A person who consents to the inclusion of a defective statement
in a fundraising or takeover document may be liable for losses that
the defect causes.
But what does "consent" actually mean?
This is an issue which has rarely been considered by Australian
courts. However, it was a significant factor in the recent
dismissal of the class action against Bendigo and Adelaide
In dispute was whether a company which shared some directors
with another company must have "consented" to all the
statements in a PDS issued by that other company.
A basic issue, therefore, was whether "consent", as
used in relation to fundraising and takeover documents in the
Corporations Act, is active or passive.
Bendigo and Adelaide Bank argued that there is a difference
between "consent" and "acquiescence". It
referred to a 1980 English case in which it was said that
acquiescence can arise out of passive failure to do anything, but
consent must involve "a positive demonstrative act, something
of an affirmative kind":
The Australian Court agreed that this definition of
"consent" was applicable to the relevant provisions of
the Corporations Act:
"the provisions of the Act to which reference has been made
indicate, in my view, that the word 'consent' is there
being used in an active, rather than passive, sense, which connotes
a requirement of a specific, positive act and not mere acquiescence
On this basis, a company's having some common directors with
the issuing company did not, by itself, constitute consent to the
statements in the issuing company's PDS:
"the 'mere' fact of common directorships, noting
that the position was that the directorships were not entirely
common as there were some directors who were directors of one
company only, does not establish common knowledge, common control
or common liability."
This is a useful clarification of a potentially significant
legal issue in fundraising. Unfortunately, the news isn't all
good for fundraisers.
Another question before the Court was whether it could make
orders against someone who wasn't the fundraiser.
The investors were suing GSMAL, the issuers of a PDS, for
damages for an allegedly defective PDS (under section 1022B). They
were also suing Bendigo and Adelaide under another section, section
1022C. Section 1022C allows a Court, in an action under the primary
section (section 1022B), to make such orders "as it thinks are
necessary to do justice between the parties". The investors
wanted orders requiring Bendigo and Adelaide to repay them the
money they had borrowed to invest in the product offered under the
Bendigo and Adelaide argued that the secondary section (section
1022C) didn't empower the Court to make orders against someone
who wasn't a party to the primary (section 1022B) action. The
"[It is] significant that section 1022C makes provision for
and empowers the court to make orders to do justice between
'the parties', a term which is not defined; and rather than
by reference to the expression 'liable person', which is
provided for and, in effect, defined by sub-section 1022B(3). In
view of this disparity, it appears that the legislature may have
intended section 1022C to have a broader operation and to have been
intended to empower courts to make orders binding 'third
parties' where necessary to do justice arising out of an action
under section 1022B."
Fortuitously for the bank, the Court had already decided to
strike out the investors' claim on other grounds.
One of the bugbears for issuers, underwriters and securities
lawyers in the equity capital markets space is that, while the
Corporations Act provisions are complex, there isn't a lot of
judicial guidance on how they work in practice. Market participants
must, therefore, proceed on the basis of guidance from regulators
and lawyers, as well as market practice.
This decision is a useful addition to the ECM knowledge base,
particularly because it provides useful guidance on the meaning of
"consent", a concept which, as the Court noted, lies at
the heart of many of the liabilities which can arise out of a
fundraising or takeover.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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