the "exercise of the rights attaching to [those interests]". It is necessary to ascertain the meaning of these two expressions, both having regard to the language used and the context in which they appear. Context is a notion of wide import. As the High Court (Brennan CJ, Dawson, Toohey and Gummow JJ) said in CIC Insurance Limited v Bankstown Football Club Limited [1997] HCA 2; (1997) 187 CLR 384 at 408:

...the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses "context" in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy .... ...if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent.

4 The interests referred to in s 177(1A) are those which might be recorded in a register kept under Chapter 2C. Chapter 2C requires, in appropriate circumstances, that a register be set up and maintained of members and option or debenture holders of or in a company or registered scheme: see s 168(1).

5 A register of members must contain specified information which includes the member's name and address and, if the register concerns a company which has a share capital, must include the number and class of shares held by the member and, if the register concerns a registered scheme, the interests and the class of interests held by each member: see s 169. A register of option holders must contain the option holder's name and address and the number and description of the shares or interests over which the options were granted: see s 170. A register of debenture holders must contain the debenture holder's name and address and the amount of the debentures held: see s 171.

6 The focus of much of the discussion in the reasons of the learned primary judge was the meaning, scope and effect of the word "relevant". The submissions in this appeal were similarly focused. However, before turning to that question, it is convenient to consider what might be the meaning of other words and expressions found in s 177(1A) of the Act.

7 The word "holding" in the expression "relevant to the holding of the interests record in the register" in the first limb of s 177(1A)(a) is the present participle of "hold" used as a noun. It is not defined in the Act. The word appears to be a reference to the act of holding the relevant interest (see Halwood Corporation Ltd v Roads Corporation 2 [1998] VR 439 at 449), which would, in context, be shares, options or debentures or the rights of a member of a company limited by guarantee (see O'Brien v Sporting Shooters Association of Australia (Victoria) [1999] VSC 313; [1999] 3 VR 251 at 255). Understood this way, the section is directed to authorising the use of information which is relevant to the act of holding shares, options or debentures or rights of a member of a company limited by guarantee.

8 The expression "the rights attaching to" those interests in the second limb of s 177(1A)(a) raises at least two questions. The first is whether it comprehends circumstances different from or overlapping or coextensive with, those comprehended by the first limb. The second concerns the nature of the relationship between the rights and the interests identified by the word "attaching" and what, if anything, it says about the type of rights with which the section is concerned. The word "attach" is defined in the Macquarie Dictionary (3rd ed) as meaning, amongst other things, "1. to fasten; affix; join; connect... 2. to join in action or function... 4. to connect as an adjunct... 9. attach to, to adhere or pertain to...". The expression "the rights attaching to" evokes notions of necessary and direct connection. That is, the rights exist and are exercisable by a person because the person holds the interest and without the interest the right would not exist. The existence of the rights is dependent on holding the interest. Put slightly differently, the expression "the rights attaching to" suggests a right that is a necessary incident of holding the interest. The nature of the right is informed by this connection.

9 If this is the intended scope of the second limb, then it may be there is at least an overlap between the use contemplated in the first limb of s 177(1A)(a) and the use contemplated in the second. However, this is not surprising given that the object of the section is to protect the privacy of people whose particulars (which include a name, an address and details of the interest held) can be ascertained from a register to which any member of the public can have access, by limiting the use that may be made of that information. The limitation is created by marking out an exception to an absolute prohibition. However, it is clear that the limitation was not intended to preclude use of information to contact or send material to the person if that use had a direct bearing on the interest held. It is understandable that in identifying the limited field in which prohibition does not operate, two means identified in the first and second limbs of s 177(1A)(a), which might overlap, are used to identify the circumstances in which the information might be used.

10 This leads to a consideration of the context of s 177(1A)(a) of the Act in the broad sense discussed above. It should be noted that the prohibition created by s 177(1) does not operate if the communication is by the company or scheme in which the person named on the register has a relevant interest. That would arise on one of two bases. The first is that necessarily, any communication by the company or scheme has been authorised by the company or scheme and therefore might be viewed as having been approved and within the meaning of s 177(1A)(b). The second is based on the word "approved" having a more limited operation. If, as is probably the case, "approved" refers to approval given to third parties then this would strongly suggest that the word "person" in s 177(1) does not include the company or the responsible entity of the registered scheme. The prohibition is intended to operate on third parties only.

11 The legislative predecessor of s 177(1) and s 177(1A), namely s 216J of the Corporations Law, was enacted by the First Corporate Law Simplification Act 1995 (Cth). In his second reading speech, the Attorney-General noted:

In response to concerns about the use of information from registers to invade the privacy of securities holders, such as through the compilation of mailing lists to send correspondence to them, the bill introduces a new provision which prohibits the misuse of information on those registers. Substantial sanctions, including criminal penalties and an account of profits, will become available in this area for the first time. This will represent a significant and practical safeguard for the privacy of those listed in these registers.

The concern about mailing lists was reflected in a note to s 216J that "[a]n example of using information to send material to a person is putting a person's name and address on a mailing list for advertising material". This was intended to illustrate a use which was intended to be prohibited by the section.

