By Marshall McKenna and Lauren Shave

Yesterday, the Federal Court delivered its first determination of compensation payable in relation to the extinguishment of native title.1

In some respects, this decision answers the long unanswered question ‘how much is native title worth’.  The answer, unfortunately, is (not unexpectedly) complex. Nevertheless it gives good guidance as to the principles to be applied in assessing compensation and the amounts that may need to be paid by development proponents.

Summary

Compensation for extinguishment of native title addresses both ‘economic loss’ and ‘solatium’ (i.e. hurt feelings evoked by the extinguishment of native title).

The compensation for solatium is significant and may be more than the value attributed to the ‘economic’ component.

Compensation is payable by the relevant grantor (i.e. the Crown in right of the State, Territory or Commonwealth as applicable).

To the extent that there are indemnities or other mechanisms to pass compensation obligations to tenure holders, there are likely to be difficulties in attributing compensation arising for solatium to any particular parcel of land, and provisions purporting to do so may not be effective.

The Timber Creek decision

The claim was for compensation for extinguishment of native title rights and interests in relation to an area of the Northern Territory.

The key points arising from the decision are:

  1. The amount of compensation for the economic value of exclusive native title rights in land ($512,000) is reflective of the freehold value of the land;
  2. Given that much compensation is historical, the interest component is likely to be significant ($1,488,261); and
  3. The compensation for solatium was by far the most significant component of the compensation sum ($1,300,000).

It would be an error, however, to consider that this decision is suggestive of a principle that native title compensation will be several fold the value of equivalent freehold interests in all cases.

First, the judge acknowledged that ‘The process required [to make an assessment of solatium] is a complex, but essentially an intuitive, one.'2  That means that the assessment is subjective, but likely to be tied to the importance of location in Aboriginal culture rather than to the value of the land.  That is, it is likely that the ‘economic’ and ‘solatium’ components of native title compensation are not interrelated concepts.

Second, any ‘intuitive’ process is likely also to be subjective. That means that an appeal court (if the matter is appealed) or another judge in different circumstances might be less (or more) generous in that assessment.

Accordingly, it is likely that the approach to assessment of land will need to assess:

  1. The economic value of the land for the assessment of the economic component of compensation; and
  2. The Indigenous importance of the land assessment of the solatium component.

Additionally, the judge decided that the loss for solatium ought not to be undertaken on a ‘parcel by parcel’ basis. Rather that assessment is made on a global basis taking into account the way in which the grant in question had an impact the native title holders.  Further, the assessment of solatium takes into account any impairment of attachment or any loss or destruction of significant places that was unconnected with the grant).

Accordingly, while the economic value of a specific parcel of land is capable of being assessed, it is not possible to attribute a value of the solatium applicable ‘to a boxed quarter acre block’.3

This is likely to cause some difficulty in applying ‘flow through’ provisions in legislation and agreements. Compensation is payable by the granting party (i.e. the Crown in right of the State, Territory or Commonwealth as applicable). Some legislation and some lease agreement conditions seek to pass the liability obligation to the grantee party.4  However, these provisions usually address the compensation attributable to the grant.  For the reasons above, it appears that it is not possible or appropriate to apportion solatium to specific grants.

What is next

Assessment of compensation for native title will not be a quick or easy process. Putting aside that the decision is likely to be appealed, there are three major hurdles to obtaining a compensation award:

  1. It is a precondition of being compensated for extinguishment of native title rights and interests that the relevant group has established that they have such rights;
  2. It is important to identify in all cases the grant that extinguished native title as compensation is attributable to the act of extinguishment rather than the existence of a current title; and
  3. The inherently subjective nature of assessing ‘solatium’ means that there will need to be significantly more guidance on the range of compensation that will be available.

Attribution of compensation to particular tenure holders is a further step in the process. Many tenure holders who hold grants that have extinguished native title may be at risk of being asked to contribute to any compensation payable, but this is likely mitigated by both the difficulty in attributing solatium to particular tenure and the prevalence of native title agreements in the context of grants, which are likely to offset or even exceed compensation payable in some circumstances.

Footnotes

1 Griffiths v Northern Territory of Australia (No 3) [2016] FCA 900

2 Ibid, [302]

3 Ibid [325]

4 See for example, the Mining Act 1978 (WA), s125A.

Energy and Resources, Real Estate and Projects

The global economy is undergoing profound changes that many are calling a 'Fourth Industrial Revolution'. This technology-driven revolution, like those before it, is being driven by increased automation and connectivity. These changes will have significant implications for national economies and will provoke a range of legal issues.

By Peter Cook, Rachael Bassil, Adam D'Andreti and Lucy Hall

What does ASIC’s report on the handling of material non-public information and the management of conflicts mean for Australian market practice?

Following an almost 2 year investigation into the policies, procedures and practices of a range of investment banks and brokers in Australia, ASIC has released a new report (Report 486) setting out its findings on the identification and handling of material non-public information (MNPI) and the management of conflicts in the context of sell-side (or broker) research and corporate advisory activities.

The report is a further example of the enquiries ASIC has been making into practices by corporate advisers and investment bank research analysts (for example, see ASIC Report 393: Handling of confidential information: Briefings and unannounced corporate transactions)

Although ASIC provides many interesting examples of behaviour that it found concerning during the course of its investigation, the “better practices” recommendations sections of its report do not provide detailed guidance on how to manage all such potential conflicts.  The examples included in the report have been chosen to highlight the most problematic behaviour, but the commentary casts a shadow across practices more broadly.

Report 486 identifies some practices in Australian firms that raise concerns including:

  • failure to identify and appropriately handle MNPI;
  • a lack of research independence;
  • inadequate use and supervision of information barriers and restricted lists;
  • insufficient separation (physical and technological) of research and corporate advisory activities;
  • inconsistent conflict management practices; and
  • questionable practices around allocation of securities in capital raising transactions and staff and principal trading.

In response to these findings, ASIC has outlined a number of controls that it expects firms to consider in order to better handle MNPI and manage conflicts.  Implementing these recommendations will be key for minimising the risk that a breach of financial services law may occur – for example, insider trading, market manipulation, misleading and deceptive conduct and breaches by AFS licensees of their general obligations.

With ASIC indicating that it will be seeking industry consultation on a proposed new regulatory guide addressing its findings and recommendations from Report 486, it is likely that the Australian market may have to change certain existing practices and adopt new practices to ensure that the principles underpinning the preparation and use of analyst research are sound.

In particular, ASIC’s findings and recommendations for better practice are particularly significant in relation to:

  • the structure and funding of research, including remuneration structures for research analysts;
  • expectations around the provision of research coverage (including in mandate letters); and
  • the nature of involvement of research teams in pre-deal investor education (PDIE) and compliance monitoring for investor education research.

