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Securities and Exchange - Senate Select Committee - Report - Australian Security Markets and their Regulation - Part I - Interim Report - Volume 2 - Committee Documents


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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

1974—Parliamentary Paper No. 98A

R ep o rt fro m the

Senate Select Comm ittee

on

Securities and Exchange

Australian Securities Markets

and their Regulation

PART i

Volume 2 —Committee Documents and Legal Opinions

Brought up and

ordered to be printed 18 July 1974 and 20 August 1975 (Chapter 13—Queensland Mines)

THE GOVERNMENT PRINTER OF AUSTRALIA

CANBERRA 1974

Printed by C. J. Thompson, Commonwealth Government Printer, Canberra

CONTENTS

CHAPTER 1

Introduction

There are no documents presented in association with Chapter 1

CHAPTER 2

Insights Into the Poseidon Boom

2-1 Extracts from ‘Report on Mineral Claims at Laverton, WA. for Poseidon No Liability’ by Burrill and Associates Pty Ltd, 11 April 1969

2-2 Report by Burrill and Associates to Poseidon, 3 October 1969

2-3 Letter to the Committee by Geochemical and Mineralogical Laboratories (W.A.) Pty Ltd, 20 February 1974, with three documents attached

2-4 Letter by Mr G. H. R. Burrill to Senator Murphy, 16 April 1970

2-5 Allotments of shares in Burrill Investments Pty Ltd, April and May 1969

2-6 Letter from Mr B. R. Lewis to the Committee, 5 March 1973

2-7 Letter from Mr T. A. Hutton to the Committee, 25 February 1974 with an enclosure

2- 8 Letter from Mr D. I. McArthur, former president of Adelaide Stock Exchange, to the Committee, 1 February 1974

CHAPTER 3

Financial Structure and Profits of Member Firms of the Stock Exchanges

3- 1 Letter to Attorney-General for Victoria from Sir Cecil Looker, President of Australian Associated Stock Exchange, 2 July 1971

PAGE 1

iii

CHAPTER 4 PAGE

23

The conflicts of John T. Martin & Co.

4-1 Letter from Mr N. C. Handley to the Committee, 20 January 1972

4-2 Glomex’s transactions in Genoa shares, December 1970 and January 1971

4- 3 Mr Justice Street’s Judgement in Bonds & Securities (Trading) Pty Limited v. Glomex Mines N. L. & Others

CHAPTER 5 41

The default of Michael Ricketson& Co.

5- 1 Letter from Stock Exchange of Melbourne to the Committee, together with diary notes from files of Stock Exchange Accountants, 25 July 1972.

5-2 Letter from Stock Exchange of Melbourne to the Committee, 3 August 1972.

5-3 Letter from the Committee to Michael Ricketson, 11 July 1972.

5- 4 Letter from Michael Ricketson to the Committee, 19 July 1972.

CHAPTER 6 51

The failure of an Adelaide broker-underwriter

6- 1 Letter from John Green to the Committee, 5 May 1973

6-2 Letter from G. R. Burchell to the Committee, 9 May 1973

6-3 Letter from Official Receiver, Adelaide, to the Committee, 8 February 1973

6-4 Letter from Stock Exchange of Adelaide to the Committee, 9 February 1973, enclosing copies of:

Letter from the Stock Exchange of Adelaide, to the Official Receiver, Adelaide, 11 September 1972

Letter from A. J. Green, Burchell & Co. to the President of the Stock Exchange of Adelaide, 27 January 1971

iv

6-5

6-6

6-7

6-8

6- 9

6-10

7- 1

7-2

7-3

7-4

7-5

7-6

7-7

7-8

7-9

Letter from the Official Receiver, Adelaide, to the Committee, 5 March 1973

Letter from the Official Receiver, Adelaide, to the Committee, 22 January 1973

Sharebrokers Act 1945, South Australia

Auditor’s Certificate of Audit and Report to the The Registrar of Com­ panies re A. J. Green & Co., dated 30 September 1970

Letter from the Stock Exchange of Adelaide Limited to the Committee, 21 February 1973

Letter from the Stock Exchange of Adelaide Limited to the Committee, 20 February 1973

CHAPTER 7

Investment consultants, sharebrokers and share tipping

Minutes of annual general meeting of Australian Investment Counsellors Pty Ltd, 30 December 1968

Minutes of annual general meeting of Australia Investments Counsellors Pty Ltd, 30 December 1969

Letter from Mr Bryan Frith to the Committee, 10 February 1973

Letter from Hewat Communications to the Committee, 14 May 1972

Letter from Australian Investment Counsellors Pty Ltd to the Committee, 12 January 1973

Letter from Australian Investment Counsellors Pty Ltd to the Committee, 7 July 1972

Minutes of meeting of directors of Selected Mining Holdings Limited, 7 October 1970

Minutes of meeting of directors of Selected Mining Holdings Limited, 2 November 1970

Letter from Greyfell Limited (formerly Selected Mining Holdings Ltd) to the Committee, 12 February 1973

PAGE 79

v

7-10 Minutes of meeting of directors of Selected M ining H oldings Limited, 16 December 1970

7-11 Report by Australian Investment Counsellors o n th e Investments of Selected Mining Holdings Ltd, Februaty 1971

7-12 Memorandum of Agreement between Patrick C orporation Ltd and Selected Mining Holdings Ltd, 23 December 1970

CHAPTER 8

Runs, Pools and Rumours

There are no documents presented in association w ith C h a p te r 8

CHAPTER 9

A Case of Conflicting Associations in a R u n

There are no documents presented in association w ith C h a p te r 9

CHAPTER 10 PAG

103

Abuses and malpractices in the making and disposal o f private issues

10-1 Announcement by Vam Limited to the Stock E xchange, 19 September 1969

10-2 Application form to Vam Limited for 100,000 shares, 19 September 1969

10-3 Ledger Account of Ralph W. King & Yuill, Pan A u stralian Nominees Ltd A /C Vam

10-4 Letter from F. Close to the Committee, 17 August 1972

10-5 Letter from North Deborah Mining Company N.L, to th e Stock Exchange of Melbourne, 8 January 1970

10-6 Letter from North Deborah Mining Company N.L. to th e Stock Exchange of Melbourne, 15 January 1970

10-7 Letter from Ralph W. King & Yuill to North D eborah M ining Company N.L., 6 January 1970

vi

10-8 Letter from North Deborah Mining Company N.L. to Ralph W. King & Yuill, 6 January 1970

10-9 Letter from Ralph W. King & Yuill to North Deborah Mining Company N.L., 9 January 1970

10-10 Letter from North Deborah Mining Company N.L. to Ralph W. King & Yuill, 9 January 1970 .

10-11 Letter from Ralph W. King & Yuill to the Committee, 24 March 1972

10-12 Letter from Ralph W. King & Yuill to the Committee, 15 August 1972

10-13 Letter from the Committee to Ralph W. King & Yuill, 5 October 1972

10-14 Letter from Ralph W. King & Yuill to the Committee, 24 October 1972

10-15 Letter from the Stock Exchange of Melbourne to North Deborah Mining Company N.L., 9 January 1970

10-16 Letter from North Deborah Mining Company N.L. to the Stock Exchange of Melbourne, 9 January 1970

10-17 Letter from Allstate Explorations N.L. to the Committee, 16 October 1972, with one attachment

10-18 Memo to F. A. Close, 6 January 1969, on applications for Surveys and Min­ ing shares

10-19 Letter from Surveys and Mining Limited to various applicants for shares, 7 January 1968 (date should be 1969)

10-20 Letter from Surveys and Mining Limited to D. E. Wilson, 7 January 1968 (date should be 1969)

10-21 Letter from J. R. Gibbs to the Committee, 11 December 1972

10-22 Letter from Patrick Partners to the Committee, 13 October 1972

10-23 Patrick Partners’ scrip register for Carr Boyd Minerals shares, card 564, 19 June 1970

10-24 Extract from Patrick Partners’ scrip ledger for Carr Boyd Minerals shares, trading account 41,29 May 1970 to 22 June 1970

10-25 Letter from Patrick Partners to the Committee, 26 October 1972

10-26

10-27

10-28

10-29

10-30

10-31

10-32

10-33

10-34

10-35

10-36

10-37

11-1

Π-2

11-3

11-4

11-5

Letter from A. C. Goode & Co. to the Committee, 3 November 1972

Letter from the Committee to Swan Brewery Company Limited, 15 , November 1972

Letter from Swan Brewery Company Limited to the Committee, 17 November 1972

Letter from Stock Exchange of Perth to the Stock Exchange of Melbourne, 25 September 1972

Letter from Guest and Bell to the Committee, 20 November 1972

Letter from Swan Brewery Company Limited to the Committee, 28 November 1972

Letter from the Committee to Garrett, Lance & Co., 24 November 1972

Letter from Garrett, Lance & Co., to the Committee, 28 November 1972

Letter from the Committee to the Sydney Stock Exchange, 9 March 1972

Letter from the Committee to the Stock Exchange of Melbourne, 9 March 1972

Letter from the Sydney Stock Exchange to the Committee, 14 March 1972

Letter from the Stock Exchange of Melbourne to the Committee, 17 March 1972, with one attachment

CHAPTER 11 PAGE

153

Some market practices in public issues

Letter from D. J. Carmichael & Co. to Saw, Cambridge & Brannelly, 4 June 1973

List of quantities of shares allocated to brokers, companies, and others in the flotation of Australian Consolidated Minerals N.L.

Letter from Edjudina Pastoral Co. to the Committee, 10 May 1973

Letter from Edjudina Pastoral Co. to the Committee, 25 May 1973

Letter from Mr R. Hare to the Committee, 8 May 1973

viii

11-6 Letter from T. A. James & Co. to the Committee, 26 April 1973

11 -7 Telex from Sydney Stock Exchange to Perth Stock Exchange, 4 November 1969

11-8 Letter from Australian Consolidated Minerals N.L. to the Stock Exchange of Perth, 31 October 1969

11-9 Letter from Australian Consolidated Minerals N.L. to the Stock Exchange of Perth, 3 November 1969

11-10 Chairman’s address to shareholders, Australian Consolidated Minerals N.L., 17 April 1970

11-11 News release to Stock Exchange of Melbourne from Mr R. Hare, Metals Exploration N.L., 3 November 1969

11-12 Table of the twenty largest shareholders on the register of Australian Con­ solidated Minerals N.L. following the flotation, with one attachment

11-13 Letter from Patrick Partners to the Committee, 13 October 1972

11-14 Letter from D. J. Carmichael & Co. and Saw, Cambridge & Brannelly to Patrick & Co., 23 October 1969

11-15 Letter from Patrick & Co. to D. J. Carmichael & Co., 30 October 1969

11-16 Letter from D. J. Carmichael & Co. to the Committee, 7 May 1973

11-17 Letter from Patrick Partners to the Committee, 13 October 1972

11-18 Letter from the chairman (Mr J. H. Cooper) of the Sydney Stock Exchange to the Committee, 14 December 1971

11-19 Minutes of meeting of directors of Rimibo Resources Limited, 3 December 1970

11-20 Letter from Mr Keith Farfor to the Committee, 23 February 1973

11-21 Memorandum of the meeting of Messrs B. G. Douglas, E. E. Falk and A. W. Muddyman with the board of directors and underwriting brokers of Rimibo Resources Limited, 17 December 1970

11-22 Letter from Bernard Paul Marriott & Co. to Richard Parsons & Co., 17 December 1970

ix

11-23

11-24

11-25

11-26

11-27

11-28

11-29

11-30

11-31

12-1

12-2

12-3

Minutes of meeting of directors of Rimibo Resources Limited, 17 December 1970

Minutes of meeting of directors of Rimibo Resources Limited, 5 January 1971

Minutes of meeting of directors of Rimibo Resources Limited, 25 January 1971

Letter from Major B. G. Douglas to the Committee, 21 March 1972

Minutes of meeting of directors of Rimibo Resources Limited, 2 December 1970

Letter from the Committee to Mr R. O. Parsons, 5 July 1972, returned with a note written on it by R. O. Parsons

Letter from the Committee to Mr R. O. Parsons, 3 January 1973

Letter from the Committee to Mr R. O. Parsons, 5 January 1973

Letter from Richard Parsons & Co., to the Committee, 12 January 1973

CHAPTER 12

The irreconcilable conflicts of an option dealer

PAGE 193

Letter from Hornemann, Macaw 8 Oldfield to the Committee, 19 April 1973

(a) Letter from the Committee to Citron, Williamson, Croft & Co., London, 12 July 1972

(b) Letter from Citron & Co., London, to the Committee, 19 July 1972 enclosing copies of:

Guarantee under Common Seal of the Company, Trendex & Co. Pty Ltd, 16 October 1970

Letter from Trendex & Co. Pty Ltd to Citron, Williamson, Croft & Co., 17 December 1970

(a) Letter from the Committee to Lemame Corporation, 12 July 1972

(b) Letter from Lemame Corporation Limited to the Committee, 14 July 1972 enclosing copies of:

x

Guarantee under Common Seal of the Company, Trendex & Co. Pty Ltd, to Citron, Williamson, Croft & Co., 16 October 1970

Letter from Citron, Williamson, Croft & Co., London, to Trendex & Co. Pty Ltd, 10 December 1970

12-4 (a) Letter from the Committee to M. D. Garretty, 12 July 1972

(b) Letter from M. D. Garretty to the Committee (undated)

12-5 Letter from Glomex Mines No Liability to D. Burnett, Australian Mutual Growth Fund, 22 January 1971

12-6 Minutes of meeting of directors of Trendex Mineral Corporation Ltd, 27 January 1971

12-7 Copy of telex from Stock Exchange of Melbourne to Stock Exchange of Sydney, 28 January 1971

12-8 Letter from Trendex Mineral Corporation Limited to the Stock Exchange of Melbourne, 29 January 1971

12-9 Schedule of Trendex Mineral Corporation shares purchased by Selected Mining Holdings Limited for 28 January 1971

12-10 Schedule of options purchased by Selected Mining Holdings and Trendex Mineral Corporation Limited and the writing companies

12-11 Letter from Grant & Falk to the Committee, 5 June 1972 enclosing copy of:

Evaluation of share price of Stock Options of Australia Pty Ltd

12-12 Minutes of meeting of directors of Selected Mining Holdings Limited, 24 May 1971

12-13 Minutes of meeting of directors of Selected Mining Holdings Limited, 27 May 1971

12-14 Minutes of meeting of directors of Trendex Mineral Corporation Limited, 28 May 1971

12-15 Minutes of meetings of directors of Selected Mining Holdings Limited, 28 May 1971

12-16 Minutes of meeting of directors of Rimibo Resources Limited, 1 March 1971

xi

12- 17

12-18

13- 1

13-2

13-3

13-4

13-5

13-6

13-7

13-8

13-9

13-10

13-11

13-12

13-13

Letter from M. D. Garretty and P. D. Garretty to the Committee, 27 June 1972

Minutes of meeting of directors of Selected Mining Holdings Limited, 13 April 1971

CHAPTER 13

Misleading reports from Queensland Mines

Letter from Mr E. R. Hudson to The Sydney Stock Exchange Ltd, 5 February 1971

Extract from proceedings of the adjourned 10th Annual General Meeting of Queensland Mines Limited, 2 June 1971

Letter from Mr R. D. Hutchinson and Mr P. R. Stork to the Chairman and Board of Directors of Queensland Mines Ltd, 13 August 1971, with attached memo, 16 August 1971

Letter from Mr F. J. O. Ryan, Commissioner for Corporate Affairs, to the Committee, 16 December 1974

Managing Director’s Report, Queensland Mines Ltd, 23 July 1970

Letter from Downing & Downing to the Committee, 22 December 1971, with attached Statutory Declaration by Mr J. H. Hohnen

Report by The Mount Isa Syndicate on their visit to Queensland and the Northern Territory, 11-19 May 1971

Managing Director’s Report, Queensland Mines Ltd, 19 November 1970

Chairman’s Report for a prospectus of Castlereagh Securities Ltd, 5 May 1970

A proposal for a prospectus for Power and Resources of Australia Ltd

Notice to shareholders of Kathleen Investments (Australia) Ltd from Mr M. R. L. Dowling and Mr J. E. Roberts, 20 May 1971

Letter from Mr R. W. Parry, President, Australian Shareholders ’ Associ­ ation to shareholders of Kathleen Invesments (Australia) Ltd, 17 May 1971

Letter from Mr J. H. Valder, Chairman, The Sydney Stock Exchange Ltd, to the Committee, 26 March 1975

PAGE 233

xu

CHAPTER 14

Minsec

14-1 Letter from Pexa Oil N.L. to the Committee, 1 May 1973

14-2 Letter from Amad Oil N.L. to the Committee, 7 May 1973, with two sched­ ules attached

14-3 ‘ Financial Evaluations ’, a document on Mineral Securities Australia Ltd

14-4 Affidavit of Mr K. H. McMahon, 21 June 1971

14- 5 Letter from Mr J. H. Jamison to the Committee, 13 December 1971, with two appendices

CHAPTER 15

Summary: The Failings of the Existing Regulators

15- 1 Special Report to the Committee by Mr E. H. Niemann, Chartered Accountant, 23 November 1971

CHAPTER 16

The Need for an Australian Securities Commission

• There are no documents presented in association with Chapter 16

LEGAL OPINIONS

A -1 Professor Colin Howard A-2 Professor P. H. Lane A-3 Professor Geoffrey Sawer A-4 Professor Leslie Zines

B-1 Professor Colin Howard B-2 Professor P. H. Lane B-3 Professor Geoffrey Sawer B-4 Professor Leslie Zines

xm

PAGE 279

301

309

310 321 334 352

368 378 383

393

CHAPTER 2

In sigh ts in to th e P oseid on B oom

2 - 1

EXTRACTS FROM ‘REPORT ON MINERAL CLAIMS AT LAVERTON W.A. FOR POSEIDON NO LIABILITY’ BY BURRILL AND ASSOCIATES PTY LTD, 11 APRIL 1969

Page 1 Windarra Group

Page 4 Windarra Group

Page 8 Windarra Group

Very encouraging, recommend further work. Reported values in gossan are 0.50 copper with 0.70 nickel. A sample collected during this examination gave 0.880 nickel in gossan.

The ultrabasics here are bounded on the west by east-dipping banded iron formation. A pit east of this contact shows copper- stained gossan with minor amounts of residual sulphide. The best assay reported was

Copper 4800 ppm, Nickel 7100 ppm The gossan sampled during the inspection gave: Copper 119 ppm, Nickel 8800 ppm, Zinc 17 ppm, Arsenic 40 ppm

This area is intensely interesting as it showed the only indisputable gossan on the nickel properties inspected.

This is the best of the potential nickel areas and warrants a pro­ gram by Poseidon. As there is already quite strong evidence of a gossan probably related to sulphide mineralisation in one locality, fairly detailed work is indicated. The exploration work will have to

be reviewed from time to time . ..

2 - 2

Poseidon N.L. 3 October 1969

Burrill & Associates

Report for Period 15 to 30 September 1969

General The percussion drill arrived on site at the beginning of the period and after a number of breakdowns is now operating satisfactorily. Due to the recent economic strike made by Poseidon N.L. on the property we have been inundated by visitors

and intend putting gates on all roads into the property.

Percussion Drill Program PH 1 This hole was drilled to 45' and then caved in. Average values over first 45 were approximately 1 per cent.

1

PH la This hole is drilled west at -60° on section 3600N 7765E. The hole passed through oxide zone material and was lost at a depth of 145'. The average grade of this oxide material was approximately 1.25 per cent nickel.

PH2 This hole is located on section 3600N 7785E. It is drilled west at -70°. The hole intersected oxide zoned material to a depth of 115', disseminated sul­ phide from 115'-145'and massive sulphide from 145'-285'.

The width of the mineralised zone as indicated by the drill hole is a mini­ mum of 65 ’. However it is almost certain that the hole was collared in zone material and that the true width of the zone will be more than this figure.

The intersections obtained in this hole are as follows:—

From To Length Nickel Copper

(percent) (percent)

O' 25' 25' 0.40 0.10

25' 115' 90' 1.53 0.25

115' 145' 30' 1.60 0.40

145' 185' 40' 3.56 0.55

The zone appears to be dipping east at about 85°. It is estimated that the hanging wall will have an assay contact and certainly the location of this hanging wall has not yet been delineated. The footwall is in an extremely hard quartzite which, if it persists over the full length of the zone, would be of great assistance when the zone is developed.

The second percussion rig has been ordered and is scheduled to commence drilling on 10 October.

Helicopter Survey

A helicopter has been ordered and is expected to arrive on the property on 17 October. Unfortunately it has been completely impossible to procure one before that date.

Camp

A tank stand together with pumps, bore casing, etc. have been despatched to the property. Arrangements are being made for the erection of a permanent camp to accommodate 15 men.

Diamond Drilling

Tenders have been put out for a diamond drilling program and it is anticipated that this stage of the exploration program will start in early November.

G. H. R. B u r r il l

2

2 -3

GEOCHEMICAL AND MINERALOGICAL LABORATORIES (W.A.) PTY LTD

2 1 Wynyard Street, Belmont PERTH, W.A.6104 20 February 1974

The Secretary, Select Committee on Securities and Exchange, Australian Senate,

CANBERRA, A.C.T. Attention: Mr D. V. Selth.

Dear Mr Selth,

I am in receipt of your letter dated 7 February 1974, seeking advice with regards to a suit of samples submitted to our Kalgoorlie office by Mr Burrill in Sep­ tember 1969.

I shall follow your enquiry point by point and have attached the supporting documents you have requested.

(1) Mr Burrill has submitted only one suit of samples between 12 and 24 Sep­ tember 1969. Although the set of samples 3501 to 3539 is mentioned in the letter accompanying the samples (Document 2), the following samples were not in the batch: 3501-3505; 3514; 3539. (Document 4).

(2a) The samples were together with a handwritten letter from Burrill and Associates and signed by Mr Burrill.

(b) The parcel was sent by air and our laboratory staff collected the parcels from the airport in Kalgoorlie (Document 1 remarks column, copy of our Day Book).

(c) The samples were picked up on the 23rd and as shown on Document 1, both samples and instructions were received on the same day (first 2 nar­ row columns Document 1).

(d) Mr Burrill’s letter draws attention to high priority for samples 3515 to 3529. The results of these, except 3527 which was missed out in sorting some 230 samples, were released to Mrs Burrill at 11.30 a.m. on the 24th. (Document 5A).

General Comments (a) Since the batch of samples was rather large and results for 3515 to 3529 were requested immediately, this group was treated as a separate Day Book entry K5076, and the rest of the samples, including 3527 missed pre­

viously, under the entry K5077. This later batch was not reported until 7 October 1969 (Document 6).

3

(b) Document 3 refers to sample preparation carried out on the urgent sam­ ples.

(c) Document 5 and 5A under Submitter’s Reference remarks ‘Verbal Mr Burrill would indicate that he would have given a phone warning to our Kalgoorlie office about the dispatch of the samples but Mrs Vertes cannot recall it. However it also could have been given to our receptionist to pass on to Mrs Vertes.