12 The Explanatory Memorandum accompanying the First Corporate Law Simplification Bill 1995 contained the following commentary about the use that the provision would authorise:

However, the prohibition does not operate if the use or disclosure of the information is relevant to the holding of the securities concerned. It does not interfere with the use of the information for purposes such as contacting shareholders in relation to takeovers or in order to influence company management about the operation of the company. In addition, the prohibition does not operate if the use or disclosure of the information is approved by the company.... Shareholders may be expected to hold the company's management accountable for any approval given.

Two examples were given. The first concerned a takeover, which would certainly relate to the holding of the interest and perhaps also the exercise of rights attaching to them if those expressions have the meaning discussed earlier. The second concerned influencing company management which would, ordinarily, involve the exercise of voting rights attaching to the interest at, for example, a general meeting of a company.

13 The purpose of the amendment was to protect privacy and, in my opinion, the construction of the section should give primacy to that object. It is consistent with that approach to confine the field of operation of the exception to that marked out by the ordinary and natural meaning of the words used.

14 For my part, and notwithstanding the approach of the learned primary judge, the resolution of this appeal does not turn on whether the expression "relevant to" has a narrow or broad meaning, even accepting, as the appellant submitted, that the word "relevant" should be given its usual meaning of "bearing upon, connected with, pertinent to the matter in hand": see also Grosvenor Hill (Qld) Pty Ltd v Barber [1994] FCA 921; (1994) 48 FCR 301 at 305. The information must have relevance, in that sense, to the act of holding the interest or to the exercise of relevant rights.

15 In the present case, the proposed conduct is not, in my opinion, relevant to the holding of an interest or the exercise of rights attaching to them in the way discussed earlier. The proposed litigation has no bearing, even indirectly, on whether the shareholders will or will not hold shares in Sons of Gwalia Ltd (Administrator Appointed) ("the Company"). While participation in the proposed litigation may depend on a person being a shareholder in the Company and involves the exercise of rights, in a broad sense, because the shares are held, they are not rights attaching to the shares. There is not the necessary and direct connection between the right and the shareholding.

16 Since preparing these reasons, I have had the benefit of reading the reasons for judgment of Emmett J in a draft form. I share his Honour's reservations about whether these proceedings involve a "matter" in any relevant legal sense having regard to the trend of recent High Court authority. What the appellant seeks is a declaration that conduct it may engage in would be lawful. There can be no certainty that the appellant would conduct itself as proposed even if a declaration were made. It is under no legal obligation to do so. It is true, as the primary judge noted, that there are observations which suggest a court can make a declaration about whether future conduct will be criminal: The Commonwealth v Sterling Nicholas Duty Free Pty Ltd [1972] HCA 19; (1972) 126 CLR 297 at 305 per Barwick CJ. However these observations of the Chief Justice were not endorsed by the other members of the High Court. Menzies J (with whom McTiernan J agreed) expressly put to one side that question (at 308) and, in any event, concluded the declarations made below concerning the lawfulness of certain conduct should be set aside. Windeyer J did not confront the issue directly (at 315) and Owen J concluded that the declarations should not have been made (at 319 and 320).

17 I would dismiss the appeal with costs.

I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore.

Associate:

Dated: 12 May 2005

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 257 OF 2004

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	IMF (AUSTRALIA) LTD APPELLANT
AND:	SONS OF GWALIA LTD (ADMINISTRATOR APPOINTED) (ACN 008 994 287) RESPONDENT

JUDGES:	MOORE, NORTH AND EMMETT JJ
DATE:	12 MAY 2005
PLACE:	SYDNEY (HEARD IN PERTH)

REASONS FOR JUDGMENT

NORTH J

18 The appellant conducts a business of funding litigation. It wishes to use the information from the register of members of the respondent to approach current shareholders with an invitation to join a group action against the respondent. Whether it is entitled to use the information for that purpose depends on the construction of s 177(1A)(a) of the Corporations Act 2001 (Cth) ("the Act"). Section 177 relevantly provides:

‘(1) A person must not:

(b) use information about a person obtained from a register kept under this Chapter to contact or send material to the person; or

(b) disclose information of that kind knowing that the information is likely to be used to contact or send material to the person.

(1A) Subsection (1) does not apply if the use or disclosure of the information is:

(c) relevant to the holding of the interests recorded in the register or the exercise of the rights attaching to them; or

(b) approved by the company or scheme.

(1B) An offence based on subsection (1) is an offence of strict liability.

(4) A person who contravenes subsection (1) is liable to compensate anyone else who suffers loss or damage because of the contravention.

(5) A person who makes a profit from a contravention of subsection (1) owes a debt to the company or the scheme. The amount of the debt is the amount of the profit.

(4) If a person owes a debt under subsection (3) to the scheme:

(a) the debt may be recovered by the responsible entity as a debt due to it; and

(b) any amount paid or recovered in respect of the debt forms part of the scheme property.’

19 The respondent operated a business including goldmining. On 30 August 2004 it was placed into administration. About twenty shareholders in the respondent approached the appellant because they wanted to know whether a group claim against the respondent was available to shareholders. The appellant investigated whether there was a possible claim that the respondent had, after about 22 July 2004, failed to disclose market sensitive information about the level of its gold reserves. It came to the view that some shareholders may have bought shares without relevant information between 22 July 2004 and the date of administration. Fifty million shares were traded in that period at prices ranging from about $1.15 to $2.00. The appellant formed the view that some of these shareholders may have claims at least for breach of ASX Listing Rule 3.1 and s 674 of the Act, in respect of which s 1325 provides for the payment of compensation. As the shares are now worthless, the loss on each share may be the difference between as much as $2.00 and nil. The appellant would only fund such a case if a large number of shareholders joined the action because each shareholder would be likely to be entitled to only a small amount, and, further, may need to prove that entitlement in a liquidation in which case the shareholders would recover only a part of the total entitlement.