The key findings of Report 486 in relation to each of the above were:

Structure and funding of research

Where research funding is linked to corporate advisory revenues, or individual research analyst bonuses are linked to their contribution to securing capital raising mandates, the quality and independence of research teams may be compromised.  ASIC found that corporate advisory departments of large firms typically subsidise between 30%-50% of their research teams’ costs (and speculate that figure is higher for smaller firms), and that firms often look for synergies between their research, sales and corporate advisory teams in order capitalise on that investment.

In ASIC’s view, risk areas, including wall crossings, restricted lists and staff trading approvals, should be subject to oversight by compliance or an independent control function.

Better practices:  ASIC’s recommendations for better practice include:

  • effective physical and technological barriers between research staff and staff performing corporate advisory or sales functions; and
  • decisions about remuneration of research staff not being made by corporate advisory or other conflicted staff, and not taking into account any specific corporate advisory transaction.

Pressure for favourable coverage

Research reports may breach the misleading and deceptive conduct provisions of the Corporations Act if they are not based on reasonable grounds.  Where there is an expectation of research coverage (e.g. because coverage is promised if a mandate is awarded), or pressure that research will be supportive of a transaction, there may be a higher risk that the report is therefore not based on reasonable grounds.

ASIC observed instances of firms’ corporate advisory staff seeking to influence their research team to cover particular companies or to adjust their approach to valuation.  Such behaviours may be seen as assisting a firm to secure a prospective mandate or a discretionary incentive fee – for example, where a mandate letter includes an incentive fee determinable following completion of the transaction and release of any “investor education” research – the implication being that this arrangement may influence the research analyst delivering a report in line with the issuer’s expectations.

Better practices:  ASIC’s recommendations for better practice include:

  • decisions about research coverage should be made by the research team and not subject to influence from other parts of the firm or from corporate issuers;
  • when pitching for corporate advisory work, the corporate advisory team should not express or imply that the firm will initiate research; and
  • research analysts should only provide draft research to persons outside the research department for fact checking.  These draft reports should not contain financial forecasts, valuation information, price targets, recommendations, opinions, information that is not public or, in the case of an IPO, information that is not included in the prospectus.

Research involvement in corporate transactions

ASIC found a number of instances where research analysts were involved in IPO pitches, including providing valuation opinions and attending pitch meetings.  On occasion, implicit or explicit promises were given to issuers that research coverage would be provided. 

It was also found that firms with key roles in IPOs generally initiate research coverage with a recommendation of ‘buy’ or above; that independent advisers are increasingly requiring firms to assist in marketing and share their un-redacted research with the corporate issuer before the research is published; and independent advisers are also requiring mandated firms to explain their policies and procedures should a research analyst’s research ‘not be supporting of the IPO for valuation, timing or other issues’.

All of these instances have the potential to affect the integrity of research.

In addition, ASIC provided some specific observations about PDIE research – both in relation to MNPI and conflict management.  There are a number of concerns around the use of PDIE research for investment banks, for corporate issuers and for potential investors.

For example, although PDIE research can be useful to provide information to potential investors on a company or sector they may not be familiar with, the provision of PDIE research only to a select number of investors increases the risk that the investor may be in receipt of MNPI.  In particular, ASIC has raised concerns about the risks of MNPI where there is a close and predictable correlation between valuations given to a corporate issuer in post-IPO initiating research and the research analyst’s earlier ‘investor education’. 

From a conflict management perspective, Report 486 describes instances where investors who participated in investor education meetings and provided feedback received priority or favourable treatment in the eventual share allocation process in some cases.

Investors who have received PDIE appear to be advantaged over other potential investors because, although price per share targets are not usually included in PDIE, a valuation range or other valuation information may be included.  Investors are given an indication of the research analysts’ approach to valuation and an indicative valuation range, which may provide a guide of the likely price target to be contained in the research released post-listing. 

Report 486 confirms that ‘investor education’ research should not contain information that is not included in the prospectus – for example, PDIE research should not contain financial information which extends beyond the forecast period in the prospectus.  As the Corporations Act requires that a prospectus contain all information that investors and their professional advisers would reasonably require to make an informed assessment of an offer, to include additional forecast information in PDIE research and not in the prospectus would open the corporate issuer to scrutiny for omitting material information from the prospectus.  Conversely, a research publisher that includes extended forecast information in its research reports may find it difficult to justify the reasonable grounds upon which the extended forecast is made, if the corporate issuer has not included that information in their offer document.

ASIC proposes further consultation with industry regarding the role and appropriateness of ‘investor education’, to ensure that good research practices are followed.

Better practices:  ASIC’s recommendations for better practice include:

  • restricting research analyst involvement in pitching for corporate advisory mandates;
  • not committing to provide research coverage (either explicitly or implicitly) for an issuer where the firm is currently mandated or where the firm is seeking a mandate; and
  • improved compliance monitoring in investor education research, including:
  • reviewing and maintaining records of communications between the research analyst and the corporate issuer when preparing investor education; and
  • reviewing investor education research to make sure it does not include information that is not contained in the prospectus or otherwise publicly available, and is not tipping-off potential investors about the price target to be contained in the subsequent initiating research report.

Going forward, the likely practical consequences of ASIC’s recommendations (and expected regulatory guidance) will be that investment banks in Australia will need to:

  • Mandate letters: Ensure mandate letters do not promise research coverage should a mandate be awarded (whether directly or indirectly)
  • Remuneration: Remove any nexus between the provision or outcome of research and the remuneration of research analysts
  • PDIE research: Ensure PDIE research does not contain information that is inconsistent with or goes beyond information included in a prospectus
  • Pitches: Restrict research analyst involvement in pitching for corporate advisory mandates
  • Separation: Implement and monitor compliance with effective physical and technological barriers between research staff and staff performing corporate advisory or sales functions
  • Compliance: Ensure that wall crossings, restricted lists and staff trading approvals are subject to oversight by compliance or an independent control function

ASIC is also conducting a review of the practices used by firms to market IPOs to investors other than institutions, including the use of social media and other platforms to market these transactions.  A separate report on this issue is expected from ASIC later this year.

Corporate Advisory

By Colleen Platford, Crispian Lynch, Andrew Floro, Matt Mackenzie and Christine Harb

The Queensland Government has today announced that in August it will introduce legislation to allow class actions to be conducted in the State’s Courts.

Procedural rules in Queensland presently do not provide for the conduct of class actions in the State, forcing prospective claimants to commence proceedings in Courts in other jurisdictions, such as the New South Wales and Victorian Supreme Courts and the Federal Court of Australia.