I hope these answers will be of assistance to you. Should we however, be able to offer further help, please do not hesitate to call on us.

Yours faithfully, F. C. N a g y General Manager

THE FOLLOWING RESUME WAS TELEPHONED TO DR ROSE’S SECRETARY 11.15 (Perth time) 20 February 1974

1. Burrill and Associates have submitted only one set of samples between 12 and 24 September 1969, received by us on the 23rd.

2. Of the samples 3501 to 3539, samples 3501 to 3505 also 3514 and 3539 were missing.

3. The batch was sent by air received in Kalgoorlie on the 23rd with instructions enclosed.

4. Instructions or work request was in the form of a handwritten letter dated the 22 September and signed by Mr Burrill.

5. Results for 3515 to 3529 requested urgently in the letter were phoned through to Mrs Burrill in Perth on 24 September at 11.30 a.m. The result for 3527 mis­ sed out in sorting the urgent samples, was not reported until 7 October 1969.

Documents referring to the whole batch as well as the specifically mentioned sam­ ples accompany the report.

22.9.69

To: Geomin

From: Burill & Associates

Please assay the following rock and drill cuttings as follows:

2901-2945 2946-2961 3501-3539 2801-2883 2886-2900

Cu, Zn, Ag, Au. Ni, Cu Ni, Cu Cu, Zn, Ag, Au. Ni, Cu.

N.B. 3515 to 3529 are specials and must be assayed immediately.

Day Book Number written in by Geomin K 5076

G. H. R. B u r r il l

4

Date: 22.9.69 Submitter’s Reference: Verbal Mr Burrill Day Book and Sheet No: K5076

Requested by: Burrill and Assoc. Sample Nos.: 3515-29 Date Received: 22.9.69

Location Reference:..................................................................................................................

Short Description: Drill Cuttings Analyst’s Remarks: Results over 1 per cent if considered important should be checked by assay Sample disposal:.........................................................................................................................

Invoice No: ................................................................................................................................

Analyst: .....................................................................................................................................

Sample No. Cu Ni

3515 3570 1 percent

6 4800 9000

7 4900 7075

8 3700 5330

9 3450 4250

3520 4280 3375

1 3700 2700

2 6600 5100

3 6180 7075

4 6400 7225

5 5200 9000

Standard 163 2325

6 8100 1 percent

7 Not Received

8 3350 1 per cent

3529 2280 1 percent

Limit of detection (ppm) I 2

Results telephoned to Mrs Burrill 11.30 a.m. 24.9.69

X indicates that the content o f the element sought is below the limit of detection. All results in parts per million un­ less otherwise indicated.

Tr indicates element detected but too low a concentration to be measured.

— indicates not determined.

5

2 -4

BURRILL AND ASSOCIATES PTY LTD Directors: G. H. R. Burrill

W. R. K. Jones Suite 7, Capitol House, 10 William Street, PERTH, Western Australia 6000

16 April 1970

Senator Murphy, Parliament House, King George’s Terrace, PARKES, A.C.T. 2600

Dear Senator Murphy, I have recently obtained a copy of Hansard covering your speech about stock market transactions, delivered on 19 March 1970. Your use of Dr Anderson’s letters was, to say the least, irresponsible and could not be said to be calculated to curtail the many abuses which have crept into stock

market transactions. The letters written by Dr Anderson are highly emotional and to make use of these letters without trying to contact the Directors of Poseidon or ourselves so that you can be advised of the relevant facts would appear to indicate to me that you are more interested in trying to make use of them politically than to obtain the truth.

The Directors of Poseidon have always made every endeavour to give any sig­ nificant information to their shareholders at the earliest opportunity. Obviously, it is essential that information when it is given to shareholders, must be factual. State­ ments such as ‘good looking sulphides’ which turn out to be barren; or Singline’s reported statement on Tasminex are highly misleading and dangerous.

The following facts o f the Poseidon situation should place Dr Anderson’s com­ ments in their correct context. (1) The Board of Poseidon informed shareholders concerning their high regard for the Poseidon property on 29 April 1969, Burrill Investments

bought shares in Poseidon after this statement in their own name and with the approval of the Board of Directors o f Poseidon. These purchases were for the main part, made in May and June at least three months before drill­ ing commenced on the property. In fact, the exploration programme did not commence until the end of June and significant surveys such as Induced Polarisation or Geochemical Surveying did not commence until the end of July (see Appendix I). (2) In June, the Board advised that initial work had commenced on the explo­

ration programme at Windarra (see Appendix I). (3) On 12 September, the Board of Directors o f Poseidon stated that they were going to commence drilling on or around 15 September. The broker

6

for Dr Anderson who is supposed to have stated that there was no reason to explain any activity in Poseidon shares was either stupid or naive as the commencement of drill operations on a property is certainly news. (4) The drill rig broke down repeatedly in the first 10 days and we lost the first

hole. On Friday, 26 September, the second hole intersected massive sul­ phides and I telephoned the Directors of Poseidon accordingly that night and requested that an immediate statement be made to the shareholders of

Poseidon that we had intersected nickel and copper sulphides. It is stressed that our agreement with companies for whom we consult made it impossible for the Directors of Poseidon to issue a statement be­ fore that time as any statement has to be authorised by us. We will not

authorise a statement until we know our facts and hence the full respon­ sibility for the statements published by the Directors together with the dates of these statements is ours. (5) On 23 September when the Directors of Poseidon made a statement that they had no information as to why the shares were moving, this was true as we ourselves did not know anything which could be published at that time (remembering, of course that they had already announced the commence­

ment of drilling). Obviously, we were optimistic and regarded the property very highly but you cannot make statements to the Stock Exchange of shareholders on op­ timism, (c.f. Singline !!!) During the period involved the following statistics are relevant and indicate that Dr Anderson was, in fact, a very foolish person and the sharebrokers who are supposed to have advised him have shown themselves to be quite incompetent...

(i) 15 September Poseidon shares price 75c Poseidon Directors announce start of drill programme. (ii) 19 September Poseidon shares price 95c (iii) 26September Poseidon shares price $1.80 per cent increase 140

(iv) 29 September Poseidon shares price $5.60 per cent increase 311 Poseidon Directors state that they have intersected nickel and copper sulphides. (v) 3 October Poseidon shares price $15.00 per cent increase 268

Poseidon Directors give assay results of first completed drill hole.

Thus, between 15 September and 26 September, share prices of Poseidon rose by 140 per cent. After announcing sulphides, the shares rose by an additional 311 per cent and after announcing the assay results the price of the shares rose by an additional 268 per cent for a total increase of 2,000 per cent of which only 140 per

cent took place before a definitive announcement was made by the Directors of Poseidon.

It is obviously unfortunate that Dr Anderson sold his shares too early, however, after holding these shares for two years, it is unbelievable that he would not hold his shares until the results of the first drill hole were available or at least hold 50 per cent of them.

As has already been pointed out by the Board, an attempt was made to interest major international mining companies in June 1969 to participate in the explo­ ration programme at Windarra and take up 500,000 shares of Poseidon at $1.

7

These efforts proved unsuccessful as the companies contacted considered Windarra had no merit. These companies were obviously in possession of exactly the same information as ourselves but assessed it differently. I agree that in general the Stock Exchanges have failed to control several unde­

sirable practices. I consider that the following practices which are normal in Canada would assist the investing public in assessing their stock. (1) All share transactions by associated companies, Directors, Managers and

consultants could be made public. These could be published in the ‘Aus­ tralian Miner’. I enclose a copy of the Northern Miner from Canada which lists such trading. (2) On commencing any drill programme, if there is considered to be undue market action, then the Stock Exchange or Directors should request a suspension in share transactions until results of the drill hole are known. This could be done as a matter of course whenever a highly significant drill hole is put down. (3) Any company buying more than 15 per cent of the issued capital of any company would have to advise the Stock Exchange and any subsequent purchases would have to be made public. (4) Reports of a technical nature should be issued over the name of a suitably qualified engineer or geologist and then commented on by Directors if necessary. (5) Ensure the regulations and rules of all Australian Stock Exchanges are the same. Some of the abuses which 1 would like to see eliminated are:— (1) A well-known company, ‘A ’, may acquire a large shareholding in a small company ‘B \ Then with the publicity generated the shares o f ‘B’ will go up, especially if company ‘A ’ appoint Directors to the board o f ‘B’. Com­ pany ‘A ’ then sell their shares in ‘B’ at the inflated prices and the directors from ‘A ’ on the board o f‘B’ then resign. This seems to be share rigging at its worst. (2) A group may acquire control of a company for which they provide man­ agement or consultancy services. This is a dangerous form of trading unless shareholders are advised of share transactions as suggested in Paragraph ( 1 ) .

The dissemination of false rumours and information is so widespread and uni­ versal that I cannot visualise how this can be controlled. To quote an example, my partner was rung up from Sydney and told the results of the first drill hole at Poseidon. At that time, the drill was broken down and no drilling had yet commen­ ced on the property.

Every consultant and mining company would know dozens of similar items of false rumours.

Yours faithfully, G. H. R. B u r r il l , P.Eng

8

APPENDIX I

DEVELOPMENT OF WINDARRA

Gridding c o m m e n c e d ......................................................................... 16.6.69

Gridding finished .............................................................................. 26.6.69

Magnetometer Survey commenced ................................................ 26.6.69

Magnetometer Survey f in i s h e d .......................................................... 20.7.69

Geochemical Survey c o m m e n c e d ...................................... 20.7.69

Geochemical Survey finished .......................................................... 1.8.69

Geological mapping c o m m e n c e d ..................................................... 23.6.69

in progress

I.P. Survey commenced .................................................................... 24.7.69

I. P. Survey 1st stage finished .......................................................... 12.8.69

Percussion Drilling commenced ..................................................... 15.9.69

Percussion Drilling f i n i s h e d ............................................................... 25.3.70

G. H. R. B u r r il l

2 -5

BURRILL INVESTMENTS PTY LTD

ALLOTMENT OF SHARES

18 April - 15 May 1969

Christian or

Surname other names Address

BURRILL STACY LINDQUIST McGOWAN LINTON ROBINSON ANNEAR ROOKE STEWART STEWART

BERRYMAN

Godfrey Hyde Ruthven Jean Emma Gwyneth Lilian Marianne Lucille John Horace Barrow Harold Hyman

Richard Winston Archibald Patrick John Joan

Judith Eileen

ARGYLE Rory Edward Stanley

VANDEPEER June Elizabeth

HART ATKINSON DANIELS LINTON LINTON

MALCOLM JONES

HYNAM CLEMENTS DANIELS CLEMENTS

SMITH STANLEY HOLDINGS PTY LIMITED BRAR Harjeet Singh

ST. VINCENT DE Leopold Vincent ΛΆΙ ιτί " η η COUTERE WALSH John Francis

JONES W alter Royden Keith

WEGNER Robert Lance & Dianne Elizabeth

Elaine Janet Jean McKay John Leonard Gloria Cordelia

Robert Roy

Donald Kenneth Judith Merle

Helen Mabel Henrietta Kenneth Frank Elizabeth Mary Geoffrey Turner

Elizabeth Mary

48 Minora Road, DALKEITH 8 Webb Street, COTTESLOE 51 Gallop Road, NEDLANDS 54 Talbot Avenue, COMO

22 The Avenue, NEDLANDS 47 Minora Road, DALKEITH 86 Kingsway, NEDLANDS Box X2225 G.P.O., PERTH 42 Viking Road, DALKEITH 42 Viking Road DALKEITH 47 Angelo Street, SOUTH PERTH 2nd Floor, 164 St George’s Tee,

PERTH 115 High Street, NORTH SYDNEY 20 Barker Avenue, COMO

5 Brosnan Street, DIANELLA 21 Troy Street, APPLECROSS 22 The Avenue, NEDLANDS 185 Mill Point Road, SOUTH

PERTH 41 Wendouree Road, WILSON 49 McLeod Road, APPLECROSS 60 Mount Street, PERTH 3 Tamala Road, CITY BEACH 21 Troy Street, APPLECROSS

Unit 2, No. 1 King’s Park Ave, CRAWLEY 32 Napier Street, COTTESLOE c/- Ford Foulkes Rhodes & Co.,

214 St George’s Terrace, PERTH 104b. Wandana Flats, SUBIACO 36 Hanbury Street, KALGOORLIE

11 Pandora Drive, CITY BEACH 49 McLeod Road, APPLECROSS

114 Reynolds Road, MT PLEASANT

No. of Shares Allotted (Ordinary for cash)

2999 1000 1000 1000 2000 3000

1000 1000 2000 1000

5000

1000

1000 1000 1000 1000 1000

1000 1000

5250 5250 1000 5250

1000 1000

3000 1000

1000

1000

3999

1000

58748

This Schedule forms part of the Return of Allotment of Shares dated 23 May 1969.

10

W. R. J ones Director

Allotments 22 May 1969

Christian or

No. of Shares Allotted

Surname other names Address (Ordinary for

cash)

FLETCHER MALCOLM

Paul Rodney 12 Lancaster St, DIANELLA

c/- Lindquist, Stacy & Fountain, 2000

SCOTT HOLDINGS PTY LTD

81 St George’s Tee, PERTH 1000

BROWNE Peter John Senior High School,

MERREDIN 3250

STEVENS Esther Grace Flat 3, 57 Swanview Tee, STH

PERTH 2000

STEVENS Norma Rosa P.O. Box 5, MARBLE BAR 2000

BROWNE Noel Ashley Crighton MARBLE BAR 5000

TAYLOR Peter William c /- Telephone Exchange,

MOORA 5000

20250

Dated this Twentieth day of January 1970

2 - 6

B. R. LEWIS PTY LTD Registered Office . “ Westcliff” y

Halletts Cove, South Australia 5 March 1973

Mr D.W. Whitbread, Secretary, Senate Select Committee on Securities and Exchange,

Australian Senate, CANBERRA, A.C.T. 2601

Dear Mr Whitbread, I acknowledge your letter of 26 February 1973 and wish to advise the Com­ mittee in accordance with your request of the circumstances leading to the purchase of shares in Poseidon Limited by B. R. Lewis Pty Ltd.

(1) I personally was a member of the Bindi Bindi Syndicate formed in late 1967 to search for nickel at Bindi Bindi and other parts of Western Australia. (2) I held 3,250 shares in Poseidon Limited to whom the Bindi Bindi Syndi­

cate transferred its interest in early 1968 and still hold all of this scrip today.

11

(3) I had no direct association with the operation o f the Bindi Bindi Syndicate or Poseidon Limited until November 1969, some two months after dis­ covery of nickel at Mt Windarra. (4) From 1946 to 1969 I had extensive experience in exploration in the West­

ern Australian Shield, for some years as Assistant Chief Geologist for Western Mining Corporation Limited and later as Exploration Manager (Australia) for Broken Hill South Ltd. (5) Accordingly, I followed with interest the progress of the Bindi Bindi Syndi­

cate and later Poseidon Limited, resulting in a personal visit to Laverton on 26 May 1969 when 1 had discussions with Mr K. G. Shirley, the dis­ coverer of Mt Windarra, and examined high grade nickel gossans which at that time had been located by him. (6) On this basis I determined to increase my shareholding in Poseidon Lim­

ited before drilling of the gossans commenced. Sometime after the forma­ tion of my family company (B. R. Lewis Pty Ltd) on 1 July 1969, I suggested as Managing Director of this company that they should acquire a holding in Poseidon Limited nickel prospecting in addition to a number

of other prospecting companies. On Tuesday, 23 September 1969 I was present at a meeting with Mr N. C. Shierlaw concerning the underwriting proposal for a new company to be

formed, namely Samin Limited. I enquired as to whether drilling had com­ menced as I wished to purchase shares for my company and he advised that not only had drilling commenced but that considerable buying sup­ port for the shares had been forthcoming from Perth, Western Australia,

but that no positive reports were available. (7) Accordingly, I issued a firm instruction for the purchase of 3,000 shares at a limit of not greater than $ 1.60. (8) The 2,600 shares purchased on this date by B. R. Lewis Pty Ltd were dur­

ing that year documented as investment stock for the purpose of Section 51 of the Income Tax Act and are held by the company to this day.

Yours sincerely,

B. R. L ew is

12

2-7

T. A. HUTTON, LL.B.

Princes House 24 Waymouth Street ADELAIDE 5000 25 February 1974

The Secretary, Select Committee on Security and Exchange, Australian Senate,

CANBERRA, A.C.T. 2600.

Dear Sir,

I acknowledge receipt of your letter of 11 February last in which you ask me to advise the Committee if certain statements and understandings are correct. Unfor­ tunately, I must advise that every statement either disagrees with the official tran­ script or is quoted so much out of context as to give a completely wrong impression.

In addition, it is quite clear to me that many of the understandings of the events held by your Committee are incorrect.

In the first place the report quoted on page one of your letter disagrees in many respects with the official transcript of the meeting. I enclose a photostat copy of ex­ tracts from the transcript and have underlined the differences. I enclose also a pho­ tostat copy of the statement handed to the Press.

The document held by the Adelaide Stock Exchange disagrees with the tran­ script of the proceedings and the document handed to the Press. Your letter how­ ever does not quote that report with complete accuracy. Your letter says that the Stock Exchange report describes the proposed mining operation as a substantial

operation. In fact, the Stock Exchange report says6 It is expected that it would be at least a substantial operation’. I am unable to give any reason for the difference in the expressions in the two reports. My impression is that various drafts of the state­ ment were prepared and considered by the directors and the final wording of the

statement was not fixed until a very short time before the meeting was held and in fact the final copy for distribution to the Press was not received until after the meet­ ing had commenced. A statement concerning the size of a mining operation would normally be left more to the people with mining experience. I think that the docu­

ment in the possession of the Adelaide Stock Exchange was an earlier draft of the final statement.

At the end of the meeting I made a statement similar to the one mentioned in your letter. The Transcript of the proceedings does not record the statement quite in the words quoted by you but reads as follows: — ‘I take this opportunity, before formally dosing the meeting, to wish you all a Merry Christ­

mas—and I see no reason why any shareholder in Poseidon should not have a wow of a Christmas. ’

Concerning the statement alleged to have been made by Mr Jones I have care­ fully read the transcript and the printed and typed copies of his statement. I can

13

find no reference to the statement in your letter to the ‘indicated ore ’ in the context quoted by you. I enclose herewith a photostat copy of an extract from the transcript and a full copy of the printed statement posted to shareholders. I am quite sure that Mr Jones did not say or imply that there was positively indicated ore of 4 million tons. I am also sure that I have never had to correct any statement about ore poten­ tial made by Mr Jones at that meeting. If this is the understanding of yourself or your Committee then it is incorrect. Since receiving your letter I have shown to Pro­

fessor Rudd (the present Chairman of Directors of Poseidon Limited and a geol­ ogist of world wide repute) the transcript of the meeting and he has confirmed that even after four years of further extensive work the statement made by Mr Jones on 19 December 1969 does not need correcting. However, from time to time in various reports and statements as more and more information became available the Com­ pany used different terms and expressions in order to give shareholders as much ac­ curate information as possible. These terms were not always identical and were usually very carefully defined.

Many newspaper financial and other writers put their interpretations on the statements made from time to time without considering the very careful terms the Company used in its reports and many of them misconstrued the reports. It was quite impossible to correct all the mistakes made by the various writers but in every official statement made by the Company great care was taken in accuracy of ex­ pression.

If you or your Committee still consider that I ‘publicly corrected any impres­ sion’ made by Mr Jones’ statement will you let me have details of the statements in which you consider I did so.

The interpretation given in your letter is one that could not reasonably be placed on the statement made by Mr Jones if the full statement is read carefully.

I am surprised at the inaccuracies in the statements and the misconceptions that you and your Committee have concerning this matter. The proceedings of the meeting held on 19 December 1969 were carefully recorded both by a tape recorder and by independent competent shorthand reporters with Hansard experi­ ence. A complete record was transcribed and is available. Official copies of the statements made by me and Mr Jones were given to the Press and shareholders. Might I suggest that you obtain a copy of this transcript and the official copies given to the Press. However, I wish to point out that the transcript has not been read by the various speakers and itself has some inaccuracies.

I assure you that it has always been and still is my desire to see that all official statements and records relating to Poseidon Limited are absolutely accurate. Ac­ cordingly, I would like to see that all the statements reports and information you have concerning this Company are accurate. It appears to me that you and your Committee need help in this respect and I am certainly prepared to do anything I can to insure that the statements you have are accurate.

Yours faithfully, T. A. H u t t o n

14

It is my pleasure to announce that a major mining operation will be possible on our Windarraprospect. (Applause).

I should like to impress on you immediately the short time that has elapsed since we announced our first economic intersection; that was less than three months ago. Bearing in mind the time required to develop sufficient ore at such places as Kam- balda, Scotia and others I think you would want to join me in congratulating

Messrs Burrill and Associates on their efforts. (Applause).

This is a most exciting time and I should like to assure you all that your Board will be making every possible effort to commence operations as soon as practicable, but we feel that it is essential that costly mistakes due to undue haste should be avoided. Over the last two months or so you have heard all sorts of rumours and speculations. This Board does not propose to add to the speculation, but says it is not possible at this time to state the size of the operation or the time at which it will commence, or the ore reserves on which it will be based. However, it is expected that it would be a major operation.

CHAIRMAN’S STATEMENT—Informal Section of Meeting Ladies and Gentlemen, that completed the formal business of our meeting. We now move on to what we consider to be the most important section, that of an up- to-date Technical Report on the Windarra deposit.

It is now my pleasure to announce that a major mining operation will be poss­ ible on our Windarra prospect. I would like to impress upon you immediately the short time that has elapsed since we announced our first economic intersection. This is less than three months ago.

Bearing in mind the time required to develop sufficient ore at such places as Kambalda, Scotia and others I think you would want to join me in congratulating Messrs Burrill & Associates on their efforts. This is a most exciting time and I should like to assure you all that your Board will be making every possible effort to com­

mence operations as soon as practicable but we feel that it is essential that costly mistakes due to undue haste should be avoided. Over the last 2 months or so you have heard all sorts of rumours and speculations. This Board does not propose to add to the speculation but says it is not possible at this time to state the size of the operation or the time at which it will commence, or the ore reserves on which it will

be based. However it is expected that it would be a major operation.

Before listening to Mr Jones I would like to introduce you to Mr Ken Shirley who discovered Windarra.

Now I have pleasure in introducing Mr Jones, who will outline in more detail the features of this magnificent discovery.

15

2 - 8

G URNER& McAr t h u r Stock and Share Brokers Donald I. McArthur Colin McArthur C. Hector McArthur Members o f the Stock Exchange of

Adelaide Ltd Stock Exchange & Union Buildings 31 Grenfell Street, Adelaide, S.A. 5000 1 February 1974

M rD. W. Whitbread, The Secretary, Select Committee on Securities and Exchange,

Australian Senate, CANBERRA, A.C.T. 2600.

Dear Sir, I write in reply to your letter of 11 January 1974 regarding information re­ quested concerning Poseidon Limited. It is difficult to remember what was said at a meeting held over four years ago, even after seeking assistance from those who were in my confidence then.