20 In order to make contact with the current shareholders of the respondent, the appellant wished to use the information from the register of members of the respondent. The appellant applied to the administrators who granted access to the register of members, but drew the appellant’s attention to the terms of s 177, which in part limits the use of information obtained from the register. The appellant then wrote to the administrators stating that:

‘The obvious purpose of obtaining the register was to make contact with those persons and;

a) advise them of the existence of the shareholder group;

b)   provide material to them relevant to the potential claim;

c)   invite them to join the group in a potential representative or group action against Sons of Gwalia.’

The appellant sought approval from administrators under s 177(1A)(b) to use information from the register of members for the above purposes. On 24 September 2004, the administrators replied by letter that stated that it would not be appropriate for the administrators to provide the approval sought. On 28 September 2004, the appellant commenced these proceedings in order to have determined whether it would be acting in breach of s 177(1) if it used the information from the register of members to send to current shareholders a letter in the form of a draft dated 1 October 2004, together with the documents referred to in that letter (the October letter).

The material parts of the October letter read as follows:

‘Dear

Sons of Gwalia Shareholder Action

I am writing to all shareholders of Sons of Gwalia Ltd ("SOG") who purchased shares on or after 23 July 2003 [sic] providing notification of a shareholder legal action being considered against SOG. This action will seek recovery of shareholder value lost as a result of SOG allegedly making misleading statements and failing to keep the market fully informed in respect of its gold reserves and its hedge book position, either through the proof of debt process or litigation.

This shareholder action will be conducted by Jackson McDonald, a leading Perth law firm and is funded by IMF (Australia) Ltd, an ASX listed corporation specialising in litigation funding.´

The letter then referred to the enclosures and continued:

`The blue part of the Funding and Retainer Agreement is to be completed by you, signed and returned in the reply paid envelope. The white Funding and Retainer Agreement is for your retention.

If you do not wish to pursue your losses then please ignore this correspondence.

Once the blue form is received by IMF, Jackson McDonald will send you an advice on the Funding Agreement and the litigation on a confidential basis. A 14 day period is then provided to you to finally decide whether you wish to proceed.´

The letter concluded:

`I look forward to assisting you recover your losses.´

21 Included in the enclosures to the letter were the following materials: a Chronology; a single page document entitled ‘Sons of Gwalia Ltd Shareholder Claim Information’; ‘Frequently Asked Questions’; and a ‘Retainer & Funding Agreement’.

Chronology

22 The Chronology set out events which occurred in relation to the company between 30 June 2003 and 30 August 2004.

Sons of Gwalia Ltd Shareholder Claim Information

23 This document set out the bases upon which shareholders who purchased shares in the respondent might be entitled to recover losses and the quantum of those losses. It referred to the publicly stated reason for the appointment of administrators which was that:

‘The review of operations identified a serious deterioration in the status of the gold reserves and resources which raised concerns about the Company´s ability to meet its hedge book commitments. The Company was advised that the position would constitute an event of material adverse change under the counterparty agreements.’

24 Reference was made to a statement made by the respondent in June 2003 about its proven and probable gold reserves, and in October 2003 about its forward gold production for the ensuing five years. The document stated:

‘If the above figures were correct SOG would have been able to satisfy its gold hedging commitments. Either the figures were incorrect at the time they were disclosed or they subsequently became incorrect and SOG failed to tell the market before 30 August 2004.

Clearly the gold reserves and resources did not simply deteriorate overnight.’

Frequently Asked Questions

25 This document related largely to the basis upon which a claim might lie against the respondent and the costs to a shareholder of joining the action. Successful shareholders were informed by this document that they would be likely to receive between 60% and 75% of the amount recovered, less their share of the costs, depending upon how many shares they purchased and how long the proceedings took. The full amount of the claim was unlikely to be recovered as the respondent had gone into administration. The appellant would obtain from the action the return of its costs and a 25% to 40% share of the recovery proceeds, depending upon the number of shares purchased and the time it took to recover the proceeds. The claim would initially be advanced through the proof of debt process and then, if necessary, as a representative claim made by a shareholder on behalf of all shareholders or a group claim, with all funded shareholders named on it.

Retainer and Funding Agreement

26 The Retainer and Funding Agreement outlined that the appellant would pay the shareholders’ legal costs in connection with the claim process, whether by way of proof of debt procedure or by legal proceedings. The appellant would also pay any costs order made against the shareholders in the proceedings in respect of costs incurred during the term of the agreement, and undertook to provide any security for costs ordered by the court in the proceedings. The appellant would be paid a commission ranging between 25% and 40%, depending upon the number of shares held by the relevant shareholder and the date at which the claim was resolved.

Proceedings before the Primary Judge

27 Before the primary judge the appellant argued that the use of the information from the register was relevant to the holding of the shares and was thus permitted by the exception in the first part of s 177(1A)(a). The respondent, at that stage, contended that the Court had no jurisdiction to determine the question or grant the declarations sought by the appellant, because the issue was hypothetical. The primary judge rejected the respondent’s argument on this question, and no issue has been raised on the appeal in that regard.