This announcement follows a number of high-profile, Queensland related class actions being commenced in other jurisdictions.  These include class actions relating to the operation of the Wivenhoe and Somerset dams during the 2011 Queensland floods (commenced in the NSW Supreme Court), the Clem7 tunnel (commenced in the Federal Court) and the Bank of Queensland (commenced in the Federal Court).

The design and take-up of the Queensland regime is sure to be closely followed by participants in Australia’s class action industry, including law firms, litigation funders and potential defendants.

Gilbert + Tobin’s experience in Queensland litigation

Gilbert + Tobin has extensive experience litigating complex, high value matters in and relating to Queensland, including representing:

  • Anglo American in multi-billion dollar proceedings relating to the Callide mine presently before the Supreme Court of Queensland.
  • AGL in successfully prosecuting (and then defending on appeal) multi-million dollar proceedings in the Supreme Court of Queensland concerning a supplier’s refusal to supply gas on the basis of an alleged Force Majeure Event.
  • the RiverCity companies in securing a AUD280 million settlement in proceedings against AECOM Australia in the Federal Court of Australia in relation to Brisbane’s Clem 7 Tunnel.
  • RiverCity Services in defending a securities class action in the Federal Court of Australia for over AUD250 million.
  • the BrisConnections companies in proceedings against Arup in the Federal Court of Australia, alleging misleading and deceptive conduct and negligent misstatement, and seeking over AUD1.5 billion in damages in relation to Brisbane’s AirportLink toll road.
Class Actions, Litigation and Dispute Resolution

By Hiroshi Narushima, Jessica van Rooy and Sally Randall

Welcome to the latest update from Gilbert + Tobin's Corporate Advisory team.  The update provides a summary of key recent legal developments, particularly relevant to in-house counsel.


Legislation and proposed legislation

New foreign resident withholding tax regime now applies

The new foreign resident withholding tax regime now applies in respect of contracts entered into on or after 1 July 2016. 

Subject to certain exceptions, purchasers of:

  • direct interests in Australian real property worth $2 million or more; and
  • most membership interests in an entity where more than 50% of the value of the interest is attributable to Australian real property interests.

from a foreign resident vendor under contracts entered into after 1 July 2016 are required to withhold and remit to the ATO 10% of the purchase price.  The penalty for failing to withhold is equal to the amount that was required to be withheld and paid.  An administrative penalty may also be imposed.

Some issues that have already started to appear since these rules have been operative include:

  • the rules assume that all vendors of real property worth $2 million or more are a foreign resident, even Australian resident vendors, who must obtain a clearance certificate if they do not want to suffer the withholding;
  • the legislation requires a clearance certificate that is valid for a period which covers the date of signing the contract.  However, the ATO is currently unable to issue a retrospective clearance certificate (as at the date of writing).  Accordingly, the ATO has indicated that they will accept a situation where the clearance certificate is valid and provided to the purchaser on or before the completion date.  As best practice, we recommend vendors apply for a clearance certificate (to the extent applicable) as soon as a sale is contemplated;
  • in the case of a membership interest where more than 50% of the value of the interest is attributable to Australian real property interests (eg certain shares), a clearance certificate is not relevant.  The vendor should give the purchaser a declaration, stating that it is either an Australian resident or the asset is not taxable Australian property;
  • it is unclear how the new rules (and specifically the clearance certification process) apply in relation to farmin arrangements relating to mining tenements.  At first glance, it would appear that the original holder of the tenement (assuming they are Australian resident) will need to apply for a clearance certificate prior to entering into the farmin arrangement, and continue to update their clearance certificate through to the end of the term of the arrangement; and
  • subject to further ATO clarification, it is unclear whether the exception applying to transactions on an approved stock exchange will apply in the context of a scheme of arrangement involving listed shares.

By Andrew Sharp and Mack Wan


ASIC

ASIC does its due diligence on IPOs

A recent report by ASIC highlights its findings and concerns relating to IPO due diligence practices, and serves as a reminder that directors may be exposing themselves to unnecessary risks by taking shortcuts during the due diligence process.
   
For further details, see ASIC does its due diligence on IPOs dated 2 August 2016 by Sarah Turner and Kyle Moss.


ASIC simplifies company auditor registration

ASIC’s changes to auditor registration requirements are designed to reduce red tape while ensuring appropriate standards are met.

ASIC has released Regulatory Guide 180 Auditor Registration which simplifies and improves the registration process for prospective auditors.  The relevant changes relate to:

  • approval of a new competency standard for satisfying practical experience requirements developed by Chartered Accountants Australia and New Zealand, CPA Australia and the Institute of Public Accountants (which simplifies the competency requirements, takes into account new auditing requirements and adopts a principles-based approach);
  • streamlining the application forms and supporting documents required to satisfy an hours-based experience test; and
  • updating the professional indemnity insurance requirements for authorised audit companies and newly registered company auditors to ensure consistency with the limitation of liability schemes for professional accounting bodies.

ASIC will continue to accept applications prepared under its previous guidance until 30 June 2017.


ASIC releases results of its review of 31 December 2015 financial reports, and its focus areas for 30 June 2016 financial reports.

ASIC’s review shows a continued need for focus on impairment of non-financial assets and inappropriate accounting treatments.

ASIC has released the results from its review of financial reports for the year ended 31 December 2015, reporting that the largest number of its findings continue to relate to impairment of non-financial assets and inappropriate accounting treatments.  In this regard, ASIC points to Information Sheet 203 Impairment of non-financial assets:  Materials for directors which was issued in June 2015 to assist directors and auditors in considering whether the value of non-financial assets shown in a company’s financial report continues to be supportable.

ASIC has also released its focus areas for June 2016 reports and encourages directors and auditors to continue to focus on values of assets (including using realistic assumptions) and accounting policy choices.


ASX

Continuous disclosure and naming parties to transactions

ASX has clarified the obligations of a listed entity under the continuous disclosure regime to disclose the identity of counterparties to a material transaction.
   
ASX has reported that it has recently identified a number of listed entities that have announced a material transaction without disclosing the identity of the other party or parties to the transaction.

Following this, ASX has stated that:

  • if a transaction is sufficiently material that it requires disclosure under the continuous disclosure obligations in Listing Rule 3.1, the identity of the other party or parties will generally itself be material information that must be disclosed (as it is required by investors and their advisers to understand the ramifications of the transaction and to assess its impact on the price or value of the entity’s securities); and
  • where there is little to no information about the other party in the public domain (eg, because they are private companies), the listed entity should disclose a summary of the due diligence undertaken on the other party’s or parties’ capacity to perform their obligations in relation to the transaction.

Failure to comply with the above may lead to ASX suspending trading of the entity’s securities until the information has been released to the market.