My brothers and I were interested in Poseidon because the Company was floated by us in 1953. My firm does not buy or sell shares on its own account, but only on Clients ’ instructions. However 300 Poseidon shares belonging to Gurner and McArthur, have been registered in my name for some years.

At the Annual Meeting I stated that anything I said was my personal opinion. Whenever possible, shares should be offered to shareholders. However, at the time of the Poseidon placement the market was subject, to sharp movement and this in the opinion of the Directors was the best method of raising capital quickly.

It would have been six to eight weeks for the money to have been subscribed by shareholders. This may not have been in the best interests of the Company. Any unfavourable news could have caused the market to fall below the six dol­ lars a share at which the placement of 500,000 was made. The Directors had in June 1969 endeavoured without success to place with a large Mining Company,

500,000 shares at a dollar a share. This reasoning was accepted as feasible under the circumstances of market be­ haviour at the time. Regarding alleged insider trading I support the advice of the Secretary of the Stock Exchange viz that no formal representations were received by the Exchange

alluding to instances of insider trading and accordingly no investigations along these lines were instituted by the Committee.

16

So far as I am concerned, I was not aware of any cases of insider trading, nor was anything brought to my notice which made me suspicious that such may have been going on. I also advise no trading records of member firms were collected, and no inves­

tigatory action was taken by me as President. I trust the above will clarify the position.

Yours faithfully, for: Gurner & McArthur

d . i. McAr t h u r

17

F in an cial Structure and Profits of M em ber Firm s of th e S tock E xchanges

3 - 1

CHAPTER 3

Australian Associated Stock Exchanges Stock Exchange House, 351 Collins Street, MELBOURNE, VIC. 3000

2 July 1971

The Honourable G. O. Reid, M.L.A., Attorney-General for Victoria, 459 Lonsdale Street, MELBOURNE, VIC. 3000.

Dear Sir,

A.A.S.E. BROKERAGE PROPOSALS The Committees of the Member Exchanges of the Australian Associated Stock Exchanges are desirous of submitting to their Members, a proposal that the Regulations relating to brokerage be amended by introducing an order fee of $5 on

all orders (not on each Contract Note) to buy and sell shares in lieu of the present minimum brokerage rate. The rates of brokerage will remain unaltered. PROPOSED AMENDMENT: The proposed amendments to the Regulations of The Stock Exchange of Mel­

bourne Limited read as follows: Delete Regulation 22 and substitute­ 'l l . In addition to the brokerage payable under Regulations 20 and 21 an order fee of $5 shall be charged on all orders to buy or sell shares, capital

stock, rights to new issues, options to subscribe for unissued capital and convertible loan securities PROVIDED THAT in the case of a sale of either— (i ) rights to new issues or,

(ii) odd lots pursuant to Regulation 97, where the consideration is $25 or less a total fee of $2 shall be charged in place of both the order fee payable hereunder and any brokerage payable under Regula­ tions 20 and 21 ’. Insert New Regulation 26(2)— Present Regulation 26 becomes 26(1). ‘26 (2) In addition to the brokerage payable under clause (1) of this Regula­

tion a fee of $5 shall be payable by the purchaser of an option on the granting of the option and by the writer of the option if and when the option is exercised ’.

COST INCREASES: The Exchanges have noted the substantial increases in costs borne by Members in recent years. By way of illustration, the following schedule reflects percentage

19

24175/ 75- $

increases in costs which have been experienced over the six year period ended March 1971. Salaries Percentage

Senior Scrip Clerk ................... 178.6

O p e r a to r ....................................... 223

Accounting Machinist . . . . 175

Accounts Reconciliation Clerk . 182.9 Communications Telephone Calls ........................ 50

Rent ............................................ 17.25

Cables ....................................... 60

Postage ....................................... 50

Printing and Stationery . . . . 174.1

R e n t ................................................ 223.5

PRODUCTION COSTS-CONTRACT NOTES: Recent analyses by Member Firms suggests that the cost of producing a con­ tract note ranges from $8 to $12. In many cases more than one contract note is issued to complete the order.

The introduction of an order fee of $5 will not cover costs of transactions involv­ ing low price securities but will bring some relief to Members who are asked by their clients to effect such transactions. The preponderance of business today is in the price bracket below $1, and this is the area where paper work and attendant costs are also the greatest.

1965 REVIEW: There has been recent press comment that brokerage rates for shares were last increased in 1965. This is not correct. In 1965, prior to the change-over to decimal currency, the exchanges rationalised the brokerage schedule by the introduction of the following percentage rate based upon total consideration involved in the order:

2 per cent on the first $ 10,000 of consideration. 1.5 per cent on the next $40,000 of consideration. 1 per cent on that amount by which the consideration exceeds $50,000. The 1965 change to commission based on a percentage of the consideration in lieu of the rate determined by the price of the security was designed to produce approximately the same total brokerage income for the whole brokering com­ munity.

LAST INCREASE 1956: The following brokerage rates for shares were adopted in November, 1956, and remained until the 1965 review:

Under 1 /-per share 1 /- and under 3/- per share 3 / - and under 5 /-per share 5/- and under 10/-per share 10/-and under 15 /- per share 15/-and under 2 0 /-per share 20/- and under 30/- per share 30/- and under 40/- per share 40/- and under 50/- per share 50/- and under 60 /-per share 6 0 /-and under 7 0 /-per share

70/- and under 80/- per share 80/- per share and over

O.Sdper share 1,0d per share 2.0d per share 2.5d per share 3.0d per share 4.0d per share 5.0d per share 6.0d per share

7.5d per share 9.0d per share lO.Od per share 1 l.Od per share

1.25 percent

20

COMPARATIVE SCHEDULE: The following schedule sets out, under varying conditions, price and volume per order showing the effects of the 1956 rates, the present percentage commission and the suggested $5 per order plus percentage commission:

Number 1965

$5

Orderfee

of Con- 1956 percentage plus

shares Price sideration rate rate percentage

cents $ $ $ $

2,000 . . . . 5 100 8.33 2 7

5,000 . . . . 5 250 20.83 5 12

20,000 . . . . 5 1,000 83.33 20 25

1,000 . . . . 20 200 8.33 4 9

5,000 . . . . 20 1,000 41.67 20 25

20,000 . . . . 20 4,000 166.67 80 85

500 . . . . 40 200 8.23 4 9

1,000 . . . . 40 400 16.66 8 13

5,000 . . . . 40 2,000 83.32 40 45

10,000 . . . . 40 4,000 166.64 80 85

500 . . . . 60 300 10.42 6 11

1,000 . . . . 60 600 20.84 12 17

5,000 . . . . 60 3,000 104.20 60 65

10,000 . . . . 60 6,000 208.40 120 125

500 . . . . 80 400 10.42 8 13

1,000 . . . . 80 800 20.84 16 21

5,000 . . . . 80 4,000 104.20 80 85

10,000 . . . . 80 8,000 208.40 160 165

500 . . . . 1.00 500 12.50 10 15

1,000 . . . . 1.00 1,000 25.00 20 25

5,000 . . . . 1.00 5,000 125.00 100 105

10,000 . . . . 1.00 10,000 250.00 200 205

200 . . . . 1.50 300 6.66 6 11

500 . . . . 1.50 600 16.66 12 17

1,000 . . . . 1.50 1,500 33.33 30 35

5,000 . . . . 1.50 7,500 166.67 150 155

10,000 . . . . 1.50 15,000 333.33 275 280

200 . . . . 2.00 400 8.33 8 13

500 . . . . 2.00 1,000 20.83 20 25

1,000 . . . . 2.00 2,000 41.67 40 45

5,000 . . . . 2.00 10,000 208.33 200 205

10,000 . . . . 2.00 20,000 416.66 350 355

100 . . . . 6.00 600 8.33 12 17

500 . . . . 6.00 3,000 41.67 60 65

1,000 . . . . 6.00 6,000 83.33 120 125

5,000 . . . . 6.00 30,000 416.67 500 505

It will be seen from the above schedule that the brokerage rates introduced in 1965 conferred on the investors dealing in low price securities, a substantial reduc­ tion in the commission then payable, whilst investors of high price securities paid more.

OVERSEAS RATES: Whilst a comparison with overseas brokerage rates is not altogether appropri­ ate, the New York Stock Exchange, has, since the 6 April 1970, had in force an interim service charge of not less than $ 15 or 50 per cent of the minimum com­

mission, whichever is smaller on 1,000 shares or fewer. For details of the New York Stock Exchange rates see Appendix 1. The Stock Exchange London, prescribed the following minimum commission for stocks and shares:

1.25 per cent on the first 5,000 pounds (sterling) consideration. 0.625 per cent on the next 15,000 pounds (sterling) consideration.

21

Nil on the next 5,000 pounds (sterling) consideration. 0.625 percent on the next 50,000 pounds (sterling) consideration. 0.5 per cent on the excess. On small bargains the charge is 4 pounds (sterling).

These rates are applied as a minimum and are by no means the maximum rates charged by London Members who have complete discretion as to whether they may charge a higher rate. It should not be overlooked that in both the New York and London Exchanges, the price of the security booked to the client is after an adjustment

for the specialist’s or jobber’s margin. The monetary value of orders in both centres is much larger than the orders processed in Australia. Should there be any further information that you require, please let me know.

Yours faithfully, C. T. L o o k e r President

22

C H APTER 4

T h e C onflicts of J o h n T. M artin & Co.

4-1

Mr D. W. Whitbread, Secretary, Australian Senate,

CANBERRA, A.C.T.

Dear Mr Whitbread,

24 Lynwood Avenue, KILLARA 2071 20 January 1972.

Re: Senate Select Committee Under the Privilege of the Senate

With reference to your letter of 13 August and enclosures I am pleased to return corrected copy of the transcript of evidence. I apologise for the delay caused by the difficulty the Bank has had turning up a copy of the cheques requested by the Committee. In fact of the three cheques only two have been located although the Bank has informed Mr Forsyth (the assistant secretary at the time) that the other cheque was signed by Mr A. Pitts and Mr N. C.

Handley and that it was the second in the series of three cheques. Senator Rae asked for my comments in writing regarding whether I regarded myself as a nominee director for John Martin of John T. Martin and Co. At no time did I regard myself as a nominee director and this view was based on legal advice

from both Dawson Waldron and Clayton Utz and Co. This is not to say that Martin did not propose that I represented his interests, a proposition that I rejected strongly during a heated argument with him in front of Mr D. Scott a partner of Dawson Waldron. My exact words to Martin were that no matter what may be his

view on any particular matter before the Board I could only consider it in terms of ‘what is in the best interests of shareholders’. Both Dawson Waldron and Clayton Utz (Mr G. Kirby) supported my statement to Martin that there is no such ‘thing’ as a nominee director.

The above argument was the climax of a series of events where the Board took an action believed to be in the best interests of shareholders but not necessarily in the interests of Martin. For example— (a) Neither Martin nor Massey were aware of the Belinda offers to Genoa

shareholders (b) Neither Martin nor Massey were aware of the identity of the buyer for Trendex shares. (c) Glomex declined to pay the full legal bill of Baker and McKenzie for acting

for the underwriter. We regarded the cost of eight thousand odd dollars ex­ cessive when compared to the bill from the company’s underwriter Dawson Waldron. The latter firm spent four times the time that Baker and

23

McKenzie spent yet their bill was slightly less. I should say that the senior partner of Baker and McKenzie was M artin’s closest friend and business associate. (d) Glomex refused to pay a bill from Martin for a staff geologist of J. T. Mar­

tin’s time taken looking at leases for Glomex. This expenditure was not authorised by the Board. (e) Glomex declined to pay bills for both Pitts and my time received from J. T. Martin.

(f) I, through Mr Forsyth, wrote to J. T. Martin and Co. challenging ‘buy ins’ of Genoa shares. (g) Only 5 per cent of Glomex’s business was done through Martin and Co. in the period from 1 January 1971. (h) On my recommendation the Glomex Board refused the sub-underwriting

offer for participation in the Western Nuclear float. The basis o f this refusal was that I was the only one in the firm, of the five or six senior people asked their opinion, that strongly recommended non participation in the float. Furthermore this opinion was put in writing to Martin. (i) I refused to sign a letter appointing Martin my alternate on the Board.

It may have been that Martin thought when he appointed me to the Board that he was appointing a dupe. However, I am sure that my subsequent conduct indi­ cated to him and others that I did not regard myself as any sort of nominee. It is only fair to say that initially I had confidence in Martin based on his being a partner in a leading Stock Broking Firm, his obvious wealth and substantial staff which his firm employed. Unfortunately, my faith and confidence was not justified

and as time passed I became suspicious of his motives. This suspicion arose partly from his shocking performance in investing funds entrusted to him from Glomex and his persistent urging to buy further shares based on what in my judgment was questionable logic.

I became suspicious that his only motivation was to increase brokerage for the firm. I personally feel and have always practised the policy o f ‘putting the client first’ and of course was surprised and dismayed to see a partner doing otherwise. I am sure you could check with any of the staff of the Sydney office that this was my view and my practice.

With the benefit of hindsight it is clear that an intolerable situation had developed but at the time I felt a major responsibility as a Director in attempting to protect the interests o f shareholders and was fortified in this belief by being encouraged to remain as a Director when I tabled a written resignation in late February or early March.

At all times Martin could have claimed that I was not serving his firm well and have fired me. However, I am sure that he felt I was making a significant contribu­ tion to the firm and my record as an advisor during the last few months of the firm’s business would bear this out. I feel I was doing much more business than other staff members and I believe that bad debts amongst my clients were almost certainly the lowest in the firm.

I have no doubt in my mind that during this troublesome period I was a con­ scientious Director of Glomex taking action which I believed to be in the best interests of shareholders. At the same time I was employed by Martin and feel that

24

I did a good job for the firm and its clients. I do not feel that at any stage I con­ ducted my self in any way during a particularly difficult period with other than the highest principals.

It may be that on reflection I was on a number of occasions placed in an intolerable position by other people and should have done what I would consider to be the cowardly thing and ended my responsibilities to the shareholders and my clients. It is easy to say that now but quite frankly I find it difficult to walk away

from people to whom I owe a duty.

Yours sincerely, N. C. Handley

4-2

GLOMEX’S TRANSACTIONS IN GENOA SHARES, DECEMBER 1970-JANUARY 1971

Bought Sold

Number Number

o f Name o f o f Name o f

Date shares Price Amount broker shares Price Amount broker

c $

7 1,152,000 13 151,857 9 300,000 16 48,576

16,000 15 2,428

8,000 15 1,214

10 4,000 15 607

11 1,000 14 141

14 1,000 16 162

20,000 16 3,238

7000 15 1,062

15 12000 15 1,821

2000 15 303

16 1000 15 151

2,000 15 303

17 1,000 15 151

2,000 15 303

18 1,000 15 151

21 19,500 .16 3,157

500 14 71

22 2,000 21 429

1,000 21 214

1,000 21 214

1,000 21 214

2,000 21 429

23 1,000 21 214

1,000 21 214

10,000 22 2,248

1,000 21 214

1,000 21 214

4,000 21 858

2,000 21 429

1,000 22 225

1,000 22 225

Martin, Syd. Martin, Syd. 10,000

Martin, Syd. Martin, Syd. Martin, Syd. 48,000

64,000

Martin, Syd. Martin, Syd. Martin, Syd. Martin, Syd. Martin, Syd. 1000

Martin, Syd. Martin, Syd. 88,500

Martin, Syd. 2,500

Martin, Syd. Martin, Syd. Martin, Syd. Martin, Syd. Martin, Syd. Donovan, Melb. Donovan, Melb. Donovan, Melb. Donovan, Melb.

Donovan, Melb. Donovan, Melb. 10,000

Donovan, Melb. 2,000

Donovan, Melb. 10,000

Donovan, Melb. 30,000

Donovan, Melb. 5,000

Donovan, Melb. 3,000

Donovan, Melb. 2,000

Donovan, Melb. 10,000

Donovan, Melb. 1,000

c $

17 1,671 Martin, Syd.

13 6,133 Martin, Syd. 13 8,178 Martin, Syd.

13 127 Martin, Syd.

13 11,309 Martin, Syd. 13 319 Martin, Syd.

24 2,347 D o n o v a n , M elb .

2 4 471 D o n o v a n , M elb .

2 4 2,347 D o n o v a n , M elb.

23 6,781 D o n o v a n , M elb.

23 1,124 D o n o v a n , M elb.

23 674 D o n o v a n , M elb.

23 449 D o n o v a n , M elb .

2 4 2,347 D o n o v a n , M elb .

2 4 234 D o n o v a n , M elb.

25

GLOMEX’S TRANSACTIONS IN GENOA SHARES, DECEMBER 1970-JANUARY 1971

Bought Sold

Number Number

o f Name o f o f Name of

Date shares Price Amount broker shares Price Amount broker

c $

Dec. 24 56,000 21 11,901

10,000 21 2,125

31 1,000 23 235

1,000 22 225

1,000 23 235

10,000 23 2,350

Jan 4 40,000 19 7,767

24,000 19 4,648

6

28

1,000 18 184

Martin, Syd. 9,000

Martin, Syd. 232,000

71,000 4,000

Donovan, Melb. 10,000

Donovan, Melb. 20,000

Donovan, Melb. 10,000

Donovan, Melb. 51.000

54.000 100,000 100,000 200,000

5,000 100,000 10.000 101,000

42.000 57.000 1,000 100,000

80,000

Martin, Syd. Martin, Syd. Martin, Syd.

9,000 48.000 52.000

c $

22 1,936 Pring Dean, Syd. 23 52,447 Pring Dean, Syd. 24 16,835 Pring Dean, Syd. 21 821 Pring Dean, Syd.

16 1,572 Donovan, Melb. 16 3,145 Donovan, Melb. 21 2,064 Donovan, Melb. 22)

16) 19,472 Davis, Syd. 23 22,724 Pring Dean, Syd. 23 22,609 Pring Dean, Syd. 22 43,431 Pring Dean, Syd.

18 884 Pring Dean, Syd.

18 17,644 Pring Dean, Syd. 17 1,679 Martin, Syd.

21 20,955 Martin, Syd. 16 6,639 Martin, Syd.

21 11,826 Martin, Syd. 19 187 Martin, Syd.

16 15,808 Martin, Syd. 18 14,227 Martin, Syd.

16 1,408 Martin, Syd.

19 8,919 Martin, Syd.

19 9,662 Martin, Syd.

4-3

BONDS & SECURITIES (TRADING) PTY LIMITED v. GLOMEX MINES N.L. & ORS

OUTLINE OF JUDGMENT

Facts:

Identification of parties—background. Glomex Mines acquires shares in dispute. John T. Martin & Co. negotiate sale of shares to plaintiff. Arrangements for settlement.

Handley’s custody of the scrip. Both plaintiff and Glomex were settlement clients. Fraudulent obtaining of cheque from plaintiff. Brokers posted as defaulters. Present position.

26

Nature o f proceedings—contentions o f parties. Question for decision. Admissibility of Stock Exchange rules and usages. Course of dealing on Stock Exchange.

Payment to seller’s broker is not payment to seller. No estoppel against Glomex Mines. Plaintiff’s claim fails. General obligations of broker.

Brokers and employees as directors. Brokers as underwriters. Brokers as share traders. Need for care when same broker acts for both seller and buyer.

Deficiencies of Stock Exchange trust account requirements. Dismissal of suit and reference of papers to Attorney-General.

CH-.MOF6

IN THE SUPREME COURT OF NEW SOUTH WALES No. 677 of 1971

IN EQUITY

CORAM: STREET, J. Wednesday, 30 June 1971

BONDS & SECURITIES (TRADING) PTY LTD v. GLOMEX MINES N.L. & ORS.

JUDGMENT

HIS HONOUR: In March 1970 the firm of John T. Martin & Co., a member of the Stock Exchange of Melbourne Limited, opened a branch office in Sydney. From that time through to the suspension of the firm by the Melbourne Stock Exchange on 6 April 1971, one S. H. Massey, a partner in the firm and a member of the Mel­

bourne Stock Exchange, was in charge of the Sydney Office. The suspension was in consequence of the firm having made financial default. Neil Charles Handley, a Bachelor of Economics and a qualified accountant with some ten years’ experience in the share-broking industry, was employed full

time as an investment adviser in the Sydney office throughout the period of its oper­ ations. The office staff also included one A. Pitts, a chartered accountant, whose functions were those of underwriting manager, administration manager and per­ sonnel manager of the Sydney Branch. At all material times Pitts was the chairman of directors of Glomex Mines N.L., the first defendant, and Handley was a director of that company. The remaining two directors are said to have technical rather than

financial or commercial capabilities. Glomex Mines N.L. is a public company incorporated in Queensland. Its shares are listed on the Stock Exchanges of Sydney, Melbourne, and Perth. Towards the end of 1970, Glomex Mines N.L. raised, by public issue of shares, an amount of

about $1,200,000. This issue of shares was apparently the public floatation of Glomex Mines N.L., and it was underwritten by the firm of John T. Martin & Co. At a meeting of directors of Glomex Mines N.L. on 10 November 1970, attended by Pitts, Handley and the other two directors, consideration was given to

27

the investment of some of the funds obtained from the public floatation. At that meeting a resolution in the following terms was passed: ‘It was resolved that $200,000 be allocated for investment through the Stock Exchange by way of trading in public securities and options. It was further decided that of this

sum $ 100,000 should be handled by Mr Handley and the balance of $ 100,000 split be­ tween two employees of J. T. Martin & Co. nominated by Mr Handley or Mr Martin. It was decided that the employees should have the discretion up to $ 10,000 but must refer amounts in excess of $10,000 to Mr Handley. It was agreed that Mr Handley would have discretion up to $25,000 but should refer investments in excess of this amount to one other director’. On 22 December 1970, at a meeting of directors of Glomex Mines N.L., attended by Pitts, Handley and the other two directors, the following resolution was passed:

‘It was resolved to confirm the investment of $26,250 in purchase of shares in the issue of King Mountain Mines N.L. ’ King Mountain Mines N.L. is a public company, incorporated in Queensland. Its shares are listed on the Sydney Stock Exchange. The ‘issue’ referred to in the board’s resolution o f 22 December 1970, was a public issue of shares involving a figure in the vicinity of $750,000 made about that time in connection with the pub­ lic floatation of that company. This public issue was also underwritten by John T. Martin & Co. As the underwriting manager, Pitts was involved with the underwrit­ ing of the King Mountain Mines N.L. floatation as he had been with the Glomex Mines N.L. float. The evidence indicates that, apparently pursuant to the board resolution of 10 November 1970, authorising trading in public securities and options, a great many sales and purchases of shares running up into some hundreds of transactions were made by Glomex Mines N.L. through the office of John T. Martin & Co. in the months that followed up until the suspension of the sharebrokers on 6 April. It was one of these trading transactions that has given rise to the dispute in the present suit. On 12 March 1971, Handley was told by Massey, the manager of the Sydney office of John T. Martin & Co., that he had a client for a large parcel of King Moun­ tain Mines N.L. shares. Handley told Massey that Glomex Mines N.L. had 250,000 shares and would consider selling them. Some time later (either on 12 or 16 March, it is not clear which), Massey told Handley that a sale had been negotiated at 5.5 cents. On 16 March, at a meeting of directors of Glomex Mines N.L., attended by the same four directors, it was resolved that the company’s common seal be applied to a transfer of 250,000 shares in King Mountain Mines N.L. It was made clear to Handley from the terms of the conversation on 16 March that the proposed pur­ chaser of the shares was Bonds & Securities (Trading) Pty Limited, the present plaintiff. On 12 March 1971, John T. Martin & Co. sent to the plaintiff a completed form of contract note notifying the plaintiff that 250,000 shares in King Mountain Mines N.L. had been bought ‘by order and on account o f’ the plaintiff. The contract note records, inter alia, the price per share, the brokerage and stamp duty; the amount shown as due and payable was $14,033.35. Printed on the contract note are the words ‘Subject to the Articles and Regulations of the Stock Exchange of Mel­ bourne Limited’.