28 The primary judge also granted leave to the appellant to proceed against the respondent in administration under s 440D of the Act, in order to allow the appellant to prosecute the claim for declaration. Again, no issue is raised on the appeal concerning that part of his Honour’s judgment. The primary judge then dismissed the applicant’s claim for a declaration. He concluded that the proposed use of the information was not relevant to the shareholders’ holding of shares, and thus was not within the exception in the first part of s 177(1A)(a).

Judgment of the Primary Judge

29 His Honour approached the construction of s 177 by looking to the ordinary meaning of the words in s 177, read in their statutory context and having regard to their statutory purpose. In his Honour’s view, the purpose of s 177 was to promote the privacy of shareholders by limiting the use to which information from the register may be put. His consideration of the exception in the first part of s 177(1A)(a) was as follows:

'56 A controlling word in the exemption provided by s 177(1A)(a) is the word `relevant´. Like the words `related to´ it may be widely or narrowly construed. On one view it covers any use of information which is connected in any way to a person´s status as a shareholder of the company. On another view it may be more narrowly construed as requiring some narrower legal connection to the actual ownership of the shares and the enjoyment of the rights which that ownership confers. On that narrower basis the use of information in connection with the past acquisition or disposal of interests would not ordinarily be relevant to the holding of the interests.

57 In my opinion the range of `relevant´ uses of register information is to be construed in the narrower sense more closely connected to the actual holding of shares and the exercise of rights attaching to them. That is not to exclude the possibility that information relating to past shareholders may be used to communicate with them in a case in which they have grounds to bring or join in an action against the company for relief against oppression or to bring or to intervene in a statutory derivative action - see Westgold (at 109). It is, in my opinion, however, contrary to the purpose of the prohibition, which protects shareholder privacy, to construe the exemption as permitting unsolicited approaches to shareholders using information on the register with a view to selling shareholders services simply on the basis that they are connected with their status, past or present, as shareholders in the company.

58 Notwithstanding that IMF claims (and it is not disputed) that it has been approached by a number of shareholders about possible recovery action against Sons of Gwalia, the nature of its proposed approach to both present and former shareholders is indistinguishable from that of any third party seeking to provide services to shareholders by reason of their status as such. If IMF´s approach were to fall within the exemption, it is difficult to see how any other competing litigation funder or legal practitioner for that matter could not use information on the Register to send material to past or present shareholders about the availability of services in relation to the possible recovery of losses incurred by reason of alleged non-disclosure on the part of Sons of Gwalia. Indeed, it is difficult to see how the exemption so widely construed could not accommodate the use of register information by investment advisors and brokers and others offering a variety of services to shareholders which could be said to be related to their status as such.

59 In my opinion, the exemption in s 177(1A)(a), if construed widely enough to accommodate the proposed approach by IMF, would defeat the purpose of the privacy protection effected by s 177(1).’

Consideration

30 The exception concerning the use or disclosure of information "relevant to the holding" of shares employs ordinary non-technical language. However, the form of expression is not precise. The legislature could have listed the circumstances in which it considered the use of such information was relevant to the holding of shares. For instance, it could have specified that information from the register could be used by the company to send dividend cheques to shareholders. Instead, it chose to use the flexible concept of relevance. In order to determine the scope of this concept, it is necessary to make a judgment about the closeness of the relationship between the use of the information and the holding of the shares. This judgment is a qualitative one based essentially on an impression. That is, it is possible to say that some use falls within the description without being able to identify with precision why this is so. Such is the essence of a qualitative assessment. One is left with little more than the assertion that the use is relevant because it seems to be so.

31 There will usually be little difficulty in applying such a flexible concept of relevance. For instance, there would be no debate that the use of shareholder information to send dividend cheques to shareholders was a use relevant to the holding of shares. Similarly, there would be no debate that the use of such information to send shareholders material advertising cars for sale would not be a use relevant to the holding of shares. However, the present case falls within an area in which impressions may differ.

32 The law, as an organised body of rules, resists the notion that certain concepts depend on conclusions based on impressions. The law strives to define concepts and confine them by rules. There is a need to accept, however, that many concepts used by the law are not capable of precise formulation, but depend on a qualitative judgment. In this case, the primary judge said that the word relevant could have a wider or narrower meaning. The wider meaning covered "any use of information which is in any way connected to a party’s status as a shareholder". The narrower meaning required "a narrower legal connection to the actual ownership of the shares". Those two suggested meanings reflect different degrees of relevance. They do not point to a dichotomy between a use which is relevant and another which is not relevant, but rather to a gradation from more to less relevant use. His Honour’s conclusion remained, essentially, one based on impression. The attempted definition of the meaning of the word relevant did not advance or justify the process of determination.

33 So much for the ordinary meaning of the word relevant taken on its own. It is, as the primary judge recognised, also necessary to have regard to the purpose of the exception, and to the legislative context in which it appears.

34 The appellant correctly accepts that the purpose of the prohibition in s 177(1) is to protect the privacy of a shareholder from undue intrusion by the use of information from the register.