ASX has also indicated that a listed entity will not be excused from disclosing an appropriate level of information about the other party or parties to a transaction on the basis that it is a party to a confidentiality or non-disclosure agreement that otherwise requires it to keep information confidential. 

See ASX July Compliance Update.

See also What’s in a name? dated 28 July 2016 by Sarah Turner and Vikram Kumar.


Other G+T Publications

Update on voting by responsible entities and their associates

The recent decision in Re AMP Capital Funds Management Limited [2016] NSWSC 986 (which has now been upheld by the New South Wales Court of Appeal) has sought to clarify the uncertainty around the application of section 253E of the Corporations Act 2001(Cth).

For further details, see Update on voting by responsible entities and their associates dated 25 July 2016 by Adam Laura, Adam D’Andreti and Richard Francis.

Blockchain: the importance of creating new governance

There is no doubt that blockchain is changing the world – but we can’t throw out the traditional structures and constitutions without creating new foundations.  Governance is just as critical as the technology in determining the success or failure of blockchain.

For further details, see Blockchain:  the importance of creating new governance dated 21 July 2016 by Bernadette Jew and Peter Reeves.

@Work - New rates and thresholds from 1 July 2016

Employers should note the new rates and thresholds that apply from 1 July 2016.

For further details, see @Work – New rates and thresholds from 1 July 2016 by Dianne Banks, Kim McGuren, Clancy King and James Pomeroy dated 4 July 2016.


Cases

Full Court of the Federal Court re-affirms limits on the powers of shareholders in general meeting:  Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia [2016] FCAFC 80

The Full Court of the Federal Court has dismissed an appeal by the Australasian Centre for Corporate Responsibility finding that, in the absence of a power in a company’s constitution, shareholders in general meeting do not have a part to play in the exercise of powers which are vested exclusively in the board by passing a resolution which would express an opinion on the exercise of those powers.  
  
The Australasian Centre for Corporate Responsibility (ACCR) (representing over 100 shareholders of the Commonwealth Bank of Australia (CBA)) gave notice to CBA pursuant to section 249N of the Corporations Act 2001 (Cth) (Act) of the following 3 resolutions that it proposed be moved at CBA’s 2014 annual general meeting (Proposed Resolutions):

  • Proposed Resolution 1 (preferred option) - an ordinary resolution that “in the opinion of shareholders”, it was in the best interests of CBA for the directors to provide a report on certain matters relating to greenhouse gas emissions;
  • Proposed Resolution 2 (as an alternative if Proposed Resolution 1 was not included for any reason) - an ordinary resolution expressing shareholder concern about the absence of a report described in Resolution 1; and
  • Proposed Resolution 3 (as an alternative if Proposed Resolutions 1 and 2 were not included for any reason) - a special resolution to amend the CBA constitution to require the directors to report annually on certain matters relating to greenhouse gas emissions.

The 2014 notice of AGM (Notice) included only Proposed Resolution 3, together with a statement from the CBA Board that it did not consider the resolution to be in the best interests of CBA and recommending that shareholders vote against it (with reasons for the Board’s recommendation) (Board Statement).

Davies J in the Federal Court applied the decision of McLelland J in National Roads & Motorists’ Association v Parker (1986) 6 NSWLR 517, and concluded that:

  • CBA was not required to put the Proposed Resolutions to the CBA shareholders, notwithstanding the terms of section 240O of the Act, unless they were referable to a power vested in the shareholders in general meeting (and not to the power of management vested exclusively in the CBA directors under the CBA constitution); and
  • the powers of the shareholders in general meeting did not include a power to pass resolutions of the kind sought to be proposed.

In rejecting ACCR’s appeal against the decision of Davies J, the Full Federal Court (Allsop CJ, Foster and Gleeson JJ) found the following:

  • ACCR was at pains to emphasise that the Proposed Resolutions would have no legal effect (and would not be binding on the directors) and as such, its submission was ultimately that shareholders have power to pass ineffective resolutions unless that power is expressly taken from them.  Their Honours found that relevant case law tended against the existence of a power vested in shareholders in general meeting to pass an ineffective resolution;
  • ACCR argued that the Proposed Resolutions were ‘required to be considered’ within the meaning of s249O of the Act provided that they were ‘validly put’, and they were validly put because the shareholders in general meeting had a legitimate interest in their subject matter.  Their Honours found that this argument misunderstood the nature of the company as an entity distinct from its shareholders and directors, and that an act of the company (of which a resolution of the shareholders is an example) must necessarily be an act that the company has power to undertake.  The powers and capacities of a company arise from its constitution and statute, and not the legitimate interests of its shareholders;
  • ACCR’s contention that the Proposed Resolutions could be made in the exercise of CBA’s ‘plenary powers’ was based on the propositions that in the absence of some provision to the contrary, the shareholders in general meeting may exercise any power that the company is legally competent to exercise (with such power being the power to do anything which is not expressly prohibited by CBA’s constitution), and that, relying on section 124(1) of the Act, if an individual can express an opinion so can a company.  Their Honours could see nothing in the legal powers and capacities of an individual which would support the existence of a legal power or capacity in the company in general meeting to express an opinion, by resolution, on a matter concerning the company’s management.  ACCR was confusing legal powers and capacity with physical powers (in this case the power of free speech);
  • the implication of a power involves the application of the principles concerning the implication of contractual terms and ACCR did not identify a principled basis for the implication of a power to put the resolutions to the AGM;
  • section 250R was not an express power to put resolutions relating to management to the company.  Section 250R(1) is not expressed as a conferral of power on the shareholders in general meeting to pass resolutions, and the inclusion of sections 250R(2) and (3) in fact reflects the absence of power otherwise to pass the resolution that is the subject of sections 250R(2) and (3); and
  • in their view, McLelland J in Parker was saying (correctly) that shareholders in an AGM do not have a part to play in the exercise of powers which are vested exclusively in the board by passing a resolution which would express an opinion on the exercise of those powers.  While that general proposition may be affected by a particular provision in the constitution of a company, no such provision applied in this case.

Their Honours also considered the language of the notice given by ACCR to CBA and upheld the primary judge’s view that it was open to CBA to include only Proposed Resolution 3.  By expressing Proposed Resolutions 2 and 3 as alternatives if the other Proposed Resolutions were not included “for any reason”, ACCR gave CBA notice that it proposed to move one of the Proposed Resolutions, depending on the directors’ discretion as to which one they decided to include.  Further, Their Honours found that there was no legal foundation for ACCR’s argument that the Board Statement went beyond what was required to fully and fairly inform shareholders to enable them to make a properly informed decision because it contained opinions.