The corresponding ‘sold ’ contract note was sent to Glomex Mines N.L. record­ ing the sale of these shares ‘by order and on account of’ Glomex Mines N.L. It showed a nett sum of $13,466.15 due to Glomex Mines N.L. after deducting

28

brokerage and stamp duty. The ‘sold’ contract note also bore the printed words ‘Subject to the Articles and Regulations of the Stock Exchange of Melbourne Lim­ ited.’ This was the ordinary form of contract note used by the firm in previous deal­

ings on behalf of each of these two parties. The addendum on each contract note referring to the Articles and Regulations of the Melbourne Stock Exchange has the effect of importing the provisions of these articles and regulations into the relevant material from which is to be deduced the contractual relationship binding these

parties (The Stock Exchange and Share Auction and Advance Company v. Galmoye, 3 T.L.R. 808 at 809; Noall& Son v. Wan, (1970) V.R. 683 at 689-690). On about 24 March 1971, Handley, as a director of Glomex Mines N.L., arranged to have the scrip delivered to him at the office of John T. Martin & Co. At

about the same time Handley requested Arthur Macleay, a clerk in charge of settle­ ments in the Sydney office of John T. Martin & Co., to arrange settlement of the sale of the 250,000 King Mountain Mines N.L. shares. Handley told Macleay that settlement could be affected with him, and that he would hand over the scrip in return for a cheque from John T. Martin & Co. At this time Handley had both the

scrip for these shares as well as the form of transfer executed by Glomex Mines N.L. over its common seal as transferor.

There was a dispute, both in evidence and in argument, upon the character in which Handley held the scrip and the blank form of transfer. Handley claimed that they remained in his bag, and hence in his personal custody, rather than in a drawer such as apparently to place them in the firm’s custody. Both documents came into his physical custody by virtue of his authority as a director of Glomex

Mines N.L. Concurrently with his position as director of Glomex Mines N.L. charged with carrying on share trading activities on its behalf, he held a senior pos­ ition as an investment adviser employed by John T. Martin & Co. The potentiality

of equivocal manoeuvring inherent in this ambiguous situation is obvious. This understandably led to a close examination of Handley’s acts and intentions throughout the whole of the relevant period. Notwithstanding that delivery of the scrip was made to him at the office of John T. Martin & Co., and that thereafter it

remained in his physical custody in that office, I am satisfied that his custody of these documents throughout the whole of the events in question was in his capacity as a director of Glomex Mines N.L. I am satisfied that at no time did Handley intend to surrender, nor did he surrender, the scrip and transfer form from the com­

pany to John T. Martin & Co. In the days that followed 24 March Handley, on more than one occasion, told Macleay that he had the scrip, and he indicated that he (on behalf of Glomex Mines N.L.) would settle in exchange for a cheque drawn by John T. Martin & Co.

for the sale price of the shares. The plaintiff, in its dealings with John T. Martin & Co., was what is known as a ‘settlement buyer’. This is a description applied to a buyer of shares who is not expected to pay his broker in respect of the purchase until the transaction has been

settled with the seller, the documents obtained by the buyer’s broker, and sent to the company concerned for registration. The fact that the plaintiff only dealt wit.h John T. Martin & Co. as a settlement buyer was known to Handley at the time of his conversation with Massey on 16 March. It seems also (although the evidence is not

as clear as one might wish) that the proper finding, in the light of the course of the

29

hearing and the matters in contest between the parties, is that Glomex Mines N.L. was accepted by John T. Martin & Co. as a ‘settlement seller’; I find that this was the relationship between them at all relevant times. A settlement seller requires a cheque from his broker before handing over the scrip.

On 30 March 1971, Macleay arranged for a document entitled ‘Registration Advice’ in respect o f the 250,000 shares to be prepared and exchanged with the plaintiff for a cheque for $14,033.35 payable to John T. Martin & Co. The plain­ tiff’s cheque was banked to the credit of the account o f John T. Martin & Co. on the afternoon of 30 March. The registration advice is in a printed form, the body of which states:

‘We wish to advise that documents covering your purchase of shares in the abovemen- tioned company have been lodged for registration . . . . . .’ In fact no documents had been lodged for registration, and the representation made to the plaintiff in this document was false. The falsity was not known to the plaintiff, and it was in the belief that documents covering 250,000 shares in King Mountain Mines N.L. had been sent to that company for registration of the plaintiff

as the owner, that the plaintiff paid its cheque for the purchase price to John T. Martin & Co. It was the practice in John T. Martin & Co. at the time of the transaction in ques­ tion for all cheques to be drawn by the Melbourne office upon its Melbourne bank account. Macleay claims to have been told on 30 March that a cheque from Mel­

bourne would arrive at the Sydney office on the following morning, 31 March, to enable payment to be made to Glomex Mines N.L. for these shares. Macleay claims that it was in anticipation of this cheque arriving that he arranged for the false registration advice to be prepared and for the $ 14,033.35 to be obtained from the plaintiff. He claims to have anticipated that the cheque from Melbourne would

arrive on 31 March, and that he would thereupon be able to effect an immediate settlement with Handley and then make good the representation by sending the documents forthwith to the company for registration. No cheque arrived from Melbourne on 31 March. On several occasions be­ tween 31 March and 5 April Handley reminded Macleay that he, Handley, (on be­ half of Glomex) would not settle by handing over the scrip and transfer form until he received a cheque for the sale price.

At about 9.15 in the morning of 6 April a cheque in favour of Glomex Mines N.L. did arrive from Melbourne. Handley had learnt late on 5 April that John T. Martin & Co., was about to make financial default. Upon being told of the arrival of the cheque on the 6th, Handley told Macleay ‘Glomex will settle if the cheque is cleared ’. Shortly thereafter on that same morning the staff of the Sydney office were told by Massey that the firm of .John T. Martin & Co., had been posted as a de­

faulter by the Stock Exchange, and that a receiver would be arriving later on that day. After hearing this announcement Handley and Macleay agreed that it was a waste of time to hand over the cheque, and nothing further has since been done in the way of settling the transaction.

The present position, shortly stated, is that the plaintiff has paid to John T. Martin & Co. the full purchase price of $14,033.35 for the shares. The money has been used by John T. Martin & Co. for its own purposes. The litigation has been conducted on the common ground that the partners are insolvent and that the money is therefore lost. Glomex Mines N.L. is still registered as the holder of the

30

250,000 shares in King Mountain Mines N.L., and it still retains in its own custody the scrip as well as the blank transfer form relating to these shares. The plaintiff in the suit seeks a declaration that it is the beneficial owner of the shares in question, and, on the basis that it has paid Glomex Mines N.L. for them, consequential injunctive relief which would have the effect of procuring its registra­ tion as legal owner. The three defendants to the suit are Glomex Mines N.L.,

Handley and King Mountain Mines N.L. The last-mentioned defendant has filed a submitting appearance, and has taken no part in the contest. Both Glomex Mines N.L. and Handley have disputed the plaintiff’s title to these shares. The contentions of the plaintiff were summarised at the hearing as follows:

(1) John T. Martin & Co. were the brokers of the first defendant; (2) As such brokers they sold on behalf of the first defendant the 250,000 shares in issue; (3) The brokers, as agents for the first defendant, received payment from the

plaintiff for these shares; (4) Receipt by the brokers was a receipt by the first defendant because of either express or implied authority. On these facts the plaintiff asserts that it has paid the first defendant for the shares,

that the first defendant thereupon became a bare trustee of the legal title for the plaintiff, and hence the plaintiff is entitled to the relief sought in the summons. The defendants’ answers to these contentions are: (1) Admitted: the defendants also say that the brokers were also the brokers of

the plaintiff in the transaction in issue; (2) Admitted. (3) Denied; the defendant allege that the brokers received the money as agents for the plaintiff;

(4) Denied. The defendants also allege that they made a special arrangement with the brokers that they would not hand over the scrip until they received payment. The plaintiff has disputed that this special arrangement was effective to preclude payment to the

brokers being payment to the first defendant. The simple and decisive issue thrown up by these summaries of claim and de­ fence is—has the plaintiff paid Glomex Mines N.L. for the shares? or, stated more specifically, was payment to the brokers payment to Glomex Mines N.L. so far as

the plaintiff was concerned? During the course of the hearing the plaintiff tendered the Articles and Regula­ tions of the Stock Exchange of Melbourne Limited, together with evidence of usages and course of business on the Stock Exchange. In objecting to this evidence,

the defendants relied upon the decision of Cresswell, J. in Humphrey v. Lucas ((1845) 2 Car & Kir 152). I prefer, however, to accept, and apply, the line of auth­ ority that establishes that the rules and usages of the Stock Exchange are admiss­ ible and relevant to be used in determining the terms and incidents of the contrac­

tual relationship existing in a case such as the present: (Pollock v. Stables (1847) 12 Q.B. 765 at 774-775; Bayley v. Wilkins (1849) 7 C.B. 886 at 902; Pawle v. Read 9 S.C.R. (N.S.W.) 103 at 112-113; Bowring v. Shepherd, L.R. 6 Q.B. 309 at 327; Forget v. Baxter (1900) A.C. 467 at 470). A recent statement to this effect is in the judgment of Ungoed-Thomas, J. in Cunliffe-Owen v. Teather & Greenwood

(1967) 1 W.L.R. 1421 at 1441-42):

31

“ T h u s ‘as re g a rd s . . . all su ch m a tte rs . . . as arise u p o n th e c o n tract m a d e

in th e m a rk e t, th e p rin c ip a l w o u ld b e b o u n d b y th e u s a g e ’, ( o r I w o u ld a d d ru le )

. . b ec a u se th e y w e re w ith in th e a u th o rity c o n fe rre d u p o n his agent. ’ T his seem s

to m e to fall w ith in ‘th e m o d e o f b u sin e ss’ m e n tio n e d by S ankey, J. as c o n tra ste d w ith th e su b sta n tiv e rig h ts a n d liab ilities. So it seem s to be c o n sid erd th a t, n o t o n ly is th e

a g e n t b o u n d , b u t th e p rin c ip a l is also b o u n d , by th e rules a n d usages o f th e m a rk e t as to th e m o d e o f b u sin ess a p p lic a b le to all su ch m a tte rs as arise u p o n th e co n tract. T his

seem s to m e, w ith re sp e c t, p la in sense a n d g o o d law . ” Those observations were made with reference to the rules of the London Stock Exchange. Each party, by employing a broker to sell and buy shares on the Stock Exchange, authorised him to act according to the usages, including any relevant Articles and Regulations, o f the Stock Exchange. The course of business in dealings on The Stock Exchange will provide the context in which the contractual rela­ tionship between the present parties is to be determined.

The evidence regarding the course of dealing on the Stock Exchange establishes the following matters: (1) It is not uncommon for a seller of shares to be, as between his own broker and himself, what is known as a settlement seller; a settlement seller will

only hand over the scrip for his shares to his own broker for the purposes of completing a sale made on his behalf upon receiving from his own broker a cheque for the amount due to him. (2) It is the common practice that a broker, acting on a sale for a seller

(whether or not a settlement seller), pays the seller out of the broker’s own funds without such payment necessarily being preceded by receipt by the seller’s broker of payment from the buyer’s broker. (3) It is the common practice that a seller is paid by his broker upon or after the delivery by the seller to his broker of the share scrip; in the case of a settle­ ment seller payment is made immediately upon delivery of the scrip. (4) It is not uncommon for a buyer of shares to be, as between his own broker and himself, what is known as a settlement buyer; a settlement buyer will only pay for the shares purchased by his own broker upon receiving from his own broker a registration advice confirming that the relevant title documents have been for­ warded by his own broker to the company concerned for registration. (5) It is an invariable practice that a buyer pays for shares purchased pursuant to his instructions by paying his own broker; a buyer never pays either the seller’s . broker or the seller directly. (6) It is an invariable practice that payment for shares is made by the buyer’s broker to the seller’s broker and not to the seller directly. (7) It is the common practice (indeed, in the case of a settlement buyer it is the only practicable course) that the buyer’s broker pays the seller’s broker out of the buyer’s broker’s own account without regard to whether or not the buyer’s broker has in fact already received the purchase price from the buyer.

I should also note that the regulations of the Stock Exchange prescribe that, as between buyer’s broker and seller’s broker, payment for scrip is to be made on the same day as delivery. Regulation 49 provides: E x cep t as o th e rw ise d e te rm in e d by th e C o m m itte e , M e m b e r F irm s sh all only be

re q u ire d to ta k e d eliv ery o f securities te n d e re d u p to 11.30 a.m . on business days an d c h e q u es m u st be a v a ila b le b y 2.15 p.m . o n th e d a y o f delivery. A M e m b e r F irm shall ave th e rig h t to re q u ire by notice in w ritin g n o t la te r th a n 11.30 a.m . p a y m e n t to be

m a d e by b a n k ch eq u e. T h e M e m b e r F irm re q u e s tin g the b a n k cheq u e shall betw een

32

2.15 p.m. and 2.45 p.m. deliver the securities to the office of the buying Member Firm in exchange for the bank cheque PROVIDED THAT the buying Member Firm may at any time prior to 1.45 p.m. deliver a bank cheque to the selling Member Firm in

exchange for the relevant securities. ’ This regulation has particular importance in that it recognises that neither seller nor buyer is obliged to run any risk of default by the broker of the other party. In par­ ticular, the buyer’s broker is entitled to insist on delivery of the securities in

exchange for payment. The substance of the respective arrangements made by settlement clients with their brokers might in general be crystallised thus: (a) a settlement buyer says in effect to his broker ‘You pay for the shares to be

bought for me—when you have got the scrip I shall pay you. (b) a settlement seller says in effect to his broker ‘You pay me for the shares to be sold for me—when you pay me I shall hand over the scrip so that you may complete the sale. ’

In the present case both the plaintiff and Glomex Mines N.L. were settlement clients—the former a settlement buyer and the latter a settlement seller. Although there was ultimately no dispute upon the evidence as to the practices and usages affecting Stock Exchange dealings, I shall quote two extracts from the

expert evidence of a Mr Swan. In addition to some 20 years experience of Stock Exchange dealings in Sydney and Melbourne, Mr Swan has for the last four years been a member of the Office Methods Sub-Committee of the Sydney Stock Exchange Limited:

(i) ‘Q. Let us assume two brokers and settlement clients, buyer and seller? A. Yes. Q. Does the seller’s broker pay his client for the scrip and receive those scrip? A. That is correct. Q. And then he would settle with the buyer’s broker who would pay the seller’s

broker out of his own pocket? A. Yes, in the case of a settlement. Q. And then he would have a second settlement with his own client? A. That is cor­ rect. Q. And the money would then go into his general account? A. That is correct.

HIS HONOUR: Q. Is that in the case only of a settlement seller or in all sellers? A. In the case of all sellers— the broker pays out either immediately he receives the documents or when the documents are in a deliverable form. Q. He pays that out of his general account? A. He pays that out of his general

account.’ (ii) ‘Q. Assuming that there is just the one broker and we are talking about this type of situation where you have a settlement seller and a settlement buyer, there are two transactions, in effect, one between the broker and the seller whereby the broker

pays the seller and gets the scrip— A. Yes. Q. And then the broker hands to the buyer the registration advice and receives a cheque from the buyer? A. That is correct. Q. When you receive the cheque from the buyer, that goes into your general

account, does it? A. Yes. Q. Those two separate transactions may very well take place on the same day? A. Quite. Q. It is quite common for that to happen? A. Quite common— especially in the larger

settlements. Q. The puipose of that is partly so that the broker is not out of pocket for any lengthy period? A. That is correct. Q. In fact, if he settles them both on the same day, normally he will get the credit in

his account before he gets a debit? A. This may be correct. ’ There are to be found in earlier cases observations to the effect that a purchaser of shares on the Stock Exchange is bound to put the broker in funds so that the broker

33

may pay for the purchase effected by him (Barnard v Foster (1915)2 K.B. 288 at 293: The Stock and Share Auction and Advance Company v Galmoye (1887) 3 T.L.R. 808 at 810). These statements do not amount to the recognition of an inflexible prin­ ciple to this effect. They reflect the then current usage as between an ordinary (i.e. not

a settlement) buyer and his own broker as proved in the cases before these two Courts. When a broker accepts instructions from a settlement buyer he inevitably foregoes any such right as these earlier cases acknowledge. He must obtain the scrip for the buyer before he is entitled to be paid, even if, as is the common practice, he has to draw on his own funds to do so (finding (7) supra).

It is with due regard to the findings of fact upon the course of dealing on the Stock Exchange that the contractual position between these parties must be deter­ mined. I should emphasise that my findings proceed from the evidence in the pres­ ent case, and thus do not necessarily conclude the course of practice in disputes be­ tween other parties in which different evidence might be adduced.

There was a dispute as to whether payment to the seller’s broker is to be con­ sidered payment to the seller so as to result in the buyer being entitled as against the seller to assert that he has paid for the shares. Mr Byers, Q.C., for the plaintiff, relied upon a statement in Halsbury (3rd Ed. Vol. 36 p. 557) that:

‘It seems, however, that a broker instructed to sell has implied authority to receive pay­ ment on behalf of his client. ’ The authority cited for that proposition is Magnus v. Queensland National Bank ( (1888) 37 Ch. D. 466 at 474.) Magnus’s case was in a very different context from an ordinary broker and client situation. The comment in the judgment to which reference is made in Halsbury as authority for the broad proposition is at best of doubtful general application having regard to the particular circumstances of that case. In any event, the proposition cannot be elevated to a principle of law. In every case the question must be determined in the light of the evidence regarding the con­ tract of agency under consideration, including any particular usages by which such contract is to be determined or construed.

In Peterson v Moloney (84 C.L.R. 91 at 95) Dixon, Fullagar and Kitto, JJ. state: ‘But it must, we think, be regarded as settled law that an agent employed to find a pur­ chaser has no implied authority to receive the purchase money in the sense that a re­ ceipt by him is a receipt by his principal and will therefore discharge the purchaser. ’ Their Honours were there denying the existence of a principle purporting to recog­ nise authority in such an agent to receive the purchase money. There may, consist­ ently with such passage from the joint judgment, be express authority in an agent to receive the purchase money, or the usages of a particular market may be such as to import such authority. Their Honours ’ statement does not preclude the plaintiff in

the present case from attempting to establish a usage to the effect that payment to the seller’s broker will be payment to the seller.

Ultimately the present problem involves a determination of the significance as between these parties of the usages and course of business on the Stock Exchange, viewed in the light of elementary principles of the law of contract and agency. The answer to the simple issue—has the plaintiff paid Glomex Mines N.L. for the shares?—is to be found directly in the evidence and not in any refinement of legal principle.

The invariable practice of paying the seller’s broker as distinct from the seller (findings (5) and (6) supra) would tend to support a proposition that payment to the seller’s broker is payment to the seller so as to discharge the buyer. This is, how-34

ever, negated by the circumstance that it is not uncommon for a seller of shares to be a settlement seller (finding (1) supra). The not uncommon presence of settle­ ment sellers in the market, and their acceptance by brokers as dealing on a recog­ nised (but by no means universal) basis, preclude any finding that payment to the

seller’s broker will amount, within the usages of the Stock Exchange, to payment to the seller. A buyer’s broker, when making payment to the seller’s broker, has no basis for assuming one way or the other whether the seller is a settlement seller. The buyer’s broker can, therefore, only pay the seller’s broker with safety by requiring

delivery by the seller’s broker of scrip in exchange for payment (cf. Reg. 49). Not only does a settlement seller expressly stipulate that he will retain his scrip until payment has made its way from his broker to him, but he does not hold out that payment to his broker will be tantamount to payment to himself.

Having concluded that payment to the seller’s broker cannot be presumed by or on behalf of the buyer to be payment to the seller so as to oblige the seller to hand over the scrip, the solution of the present problem is clear. In the absence of a usage establishing that payment to the broker is payment to the seller, a buyer could only

sustain a proposition that payment to the broker was payment to the seller if the particular terms of the engagement of the broker by the seller did authorise the broker to receive payment on behalf of the seller. So far from there being any such particular term in the present case, the seller (Glomex Mines N.L.) was a settle­

ment seller. It follows, therefore, that, when Glomex Mines N.L., as seller, went into the market through John T. Martin & Co. it did so on the basis that it would not part with its scrip until it had received payment from the broker. The present plaintiff, as the buyer, is not entitled to assert any right against Glomex Mines N.L.

based upon its having paid the full purchase price to the broker, even if it be assumed in the plaintiff’s favour that the broker received or held the money in the capacity of the seller’s broker (an assumption that I expressly refrain from holding to be established).

Viewed in the light of this analysis, it will be seen that no significance attaches for presently relevant purposes to the broker having acted concurrently for both seller and buyer. Nor need I discuss the strongly contested dispute upon whether, by paying John T. Martin & Co., the buyer was paying the seller’s broker. An

aspect of this dispute involved consideration of whether, even if the original pay­ ment was to John T. Martin & Co. in that firm’s role as the buyer’s broker, the firm subsequently attorned or became otherwise accountable to the seller for the money so that it might be regarded as thereafter holding the purchase price for the seller.

Even with every assumption in its favour the buyer must fail, as the seller was not in fact paid by the broker. It was contended on behalf of the plaintiff that some estoppel should operate in its favour and against Glomex Mines N.L. so as to preclude Glomex Mines N.L.

from relying upon non-payment to it of the purchase price of the shares. The evi­ dence does not bear out any such estoppel, and the point does not merit close analysis. Glomex Mines N.L. was at all times a settlement seller. Nothing that the company or any officer on its behalf ever did in the transaction could be regarded

as a representation to the contrary. The fraud perpetrated by Macleay was not the responsibility of Glomex Mines N.L. I reject the proposition, somewhat faintly asserted, to the effect that Glomex Mines N.L., through Handley, had counselled and urged Macleay to practise this fraud upon the plaintiff. Handley, as an officer

35

of Glomex Mines N.L. was concerned solely to urge Macleay to obtain a cheque from John T. Martin & Co. for the shares, whereupon he made it clear that he would hand over the scrip. There is no basis for inferring prior knowledge or par­ ticipation on Handley’s part in the fraud on the plaintiff.

It follows from the above findings that Glomex Mines N.L. has not been paid for its shares, and that it is not obliged to complete the transaction in dispute until payment is made to it. The plaintiff’s claim therefore fails, and the suit must in due course be dismissed.