35 But what of the legislative context? The need for protection of shareholders’ privacy only arises because the starting point of the legislation is the requirement that a company keep a register which is open to the public (s 173(1)). The legislation embodies a policy that the public has the right to certain knowledge about shareholdings in companies. The prohibition in s 177(1) relates to the use of that information, and the exception in s 177(1A) limits the scope of that prohibition. The exception, thus, returns to the policy in favour of public access to information on the register. I accept the submission of Mr Gageler SC, who appeared with Mr JC Giles for the appellant, that the prohibition in s 177(1) and the exception in s 177(1A) are part of a wider legislative context which seeks to achieve a balance between two policies – the right of the public to know about, and use, information from the register, and the policy that shareholders should be free from undue intrusion from the use of such information. The primary judge emphasised the purpose of s 177(1) to protect the privacy of the shareholder. In construing s 177(1A) it was necessary to allow for the wider legislative context which involved balancing that interest against the right of public access to, and use of, information on the register. I agree with the submission of the appellant that the primary judge failed to allow for the wider legislative context.

36 The terms and scope of the second part of s 177(1A)(a) provides further contextual support for a wider view of the word relevant than that accorded by the primary judge. It relates to the use of information relevant to the exercise of rights attaching to the shares. The first part of s 177(1A)(a), with which this judgment has until now been concerned, relates to the use of information relevant to the holding of shares. The distinction made here is between the passive function of "holding" and the active "exercise" of rights attaching to, the shares. If the company uses information from the register to send a dividend cheque to a shareholder, the use of information is relevant to the holding of the shares. If the company uses such information to send a proxy voting form to a shareholder, the use of the information is relevant to the exercise by the shareholder of the right to vote. But, for example, one right possessed by a shareholder is the right to dispose of the shares. Consequently, it is permissible under the second part of s 177(1A)(a) to use information from the register to contact a shareholder in relation to the sale of shares. A broker could use the information from the register to contact a shareholder to offer a competitive rate of brokerage on the sale of those shares. Or, if the shares were subject to a takeover offer, an investment advisor could use the information from the register to approach the shareholder to offer advice on whether to sell the shares in accordance with the takeover offer. The primary judge regarded such approaches by a broker or investment advisor as outside the scope of the first half of s 177(1A)(a) because he thought that the legislature did not allow such a degree of intrusion into the privacy of the shareholder. Yet that very use would fall within the second part of s 177(1A)(a). Consequently, it cannot be said that the legislature contemplated the degree of privacy protection relied upon by the primary judge. A wider reading of the first part of s 177(1A)(a) is warranted by the statutory context.

37 The history of the sections under consideration in these reasons was referred to by the primary judge at [29], and was summarised by Byrne J in O’Brien v Sporting Shooters Association of Australia (Victoria) [1999] VSC 313; (1999) 3 VR 251, 254. I derive no particular assistance in determining the present question from that history, or from the second reading speech, the explanatory memorandum, or the endnote to s 177.

38 In Westgold Resources NL v Precious Metals Australia Ltd [2002] WASC 221 Heenan J held that a shareholder could not use information from the register to contact former shareholders to canvass support for a group action against the company to recover the losses from false and misleading statements made by the company in a prospectus. His Honour said at [24]:

‘Again, it is necessary to resort to s 177(1A) of the Act in order to ascertain whether or not the use or disclosure of the information in the register of former members is relevant to the holding of the interests recorded in the register or the exercise of the rights attached to them. I consider that the answer to this question is in the negative. In the first place the former members no longer hold the interests which are recorded in the register and for this reason are unable to exercise any rights formerly attaching to them. It is true that the former owners may have an action for damages for losses caused by misleading or deceptive statements contained in the prospectuses, if that could be proved, but such a right for damages appears to me to be independent of, and distinct from, the holding of the interests or the exercise of rights attached to them. The successful recovery of an award of damages as compensation for losses caused by misleading or deceptive statements, does not seem to me to be the enforcement of any interest held as a shareholder of the company or the exercise of the rights of a shareholder. It is a separate and independent action for damages arising because the interests recorded in the register or the rights derived from them were not those which were represented. Especially where those shares have since been sold, the recovery of damages is for a right which is distinct and independent of the rights of a present or former shareholder.’

39 It is not clear to what extent Heenan J was dealing with the first half of s 177(1A)(a) rather than the second half. The essential reasoning seems to relate to the second half of the section, that is, whether a former shareholder had an interest to which the communication related. That is a different question to the one raised in this appeal. Further, the case dealt with the claim concerning former shareholders, rather than existing shareholders. In the penultimate sentence quoted above, Heenan J seems to suggest that the communication was not relevant to the holding of shares because it concerned an allegation that the value of shares was not as represented by the prospectus. If this was the conclusion, it involves a non sequitur and I am unable to agree with it.

40 In argument, a question was raised as to whether the proposed use of information was relevant to the shareholders’ acquisition of shares, rather then to their holding of shares. The proposed use is relevant to the holding of shares because the right to sue for losses resides only with the owner of the shares. The services offered by the appellant were offered to the holders of the shares only because the shareholders are entitled to bring proceedings to recover their loss. In that sense, the proposed use by the appellant is relevant to the acquisition of the shares. But the fact that the approach has relevance to the acquisition of the shares does not mean that it does not also have a relevance to the holding of those shares.