Directors’ conflicts of interest – when is more than disclosure of the conflict and abstention from deliberations required?:  Duncan v Independent Commission Against Corruption [2016] NSWCA 143

This case demonstrates that the obligation of directors to avoid a conflict of interest may, in certain circumstances, give rise to a positive duty to disclose the facts relating to the conflict and not just disclose the conflict and abstain from deliberations, particularly where the conflict arises as a result of a director also being a seller to the company.

In 2011, the Independent Commission Against Corruption (Commission) commissioned an inquiry into the circumstances in which the NSW Government had come to issue a coal exploration licence to Cascade Coal Pty Limited (Cascade).

Key findings of the Commission included:

  • a large portion of land within the tenement was owned by interests connected with the Obeid family;
  • once the licence was granted, Cascade began negotiations with ASX-listed White Energy Company Ltd (White Energy) for the sale by the Cascade shareholders of their shares in Cascade;
  • the appellants were all shareholders (indirectly) and directors of Cascade and all except for one were directors of White Energy; and
  • prior to the proposed sale to White Energy, the appellants took steps to remove the Obeid family interests because the involvement of the Obeid family was seen to pose a potential threat to the value of the tenement, with the risk being that the licence might be terminated and a mining lease never granted if involvement of the Obeid family became known.

The Commission made findings of ‘corrupt conduct’ under the Independent Commission Against Corruption Act 1988 (NSW) (ICAC Act) against a number of individuals including the appellant directors, based on their failure to reveal information about the involvement of the Obeid family interests to an independent board committee set up to assess the transaction on behalf of White Energy and its shareholders (Committee), and their involvement in actions which were intended to deceive relevant public officials or public authorities of the NSW Government.

Amongst the issues on appeal to the New South Wales Court of Appeal were whether the appellants’ conduct was capable of constituting an offence for the purposes of sub-section 9(1)(a) of the ICAC Act by:

  • failing to discharge their duties in good faith in the best interests of the company and for a proper purpose in contravention of section 184(1) of the Corporations Act 2001 (Cth) (Corporations Act); and
  • dishonestly obtaining a financial advantage by deception as identified in section 192E(1) of the Crimes Act 1900 (NSW) (Crimes Act).

In relation to section 184(1) of the Corporations Act, the Court held that:

  • the additional requirement for criminal liability under section 184(1) of the Corporations Act requires recklessness or intentional dishonesty, and intentional dishonesty involves both an objective and a subjective element, ie the conduct must be dishonest according to the standards of ordinary people and known to be dishonest by the accused;
  • it was not disputed that the appellants had fiduciary duties to avoid placing themselves in a position of conflict when dealing with White Energy.  The question was whether the steps they took (ie disclosing their interests and not involving themselves in subsequent deliberations by White Energy in relation to the transaction) were sufficient to avoid the conflict, and if not, whether their conduct could be said to be intentionally dishonest;
  • there are circumstances in which a conflict will not be avoided by simply disclosing the relevant interests to the person to whom the duty is owed and withdrawing from participation in the transaction on that person’s behalf.  In certain circumstances, there may also be a positive obligation of disclosure to protect the interests of the beneficiary of the duty;
  • this was not a case of a conflict between the duties owed by the appellants to White Energy and duties owed to Cascade but rather, the conflict was between the appellants’ duties as directors of White Energy and as sellers of their shares in Cascade.  It therefore followed that if the appellants were of the view that disclosure of the Obeid family involvement would be detrimental to Cascade, they could have avoided a conflict by simply withdrawing from the sale.  It was not sufficient to merely disclose their interests and exclude themselves from the decision-making process of White Energy;
  • having regard to the amount involved and the effect that disclosure of the Obeid family’s involvement was predicted to have (ie the appellants’ believed that the transaction would not proceed), it was open to the Commission to find that the appellants did not discharge their obligation to avoid placing themselves in a position of conflict of interest by merely disclosing their interests and abstaining from deliberations.  The conflict inherent in selling effectively a flawed asset to a company to whom they owed fiduciary duties remained; and
  • it was open to the Commission to be satisfied that there was intentional dishonesty not only where answers given by certain appellants to the IBC were designed to deliberately conceal the involvement of the Obeid family, but also in respect of another appellant who was not questioned by the IBC, but who was nonetheless deliberately silent.
  • The Court also found that the offence of dishonestly obtaining a financial advantage under section 192E(1) of the Crimes Act was also made out.

The High Court backs the ANZ on bank fees:  Paciocco v Australian and New Zealand Banking Group Limited [2016] HCA 28

Last week, the High Court affirmed the Full Court’s decision that the ANZ’s late fees were not a penalty and were therefore enforceable in accordance with their terms.  In so doing the Court signalled that it does not see the role of the courts as scrutinising private agreements and making adjustments to bring them into line with standards of reasonableness or fairness imposed by the courts.  Exception fee clauses, such as those imposing fees by banks on customers for late payment of their accounts, will be enforceable other than in the most extreme cases where they are out of all proportion with what is necessary to protect the bank’s commercial interests.  Contracting parties can reach agreement as they see fit, and they will be held to their agreement.

For further details, see The High Court backs the ANZ on bank fees dated 5 August 2016 by Steven Glass, Sabrina Ng and Ash Wickremasinghe.


A promise to “be looked after at renewal time” held to be too uncertain to be enforceable:  Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26

The High Court has held that a statement by Crown that it would ‘look after’ its tenant at renewal time in exchange for the tenant undergoing extensive renovations was too uncertain to be enforceable as a collateral contract, and also did not found an estoppel.  Contracting parties are reminded of the need to be specific in their representations to each other, to reduce the possibility for dispute down the track.

Cosmopolitan Hotel (Vic) Pty Ltd (Cosmopolitan) leased two restaurant premises from Crown Melbourne Limited (Crown) for a period of 5 years.  It was a condition of the leases that Cosmopolitan undertake extensive renovations.  During the course of negotiations, Cosmopolitan sought to obtain a commitment from Crown to enable it to continue to trade for a further 5 years.  However, Crown was unwilling to provide a further term and 5 year leases were therefore signed.  At the end of the 5 years, Crown gave Cosmopolitan notice to vacate and Cosmopolitan brought proceedings against Crown alleging that Crown had made a statement promising Cosmopolitan that if it undertook the renovations, it would be “looked after at renewal time” (Statement).  

Following proceedings in the Victorian Civil and Administrative Tribunal and the Victorian Supreme Court and Court of Appeal, the 2 key issues before the High Court were whether the Statement:

  • gave rise to a collateral contract; or
  • created an estoppel.

A majority of the High Court (French CJ, Kiefel and Bell JJ – in a joint judgment, and Keane J and Nettle J in separate judgments (with Gaegler J and Gordon J dissenting)) found that there was neither a collateral contract nor an estoppel.