I have thus far stated without comment the factual position disclosed by the evi­ dence given in this suit, and made findings upon the rights of the parties arising out of that factual position. Lest it be thought that failure to comment should be taken to convey an acceptance by this Court of the disturbing business practices and low standards of commercial morality disclosed in this case, I feel bound to deprecate in express terms the manner in which the firm of John T. Martin & Co. conducted its affairs. That firm has now been suspended by the Stock Exchange of Melbourne

Limited, due apparently to having made financial default. Its deficiencies in ob­ servance of proper and honourable dealing as a broker might well have passed un­ noticed had it not committed the cardinal sin of running out of money. It is not surprising to find Macleay’s fraud and the misapplication of the plaintiff’s money occurring in an office where questionable standards appear to have been the order of the day.

The occupation of sharebroking demands high standards of integrity. In carry­ ing on his occupation a sharebroker acts, not for himself, but for his client. His remuneration is his brokerage, or commission. Clients, some with great, others with little, business acumen and ability to protect themselves, seek and act on his advice

and permit him to handle their money and their shares. Those clients are entitled to expect from a broker not only competence, but also integrity and absence of con­ flicting personal interests. His position is one of trust and responsibility. By the recognition and pursuit of the high traditions of their occupation, brokers have

aspired to the status of an honourable profession. The price they must pay for this status is that they foreswear all compromise of their integrity, and that they repudiate the creation of personal interest vfrhich could bring them into conflict with their duty to their clients.

The Courts have always looked askance upon situations in which a man occu­ pying a position of trust engages in activities involving the potentiality of serving interests other than those which his position requires him to serve. It is, of course, far from the truth to suggest that, where a conflict arises between duty and self­ interest, the latter will always, or even more frequently than not, prevail. But such a

situation is fraught with the risk that human frailty will prove unequal to the resolu­ tion of the moral issues involved in the conflict. I quote again the words of Lord Cairns: N o w , th e ru le o f th is C o u rt a s I u n d e rs ta n d it, as to agents, is n o t a technical o r a rb i­

tra ry rule. It is a ru le fo u n d e d u p o n th e h ig h e s t a n d tru est p rinciples o f m orality. N o

“ “ « η in this C o u rt, a c tin g as a n a g e n t, be allo w ed to p u t h im self in to a position in

C h A p p ^ r ^ T l V ) ” 6 h ‘S dU ty WiU be in c o n flic t.’ (P a rk e r v. M cK en n a (1 8 7 4 ) L.R . 10

In this case the firm of John T. Martin & Co. knowingly employed in senior pos­ itions in its Sydney office two out of four directors of a public company listed on the ydney, Melbourne and Perth Stock Exchanges: Pitts, the chairman of directors,

36

and at the same time the underwriting, administration and personnel manager of the firm; and Handley, a director of the company, and at the same time an invest­ ment adviser of the firm. It is invidious that a broker should thus place himself or allow a senior employee to be thus placed in such a position of conflict. It is not

good enough to say that the duties can be kept distinct. No doubt in many cases they can. But in point of moral commercial principle this is a compromise of the requisite highest standard. Compounding this duality of interests is the disturbing fact that John T. Martin

& Co. in December 1970 underwrote the public floatation of Glomex Mines N.L. by an issue of $1,200,000 shares. There is already some disquiet associated with a broker stepping outside his role and fulfilling underwriting functions such as are more becoming to a financier or merchant banker. The matter of concern in a

broker acting as underwriter is the risk of loss to himself if the underwritten issue is not filled. The presence of this risk involves at least the prospect of tainting any advice he may tender to his clients in connection with the underwritten shares. (This was well brought out in the Final Report of the statutory investigation into

the affairs of Stanhill Development Finance Ltd, 20 November 1967, pages 150-157.) In the present case the multiplicity of interests affecting John T. Martin & Co., Pitts and Handley in this underwriting venture do not need elaboration. It must have been difficult indeed for a client of the firm to have obtained honest and

disinterested advice in connection with this floatation.

There remains yet another aspect of concern in the circumstances disclosed in the present case. I had occasion in Hewson v. Sydney Stock Exchange Ltd ( (1968) 2 N.S.W.R. 224 at 231) to draw attention to the vice inherent in members of the Stock Exchange trading in shares on their own account. Their duty is to act fo r their

clients, not to enter the market themselves and trade in competition with them. The morally unhealthy practice of sharebrokers being also share traders is seen to have been blatantly carried on in the present facts. There is in evidence a resolution pas­ sed at a board meeting of Glomex Mines N.L. authorising Handley to take control

of $100,000 ‘for investment through the Stock Exchange by way of trading in pub­ lic securities and options’, and, with an even more impudent repudiation of the moral fetters precluding share trading by brokers, authorising Handley or Martin to nominate two employees of John T. Martin & Co. for handling the investment,

by way of trading, of a further sum of $100,000. Pursuant to this resolution some hundreds of trading transactions were effected on behalf of Glomex Mines N.L. through the office of John T. Martin & Co. in the five months following the passing of this resolution and ending with the suspension of the firm of brokers. It is dis­

turbing that the firm should have countenanced and, indeed, aided, a senior em­ ployee in its office pursuing these relatively large scale and numerous transactions in the interests not of the clients of the firm but of the company of which Pitts and Handley were directors. Whichever way one seeks to rationalise or justify this

course of conduct (for example, by postulating that the company was a client of the brokers), one is confronted with an unacceptable situation of conflict of interest.

The loss suffered by the unfortunate plaintiff in the present suit was due in part to John T. Martin & Co. having been acting in the dual capacity of broker for both buyer and seller. One wonders how the broker could get the best price for both buyer and seller so as to justify an entitlement to charge full commission to both

(Article 84). Although there is no suggestion that the plaintiff would not have been

37

content to proceed with the transaction had it been forwarned of the dual role the firm was filling, where a broker does take upon himself this dual role then it is even more necessary for care to be exercised to avoid any possibility of prejudice to a client by reason of this dual capacity. The ambiguity of Handley’s position in rela­ tion to the custody of the scrip is, at the least, distasteful. The matters of concern associated with the assumption of dual capacity of this nature were strongly cri­ ticised by Donaldson, J. in North and South Trust Company v. Berkeley ((1970) 2

LI. L.R. 467), a case relating to the practice of brokers at Lloyds accepting concur­ rent obligations to their clients and to the underwriters. Finally, the loss in the present case might well not have arisen had the rules of the Stock Exchange governing trust accounts been better framed. The plaintiff’s cheque should not have been available for payment into the general funds of the broker. But the rules and course of practice do not preclude this. The present rules give but lip service to the concept of a trust account. They provide little protection to a client against a broker, and are in marked contrast to the statutory requirements imposed, for example, on solicitors and estate agents. The relevant provisions of s. 36 of the Auctioneers, Stock and Station, Real Estate and Business Agents Act are in the following terms:

*36.( 1) A ll m o n ey s re c eiv ed fo r o r o n b e h a lf o f a n y p e rs o n by a n y licensee sh all be h eld b y th e licensee exclusively fo r such p e rso n , to b e p a id to such p erso n , o r to b e d isbursed as h e directs, a n d u n til so p a id o r d isb u rsed th e m o n ey s shall b e p a id in to a b a n k in

N e w S o u th W a le s to a tru s t account, w h e th e r g e n e ra l o r sep a ra te , a n d re ta in e d therein. ( 2 ) T h e m o n ey s sh a ll n o t b e av a ila b le fo r th e p a y m e n t o f the d e b ts o f th e licensee to

a n y o th e r c re d ito r o f th e licensee, o r be liab le to be a tta c h e d o r ta k e n in to execution

u n d e r th e o rd e r o r p ro cess o f a n y co u rt a t th e in stan ce o f a n y such o th e r creditor. ( 3 ) N o th in g in th is sectio n sh all be c o n tru ed to ta k e aw a y o r affect a n y ju s t claim o r lien w h ich a n y licensee m a y h a v e a g a in st o r u p o n an y o f th e m oneys. ( 4 ) A n y licensee w h o n eg lec ts o r fails to co m p ly w ith an y o f th e provisions o f this sec­ tio n sh all be g u ilty o f a n offence a g ain st this A ct. ( 4a) W h e re a n y licensee n eg lects o r fails to co m p ly w ith an y o f the provisions o f this section b y re a so n o f h is n eg lec t o r failu re to p a y a n y m oneys in to a b a n k in N e w South W ale s to a tru st ac c o u n t o r to re ta in an y such m oneys th erein , th e offence sh all continue u n til th e said m on ey s a re p a id to th e p e rso n fo r o r o n w hose b e h a lf th e y w ere received, o r d isb u rsed in such m a n n e r as m a y be d irected by su ch person. ’ The Legal Practitioners Act, s. 41, imposes upon solicitors statutory obligations cor­ responding almost exactly with the portion I have quoted from sub-section (1) as well as sub-sections (2) and (3) of s. 36 of the Auctioneers, Stock and Station, Real Estate and Business Agents Act.

There seems no reason why the public should be afforded less protection against the risk of a defaulting stockbroker than these two statutes provide in respect of auctioneers, stock and station, real estate and business agents and sol­ icitors. Regulation 3 of the Melbourne Stock Exchange Regulations requires every firm to have a trust account with a bank. The regulation continues:

‘( 2 ) E very M e m b e r F irm sh a ll p a y in to th e T ru st A cco u n t— ( i) A ll m o n ey s (less b ro k e ra g e a n d o th e r p ro p e r ch arg es) received fro m o r on

acco u n t o f a n y p e rs o n (o th e r th a n a sto ck b ro k er as defined b y th e Securities In d u stry A c t) fo r th e p u rch ase o f a n y securities P R O V ID E D T H A T w here w h o le o r p a r t o f th e securities is deliv ered to th e M e m b e r F irm befo re such

m on ey s a re receiv ed o r w ith in th ree b a n k in g days th ereafter, so m u ch o f th e a m o u n t o f such m o n ey s as is a ttrib u ta b le to th e p u rch ase o f th e w hole o r p a rt o f th e securities n e e d n o t to b e p a id in to th e T ru st A ccount; and (ii) A ll m o n ey s (less b ro k e ra g e a n d o th e r p ro p e r ch arg es) received from o r o n

a cco u n t o f an y p e rso n (o th e r th a n a sto c k b ro k e r as defined by the Securities

38

In d u stry A c t) fo r th e sale o f a n y security a n d a re n o t p a id to such p erso n o r as such pe rso n directs w ith in th re e b a n k in g day s a fte r receipt o f such m oneys. ( 3 ) M oneys re q u ire d by clau se ( 2 ) a b o v e to be p a id by a M e m b e r F irm into a T ru st

A ccount sh all be p a id in to a T ru st A cco u n t n o t la te r th a n the th ird b a n k in g day

a fte r such m on ey s a re received. (4 ) A ll m oneys receiv ed b y a M e m b e r F irm fro m o r o n acco u n t o f an y p erso n (o th e r

th a n a sto c k b ro k e r as d efin ed b y th e S ecurities In d u stry A ct) a n d a re re q u ire d by clause ( 2 ) h e re o f to be p a id in to a T ru st A ccount, sh all be re ta in e d in the T ru st

A cco u n t until p a id to such p erso n o r as such p erso n directs o r o th erw ise acco rd in g to law , o r w ith d ra w n b y th e M e m b e r F irm fo r th e p u rp o se o f reim b u rsin g itse lf for m on ey s ex p e n d e d in th e p u rch ase o f securities fo r o r o n account o f such person. ’

This regulation amounts to no more than a contract to create a trust. The regulation only obliges the broker not later than the third banking day after receipt to pay the cli­ ent’s money into a trust account. The broker is not placed by this regulation under any express obligation to keep the client’s moneys separate from the broker’s ordinary

funds. Indeed, the evidence is that the practice of brokers is simply to pay into their ordinary general or office accounts moneys received from clients without any attempt to distinguish those moneys from the broker’s other funds. The unsatisfactory pos­ itions appears clearly in the following evidence of Mr Swan:

‘Q . A m I co rrect in m y im p ressio n th a t bro k ers o rd in a rily w o u ld p ay th e b u y e r’s cheque in to th eir g e n e ra l account, th e ir g e n e ra l office account, o n receipt? A. T his is m y u n d e r­ sta n d in g o f it. Q . So th a t i f th e m o n ey w e n t into a g en eral acco u n t w hich w as o v erd raw n an d th e b ank

w ere to m ove b efo re th e m o n ey w e n t o u t to th e tru st acco u n t it w ould n ev er get in to a tru st account? A. It w o u ld n ev er g et in to a tru st account. Q . So w h a te v e r p ro te c tio n m ay b e th o u g h t to be suggested by th e w ords “ T rust

a c c o u n t” w o u ld n o t th e n be a v a ilab le to a n y b o d y ? A. T h a t is c o rre c t’.

There are two levels at which trust account defalcations can occur. There is the base level at which the defaulter directly misappropriates a cheque he ought to pay into his trust account or wrongfully withdraws money from his trust account. It is difficult to frame a trust account procedure which will defeat such a defaulter. But at a less

fraudulent level there is the weak man who, having been allowed to deposit his cli­ ent’s cheque in his own account, either deliberately (or through force of circum­ stances) delays or just does not get round to fulfilling an obligation to transfer funds over into a trust account. The defect in the Stock Exchange rule, in contrast to the

requirements governing the other professions, is that it does not forbid the mixing of the client’s funds with the broker’s funds at the initial stage. The present Stock Exchange rule provides no protection against the latter type of defaulter. A mere contract to create a trust such as is envisaged in Reg. 3 provides little

worthwhile protection against loss to a client through a broker’s default. The broker who is experiencing financial difficulties will, in accordance with what is ap­ parently the ordinary practice, apply the clients’ moneys for his own purposes when received and, if he is in financial difficulties, those moneys will never find

their way into a trust account, as, indeed, was the situation in the present case. An honest broker, meticulous in his dealings, will comply with the trust account requirements of Reg. 3. But it is not against such a broker that the protection of a trust account is needed. Difficulty of administration does not amount to a sufficient

excuse for failing to adopt a more stringent requirement regarding trust accounts. It is to be hoped that the Stock Exchange authorities will direct some attention to these inadequacies in the trust account requirements as well as to the other important matters upon which I have felt it necessary to comment at length.

39

In dismissing the suit I shall, in vindication of the requirements of the law as dis­ tinct from considerations o f commercial morality, direct that the papers be referred to the Attorney-General so that consideration may be given to the possible sig­ nificance, in relation to the criminal law, of the fraud on the plaintiff perpetrated by the direction of Macleay and the misapplication by John T. Martin & Co. of the plaintiff’s money.

I shall make an order for costs against this unfortunate plaintiff and in favour of Glomex Mines N.L. and Handley. It is with some regret that I do this, bearing in mind the participation of these two defendants in the morally questionable deal­ ings that are disclosed in this suit. But the principles governing costs are clear, and

those principles require the unsuccessful plaintiff to pay the costs of the defendants. I order that the suit be dismissed; the plaintiff is to pay the defendants ’ costs. I direct that the papers be referred to the Attorney-General.

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CHAPTER 5

T h e D efau lt of M ichael R ick etson & Co.

5-1

THE STOCK EXCHANGE OF MELBOURNE LIMITED Stock Exchange House 351 Collins Street MELBOURNE, 3000 25 July 1972

PERSONAL Mr D. W. Whitbread, Secretary, Select Committee on Securities and

Exchange, Australian Senate, CANBERRA, A.C.T. 2600.

Dear Mr Whitbread, I acknowledge your letter of 13 July 1972 which sought information relating to events that took place during the days immediately prior to the posting of Michael Ricketson & Co., as a defaulter under Article 60 and reply as follows.

From March 1971 onwards rumours were rife about the insolvency of Member Firms. During this period, when Member Firms’ names were mentioned, I con­ tacted the Member Firm named to me to check on their financial position. Surprisingly enough, the name of Michael Ricketson & Co. was never mentioned in

this context. At 4 p.m. on Wednesday, 9 June 1971, at Mr Ricketson’s request, Mr L. M. Muir a partner of mine, had an appointment with Mr Ricketson. Mr Ricketson explained to Mr Muir that he had some problems and suggested the simplest way

for him to overcome these difficulties would be for him to merge his Firm. I am told that Mr Ricketson produced some handwritten figures which purported to show the assets and liabilities of the Firm and his own personal unencumbered assets. He asked Mr Muir if the partners would consider a merger or a takeover of his busi­

ness. Mr Muir said he would speak to the partners but advised that it was most un­ likely that Potters would be able to merge or acquire his business. Following discussion with the partners, Mr Muir advised Mr Ricketson that the Firm was not in a position to discuss a takeover with him. Shortly after this, and

probably on Thursday, 10 June 1971, Mr Ricketson phoned to indicate that he needed $60,000 by the close of business on the following day, Friday, 11 June 1971, to effect settlement with a London agent which had been outstanding since April. He also asked Mr Muir for a further $10,000 to help his current trading pos­

ition. Mr Muir was asked if the Firm would consider advancing him this amount he would undertake to wind down his business or seek a merger with another Firm if the trading situation did not improve quickly.

41

On Thursday, 10 June 1971, before Mr Ricketson’s request for a loan had been dealt with by the partners, Mr Muir indicated to him that he should place all of the facts in the hands of the Chairman o f the Exchange.

Later on 10 June 1971, Mr Ricketson phoned Mr Muir to say that the CBC of Sydney Limited was threatening to dishonour all cheques drawn on his account. He stated he needed an amount of $ 17,500 to put the account in order. After brief con­ sultation with a couple of partners, Mr Muir took a cheque for this amount to the Melbourne Office Manager of the CBC of Sydney Limited who agreed that all cheques would be honoured that day.

The following day, Friday, 11 June 1971, late in the day, Messrs Ian Potter & Co., received a further call from the Manager of the CBC of Sydney Limited stating that there was a shortfall of $8,500 and the cheques would be returned unless this amount was paid into the account. Mr Muir took a further cheque for $8,500 to the Bank that day.

During the following week, I entered into an arrangement with Mr Bell of the National Bank to guarantee Mr Ricketson’s account for $6,000 so that further cheques could be paid by that Bank. The Firm of Ian Potter & Co. entered into these arrangements to enable Mr Ricketson to realise his personal assets, a list of which he had supplied to Mr Muir.

Immediately I learnt of Mr Ricketson’s request to Mr Muir, which was on Thursday, 10 June 1971, I telephoned him demanding that he see me as soon as possible and arrangements were made for him to call on me at 8.45 a.m. on Friday, 11 June 1971.

Following this appointment, I requested the Stock Exchange Auditors, Messrs Arthur Andersen & Co., to carry out an immediate investigation. Messrs Arthur Andersen & Co., contacted Michael Ricketson & Co’s auditors, Messrs R. H. Walford & Co., and requested financial statements for the period 1 July 1970 to 10 June 1971 to be prepared. The preparation of these accounts in­ volved the firm of auditors from Friday, 11 June through to the morning of Tues­ day, 15 June 1971, including the Public Holiday on Monday, 14 June 1971.

These accounts which were made available on Tuesday, 15 June, showed a loss for the period of $135,000. The Balance Sheet showed a surplus of assets totalling $40,761.

As these accounts showed a surplus of assets of $40,000, consultations were held with Mr Ricketson’s banker to discuss the granting of additional credit while he realised the personal assets that he and his wife held. On Thursday afternoon, 17 June 1971, it became apparent that sufficient funds would not be forthcoming in time and I called a Committee Meeting for 8.30 a.m. on Friday, 18 June, when a report of Mr Ricketson’s affairs was made to the Committee. It was resolved at this meeting that Mr Ricketson be posted as a defaulter under Article 60. Michael Ricketson & Co., therefore traded on Tuesday, 15 June to Thursday, 17 June 1971.

In view of the circumstances of this case, the Members of the Exchange sub­ sequently granted the Committee power to suspend a Member or Member Firm while investigations were being made to determine the solvency or otherwise of a Member or Member Firm.

A copy of a diary note from the files of Messrs Arthur Andersen & Co. relating to these events is attached.

42

As mentioned earlier, the name o f Michael Ricketson & Co. was not among the names o f Member Firms circulating when rumours were rife. However, in a con­ fidential discussion with a banker during the month o f May, I learnt that Mr Ricketson had a tight liquidity position but that the matter had been put in order by

the introduction of additional funds. Nevertheless, I telephoned Mr Ricketson and instructed him that if he ever had financial problems he was to contact me immediately. He undertook to do this but, unfortunately, this undertaking was not honoured. As indicated, the first I knew o f his problems was when he made an ap­

proach to one o f my partners.

Yours sincerely, C. T. L o o k e r Chairman

5-1

ATTACHMENT A

Diary Notes of Stock Exchange Accountants

On Friday, 11 June 1971 we were requested by Sir Cecil Looker (Chairman— The Stock Exchange o f Melbourne Ltd) to review the financial statements o f the subject member firm who was suffering from liquidity problems. The auditors o f Michael Ricketson & Co. prepared financial statements for the

period from 1 July 1970 to 10 June 1971 and these were made available to us on Tuesday, 15 June (loss for the period $135,000). Prior to obtaining these statements Mr Cohen held discussions with Mr Ricketson on Friday. On Monday I reviewed the client debtors ledger and suspense

accounts and determined a provision for amounts expected to be collected outside eighteen months. These provisions were discussed by me both with Roy Rothwell (F. H. Walford & Co.—the auditors) and Mr Ricketson. It was apparent that little follow up action had been undertaken until six weeks prior to my review, and as a result approximately $160,000 out o f client receivables of $190,000 were over twelve months old.

Similarly suspense amounts (clients and brokers amounts in dispute etc.) amounting to $34,000 were valued at an estimated $11,000. The balance sheet as prepared by the auditors showed a surplus o f $40,761. This was after crediting to the capital account a property which Mrs Ricketson offered to the Commercial Banking Company o f Sydney Ltd in March as part

security for overdrafts granted. We felt that bank overdraft and capital accounts should not reflect the mortgage granted on this property. The following is a summary o f adjustments made. $

Capital account per balance sheet 10.6.71 40,761

less— Property o f Mrs Ricketson granted to the Banks as security 130,000

Deficiency Carried forward 89,239

43

Provision for accounts not receivable

within 18 months

$

99,000

less provision 16,000

83,000

Provision for loss on suspense account 23,000

236,000

Deficiency 195,239

On Tuesday morning Mr Cohen and myself met with Sir Cecil and Mr C. John­ ston (Exchange Vice Chairman) to discuss the above figures. As the firm had to meet a delivery o f scrip to a London broker that evening Sir Cecil arranged a meet­ ing in the afternoon with the banks concerned to see if additional credit could be obtained. Michael Ricketson & Co. had received payment of $55,000 approxima­ tely for scrip to be delivered to a London broker. This money had not been paid into trust account as required but credited against the Firm’s overdraft. The scrip for delivery had also been incorrectly pledged as overdraft security. In order then to make delivery the bank required additional security in place of this scrip.

During our review o f the client’s ledger we noted several long outstanding credit balances. Some o f the major ones were not shown in the trust account as at 10 June 1971 and it was not possible at the time to check if these monies should have been in trust as the scrip ledger had not been balanced.