41 Thus, the ordinary meaning of the words in the first half of s 177(1A)(a) read in their full statutory context, covers the use of information from the register by the appellant to send current shareholders the October letter. The only reason the appellant wishes to approach the shareholders is because they are the persons holding shares in the respondent, and the services offered by the appellant relate to the loss that they may have suffered as holders of the shares. The appellant has an interest in the use of the information for its own commercial purposes. This interest is accommodated by the fact that s 177(1) allows open public access to the information on the register. The shareholders’ interest in privacy is not unduly compromised, because the information which the appellant wishes to send to the shareholders concerns their interests as shareholders. Shareholders would likely have a real interest in receiving the October letter, and would not regard the use of information from the register for this purpose as an undue intrusion into their privacy.

42 In the course of argument the appellant indicated that it would limit its claim for a declaration to the terms of paragraph 1 of the notice of appeal, which is tied to the terms of the October letter, and it would not press for the wider form of declaration sought in paragraph 2 of the notice of appeal.

43 For the foregoing reasons, the appellant is entitled to the declaration sought, together with the costs of the appeal and the costs of the proceeding before the primary judge.

I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice North.

Associate:

Dated: 12 May 2005

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 257 OF 2004

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	IMF (AUSTRALIA) LTD APPELLANT
AND:	SONS OF GWALIA LTD (ADMINISTRATOR APPOINTED) (ACN 008 994 287) RESPONDENT

JUDGES:	MOORE, NORTH AND EMMETT JJ
DATE:	12 MAY 2005
PLACE:	SYDNEY (HEARD IN PERTH)

REASONS FOR JUDGMENT

EMMETT J

44 The appellant, IMF (Australia) Limited (‘IMF’), proposes to send a letter to certain members of the respondent, Sons of Gwalia Limited (Administrator Appointed) (‘the Company’), inviting them to participate in litigation against the Company and its directors. IMF obtained information concerning those members from the register of members of the Company (‘the Register’). The question in this appeal is whether that proposed use of information obtained from the Register would be a contravention of s 177(1) of the Corporations Act 2001 (Cth) (‘the Act’).

45 IMF commenced a proceeding in the Court claiming a declaration that it would not contravene s 177(1) of the Act by using information obtained from the Register for the proposed purpose. On 1 November 2004, a judge of the Court ordered that the proceeding be dismissed but made no order as to costs. By notice of appeal filed on 9 November 2004, IMF appeals to the Full Court from the order made by the primary judge dismissing its application.

STATUTORY FRAMEWORK

46 Chapter 2C of the Act deals with the setting up and maintaining of registers of members of all companies. Section 168(1)(a) provides that a company must set up and maintain a register of members. Under s 169(1) the register of members of a company must contain the following information about each member:

• the member’s name and address;
• the date on which the entry of the member’s name in the register is made.

Under s 169(3) if a company has a share capital, the register must also show, inter alia, the date on which every allotment of shares takes place, the number of shares in each allotment and the shares held by each member.

47 Section 173(1) provides that a company must allow anyone to inspect a register kept under Chapter 2C. If the register is kept on a computer, the person inspects a hard copy of the information on the register. Under s 173(2) a member of a company may inspect a register kept under Chapter 2C without charge. Other people may inspect a register only on payment of any fee required by the company.

48 Section 177(1)(a) provides that a person must not use information about a person obtained from a register of shareholders to contact or send material to that person. However, under s 177(1A), s 177(1) does not apply if the use or disclosure of the information is relevant to:

• the holding of the shares recorded in the register; or
• the exercise of the rights attaching to the shares recorded in the register.

IMF’S PROPOSALS

49 IMF is engaged in the commercial funding of litigation. Its managing director, Mr Hugh McLernon, is a legal practitioner of considerable experience. IMF employs several other qualified lawyers and investigators and has funded a number of mass plaintiff claims around Australia in recent years.

50 IMF has been approached by approximately 20 of the current shareholders of the Company with a view to having IMF consider the possibility of funding proceedings on behalf of shareholders against the Company and its directors. IMF is not prepared to fund such proceedings unless engaged by most of the shareholders who would be able to pursue such claims.

51 IMF has obtained a copy of that part of the Register that relates to those persons who had become members on or about 22 July 2004. It wishes to write to each such member saying, relevantly:

‘I am writing to all shareholders of [the Company] who purchased shares on or after 23 July 2003 providing notification of a shareholder legal action being considered against [the Company]. This action will seek recovery of shareholder value lost as a result of [the Company] allegedly making misleading statements and failing to keep the market fully informed in respect of its gold reserves...

This shareholder action will be conducted by Jackson McDonald, a leading Perth law firm and is funded by [IMF], an ASX listed corporation specialising in litigation funding.

Please find the enclosed the following:

• Chronology
• Shareholder Claim Information
• Frequently Asked Questions
• Share Chart
• Funding and Retainer Agreement in duplicate

The blue part of the Funding and Retainer Agreement is to be completed by you, signed and returned in the reply paid envelope. The white Funding and Retainer Agreement is for your retention.

If you do not wish to pursue your losses then please ignore this correspondence.

Once the blue form is received by IMF, Jackson McDonald will send you an advice on the Funding Agreement and the litigation on a confidential basis. A 14 day period is then provided to you to finally decide whether you wish to proceed.
...’