French CJ, Kiefel and Bell JJ found that there was no collateral contract because the Statement could not possibly have been understood to bind Crown to offer a further 5 year lease as “it did not have the quality of a contractual promise of any kind”.  Their Honours saw the problem regarding the enforceability of the obligation as not so much one concerning the uncertainty of its terms as the lack of them, and found that on basic principles, there can be no enforceable agreement to renew a lease, breach of which sounds in damages, unless at least the essential terms have been agreed.  There was no evidence to support a finding that Crown was likely to stipulate terms that had a reasonable correspondence to the existing terms.  This was a matter for Crown’s discretion.

On the issue of estoppel, French CJ, Kiefel and Bell JJ noted that for a representation to found an estoppel, it must be clear and the language must be precise and unambiguous, and it must be able to be understood in a particular sense by the person to whom the words are addressed which then forms the basis of the assumption or expectation upon which that person then acts.  In this regard, their Honours found that the Statement was not capable of conveying to a reasonable person that Cosmopolitan would be offered a further lease, and moreover, there was no evidence that Cosmopolitan acted upon the basis of an expectation that there was a promise that the leases were going to be renewed for a further 5 years.
 
Keane J also found that there was no collateral contract.  Crown remained “legally free to act in its own interests in negotiating a future lease” and the terms on which an agreement might be made could never be more than “unresolvable speculation”.  Accordingly, even if the Statement had been incorporated into the lease, it would not be sufficiently certain to be enforceable as a promise of the grant of further leases.

Keane J also found that the Statement could not give rise to proprietary estoppel.  Cosmopolitan submitted it had always contended that proprietary estoppel formed the basis of their estoppel claim (because performance of the collateral contract would have secured a further 5 year leasehold interest in the premises) and that it was only the reasoning of the Court of Appeal that their claim was categorised as one of promissory estoppel).  Leaving this issue aside, Keane J found that there was no proprietary estoppel because any interest in land to be granted to Cosmopolitan necessarily depended on reaching an agreement upon the terms of an enforceable agreement for a lease.

Nettle J concluded that a reasonable person could not have construed the assurance to look after Cosmopolitan as a binding promise to extend the lease for a further 5 years, and as such, there was no collateral contract.  In relation to estoppel, Nettle J dismissed Crown’s argument that because the Statement lacked contractual certainty, a claim for estoppel should fail.  The determinative question is the part that the party sought to be estopped has played in creating an assumption or expectation in the mind of the claimant, in reliance on which the claimant has acted to his or her detriment.

Corporate Advisory

By Steven Glass, Sabrina Ng and Ash Wickremasinghe

Introduction

It shouldn’t really be big news, but it probably is:  the High Court has held that contracts mean what they say.

In our analysis of last year’s ANZ bank fees decision by the Full Federal Court, we said:

corporations can breathe a small sigh of relief that a degree of commercial and legal good sense has prevailed.  Contracting parties can once again negotiate damages clauses with greater certainty that they will do their job – which is to simplify, rather than complicate, the resolution of disputes arising out of a breach of contract. “

Last week, the High Court affirmed the Full Court’s decision that the ANZ’s late fees were not a penalty and were therefore enforceable in accordance with their terms.  In so doing the Court signalled that it does not see the role of the courts as scrutinising private agreements and making adjustments to bring them into line with standards of reasonableness or fairness imposed by the courts.  Exception fee clauses, such as those imposing fees by banks on customers for late payment of their accounts, will be enforceable other than in the most extreme cases where they are out of all proportion with what is necessary to protect the bank’s commercial interests.  Contracting parties can reach agreement as they see fit, and they will be held to their agreement.

Broader implications?

The case specifically involved late fees and other exception fees charged by ANZ Bank that were said to be higher than the bank’s costs incurred as a result of customers’ late payments.

There are many other examples of commercial contracts where fees are imposed by suppliers that establish an incentive for customers to perform their contractual obligations.  Most electricity, water and gas utilities charge fees for late payment of invoices, as do telecommunications companies and many other service providers.  Even car park operators charge fees for lost tickets or for allowing vehicles to exit outside their usual operating hours. 

The ANZ decision means that it can no longer be argued that these fees must reflect, and not exceed, the costs of the supplier.  Except where the fee is grossly disproportionate to the commercial interests of the supplier (which is a broader notion than merely its costs incurred), the High Court has said it is up to the parties to agree on the quantum of the fee.

The decision signals that the High Court does not see it is an appropriate role for courts to oversee, and apply their own standards to, private contracts.  It will be interesting to see if this approach finds expression in other areas.  For example, for the past couple of decades various courts have been prepared to imply into commercial contracts a requirement that parties to act toward each other in good faith in performing their contractual obligations.  The High Court has never had the opportunity to consider whether it is appropriate to imply such an obligations where the parties have not seen fit to include one expressly in their contract. 

If the “hands off” approach is followed, it seems that the High Court may be reluctant to scrutinise contractual obligations agreed to by contracting parties by imposing a fairly nebulous obligation of this kind.  Rather, one imagines it would leave it to the parties to perform their bargain on precisely the terms in which they expressed it.  Will last week’s decision encourage a plaintiff to take an implied term case to the High Court?  Time will tell.

In depth: the issues

Mr Paciocci, a customer of ANZ, argued that the fees charged (initially $35 and later $20) for late payment of his minimum repayment on his credit card:

  • was an unenforceable contractual term as it was a penalty for breach of contract;
  • breached the statutory prohibitions against unconscionable conduct, unjust transactions and unfair contract terms.

(a)  The penalty case

The High Court confirmed that the test for determining if a term which provides for the payment of a sum upon breach of a contractual term is a penalty was “whether the sum agreed is commensurate with the interest protected by the bargain”.1  The sum will be a penalty if it is “extravagant and unconscionable”.2  Another way of putting it is whether the sum charged by the bank was “out of all proportion” to the interests affected.3

The policy is to prohibit a contractual term which has no other purpose than to punish.

The High Court busted a couple of myths about what this means:

  • if no pre-estimate is made, at the time the contract is entered into, of the loss likely to be suffered if a customer  payment is made late, it does not follow that the late fee is a penalty.
  • if the late fee is greater than the damages directly caused by the late payment, it does not follow that the late fee is a penalty.

The use of the words “extravagant and unconscionable” reflect that the sum must be excessive or completely out of proportion with the protection of the contracting party’s interest.

The “interest” to be protected goes beyond the losses suffered by the bank as a direct result of the late payment.  That is – it is beyond that which would be compensable if a claim for damages was brought for a breach.  This is an important point and is the means by which the wider commercial context in which the contract is made can be taken into account.