On Tuesday afternoon I attended a meeting at the National Bank to discuss the granting o f additional credit. Present were: Mr T. Bell—General Manager, National Bank. Mr J. Marshall—State Manager, National Bank.

Mr J. Wilson—Manager, Commercial Banking Company of Sydney Ltd. Mr S. Wilson—Manager, Bank o f New South Wales. Sir Cecil Looker. Mr R. Rothwell. We discussed the position o f the firm, with Mr Ricketson’s approval, and the relative positions of the banks which are summarised below:

Bank o f N S W National

C B C of Sydney Total

Overdraft

$

(36,000)

$

(89,000)

$

(290,000)

$

(415,000)

Security (Cost or Val.) 57,000 128,000 292,000

21,000 39,000 2,000

The Commercial Banking Co. of Sydney Ltd did not consider it had adequate security and was not allowing further credit. Its security consisted o f a 1st Mortgage o f Mrs Ricketson’s property and scrip with a market value o f $126,000 including the $55,000 Gollin scrip due to London. To enable the firm to continue Ian Potter & Co. advanced $32,000 over a period o f three days to this bank.

44

The Bank o f New South Wales didn’t have an operating account and did not want to grant further credit. On Wednesday morning Roy Rothwell and I met with Mr Ricketson again to discuss the possibility of him putting in additional assets to secure further bank ad­ vances. A schedule o f such assets amounting to $128,500 was prepared and

delivered and discussed with Sir Cecil. Later that afternoon Sir Cedi, Mr Johnston, Mr Ricketson, Roy Rothwell and Mr Cohen and myself held a meeting. Mr Ricketson was hoping for a merger with another large firm but this was unlikely in view o f his financial position. It became obvious that it was going to be difficult to dispose o f the firm’s investments and properties quickly so as to wind down the operations. $30,000 to $40,000 o f the investment scrip was tied up with Green, Burchell & Co. (Adelaide firm in receiver­

ship) and could not be quickly sold. Ownership o f other scrip could not be proved until the transactions were balanced. The firm had large holdings in freeholds sub­ ject to tenancy which would be hard to sell quickly. Many of these properties appeared to have been financed from bank lending.

It was apparent that to wind the firm down funds well in excess of the $50,000 would be required; probably in excess o f $ 150,000 was needed. On Thursday afternoon I met with the Chief Accountant of the National Bank (Mr Anderson) who was assessing the figures to see what additional credit could be

granted if any. Sufficient funds were not forthcoming, and as a complaint against non delivery or payment had been received from the London Stock Exchange, Michael Ricketson & Co. was required to be posted as a defaulter under Section 60 on Friday morning.

5-2

THE STOCK EXCHANGE OF MELBOURNE LIMITED Stock Exchange House 351 Collins Street

MELBOURNE, 3000 3 August 1972.

PERSONAL MrD. W. Whitbread, Secretary, Select Committee on Securities and

Exchange, Australian Senate, CANBERRA, A.C.T. 2600.

Dear Mr Whitbread, In response to your letter dated 31 July 19721 advise that the matter referred to on page 2 of the diary notes o f the Stock Exchange Accountants in relation to the bad debts and the irregularities in the trust account and use o f clients’ scrip would

have been brought to my attention some time between Tuesday 15 June and Thurs­ day 17 June 1971.

45

It was not until after the posting o f Mr Ricketson as a defaulter under Article 60 that his Firm’s auditors, Messrs R. H. Walford & Co. advised us by letter dated 24 June 1971 that, in their opinion, the Firm was in breach o f Sections 23 and/or 24 of the Securities Industry Act 1970. A copy o f this letter is attached.

Yours sincerely, C. T. L o o k e r Chairman

5-3

Senate Select Committee on Securities and Exchange, CANBERRA, A.C.T.

11 July 1972

Mr Michael Ricketson 26 Victoria Avenue, Canterbury, VICTORIA 3126

Dear Mr Ricketson,

The Committee has some additional matters which it would like to raise with you in order to help their understanding o f particular events affecting your firm and also to assist them in their understanding o f general matters concerning the Stock Exchanges. As the Committee has been told that you would prefer to answer ques­ tions in writing rather than in further evidence before the Committee, I am setting out the various matters in full:—

(1) In the firm’s B.alance Sheet at the close o f business was a painting which had cost $8,000 and had been written up in value to $ 16,000. (i) This painting would appear to have been an illiquid asset at the time o f the liquidity o f the assets facing the firm in 1971 but we should like

to know whether this was your experience? (ii) Also, was there any enquiry from the Stock Exchange or the Registrar o f Companies during the life o f the firm about the basis o f writing up the value o f the painting? (2) Were you ever asked questions by the Stock Exchange or by the firm’s

auditor on behalf o f the Stock Exchange about the size and nature o f the firm’s house trading and the firm’s ability to finance this business? (3) On the basis o f an interview that an officer o f this Committee, Dr P. J. Rose, had with you recently, the Committee has been informed that during the

final week o f the firm’s existence the following events took place: About the middle of the week ending Friday, 11 June 1971 you telephoned Mr L. Muir, a partner o f Ian Potter & Co. with whom you were friendly and informed him that you were having some financial problems with your firm and that you would like to discuss these in the office o f Michael Ricketson & Co. This discussion took place as planned and in the course o f it you expressed concern about the survival o f your firm and you also expressed the hope that Ian Potter & Co. would provide financial as­ sistance or take over the business. Shortly after the meeting, Mr Muir

46

telephoned you to say that he had discussed the matter with his senior partner in his capacity as senior partner. On 10 June 1971 the firm of Ian Potter & Co. lent your firm $17,500.

On the morning o f Friday, 11 June, Sir Cecil Looker, Chairman o f the Exchange asked you to come to his office in the Melbourne Stock Exchange. Following this interview during which you discussed your firm’s financial state, the Chairman instructed the Stock Exchange’s accountants to have prepared by your auditors a Balance Sheet and Profit and Loss Account as at 11 June 1971. That same day your firm was lent a further

$8,500 by Ian Potter & Co.

The Balance Sheet and Profit and Loss Account were prepared over the weekend but you did not receive a copy o f these completed accounts. The next week you continued to do business up to and including Thursday, 17 June 1971. During the week Ian Potter & Co. guaranteed your firm’s over­

draft to the extent o f $6,000. On the morning o f 18 June you were informed that the full Committee o f the Stock Exchange had met and decided to post your firm as a defaulter. (i) Would you please advise whether the foregoing account is an accurate

statement o f what took place during the last week of your firm’s activities? If it is not accurate, or if it is in any way misleading please advise the Committee. (ii) Please also advise the circumstances in which you asked for and

received the two payments from Ian Potter & Co. and also how the guarantee was arranged. (iii) Did your firm engage in house trading during the week ended 18 June 1971?

(4) Information has come to the Committee’s attention that a large amount of scrip owned by clients o f the firm who had paid in full for this scrip was held by two trading banks as security for loans made to Michael Ricketson & Co. We also understand that most o f the clients had not given permis­

sion for this scrip to be used in this way and in more than just a few cases thg clients had purchased and paid for the shares over a year before the time o f the default. Some of the scrip was accompanied by signed transfers, some in the name o f Michael Ricketson, and the balance in the name o f the

firm’s nominee company. (i) Would you please give the Committee any comments or explanations you have in respect of the foregoing matters.

(5) The Committee has investigated some aspects of the use of line-switching as practised by your firm and is of the view that one of the effects o f this practice was to assist the firm in engaging in a high level o f house trading relative to the size o f the proprietor’s funds.

(i) The Committee would be pleased to have your comments on the use made o f line-switching by your own firm and also your knowledge of the use o f this practice by other brokers. (ii) Were you ever questioned by the Stock Exchange or by your auditor

about the manner in which your firm made use of line-switching?

47

The Committee has asked me to say that it would be pleased to receive any other comments you may have relating to your experience as a stock broker. Finally, the Committee would appreciate your reply to this letter by 20 July 1972.

Yours sincerely, D. W . W hitbread Secretary

5-4

26 Victoria Ave, Canterbuiy 3126 19 July 1972

The Secretary, Senate Select Committee on Securities and Exchange, Parliamentary Offices, CANBERRA, A.C.T.

Attention Mr Whitbread

Dear Sir,

I received your letters o f 11 and 13 July and I reply as follows, in the first instance to the letter o f the 11th: ( 1 ) 1 answer your query about the painting as follows: (i) I would agree that the painting was an illiquid asset as at the difficult

period in 1971, at least it never occurred to me to attempt to realise on the painting and I do not think it would be classed as a liquid asset in any sense. (ii) there was no such enquiry at any time. (2) No, not at any time. (3) Yes, this account o f the facts is substantially correct. By approximately 2.00

p.m. the banking position o f the firm on each day was known. The arrange­ ment I reached with Mr Muir was to let him know each day the extent o f the Bank deficiency and his firm would pay in a cheque to bridge the gap. As you know, this occurred on three occasions. I do not know how the mechanics o f the guarantee was arranged. The firm did not engage in house trading during the week ended 18 June 1971, apart from line­ switching. (4) This question inquires about matters which I presume are the same as those

which have led the Registrar o f Companies in Melbourne to investigate my firm’s trading. On legal advice, I declined to answer questions o f this nature which apparently raise some serious issues that I was not aware of at the time. I realise the extent o f your powers, and also your guarantees of the confidential nature o f your inquiry, given to me and my solicitor by Dr Rose and yourself, but nevertheless I fear I cannot be any more specific at this stage than to say that none o f the activities which you refer to were at

48

the time regarded by me as either improper or particularly unusual, and at no time did it occur to me that there would not be ample money from deb­ tors and other sources to cover all liabilities o f this nature. (5) You ask about line-switching and the only comments I can make are as fol­

lows: (i) we did indulge in this procedure, which in our case arose primarily from the large amounts of scrip held on behalf of trading clients who later proved to be bad debts, and who at the time were regarded as

slow payers, to the tune of over $200,000.00. I have no detailed knowledge of line-switching activities carried out by other brokers but I believe that the practice was quite common. (ii) I was never questioned by the Stock Exchange or by my firm *s auditor

about the way in which my firm made use o f line-switching. Regarding the letter o f 13 July, you enquire about three transactions in which the firm acted as principal, and brokerage was charged to the client. My firm dealt as principal, rather than as agent, on comparatively few

occasions and on these occasions we always had a clear policy to issue a ‘Principal’s Contract N ote’ to the client. This was a printed form and so far as I know was in common use amongst broking houses. It was also my firm’s policy to always discuss with the client a proposed deal in

which the firm was interested as principal, and to do so before the transaction was carried out. To the best o f my recollection we never had a dispute with the client over a transaction o f this kind.

The practice o f expressing on a principal’s contract note a price described as a m arket price plus usual brokerage charge etc was a common one, going back many years in the industry. However I recollect that there were always two schools of thought on the matter. For example, the AMP society as a client always insisted

that a principal’s contract note show a market price plus or minus brokerage as the case may be. I realise that in one sense a person cannot be a principal and an agent at the same time, but when correctly explained to the client and properly documented I do not think that there was anything irregular in the transactions of

this kind which my firm entered into. I do not think there is anything I can usefully add at this stage.

Yours truly, Michael S. Ricketson

49

CHAPTER 6

T h e F ailu re of an A delaide Broker-

U nderw riter

6-1

Australian Senate, Select Committee on Securities and Exchange, Q_

CANBERRA, A.C.T. 5 May 1973

Dear Sirs, I am sorry for any undue delay in not answering your previous correspondence but I am being fully engaged in trying to keep my present employment alive and I have only been engaged in country travel.

The other reason is that both my wife, family and myself have been under a mental strain since our firm’s collapse plus the aftermath o f events. As it is my mother and father will lose their home in June, and this early realis­ ation alone was unbearable as they have given me so much over the years.

To compose a letter in answer to your letter o f 16 February which involves twelve years in the Securities Industry is something I find extremely difficult as I am still mentally upset and it will be something I can never recover from. I always regarded myself as an investment adviser from the time I first entered the Stock Exchange and it was in that capacity I pursued throughout the twelve years I was in.

The last partnership agreement bears this out and I had tried for many years to have a partner or office manager who could look after the financial affairs and my­ self the investments. I have kept all my circulars since 1961 February which the Senate Committee would be satisfied about the type o f investments I personally recommended over the years.

The majority of my clients that remained with me over the years made con­ siderable sums o f money and even during the boom period the clients that I saw personally were not hurt. It was unfortunate that through incompatibility with former partners, and

being left with debts and lack o f capital and effort from other partners that we parted during the start o f the boom. To replace capital I had to mortgage my war service home, and with the start of the boom and the fact I was on my own by my own efforts and recommendation I

successfully built up the capital. I engaged a firm o f Chartered Accountants to set up a debtor’s control account on a daily basis and in general a complete reorganisation o f office methods at a considerable cost.

I also had in my employ a very capable ex-inspector General of the Bank of Adelaide whom the staff looked up to and obeyed. Having accomplished this much I was free to spend all my time on investments. The Stock Exchange wanted all sole traders to obtain a partner and as Mr

Burchell was formerly in the exchange for at least eight years and had over ten years with Custom Credit, I selected him.

24175/ 7 5 -3

51

The Committee ordered me within forty-eight hours to prepare a balance sheet which my auditors duly prepared which completely satisfied them. They were a little concerned about my partner’s capital and as I had sufficient and my partner would be contributing I told them I did not mind as long as I had

somebody to control our big staff and look after accounts. Mr Burchell and I did our best and it was just boom factors, previous inex­ perienced staff and possibly from my point o f view I was far too soft and generous with them.

One has to remember the great strain it was for us to keep up with the volume of business, keep long hours and other factors. Mr Burchell has no doubt answered your letter and he would be better able to answer them than myself, however in the briefest form I may make some com­ ments.

Trust Account

This was always a contentious matter and to the best o f my knowledge was not being observed by other brokers. Not that they did not want to comply, it was impossible to carry out to the letter. The substantial deficiency you mentioned was possibly due to scrip staff and other executives selling scrip over the boom period, and this was brought about by inefficiency and confusion during this period.

If we had brought in our scrip system operating nine months before our collapse the scrip position would have been overcome. I had very few bad debts up to the boom, possibly two or three hundred dollars in over ten years. There were some and only a few who owed money who were rec­ ommended by a solicitor and others who took advantage o f the boom conditions.

The auditors as you know were free to do a snap audit at any time so were the Exchange Committee and at no time was any attempt made to falsify accounts or mislead anybody. My bank inspector plus my Chartered Accountants were extremely capable and honest and that can vouch for my own honesty and frankness.

The Exchange or the auditors did not query share trading which was done to encourage the staff to work hard, to get the work completed, up to date and work out any scrip problems. We are advised to have us be sub-underwriters to the issue for tax reasons. I also took the advice o f Solicitors or accountants who I paid to give us such recommendations.

The Exchange caused me to sack my main operator who had seven years ex­ perience through what I thought was very trivial, e.g. selling a small parcel o f Hill 50 paids and buying contribs. The Committee spend considerable time in investigating small broking firms always putting pressure on and I consider I would have not had to employ the oper­ ator who contributed to our downfall being employed full time if they had not been ridiculous in asking me to dismiss my own operator because o f one small trans­ action.

This operator knew that all operators, including members were selling short and making mention o f the fact in front o f authorised clerks. Completely ludi­ crous!!!

52

My operator was very incensed as one o f the members he mentioned to me was one o f the worst offenders in selling short had one o f his partners on the committee. It was a great pity to have lost this operator because of his experience and I maintain the action the Committee wanted helped considerably to weaken our pos­

ition in the important field o f operating. I earnestly feel that the Committee and certain members have been vindictive to smaller brokers and in particular our firm. I claim that there was a certain amount o f professional jealousy because of

strong recommendations I made against their advice to clients, e.g. Vam Ltd. I also had several millionaire clients, and over the years I obtained a lot o f cli­ ents because o f regular portfolio reviews and soundness o f recommendations. Both o f my former partners also share this view—this is something we did at least agree about.

Panamin’s draft prospectus was lodged with the Stock Exchange as far as I can recollect in October and they knew because now it was not underwritten by any­ body else. "

We had in our employ a previous overseas geologist and a consultant whose advice we agreed with. There were only 2.5 million shares of which the directors had taken one quarter o f the issue firm. As I had some months earlier underwritten Centamin it was not considered necessary to have the balance underwritten as we could place the shares in Adelaide alone plus we had to consider our correspon­

dents. Panamin should have been floated during November not six months after sign­ ing the underwriting agreement. It was only apparent with floats being listed in January what was in store for

new listed mining companies. We suggested the underwriting agreement was not designed to cover a float six months after signing the agreement. Gold Copper Exploration and other mining companies were lucky to be quoted

a week before the Christmas vacation. This issue caused a lot o f concern and the members who underwrote it here were alarmed about listing before Christmas and had to flog the shares for all they were worth.

I consider that we were unfortunate in not obtaining listing before November and also the directors o f Panamin did not fulfill their commitments in obtaining more support which was promised prior to underwriting. We did not look to underwrite Panamin, it was because another broker had his

hands full with other companies it was referred to us because we had just under­ written Centamin which was four times as big. Our consultant geologist did not accept any short fall at the time we discussed it as he also had contacts to help with allocation as well as directors.

In closing I can only say I consider I contributed all my time and effort over the years to protect my clients’ capital, and had it not been for the boom and my generosity and people taking advantage o f my nature and help I would have still been connected with the Stock Exchange.

I should have kept a closer eye on my affairs but I consider I paid experts to look after that side o f the business I did not enjoy I just loved talking to people look after widows and fulfilled the trust and respect o f my clients.

53

My health has suffered greatly likewise my w ife’s also and I certainly dread our day to day existence. I feel sad and depressed after my efforts over the years, and my conscience is clear which is probably not so with a lot o f brokers in Australia. I remain .

Yours sincerely, John G reen

^ ^ 2 Ilfracombe Drive,

Wattle Park, S.A. 5066

The Secretary, 9 May 1973

Select Committee on Securities and Exchange, Australian Senate, CANBERRA, A.C.T. 2600

Dear Sir, In reply to your letters o f 16 February, 16 April and 3 May 1973 set out hereunder are details as requested.

Trust Account The Trust Account was used during the period I was a partner o f the firm A. J. Green, Burchell and Co. To my knowledge, no inquiries were made by either regulatory body in respect to this account for the firm A. J. Green and Co. for June

1970. However, Mr Green would be the person to contact regarding this matter. When the partnership was formed on 1 August 1970 a new scrip system was introduced and your comments regarding 500 or more clients, now 250 clients, over several years prior having paid and not receiving scrip, would again have to be referred to Mr Green and the Official Receiver.

Arbitrage Account This system was in effect before I joined the firm o f A. J. Green and Co., and I understand that the reason a percentage o f the profits was transferred to Wages and Salaries Account, to be paid with bonuses, was to deter the staff from trading during those very busy times and to concentrate on work rather than the activity of the market. The amount transferred to my loan account was not taken from the Ar­ bitrage Account at all and any profit made in this account at the time was not taken into consideration when this transfer was made. The Stock Exchange nor the Audi­ tors queried this share-trading scheme.

Centamin Underwriting This Company (Centamin) was registered in February 1970 and was not listed with the Stock Exchange until August 1970. During this period, all shares in the issue were accepted by the public so that no short-fall involving my family invest­

ment company and Mr Green’s company would or could have eventuated. Regarding the Panamin underwriting, the Stock Exchange o f Adelaide Limited did not question us until 12 January 1971 as your letter states. Possibly because of the success o f the Centamin float. My only comment on this matter, is that we dealt with gentlemen when handling the Centamin float.

Without prejudice, Yours faithfully, G. R. Burchell

54

6-3

COMMONWEALTH OF AUSTRALIA

Official Receiver’s Office Bankruptcy Administration 8th Floor, A.M.P. Building 1 ICing William Street Adelaide, SA . 5000

8 February 1973

The Secretary, Select Committee on Securities and Exchange, Australian Senate,

CANBERRA, A.C.T. 2600.

Dear Sir, Estate o f A. J. Green & G. R. Burchell—No. 3 /1 2 6 of 1971.

I refer to your letter dated 30 January 1973. As requested I enclose a copy o f the Arbitrage Account for the period 1/7/70 to 13/11/70 and 2 1/1/71 to 18/3/71. Earlier pages are not available. You will note that brokerage was not charged on the transactions. Where the transaction took

place on the Adelaide Exchange no brokerage would be charged, but in most cases the transactions would have been on an interstate exchange through an interstate agent who would have charged A. J. Green, Burchell & Co. commission at the end o f each month (usually at the rate o f 1 per cent). Such commission paid by the firm was not charged to Arbitrage Account.

You will note that there were not any transfers from Arbitrage Account to Salaries Account after May 1970, because losses were incurred during that period. The Salaries Account shows the following transfers from Arbitrage to Salaries— 4 /1 2 /6 9 $2,089.00

2 7 /2 /7 0 14,420.00

2 9 /5 /7 0 2,250.00

------------------ $18,759.00

However, the following bonus payments were made from Salaries Account— 4 /1 2 /6 9 24/12/69 27 /2 /7 0

2 9 /5 /7 0 2 6 /6 /7 0

$2,089.00 1.300.00 14,420.00 2.250.00

2.300.00 $22,359.00

Please note that Dr Rose was informed that a bonus payment of $23,000 was paid on 30/6/70. However, that payment was transferred to G. R. Burchell loan account in accordance with his employment contract (based on a percentage o f the profits).

55

My health has suffered greatly likewise my w ife’s also and I certainly dread our day to day existence. I feel sad and depressed after my efforts over the years, and my conscience is clear which is probably not so with a lot o f brokers in Australia.

I remain

Yours sincerely, John G reen

2 Ilfracombe Drive, Wattle Park, S.A. 5066

The Secretary, 9 May 1973

Select Committee on Securities and Exchange, Australian Senate, CANBERRA, A.C.T. 2600

Dear Sir, In reply to your letters o f 16 February, 16 April and 3 May 1973 set out hereunder are details as requested.

Trust Account The Trust Account was used during the period I was a partner o f the firm A. J. Green, Burchell and Co. To my knowledge, no inquiries were made by either regulatory body in respect to this account for the firm A. J. Green and Co. for June

1970. However, Mr Green would be the person to contact regarding this matter. When the partnership was formed on I August 1970 a new scrip system was introduced and your comments regarding 500 or more clients, now 250 clients, over several years prior having paid and not receiving scrip, would again have to be referred to Mr Green and the Official Receiver.

Arbitrage Account This system was in effect before I joined the firm o f A. J. Green and Co., and I understand that the reason a percentage o f the profits was transferred to Wages and Salaries Account, to be paid with bonuses, was to deter the staff from trading during those very busy times and to concentrate on work rather than the activity of the market. The amount transferred to my loan account was not taken from the Ar­ bitrage Account at all and any profit made in this account at the time was not taken into consideration when this transfer was made. The Stock Exchange nor the Audi­ tors queried this share-trading scheme.