52 One of the documents to be enclosed with that letter is entitled ‘SHAREHOLDER CLAIM INFORMATION’. The document relevantly says as follows:

‘The Loss

If you purchased shares in [the Company] you may be entitled to recover losses suffered as a result of the alleged misleading and deceptive conduct of [the Company] and its failure to disclose material information in relation to:

(a) its level of gold reserves;
(b) its future estimates of gold production; and
(c) its capacity to produce enough gold to meet its gold commitments

The loss is likely to be the difference between what you paid for the shares and sold them for, or if unsold, what they are now worth. You will only be entitled to claim a loss if you bought shares at a time when the conduct of [the Company] referred to above occurred. This is likely to be a date on or after 23 July 2003...’ [AB 140]

53 Another document intended to be enclosed, entitled ‘SONS OF GWALIA RETAINER & FUNDING AGREEMENTS’ (‘the Retainer Document’), contains the following under the heading ‘OVERVIEW’:

‘A. The Appointor appoints the Solicitors to conduct the Proceedings pursuant to the Retainer ....mk

B. The Appointor appoints IMF to make investigations and to deal with any insolvency practitioner appointed to Sons of Gwalia in relation to the Claims.

C. IMF will pay all expenses associated with the conduct of the Proceedings pursuant to the Funding Agreement ....

D. IMF will receive a commission plus reimbursement of amounts it pays pursuant to the Funding Agreement.’

54 Under the heading ‘RETAINER OF JACKSON MCDONALD’ contained in the Retainer Document the following appears:

‘2. The Solicitors are instructed to provide such advice and legal services to the Appointor as the Solicitor may consider reasonably necessary to prosecute the Proceedings (‘the Legal Work’), after consideration of information provided by IMF as a result of its investigations. The Solicitors are authorised to make day-to-day decisions in relation to the conduct of the proceedings.
...

5. Charges for the legal work carried out by the Solicitors shall be calculated in accordance with the standard hourly rates of the Solicitors, as specified in Schedule A, which are exclusive of GST. The Solicitors usual charges for disbursements are set out in Schedule A...

55 Under the heading ‘FUNDING AGREEMENT’ in the Retainer Document, the following expressions are defined:

"Appointor" means the shareholder identified on the front of this document.

"Claims" means all claims the Appointer has against any or all of the defendants arising out of or connected with the Appointor’s purchase of shares in Sons of Gwalia in the Relevant Period.

"Defendants" means any of [the Company] and the directors of [the Company].

"Proceedings" means either a Class Action or a Group Action to prosecute the Claims and to recover any judgment debt arising out of the Claims and any action in connection with a refusal by any insolvency practitioner appointed to [the Company] to admit the full amount of the Claims as a debt provable in any administration of [the Company].

"Solicitors" means Jackson McDonald or if they cease to act, solicitors appointed in their place.’

56 Clearly enough, the use to which IMF wishes to put the information obtained from the Register is to invite certain members of the Company to instruct Jackson McDonald to commence a proceeding, by class action or group action, to prosecute claims against the Company and the directors of the Company arising out of, or connected with, the purchase by such members of shares in the Company. The Retainer Document provides that, under the proposed arrangement, IMF will pay all legal costs and disbursements, of the member, reasonably incurred by Jackson McDonald. Any money paid as a result of settlement of the Claims is to be distributed amongst members after payment of a commission to IMF, which will be between 25 per cent and 40 per cent. IMF has a significant commercial interest in sending the proposed letters to members of the Company. Similarly, to the extent that Jackson McDonald would become entitled to receive fees for the conduct of the Proceedings, Jackson McDonald also have a significant commercial interest in the sending of the proposed letters.

EFFECT OF S 177

57 The proposed use of the information about members obtained from the Register would be prohibited by s 177(1)(a) of the Act. The proposed use has not been approved by the Company so as to fall within the exception provided for in s 177(1A)(b). Accordingly, the question is whether the proposed use falls within the exception provided for in s 177(1A)(a). That question entails determining, as a matter of statutory construction, whether the proposed use is relevant to the holding of shares in the Company or the exercise of the rights attaching to those shares.

58 It is important to bear in mind, when construing a statute, that the task of the Court is to determine what is meant by the words used by Parliament, not what Parliament intended to say. Even an explicit statement of intention by the Minister in the speech on the second reading of the bill for an enactment cannot prevail over the words actually used in the statute subsequently enacted. It may be that, through oversight or inadvertence, the intention of Parliament fails to be translated into the text of a statute. However unfortunate that may be when it happens, the task of the Court remains to give effect to the statute according to its ordinary meaning. Extrinsic material cannot be used to construe a statute unless the construction of the provision suggested by that material is reasonably open: Re Bolton; Ex parte Beane [1987] HCA 12; (1987) 162 CLR 514 at 518.

59 On the other hand, the propriety of departing from the literal interpretation of a statute is not confined to situations where literal interpretation leads to an extraordinary, capricious, irrational or obscure result. It extends to any situation in which, for good reason, the operation of the statute on a literal reading does not conform to the legislative intent as ascertained from the provisions of the statute, including the policy that may be discerned from those provisions. Once a Court concludes that the literal or grammatical meaning of a provision does not conform to the legislative purpose, as ascertained from the statute as a whole, including the policy that may be discerned from its provisions, the Court is entitled to give effect to that purpose by addition to, omission from or clarification of, the particular provision: Saraswati v The Queen [1991] HCA 21; (1991) 172 CLR 1 at 22.