The court identified the commercial interests of ANZ in receiving payment on time in respect of the credit it advanced to its customers.  Its interests included not just recovery of collection costs, which are directly attributable to the late payment, but impacted the bank’s interests more broadly through:

  • increased operational costs;

  • the need for loss provisioning; and

  • increases in regulatory capital costs. 

These interests would be too remote to be recoverable as damages.  However, they form part of the context which ought to be taken into account to determine whether the late payment fee could not be said to be “out of all proportion” to the legitimate commercial interest ANZ had in ensuring that its credit card customers made their minimum monthly payments by the due date.

(b)   The statutory case

The High Court also found that the imposition of late payment fees did not breach the statutory prohibitions against unconscionable conduct, unjust transactions and unfair contract terms.  

In considering whether there was a breach of unconscionable conduct provisions, the court pointed out the difference between:

  • a term that might be said to be unconscionable, such as the late payment fee term;  and
  • conduct on the part of a supplier, as a result of which the customer was required to comply with the term.

The unconscionable conduct provisions were only concerned with prohibiting the latter and not the former.

The court found that the unconscionable conduct provisions were not breached as there was no suggestion that there was unconscionable conduct on the part of ANZ in causing Mr Paciocci to enter into the credit card contracts which contained the late fee terms. 

The unjust transactions and unfair contract terms provisions were also dispensed with on the same reasoning that the late fee was not a penalty:  there was nothing unfair or unjust in a supplier seeking to protect its legitimate commercial interests through the imposition of a fee, so long as the fee is not out of all proportion to the interest.

The unjust terms provisions of the Competition and Consumer Act are to be strengthened later this year to apply to small businesses.  However the High Court’s reasoning will still apply to the manner in which those provisions are to be interpreted.

Footnotes

1Andrews v ANZ (2012) 247 CLR 205 at 236

2Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 at 87

3[57] per Kiefel J.

 

 

Litigation and Dispute Resolution

By Peter Leonard

Data is at the heart of the Internet of Things (or, IoT, also known as the Internet of Everything).

Management of data handling and data analysis, and of data sharing between business entities, will be a core issue in provision of most IoT services. Data management is also critical in the operation of IoT communications platforms and the sensor, communication, control and reporting devices used in IoT services. Diverse data capture, multiple data flows and substantial value-add by data analytics are at the essence of IoT services.

More and better data creates significant opportunities for most businesses. It also brings disruption to many existing business and new sources of business risk.

This brief paper outlines opportunities and risks.

Data, Content and Privacy

ASIC has found that a well-advised issuer conducting the necessary due diligence processes will be better placed to mitigate the risk of any added delays (and related costs), future liability and reputational damage from a poor-quality prospectus.” – ASIC Report 484

ASIC has conducted a review of 12 initial public offering (IPO) prospectuses and the due diligence processes surrounding these IPOs and has outlined its findings and concerns in ASIC Report 484 (Report). The Report serves as a reminder that directors may be exposing themselves to unnecessary risks by taking shortcuts during the due diligence process.

Unsurprisingly, issuers who demonstrated poor due diligence practices produced prospectuses with defective disclosure, such as misleading and deceptive statements, forward-looking statements with no reasonable basis and omissions of material information.

Of the 12 prospectuses reviewed, 10 provided improved disclosure in the form of a replacement prospectus, with one reducing the offer price. Additionally, one withdrew the offer and another offer was subject to a stop order. In a number of instances issuers were required to make changes because potentially material issues (identified during the due diligence process) were either not appropriately disclosed or were incorrectly determined to be “not material” by the Due Diligence Committee.

Key Takeaways for Directors:
  • Have at least one independent director on the Due Diligence Committee, and one executive director.
  • All directors should ensure appropriate expert advisers are retained and the due diligence process in the Due Diligence Planning Memorandum has been followed.
  • All directors and all advisers should apply an independent mind going beyond a mere checklist and box ticking exercise and focus on an actual investigation of the issues.
  • Question the completeness, accuracy and reliability of all statements with robust discussions and ensure this is reflected in the minutes.
  • Have a key issues list recording potential red flags and their resolution.
What we aren’t convinced about:

ASIC considers statements of opinion or belief in a prospectus should disclose whose opinion or belief is being quoted and the basis on which it is expressed. Any opinion or belief outlined in a prospectus and not attributed to a third party is presumed to be the Boards’ opinion or belief and we consider a reasonable basis should exist, but that disclosure of that absent a forward looking statement is unnecessary and adds voluminous verification material to a public document.

Corporate Advisory

By Claire Boyd, Justin Little, Michael BlakistonPhil Edmands, Marshall McKenna, Sarah Turner, Tim O'LearyJulie AthanasoffMarcello Cardaci and Mark Gerus 

1. ASIC Information Sheet 214

Industry is concerned about the ramifications of ASIC Statement 214, including in relation to the level of uncertainty surrounding “secure funding”, the potential impact on future capital raisings by the Australian resources sector and the broader economic impact this may have. We understand that the regulators are working on some (much needed) additional guidance but in the meantime we expect ASX and ASIC will be paying close attention to the Diggers & Dealers presentations.

For more background follow these links:

2. Changes to ASX admission requirements and other developments

ASX released its consultation paper proposing to change the admission requirements for entities seeking admission to the official list.  The changes, if progressed, are likely to impact small cap IPO candidates and back-door listings and consequently were the subject of considerable comment from mining industry groups.

ASX is currently assessing the feedback received and discussing it with regulators and other stakeholders. ASX expects to release a final version of the rule changes and associated guidance in September or October after it has completed those discussions and has deferred the start date for the changes until 19 December 2016.

In the meantime, ASX is also cracking down on announcements of contractual negotiations that fail to name the counterparty.  It is important to note that if companies chose to announce their non-binding contractual arrangements, ASX will expect to see the counterparty names.

For more background follow these links:

3. Roe 8 and what it means

After much press coverage and debate over the EPA’s handling of the Roe 8 decision, the Court of Appeal has clarified that the EPA was not required to take into account certain of its policies when making recommendations.  Although the Court of Appeal’s approach somewhat relaxed the EPA’s obligations, this decision only related to certain EPA policies, so it remains prudent to consider (and potentially to expressly address) any government policy that may be applicable when preparing documents such as a proposal the subject of an administrative decision or recommendation.

For more background follow this link:

4. Introduction of rangelands leases

The draft Land Administration Amendment Bill 2016 (WA) proposes the introduction of rangelands leases that may be granted over rangelands by the Minister for Lands for “any purpose that is, or purposes that are, principally consistent with the preservation of the rangelands as a natural resource.”