Centamin Underwriting This Company (Centamin) was registered in February 1970 and was not listed with the Stock Exchange until August 1970. During this period, all shares in the issue were accepted by the public so that no short-fall involving my family invest­

ment company and Mr Green’s company would or could have eventuated. Regarding the Panamin underwriting, the Stock Exchange of Adelaide Limited did not question us until 12 January 1971 as your letter states. Possibly because of the success o f the Centamin float. My only comment on this matter, is that we dealt with gentlemen when handling the Centamin float.

Without prejudice, Yours faithfully, G. R. Burchell

54

6-3

COMMONWEALTH OF AUSTRALIA

The Secretary, Select Committee on Securities and Exchange, Australian Senate,

CANBERRA, A.C.T. 2600.

Official Receiver’s Office Bankruptcy Administration 8th Floor, A.M.P. Building 1 King William Street

Adelaide, S.A. 5000 8 February 1973

Dear Sir,

Estate o f A. J. Green & G. R. Burchell—N o. 3 /1 2 6 of 1971.

I refer to your letter dated 30 January 1973. As requested I enclose a copy o f the Arbitrage Account for the period 1Z7/70 to 13/11/70 and 2 1/1/71 to 18/3/71. Earlier pages are not available. You will note that brokerage was not charged on the transactions. Where the transaction took place on the Adelaide Exchange no brokerage would be charged, but in most cases

the transactions would have been on an interstate exchange through an interstate agent who would have charged A. J. Green, Burchell & Co. commission at the end o f each month (usually at the rate o f 1 per cent). Such commission paid by the firm was not charged to Arbitrage Account.

You will note that there were not any transfers from Arbitrage Account to Salaries Account after May 1970, because losses were incurred during that period. The Salaries Account shows the following transfers from Arbitrage to Salaries— 4 /1 2 /6 9 $2,089.00

2 7 /2 /7 0 14,420.00

2 9 /5 /7 0 2,250.00

------------------ $18,759.00

However, the following bonus payments were made from Salaries Account— 4 /1 2 /6 9 2 4/12/69 2 7 /2 /7 0

2 9 /5 /7 0 2 6 /6 /7 0

$2,089.00 1.300.00 14,420.00 2.250.00

2.300.00 $22,359.00

Please note that Dr Rose was informed that a bonus payment of $23,000 was paid on 30/6/70. However, that payment was transferred to G. R. Burchell loan account in accordance with his employment contract (based on a percentage of the profits).

55

I refer to your inquiry regarding the reconciliation o f brokers accounts. I have been unable to locate sufficient evidence in the bankrupts * records to show conclus­ ively whether accounts were or were not reconciled. A former senior member o f the bankrupts’ staff states that it was understood between the bankrupts’ office man­ ager and an employee o f their Melbourne agent that they need not reconcile the accounts, but they would advise the authorities that they had done so. Mr Burchell denies any knowledge o f this, but admits that on two or three occasions the accounts were not reconciled. During the two years to March 1971, the account of the Melbourne agent comprised 350 cards (700 pages). When brokers accounts were being reconciled the unmatched outstanding entries were transferred to a sep­ arate ledger page marked ‘Queries’. As the queries were resolved they were can­ celled. Therefore, if the account was properly reconciled the ‘Queries’ page would

be fully cancelled. There are several ‘Queries’ accounts for interstate brokers not completed as at 30 December 1970. With regard to the Melbourne agent it appears that on only two occasions (May 1969, and September 1970) was there a queries page created. This suggests to me that no real attempt was made to regularly recon­ cile the account o f that broker.

Yours faithfully, F. J. Pearce Official Receiver

6-4

THE STOCK EXCHANGE OF ADELAIDE LIMITED 55 Exchange Place, Adelaide, S. Aust., 5000

Mr. D. W. Whitbread, 9F=bruary 1973

Secretary, Select Committee on Securities and Exchange, Australian Senate, CANBERRA, A.C.T. 2600

Dear Sir,

I refer to your letters o f 19 and 30 January 1973, regarding Messrs. A. J. Green and G. R. Burchell. Dealing first with your letter o f 19th January you asked therein for confirmation or clarification o f the matter set out in the second paragraph of your letter.

In that paragraph you refer to information received in the course o f evidence give to the (Select Committee) inquiiy, which information ‘indicated’ that this Exchange— apparently was informed on two occasions during January and February 1971 that the

former firm of Green Burchell & Co. was facing a financial predicament as a result of its underwriting commitments to Panamin N.L. ’

56

In the first place my Committee considers that we should be more fully infor­ med o f the nature and extent o f the information received in evidence, and, in par­ ticular— the sources of the information

the precise information given in evidence the identity of the ‘ two occasions In the meantime, in the hope that it will assist your Committee, I submit the fol­ lowing information, but without being able to say that it is definitely exhaustive until we have the additional details requested above:— Referring to the third paragraph of your letter, my Committee did, before 3 March 1971, have discussions with Messrs. Green and Burchell about the Panamin N.L. underwriting and its possible effect on their financial position. (There was, in fact, no discussion about Panamin N.L. on 3 March 1971). In January 1971 my Committee offered some advice to Messrs. Green and Burchell about the Panamin N.L. proposed issue as the Committee was then con­ cerned at the current ‘climate’ affecting issues o f this type. The market had deteriorated during the previous months. My Committee felt that if there were a firm binding Underwriting Agreement and if there were a very substantial short­ fall Messrs. Green and Burchell’s financial resources might have been seriously overstrained and my Committee suggested that they endeavour to obtain adequate sub-underwriting. The history o f the matter, as based upon Minutes o f meetings of the Committee, is as follows:— 12 January 1971—President reported to Committee that he had requested Mr. Green to supply details o f Underwritten commitment negotiated with Panamin N.L.

19 January—Mr. Green attended meeting of my Committee and was informed o f our concern about the underwriting commitment. Mr. Green was questioned extensively on the precautions, if any, which he had taken to protect his Firm in the event o f a short-fall.

It was noted that there were no sub-underwriters and nothing in writing from persons who had indicated that they would take up shares. Mr. Green told my Committee that he would be discussing the matter with his solicitor on 20 January and that further discussions would be held with the

Directors of Panamin N.L. on 22 January. Subsequently the President was informed legal advice had been sought from a senior solicitor (through Messrs Green & Burchell’s solicitor) as to whether the Underwriting Agreement constituted a firm commitment and that the advice given was that there was a possible let-out which cast considerable doubt on the question o f their commitment. Although the Prospectus had been lodged with the Registrar of Companies on 22 January 1971, there was still

some considerable doubt as to whether the issue was to proceed at all.

26 January—President reported current position. Messrs Green & Burchell were not available to discuss the matter at Committee meeting. 28 January—Letter dated 27 January was received from Messrs Green Burchell & Co. indicating that the present intention of Panamin was to defer the flotation

and that the market trend over the next 12 months was to be watched with a view to establishing a favourable time for fisting. They stated they expected to

57

have written confirmation o f the deferment in the following week. A copy of this letter is attached. 2 February—President reported discussions he had had with Messrs Green & Burchell. They were still bound by the Underwriting Agreement but the Com­ pany was investigating other sources for the underwriting. Messrs Green &

Burchell had been told that if the Company proceeded with the share issue with them as underwriters, the Committee would require evidence that the issue was adequately sub-underwritten, otherwise consideration would be given to im­ mediate suspension o f the Firm.

NOTE—Although no record was made o f the possible deferment o f the issue on this occasion, this possibility was very much to the fore and certainly no steps had been taken to proceed with the issue and the Committee’s belief at that time was that it was quite probable that the issue may not proceed at least for some considerable time.

16 February—N o further developments to report.

1 March—Still no further developments and Committee decided to write to Messrs Green & Burchell requesting information on present position. NOTE—This letter did not, in fact, go until 5 March (after suspension had been imposed on 3 March). It merely asked Messrs Green Burchell & Co. to advise the current position o f their Firm’s underwriting commitment with Panamin N.L. At that stage no answer was really expected and in fact none was given owing to the prior suspension.

3 M arch—The President heard some rumour about a Member Firm endeavouring to finance its book debts and he reported this to the Committee at 10.00 a.m. saying that ‘it had been brought to his notice that a finance company was believed to be in consultation with a Member Firm or Firms for the pur­ pose o f financing book debts’, and it was resolved by the Committee that the

President be empowered to make such enquiries o f Member Firms as he deemed fit. The President immediately proceeded to make such enquiries and in the course thereof he visited the office o f Messrs Green & Burchell and was informed that neither o f them was present and that they were both in consul­ tation with their Bank and would not be available for some time. The President asked that Messrs Green & Burchell communicate with him as soon as they were available.

At 2.00 p.m. Messrs Green & Burchell saw the President and confirmed that they had had a lengthy discussion with their Bank that morning as a result of which it appeared that their financial position was such that they would not be able to carry on. Clearly, this situation had arisen quite independently of the Panamin underwriting agreement and in fact the subject o f that agreement did not enter into the discussion at all on that occasion.

At 2.45 p.m. the Committee was called together and the President reported that he and Vice-President had discussed with Messrs Green & Burchell their financial position, mentioning that their capital appeared to be low.

Messrs Green & Burchell then attended the meeting and their financial pos­ ition was discussed, from which it was apparent that capital was low. (The Panamin matter did not come into this discussion at all).

58

The President informed Messrs Green & Burchell that if no action were taken by them under Article 21 the Committee would initiate action to suspend trading by them. They then agreed to act in terms of Article 21 and signed a let­ ter accordingly.

Suspension was thereupon imposed with all usual implications and action. My Committee is satisfied that this comprises all the relevant information but if, after receipt o f the further details requested early in this letter, it appears that further comment or information is necessary and obtainable we shall be pleased to supply it.

Now dealing with your second letter o f 30 January, at the time of the Firm o f Messrs Green Burchell & Co. commencing their underwriting activities in 1970, this Exchange did not carry out any special investigations into the underwriting skills and financial resources o f that Firm.

The Committee already had the standard financial details which it obtains from all its members and prospective members. These included financial details o f Mr Burchell at the time o f his submission for election to the Exchange to which he was elected a member on 24 July 1970.

At or about that time the Firm entered into an underwriting arrangement relating to an issue of Centamin. The Committee had no cause at that time to suggest to it there was any lack o f underwriting skill on the part of the Firm and, in fact, it was a successful float. Subscriptions closed on Friday, 11 September

1970, and the shares were admitted to official quotation on 8 October 1970. In­ cidentally the partnership o f Mr Burchell with Mr Green commenced on 1 August 1970. At that time the climate for issues o f this type was good. It was the deterioration in this climate towards the end of 1970 that gave rise to the Com­

mittee's concern about the Panamin undertaking and not any doubt about underwriting skill.

With regard to the disposal o f the seats of Messrs Green & Burchell, I supply the following information: (1) The dates on which those seats were sold, A. J. Green—18 August 1972; G. R. Burchell—21 December 1972

(2) The prices o f those seats, A. J. Green-$8,000; G. R. Burchell $8,000 (3) The manner o f disposal o f the proceeds will be as follows:

A. J. GREEN, BURCHELL & CO.

Disposition of proceeds from sale of seats

A. J. GREEN

$

8,000

$ $

Gross proceeds o f sale o f seat Less Commission 5 per cent (Gen­ eral Reserve as purchaser’s entrance fee) 400

7,600 7,600

59

G. R. BURCHELL $ $ $

Gross proceeds o f sale o f seat Less Commission 5 per cent (Gen­ eral Reserve as purchaser’s entrance fee)

8,000

400

7,600 7,600

Net proceeds o f sale o f seats

$

15,200

$

15,200.00

Less A m ount o w in g to Stock

Exchange o f A delaide & Members, by Firm

Owing to Exchange 2,247.02

Owing to Members 7,171.03

9,418.05 9,418.05

Balance then remaining 5,781.95

Proceedsfrom sale o f seats are presently held in Suspense by the Stock Exchange o f Adelaide Lim ited From those proceeds moneys owing to the Exchange and to members of the Exchange in respect o f investment transactions will be settled in full and the Com­ mittee has resolved, in exercises o f its discretion, that instead o f retaining the bal­ ance (as it is entitled to do under Article 27) that the balances will be paid to the Official Receiver.

The Official Receiver was informed accordingly by letter dated 11th Sep­ tember, 1972 (a copy o f which is attached). Subsequently some query was raised by the Official Receiver as to whether the Exchange would be acting correctly in retaining the amounts due to the Exchange and in disposing o f amounts due to members and he indicated that he was obtain­ ing legal advice. Consequently the Committee decided to defer its final decision on the disposition o f the balance and informed the Official Receiver. He indicated that after he had obtained legal advice he would communicate the result to the Exchange, but nothing further has been heard from him in that regard.

The Committee has been advised, and is quite satisfied, that the action which it has taken and which it proposes in relation to the proceeds of the seats is fully jus­ tified in terms o f Article 27. I have made reference to Articles 21 and 27 and I have not supplied copies of these Articles because on a previous occasion we have supplied a full set o f the Arti­ cles and By Laws o f the Exchange to your Committee. However, if you have any

further queries about Articles please let me know.

Yours faithfully, W. G. F. McCulloch Chairman

60

6-4

ATTACHMENT A

THE STOCK EXCHANGE OF ADELAIDE LIMITED

11 September 1972

The Official Receiver, Bankruptcy Administration, 8th Floor, A.M.P. Building, 1 King William Street,

ADELAIDE, S A 5000

Attention: Mr Huppatz

Dear Sir,

Estate of A J. Green and G. R. Burchell 3/126 of 1971

Thank you for your letter of 26 July, wherein you advised of Member Firms who have lodged claims in the above Estate. The attached list contains particulars of notifications o f Member Firms received by the Stock Exchange, and is suitably annotated where there are differences with the details contained in your letter.

We advise that it is our intention to comply with the provisions o f the Com­ pany’s Articles, in that any proceeds from the sale o f the ‘seats’ in the names of A. J. Green and G. R. Burchell shall be applied in the following manner; (a) 5 per cent o f the proceeds o f the sale of the seats to be paid to the funds of

the Company, as the purchasers ’ entrance fees. (b) An amount equal to the total liabilities of the transferors to the Stock Exchange, to be paid to the funds of the Company. (c) An amount equal to the total indebtedness o f the transferors to Members of

this Stock Exchange, to be paid pro rata to Members who are creditors of the transferors in respect o f dealings in stocks and shares. (d) The balance then remaining, as determined by the Committee and at its discretion, to be paid to the Official Receiver of the estate of the trans­

ferors.

We consider that those claims already lodged by Member Firms should be retained by your office until the Exchange notifies that all Member Firm creditors have been paid in full, where upon our Member Firms will be directed to adjust their claims.

We should be pleased to receive your comments and your acknowledgement in due course o f acceptance o f the above procedure.

Yours faithfully, F. L. W ray, Secretary

6-4

ATTACHMENT B

A. J. GREEN, BURCHELL & CO.

96 Gawler Place, ADELAIDE

Stock & Share Brokers

A. John Green, Graham R. Burchel1, Members o f The Stock Exchange o f Adelaide Ltd.

27 January 1971

I. C. Derrington Esq., C /- Cutten & Harvey, 97 King William Street, ADELAIDE, S.A. 5000

Dear Ian,

Following discussions with two board members and our Solicitor Mr Nield, the present intention is to defer the floatation o f Panamin. We have also had discussions with Mr Norman Shierlaw and a director and hope to have confirmation o f a deferment.

It has been agreed with Mr Shierlaw and ourselves that we will watch the mar­ ket trend over the next twelve months so as to establish a favourable time for list­ ing.

It is expected to have written confirmation of this deferment next week and will advise you immediately this comes to hand.

Yours sincerely, A. J. G reen, Burchell & Co.

A. J. G reen

Note

This letter is addressed to Mr I. C. Derrington as the then, present President of the Stockfxchange of Adelaide Limited.

62

6-5

COMMONWEALTH OF AUSTRALIA

OFFICIAL RECEIVER’S OFFICE Bankruptcy Administration 8th Floor, A.M.P. Building 1 King William Street ADELAIDE, S.A. 5000

5 March 1973

Refer Mr Huppatz R3: DD

The Secretary, Senate Select Committee on Securities & Exchange, Australian Senate, CANBERRA, A.C.T. 2600

Dear Sir,

Re: Estate o f A. J. Green and G. R. B u rch ell-N o. 3/126 o f 1971

I refer to your letters dated the 15 and 19 February 1973. The delay in replying is regretted, but was unavoidable. The two investment companies, Green Investments Pty Limited and Burchell Investments Pty Limited, were incorporated in April 1970. Green Investments Pty

Limited has issued two shares, one to A. J. Green and the other to M. A. Trenerry. The issued shares of Burchell Investments Pty Limited are held by G. R. Burchell, his wife and two children. Each company had a trading account with A. J. Green Burchell & Co., but there are only a few transactions on the account of Burchell

Investments Pty Limited. In addition the two companies were the proprietors of an account styled ‘Greenburch’ which carried out extensive trading. As at the 1 September 1970 the position of each was as follows:— Value o f scrip Balance

Account held in account o f account

$ $

Burchell Investments Nil Nil

Green Investments 5,000 Dr. 477.10

Greenburch 5,000 Dr. 4,929.21

It would also appear that Green Investments Pty Limited owed $4,869 to Mrs Green for payments made from her account to the account of the investment com­ pany prior to the 1 September 1970. As far as I can ascertain a balance sheet of Green Investments has never been prepared.

The only tangible asset the companies now have is a claim against the bank­ rupts’ estate. Green Investments Pty Limited is a creditor for $3,773.48 and

63

Burchell Investments Pty Limited is a creditor for $3,865.52. Burchell Investments Pty Limited is indebted to the Taxation Department for $ 1,700 approximately. Therefore, it would appear that — (1) At the 1 September 1970 the companies had no significant surplus.

(2 ) At the present date the companies are insolvent. As regards your letter dated the 19 February 1973 I regret to advise that Dr Rose must have been misled. There are 246 clients who are entitled to claim $ 107,435 for the cost price o f scrip not delivered by the sharebrokers which was not taken into account in the financial records o f the sharebrokers. However, the number o f clients and the amount o f scrip outstanding at the date of bankruptcy exceeded those figures by substantial amounts. In the meantime many clients have

been satisfied by— (1) the return o f scrip which was traceable. This scrip was included in the Statement o f Affairs as an asset. (2 ) the receipt o f scrip by me which was registered to clients because it was

economical to do so. Alternatively, there was a considerable amount of scrip due by clients to the bankrupts but it was not taken into account in the financial records. The amount in­ volved would only be a fraction o f the amount due to clients.

I trust that this information will be satisfactory.

Yours faithfully, F. J. Pearce Official'Receiver

6-6

COMMONWEALTH OF AUSTRALIA

OFFICIAL RECEIVER’S OFFICE Bankruptcy Administration 8 Floor, A.M.P. Building 1 King William Street ADELAIDE, S.A.5000

22 January 1973

Refer Mr HUPPATZ R3: TN

The Secretary, Senate Select Committee on Securities & Exchange, Australian Senate,

CANBERRA, A.C.T. 2600

Dear Sir,

Estate o f A J. Green & G. R. Burchell No. 3 /1 2 6 of 1971

I refer to your letter dated 12 January 1973 regarding the affairs of A. J. Green, Burchell & Co.

64

The bankrupts lodged a Statement o f Affairs on dosed the following:— 17 March $

1971, which

Separate Estate of A. J. Green

$

Assets 35,590

Liabilities 3,484

Surplus 32,106

Separate Estate of G. R. Burchell Assets 10,488

Liabilities Nil

Surplus Joint (Partnership) Estate Assets—

10,488

Cash at Bank 10,346

Stocks & Shares 30,391

Furniture & Fittings Book debts—

10,298

Brokers 238,108

Clients 61,209

350,352

Liabilities— Brokers 112,445

Clients 177,994

Sundry 2,047

292,486

Estimated defidency due to bank 59,750

Total Liabilities 352,236

Defidency 1,884

It should be noted that the statement was grossly inaccurate, particularly in the following respects:— (1) Panamin N.L. was not included as a creditor because the bankrupts denied liability. The claim lodged by Panamin N.L. for $1,250,000.00 has been

admitted for $200,000.00 (2) Stocks and shares due to clients and brokers were not taken into account. Therefore client creditors increased substantially and the amounts due by debtors reduced.

(3) Many assets were overvalued. The Statement o f Affairs lodged consists of 62 pages. If you consider it necess­ ary, arrangements could be made to obtain a photostat copy. At this stage it appears that the position will be as follows:—

$ $

Joint E sta te-Realisation— Collection of book debts 27,000

Settlements of brokers entries 14,700

65

$

Money in trust 10,500

Proceeds o f shares etc. 2,300

Surplus from stock exchange shares 5,000

Proceeds o f various assets 7,000

Surplus from trading 32,000

Surplus from separate estates 11,000

Expenses— Legal costs 1,250

Court and administration fees 11,050

Agents charges, and sundry costs 850

$

109,500

13,150

Available for distribution Less Preferential creditors

96,350 5,650

AVAILABLE FOR DIVIDEND TO ORDINARY CREDITORS 90,700

Creditors— Clients Panamin Bank Brokers Sundiy

190.000 200.000 100,000 35.000

25.000 _______ 555,000

ESTIMATED DIVIDEND 15 C E N TS IN $. APPROXIMATELY. ESTIMATED DEFICIENCY $464,300. $ $

Separate Estate o f A. J. Green Realisation 40,700

Less— Fees Costs etc. 3,200

Secured Creditors 28,400 31,600

9,100

Less Creditors 6,500

Surplus to Joint estate 2,600

Separate Estate o f G. R. Burchell Realisation 8,900

Less Fees Costs etc. 500

Surplus to Joint estate 8,400

66

At the request of Dr Rose I have enclosed a copy of portion of the arbitrage account in the bankrupts records. At this stage I am unable to supply a copy of the audit report referred to in your letter. If such becomes available in the near future it will be forwarded to you.

Please advise whether there is any further information you require.

Yours faithfully, F. J. Pearce Official Receiver

6-7

ANNO ΝΟΝΟ

GEORGIIVI REGIS.

A.D. 1945

No. 11 o f 1945.

An Act to provide for the keeping of certain books and accounts by sharebrokers and for the examination and audit of those books and accounts, and for other purposes incidental thereto. (Assented to 15th November, 1945.) BE IT ENACTED by the Governor of the State of South Australia, with the advice and consent of the Parliament thereof, as follows:

1. This Act may be cited as the “ Sharebrokers Act, 1945”. s h o n u tie . 2. This Act shall come into operation on a day to be fixed by the com m ence- _ . . . r J J mentofAct.