60 The predecessor of s 177 of the Act was first enacted by the First Corporate Law Simplification Act 1995 (Cth) (‘the 1995 Act’). According to the speech given by the relevant Minister on the second reading of the Bill for the 1995 Act, that provision was first enacted ‘in response to concerns about the use of information from registers to invade the privacy of securities holders’; it was designed to prohibit ‘the misuse of information’ on such registers (Hansard 8 February 1995 at page 709). The Explanatory Memorandum published in connection with the Bill for the 1995 Act recorded that the purpose of the provision was to prohibit the compilation of ‘commercial mailing lists’ except where the use was relevant to a shareholding.

61 That purpose is confirmed by a note that appears in the reprint of the Act after s 177(1). The note is in the following terms:

‘An example of using information to send material to a person is putting a person’s name and address on a mailing list for advertising material.’

While the note does not form part of the Act, it may, by virtue of ss 13(3) and 15AB(2)(a) of the Acts Interpretation Act 1901 (Cth), as applied by s 5C of the Act, be used in the interpretation of the Act. Thus, s 177(1A)(a) must be read in the context of that example.

62 It would follow that using information obtained from the Register, even for the purpose of putting a member’s name and address on a mailing list for advertising material, would not be prohibited by s 177(1)(a), provided that use of the information is relevant either to the holding of shares recorded in the Register or to the exercise of rights attached to such shares. According to the Shorter Oxford English Dictionary, the word ‘relevant’ means, in relation to a matter in hand, ‘bearing upon, connected with, pertinent to’ that matter. According to the Macquarie Dictionary, the word means, in relation to a matter in hand, ‘bearing upon or connected with’ that matter.

63 An object of the Act is to create rights for compensation for shareholders and other persons who suffer damage as a result of contraventions of the Act. Accordingly, s 177(1) may not inhibit use of information in order to communicate with members concerning their potential rights, as shareholders, to bring or join in an action against a company for relief against oppression or to bring or intervene in a statutory derivative action. Such a use could be characterised as being for the purpose of communicating with a shareholder about a subject that is connected with the fact that that person holds the shares in respect of which the person is registered. It might also be characterised as being for the purpose of communicating about a subject that is connected with the exercise of rights attaching to such shares. However, it does not follow that a communication about the circumstances in which a person agreed to acquire shares in, or to become a member of, a company can be characterised as being connected with the fact that that person holds the shares, in respect of which the person is registered, or with the exercise of rights attaching to such shares.

64 The use of information in the Register contemplated by IMF is to send an invitation to participate in the Proceedings, which are for the prosecution of claims against the Company and its directors bearing upon, connected with, or pertinent to, the purchase by members of shares in the Company. Such Proceedings have nothing to do with the holding of, or the exercise of rights attaching to, shares in the Company. It may be that becoming the holder of shares in the Company was an essential step in the cause of action, in that it was the parting with the price paid for the acquisition of the shares that gave rise to any loss or damage suffered by a member. It is the acquisition of shares that gave rise to the possible Claims. The shares could be sold and might already have been sold. That would have crystallised the loss or damage. That is to say, the Claims exist whether or not shares in the Company are held by a person.

65 An invitation to retain solicitors to commence and prosecute a proceeding in relation to that acquisition is not relevant to the holding of, or the exercise of rights attaching to, the shares. Such a construction of s 177(1A) is not a restrictive one. It may be that the primary object of s 177 is to prohibit the use of information obtained from a register in order to engage in marketing activities. That, of course, is precisely what is involved in IMF’s proposal. The proposal involves marketing the services of IMF and Jackson McDonald in connection with proposed litigation. The proposed use does not bear upon and is not connected with the holding of shares or the exercise of rights attached to shares. Nor is the proposed use pertinent to the holding of shares or the exercise of rights attached to shares.

66 That is the conclusion reached by the primary judge. The conclusion is also consistent with earlier decisions of other courts– see Westgold Resources NL v Precious Metals Australia Ltd [2002] WASC 221; (2003) 21 ACLC 102 at [24].

CONCLUSION

67 There may be a question as to whether declaratory relief of the nature sought by IMF should be given in circumstances such as those involved in this proceeding. When the jurisdiction of the Court is invoked, the party invoking it must be seeking the determination of rights, duties, liabilities or obligations. That is central to the notion of a matter – see Abebe v Commonwealth [1999] HCA 14; (1999) 197 CLR 510 at 524. Because the availability of declaratory relief is confined by the boundaries of judicial power, where such relief is sought, the question to be determined must be real and not abstract or hypothetical – Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564 at 582.

68 The fact that declaratory relief relates to the lawfulness of future conduct does not necessarily mean that such relief is beyond the power of the Court. On the other hand, a declaration in relation to a hypothetical situation or set of circumstances, which may never arise, borders on an advisory opinion and would therefore be outside the jurisdiction of the Court. The primary judge concluded that the issue in the present proceeding was neither hypothetical nor contingent and involved a real question, namely, whether IMF could lawfully proceed to do what it proposes to do in using the information obtained from the Register. Having regard to the conclusion reached above, it is not necessary to deal with that question. The relief claimed should be refused, even if it is within the Court’s jurisdiction to grant it.

69 It follows that the appeal should be dismissed.

I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated: 12 May 2005

Counsel for the Appellant:	S Gageler SC with JC Giles
Solicitor for the Appellant:	Solomon Brothers
Counsel for the Respondent:	KJ De Kerloy
Solicitor for the Respondent:	Freehills
Date of Hearing:	24 February 2005
Date of Judgment:	12 May 2005