Rangelands Leases are designed to provide an alternative to the significant limitations on land use imposed on pastoral leases and therefore maximise the potential of WA’s vast rangelands by enabling multiple and varied land uses.  This is intended to create new economic and social opportunities and enable the development of more sustainable business models for those rangelands, including those that might benefit the mining industry.

For more background follow this link:

5. Shire rates - it's that time of year

At this time of year, miners are likely to be concerned about any potential surprises in their rates notices. The ability, and willingness, of local governments to impose differential rating on land the subject of mining tenements and/or land containing capital improvements has long been a concern of the mining industry.  It is now exacerbated by the valuation of workers camps on a Gross Rental Value basis.  Miners are encouraged to consider their rates notices carefully, including the valuations placed on them and raise any queries with the relevant Shires.

For a related discussion follow this link:

6. New sources of energy generation

The mining sector is starting to see real benefits from turning to natural gas and renewable energy.

There is new technology which would allow modified mining fleet vehicles to run on compressed natural gas rather than diesel, which would reduce fuel costs and CO2 emissions.

The falling cost of solar generation and storage technologies is encouraging their use to power off-grid mine sites. By reducing the use of diesel generators, companies are able to lower their electricity costs and improve environmental outcomes.

Sandfire Resources NL (Sandfire) is a notable example, integrating a 10.6 MW solar PV installation into its existing diesel generation facility at the DeGrussa Copper Mine (DeGrussa Mine), together with 6 MW (1.8 MWh) of storage capacity.  The DeGrussa Mine facility is the world’s largest off-grid solar powered system used in the mining industry.  Sandfire is reported to have entered into a 6 year power purchase agreement, with an upfront cash contribution to the project of less than $1 million (out of a total cost of $40 million).  The company expects that the solar generated power will provide the majority of the DeGrussa Mine’s daytime electricity requirements, offsetting more than 20% of total diesel consumption.

Other examples include solar generation at Independence Group's recently commissioned Nova nickel project and Rio Tinto's Weipa bauxite mine.

7. Digital disruption and innovation

The mining industry has seen a significant development in innovation and efficiency.  For example, in 2015 more data was generated and collected each day than existed through all of 2003, via sensors and other devices from mining equipment.  This data has been used by miners and equipment manufacturers to track performance and eliminate unforeseen maintenance, resulting in time and monetary savings.

The industry has also started to see a shift towards automation at a rapid pace. Not only has the use of autonomous machines increased, but the complexity of the tasks they can perform and their reliability has also risen.  This has had an effect not only on productivity and cost savings, but also on safety, as machines can now perform hazardous or dangerous tasks.  The main use of autonomous machines remains in the realm of transportation, as companies have seen a reduction in cost of ownership of 15 to 40 percent (depending on cost of labour) thanks to automated haulage.  However, the transition to automation has not always been seamless, for example the software glitches delaying the rollout of Rio Tinto’s $US518 million AutoHaul program in the Pilbara.

The mining industry is likely to benefit from automated contract drafting, with the success of software such as Contract Express, Ariba, Neota Logic and CobbleStone Systems.  Blockchain (a form of digital database) is likely to have a profound impact on commerce, including securing smart contracts, which can self-execute for example by automatically releasing payment upon delivery of a good tracked by GPS.

Further, 3D printing is allowing miners to ‘print’ parts on demand where it would not have been feasible to wait for a replacement to arrive.

The law, and clients, are sometimes struggling to keep up with the rapid development of these new technologies and the implications for business.  For further reading on these and related issues, click through to the G+T Digital Focus Area.

8. Health and safety on mine sites

In the last couple of years there has been growing concern about the social cost of FIFO arrangements, identifying punishing rosters and long periods away from home as associated with the growing number of FIFO workers taking their own lives.  The WA State Parliament report on the impact of FIFO work practices on mental health was released in June 2015 and made 30 recommendations.  A number of these recommendations were to be progressed through the proposed Work Health and Safety (Resources) Bill.

This proposed Bill is still to be presented to Parliament.  The DMP released a regulatory impact statement on the proposed Bill in February 2016 and has indicated that there will be a regulatory impact statement and consultation on the regulations that would support the proposed Work Health and Safety (Resources) Act this year.

In the meantime:

  • earlier this year the Chamber of Minerals and Energy published the Blueprint for mental health and wellbeing to assist the resources sector in promoting wellbeing in the workforce; and
  • the WA Police have been running Operation Redwater, a drug detection initiative in the oil and gas and mining industries, targeting remote worksites in the Pilbara. The latest phase of Operation Redwater (June 2016) saw an extensive 4-day raid of 4 different sites in the area.

As always, mining companies need to remain vigilant about their duties to staff and their responsibility for them while they are at work.

9. Foreign resident capital gains withholding - more red tape

For agreements signed on and from 1 July 2016, new rules require purchasers of certain taxable Australian property to withhold 10% of the first element of tax cost base (which will usually mean the purchase price, but could mean a higher amount if the parties are not acting at arm’s length) and pay it to the ATO.  The relevant taxable Australian property includes:  

  • real property in Australia with a market value of $2 million or more;
  • a valuable lease over real property in Australia with a market value of $2 million or more;
  • a mining, quarrying or prospecting right (eg a mining tenement) with a market value of $2 million or more;
  • an interest in an Australian entity where more than 50% of its assets include any of the above asset types (ie an indirect interest).  Note transactions conducted through an approved stock exchange are typically excluded, although arguably schemes and takeovers are not conducted on the relevant stock exchange for these purposes; or
  • a valuable option or right to acquire any of the above asset types.

This is an advance CGT collection mechanism, and a powerful information gathering tool for the ATO.  The 10% non-final (ie, the vendor will still need to lodge a tax return) withholding is intended to apply to property only when the vendor is a foreign resident.  However, by implication all vendors are assumed to be a foreign resident unless they obtain certification from the ATO that they are not.

An Australian resident vendor of Australian real property needs to obtain a clearance certificate from the ATO prior to signing to ensure they do not incur the withholding (although the ATO have indicated that obtaining clearance prior to settlement is all that is required).  For other asset types, a vendor declaration confirming non-foreign residency or that the asset in question is not taxable Australian property may be sufficient.

10. Changes to the Foreign Investment regime

On 1 December 2015 the new Foreign Acquisitions and Takeovers Act came into force. As with the old regime, subject to certain exceptions, acquisitions of mining and production tenements are notifiable under the Act regardless of the value of the transaction, however all applications now incur significant application fees.

As of 1 July 2016, mining, production or exploration tenement transactions attract a fee of $10,100 or $25,300 and interests in securities in an entity will incur a fee starting at $25,300.

For more background follow this link:

Energy and Resources

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