Governor by proclamation. 3 . ( 1 . ) In this Act, the context otherwise requires or some other interpretation,

meaning is clearly intended— “ agent” in relation to a broker includes any person who acts or is employed or has acted or been employed as a banker, ac­ countant, auditor, agent or servant of the broker:

“ approved auditor” means person who holds an auditor’s licence under the Companies Act, 1934-1939: “ broker” means a person who carries on or has carried on the business of stock broking or share broking or both: “ business day” means day being neither a Sunday nor a bank

holiday:

“ committee” means committee or other governing body of an exchange: “ exchange” means The Stock Exchange of Adelaide Limited and any other association declared by the Governor by procla­

mation to be an exchange within the meaning of this Act: “ securities ’ ’ means— (a) debentures, funds, stock, shares, bonds, or other securi­ ties of a Government, local governing body, public or

local authority, company or society: and

67

Trust Account

Payment of money into trust account

(b) any right to subscribe for or to be allotted any such se­ curity as mentioned in paragraph (a) of this definition: “ money ” includes order for the payment of money: “ president” means president of an exchange and includes any

person for the time being acting as president: “ the Registrar” means the Registrar of Companies and any per­ son for the time being acting as Registrar of Companies: “ trust account” means trust account kept pursuant to this Act at a

bank in South Australia. (2) The Governor may by proclamation declare any association to be an exchange within the meaning of this Act, and may by procla­ mation revoke or vary any proclamation in force under this subsection.

4. (1) Every broker shall open a trust account at a bank for pur­ poses of this Act. (2) Every such trust account shall bear on each page thereof the name of the broker and the words “ sharebroker’s trust account”.

(b)

Disposal of money in trust account

5. (1) Subject to this section every broker shall pay into a trust account— (a) the amount of all money received by him from or on accounts of any person, not being a broker, for the purchase

of securities, if that money is so received before the securities to be purchased are delivered to the broker; the amount of all money received by him for or on account of any person, not being a broker, from the sale of any securi­ ties, if that money is not within three business days after the receipt thereof by the broker paid to that person or as he di­ rects. (2) The money required by this section to be paid by a broker into a trust account shall be so paid not later than the third business day after the receipt of the money.

(3) Before paying money into a bank pursuant to this section a broker shall be entitled to deduct any brokerage or other charges which are due to him and are properly deductible from the money. (4) A broker shall not have more than one trust account for pur­ poses of this Act.

(5) A broker who fails to comply with any requirement of this sec­ tion shall be guilty of an offence. 6. (1) A broker shall not withdraw money from a trust account except for one or more of the following purposes, namely:—

(a) where money received from the sale of securities has been paid into the trust account—paying to the person entitled to that money, or in accordance with his directions, a sum not exceeding the amount so paid into the trust account:

where money received by the broker for the purchase of se­ curities has been paid into the trust account—paying the price of those securities when purchased, but so that the amount so paid for the securities does not exceed the amount so paid into the trust account:

(b)

68

(c) paying any sum of money due and owing to the broker and lawfully payable out of moneys paid into the trust account. A broker who contravenes this subsection shall be guilty of an offence.

(2) Except as provided in this section, money paid into a trust account pursuant to this Act shall not be available for payment of the debts of the broker or be liable to be paid or taken in execution under an order or process of any court at the instance of any creditor of the

broker. (3) The bank at which a broker keeps a trust account under this Act shall not in respect of any liability of the broker to the bank, hot being a liability in connection with that account, have any recourse,

right of set-off, counter-claim, charge, lien or other claim, against money standing to the credit of that account. (4) Nothing in this Act shall take away or affect any lawful claim or lien which a broker has against or upon any money in his trust

account. (5) This section shall not render a bank liable to make any inquiries with regard to the purposes for which any money is with­ drawn from a trust account at that bank, nor impose any liability on a

bank for failure to make such inquiries. 7. (1) Every broker shall keep such books and accounts as are Dutyofbrokerto necessary to record his business transactions clearly, and shall on every k“ pbooks· day make detailed entries in his books and accounts of his business

transactions which took place on that day. (2) Without affecting the generality of subsection (1) of this sec­ tion every broker— (a) shall keep a purchases and sales book and shall record

therein the name of the buyer and seller in every transaction in which he acts and particulars of the securities bought or sold; (b) shall keep two receipt books each of which shall contain re­

ceipt forms numbered in sequence and in duplicate, and shall issue from one of the said books all receipts given by him for money, and from the other book all receipts given by him for securities, and shall retain a clear carbon copy of every re­

ceipt issued; (c) shall keep a cash book and shall enter therein every amount paid or received; (d) shall keep a journal;

(e) shall keep a scrip register and shall record therein particulars of all securities received and disposed of by him including the following:— (i.) the name of the person in whose name the securities are

registered or inscribed, or in the case of bearer securities the name of the owner; (ii.) the class of securities and the individual certificate numbers thereof and, where available, the distinctive

numbers of shares; 69

(f) shall keep a ledger or ledgers and enter therein particulars of all transactions— (i.) with clients; (ii.) with brokers; and

(iii.) in respect of nominal or private accounts. (3) A broker who fails to comply with any requirement of this section shall be guilty of an offence. 8. (1) Every person who during any financial year or part thereof has carried on business as a broker—

(a) shall cause his accounts for that financial year to be audited and his securities to be inspected within three months after the end of that financial year, by an approved auditor; ( b) shall forthwith after completion of the audit and inspection obtain from the auditor a copy of this report:

Provided that the Registrar may extend the time for the commence­ ment or completion of any audit under this subsection. (2) An auditor who audits a sharebroker’s accounts shall forth­ with after completion of his audit and inspection send the original of his report to the Registrar and if the sharebroker is a member of an exchange, a copy of his report to the president of that exchange.

(3) The auditor shall include in his report information as to the following matters:— (a ) The balance date of the accounts of the broker; (b) Whether the provisions of this Act relating to keeping books and making entries therein have been promptly complied with;

(c) Whether all securities held for safe custody were examined by the auditor; (d) Whether any, and if so what, securities held for safe custody have been charged, pledged, become subject to a lien, or otherwise encumbered;

(e) Where clients have been financed by the broker, whether the market value of the securities held covers the amount of the ad­ vance in each case; (f) Whether all securities which have been lodged by clients for sale but not sold and securities which have been bought for clients and paid for by them, but not delivered to them, are held unencum­

bered; (g) Whether the market value of the broker’s assets (excluding the value of his seat on the exchange) as shown in his books and accounts exceeds his liabilities at the balance date;

(h) Whether the broker’s assets are readily realizable: (i) Whether the statement of assets includes private assets not usually included with business assets; (j) Whether there are any contingent liabilities, and, if so, the amount thereof;

(k) Whether there are any other matters or circumstances which in the auditor’s opinion affect the financial position of the broker; and (l) Whether all necessary information has been made available to enable the auditor to furnish the report.

(4) Where a manager, branch manager, or accountant of a bank certifies in writing that the bank holds any securities for or on account of a broker, and the purpose for which they are so held, the auditor may at his discretion refrain from inspecting those securities.

(5) A broker who fails to comply with any requirement of this sec­ tion shall be guilty of an offence. 9. (1) The Registrar may on the application of a broker direct that a period ending on a day other than the thirtieth of June shall be the

financial year for the purpose of the audit of the broker’s accounts. If such a direction is given the preceding section shall be read as if the period fixed by the Registrar were the financial year for the purposes of the audit of the broker’s accounts under that section.

(2) The Registrar may revoke or vary any direction in force under this section for reasonable cause. 10. (1) If it appears to the Attorney-General that there is reason­ able cause to suspect that—

(a ) a broker has been guilty of a breach of this Act; or (b) owning to the financial position or the conduct of a broker it is desirable that his books and accounts should be audited, the Attorney-General may after giving the broker not less than three days ’ notice in writing of his intention, direct an auditor to conduct a general or special audit of the books and accounts of the broker, and to report to the Attorney-General on such audit, and on such other mat­ ters relating to the accounts and transactions of the broker as the Attorney-General directs. (2) A special audit shall be limited to such accounts and other matters as the Attorney-General directs. (3) An audit under this section shall, if the Attorney-General so directs, include an inspection of the securities held by the broker. (4) The Attorney-General may give a direction under this section either of his own motion, or on the application of any person. (5) The costs of any audit and report directed by the Attorney- General under this section shall in the first instance be paid by the Attorney-General out of money appropiated by Parliament. On the application of the Attorney-General the Supreme Court, if satisfied that by reason of any breach of this Act by the broker or any other con­ duct of the broker it was desirable that the audit should be held, may, in its discretion, order that the broker shall pay to the Attorney- General a sum equal to the whole or any part of the cost of the audit and report.

11. (1) An auditor who is auditing or investigating the books, accounts, or transactions of a broker may require that broker, or any agent of that broker— (a) to furnish him with any information; or

(b) to answer any question, relating to the books, accounts or transactions being so audited or investigated. (2) An auditor who is auditing or investigating the books,

Variation o f financial year.

Special audit.

Powers of auditors.

71

Penalty for destroying, concealing, or altering records.

Offences.

Regulations.

accounts and transactions of a broker may require any person having possession of any books, accounts or securities of that broker to pro­ duce them to the auditor for audit and inspection. (3) A person who—

(a) when required pursuant to this section to furnish information or answer questions, refuses or fails to furnish that informa­ tion, or refuses or fails to answer any of those questions, or gives any information or makes any answer which is false in

any particular; or (b) when required to do so under this section refuses or fails to produce any books, accounts, or securities, shall be guilty of an offence.

(4) A person required by an auditor pursuant to this section to fur­ nish information, answer questions or produce books, accounts, or securities:— (a) may request the auditor to produce evidence that he is

employed to audit the accounts of a broker: (b) shall accept as such evidence an apparently genuine certi­ ficate purporting to be signed by the Attorney-General or a broker and to certify that the auditor is employed by him to

audit the accounts of a broker; (c) shall not be required to furnish the information, answer the questions, or produce the books until such evidence is produced to him. (5) No action, prosecution or other legal proceeding shall lie against any person by reason of any information given or question answered at the request of an auditor pursuant to this section.

12. (1) Any person who, with intent to conceal the commission of any offence against this Act or to delay, prevent or obstruct the carry­ ing out of any audit or examination under this Act, destroys, conceals, or alters any book, account, record, or document, relating to the busi­ ness of a broker shall be guilty of an offence.

(2) If in any prosecution for an offence against this section it is proved that the defendant has concealed, destroyed, or altered any book, account, record, or document as aforesaid, the onus of proving that in so doing he had not acted with the intent alleged against him in the complaint shall lie on him.

13. (1) Offences against this Act shall be dealt with summarily.

(2) The penalty for an offence against this Act shall be a fine of not less than twenty-five pounds and not more than two hundred pounds. 14. The Governor may by regulations prescribe all matters which it is necessary or convenient to prescribe for the purpose of the adminis­ tration of this Act or for better effecting the objects of this Act and may

by any such regulations prescribe fines recoverable summarily and not exceeding fifty pounds for breach of any regulation. In the name and on behalf of His Majesty, I hereby assent to this Bill.

C. W. M. NORRIE, Governor.

72

6-8

AUDITOR’S CERTIFICATE OF AUDIT AND REPORT

Pursuant to Sharebrokers Act 1945

TO THE REGISTRAR OF COMPANIES Name of Sharebroker ALLAN JOHN GREEN, Trading as A. J. GREEN & CO. I, the undersigned, being an approved auditor having pursuant to the provision of Section 8 of the Sharebrokers Act, 1945, on or before, 30 September 19 . . audited

the accounts of the above-named sharebroker for the financial year ending on 30 June 1970 and inspected the securities of the said sharebroker, do hereby report as follows:— 1 The balance date of the said accounts is 30 June 1970.

2 The provisions of the Sharebrokers Act, 1945, relating to keeping books and making entries therein have been promptly complied with, the exception of the matter referred to in (13) below. 3 All securities held for safe custody were examined by me. 4 The following securities (if any) held for safe custody have been charged,

pledged, become subject to a lien, or otherwise encumbered. Nil. (Submit separate report if necessary). 5 Clients have either not been financed by the sharebroker or when they have been, the market value of the securities held covers the amount of the ad­

vance in each case. (Submit separate report if necessary). 6 All securities which have been lodged by clients with the sharebroker for sale but not sold and all securities which have been bought by the sharebroker for clients and paid for by them but not delivered are held

unencumbered. (If not attach separate report). 7 The market value of the assets of the sharebroker (excluding the value of his seat on the Exchange) as shown in his books and accounts does exceed his liabilities at the balance date.

8 The sharebroker’s assets are readily realizable, except as to the accounts of non-trading debtors in respect of which $8,000 should be provided as doubtful debts. 9 The statement of assets does not include private assets not usually included

with business assets. 10 The amount of contingent liabilities, if any is $ Nil 11 There are not any other matters or circumstances which, in my opinion affect the financial position of the sharebroker. (If so, attach separate

report). 12 All necessary information has been made available to enable me to furnish this report. 13 There are no other matters or circumstances arising out of the audit and

inspection, except as follows:—(1) The Sharebrokers Trust Account has not been utilised as required by Section 5 of the above Act in all occasions. (2) The Trust Account funds are included in the accounts and assets of the Sharebroker. (If so, attach separate report).

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14 In the course of the audit, without examining every transaction in detail, no breach o f Stock Exchange By-Law 84 has come to my notice.

ABBOT &ESDALE J. D. Esdale Auditor licensed under the Com­ panies Act 1962 as amended

Date 30 September 1970

6-9

THE STOCK EXCHANGE OF ADELAIDE LIMITED 55 Exchange Place, ADELAIDE, S.A. 5000

Mr D. W. Whitbread, 21 February 1973

Secretary, Select Committee on Securities and Exchange, Australian Senate, CANBERRA, A.C.T. 2600

Dear Sir,

Former Member Firm A. J. Green, Burchell & Co.

I refer to your letter of 19 February 1973 regarding the Fidelity Scheme operated by this Exchange under Article 91 of its Articles of Association. The purpose and object of the Fidelity Scheme, as stated in sub-section 4 of Article 91, is to provide the reimbursing by the Exchange in whole or in part any non Member of the Exchange (but not including any Member of any other recog­ nised Stock Exchange) who may suffer pecuniary loss in respect of or arising out of any transaction in stocks, shares or other securities or investments by reason of de­ fraud, misappropriation or other criminal act of or the default (due to the financial failure) of, a Member or of any firm constituted by Members, or of any employee of a Member or of such a Member and for which acts or defaults of such employee such Member or Firm is legally responsible. As such, claims against the Fidelity Scheme would be made by the persons affected not by the Member Firm itself or its Administrator.

At the present time there are two ex Member Firms of The Stock Exchange of Adelaide in respect of which we expect claims to be made against the Fidelity Scheme. They are: A. J. Green, Burchell & Co. (in bankruptcy under the administration of the

Official Receiver),

and Beach Goode & Co. (in bankruptcy under the administration of Mr M. J. Mount, Trustee in bankruptcy of Mount & Brown, Chartered Accountants).

74

In both of these cases the Estates of the Partners of the respective Firms have yet to be finalised. The Committee has not considered any claims arising from the default of these ex Member Firms, as under the provisions of sub-section 7 of Article 91 no claim is to be recognised by the Committee unless and until all proper and available remedies have either been taken against the Members or Member Firms concerned or been investigated and found to be impracticable or unlikely to produce any sufficient return. Accordingly, at this time, I am unable to give an estimate of the total amount that may be claimed against the Fidelity Scheme.

In regard to your question of how much is held in the Fund under the Fidelity Scheme and whether the amount is likely to be adequate to meet all claims received, I would advise that the total sum is $91,521, and for the same reason as stated above I am unable to state whether this sum will be sufficient to meet all

claims received.

Yours faithfully, W. G. F. McCulloch Chairman

6-10

THE STOCK EXCHANGE OF ADELAIDE LIMITED 55 Exchange Place, Adelaide, S.A. 5000

20 February 1973

Mr D.W. Whitbread, Secretaiy, Select Committee on Securities and Exchange,

Australian Senate, CANBERRA, A.C.T., 2600.

Dear Sir,

Former Member Firm A. J. Green, Burchell & Co.

Thank you for your letter of 15 February, which was in reply to my submission of 9 February.

In regard to the two matters raised in your letter, firstly I would confirm that neither Messrs Green and Burchell, nor their Auditor notified the Exchange that the Firm was facing financial difficulties prior to the investigations carried out by the President on 3 March 1971.

Secondly I would advise that a summary of all qualified “ audit reports” was considered by the Committee at its meeting on Thursday 1 October 1970, and as is the usual practice the President undertook to investigate and discuss the qualifica­ tions with the senior partners of the respective Firms.

75

During his investigations the President paid particular attention to those Member Firms that had had their audit reports qualified in relation to breaches of the Trust Account provisions o f the “ Sharebrokers Act 1945 ”, and instructed those Firms that future breaches would not be tolerated. On 12 January 1971 the Presi­ dent reported to the Committee that he had spoken to all Member Firms whose audit certificates, for the year ended 30 June 1970, had been qualified.

In regard to the matter of what machinety is in operation at this Exchange to ensure the maintenance of Trust Accounts in accordance with the provisions of the Sharebrokers Act, I would advise that we primarily rely upon the auditors of the respective Member Firms to inform the Committee of the occurrence, and details o f breaches of the provisions of the Act. I would refer you to By Law 21A of the Memorandum and Articles o f Association and By Laws, which provides, inter alia, that a Member Firm will;

(a) have a duly qualified auditor appointed at all times, (b) cause its auditor to inspect the books of account, scrip registers and busi­ ness records o f the Firm at least four times in every financial year at times not previously known to the partners or staff of the Firm,

(c) cause and authorise the auditor forthwith after making any such inspection to report to the Committee any irregularity found by the auditor as a result o f any such inspection, (d) cause the auditor to attach to his annual certificate made pursuant to the

Sharebrokers Act 1945, a certificate stating the dates upon which the afore­ said inspections were made during the preceding financial year.

I would also refer you to two other Articles contained in this Exchange’s Arti­ cles of Association which allow the Committee to maintain a dose surveillance of Member Firms’ activities and financial positions viz., (a) Article 64 which states “ the Committee shall have full and absolute power

and authority at any time to compel the production by any Member to an auditor licensed under the Companies Act 1934, and nominated by the Committee of all books, letters, telegrams or copies thereof and all other documents of any kind whatsoever which in the opinion of the Committee or o f such auditor may relate to the conduct or financial position of any Member. . . . ”

(b) Article 61A which deals with the minimum capital requirements of Member Firms and provides, inter alia, for the appointment o f Exchange Accountants. The Article requires Member Firms to submit a copy of their audit report and balance sheet to the Exchange Accountant not later than 30 September each year. If the balance sheet of the Member Firm or the information obtained by the Exchange Accountant under or by virtue of

the Articles or any other matter arising out of his enquiries causes the Exchange Accountant to consider that further information should be obtained by the Committee regarding the Member Firm’s state of affairs, he shall report accordingly to the Committee. As well as this annual exam­ ination conducted by the Exchange Accountants the Committee shall at least twice in each calendar year direct one of the Exchange Accountants to determine whether or not in his opinion a Member Firm, selected by the

76

President and the Exchange Accountant, is complying with such one or more of the provisions of this Article. The Article also requires that any report submitted by the Exchange Accountant may be accepted by the Committee in its sole discretion as sufficient grounds for the commence­

ment of an investigation in terms of Article 64, or for the exercise of any powers o f the Committee pursuant to the Articles.

In conclusion I wish to advise that no audit certificates of Member Firms of this Exchange were qualified in relation to the Trust Account provisions under the Act, for the year ended 30 June 1972.

I trust that the above has satisfactorily answered the queries raised in your letter, but should you wish further information please let me know.

Yours faithfully, W. G. F. McCulloch Chairman

77

CHAPTER 7

In vestm en t C onsultants, Sharebrokers and

PRESENT

TN

Share T ip p in g

7-1

MINUTE BOOK

AUSTRALIAN INVESTMENT COUNSELLORS PTY LTD MINUTES OF THE ANNUAL GENERAL MEETING HELD AT 175 BARKLY STREET, ST KILDA, AT 11.00 A.M. ON 30 DECEMBER 1968.

Mrs P. J. Douglas, Mr B. G. Douglas, Mr J. W. Kennedy, Mr N. R. Course (Travinto Nominees Pty Ltd).

a t t e n d a n c e Mr B. Stock (Secretary).

CHAIRMAN

BUSINESS

Mr J. W. Kennedy was appointed Chairman. The following documents were presented to the meeting. (1) Final accounts for year ended 30 June 1968 (2) Statutory Declaration by the Secretary.

(3) Director’s Report. (4) Director’s dividend recommendation.

r e s o l v e d (1) That the Accounts be accepted.

RETIRING DIRECTOR

(2) That the Directors recommendation be accepted and no dividend be paid for year ended 30 June 1968. The retiring director being eligible for re-election was elec­ ted. AUDITORS All members being present and voting, it was unanimously

agreed that no auditors be appointed forlhe financial year ending 30 June 1969.

Confirmed J. W. KENNEDY

Chairman

PRESENT

IN

7-2

MINUTE BOOK

AUSTRALIAN INVESTMENT COUNSELLORS PTY LTD MINUTES OF THE ANNUAL GENERAL MEETING HELD AT 175 BARKLY STREET, ST KILDA, AT 12.00 P.M. ON 30 DECEMBER 1969.

Mrs P. J. Douglas, Mr B. G. Douglas, Mr N. R. Course (Travinto Nominees Pty Ltd). a t t e n d a n c e Mr B. Stock (Secretary).

CHAIRMAN BUSINESS

Mr B. G. Douglas was appointed Chairman. The following documents were presented to the meeting. 1 Final accounts for year ended 30 June 1969.

79

2 Statutory Declaration by the Secretary. 3 Director’s Report. 4 Director’s dividend recommendation. r e s o l v e d 1 That the Accounts b e accepted.

2 That the Directors recommendation be accepted and no divi­ dend be paid for year ended 30 June 1969. r e t ir in g The retiring director being eligible for re-election was elected.

DIRECTOR

a u d it o r s All members being present and voting, it was unanimously agreed

that no auditors be appointed for the financial year ending 30 June 1970.

Confirmed B. G. D o u g l a s Chairman

7-3

7 Elva Ave Killara, NSW 10 February 1973

Mr D. W. Whitbread Secretary Senate Select Committee on Securities and Exchange

Dear Sir, With reference to your letter of 10 January 1973. I would have replied earlier but I have been on holidays. It is true that I accepted a part time engagement with Australian Investment Counsellors, and that it began in mid-1969. It was either late May or early June, I am not sure of the precise date. It consisted of preparing fun­ damental information about stocks for the Investor’s Guide. I at no stage prepared material for Investograph, which at that time was a newsheet of technical informa­ tion only based on charts, about which I have little knowledge. The stocks on which I was to write were chosen from Investograph by AIC. Some months after I began supplying copy AIC began reproducing some of the reports in Investograph but I at no stage actually prepared any copy for that publication.

My function with regard to AIC was purely to supply what information I had about the companies I was asked to write on. From time to time this included ru­ mours which were current at the time. The particular time span mentioned by the Committee was of course a period in which there was a great deal of market ru­ mour. I played no part in the actual production of the Guide, nor in the final con­ tent as it went out to subscribers. My copy was subbed, and frequently altered.

Moreover, statements and rumour that I had not included were sometimes inserted in copy I had prepared, presumably coming from AIC’s own sources. Moreover, the emphases and underlinings in the Guide were not done by me.

80

The choice of stocks on which to report was made by AIC. Except in the broadest terms (e.g. an observation that a company appeared to be in a recovery phase after difficulties and appeared a sound investment) the conclusions were not mine but those of AIC. The recommendations as to whether to buy, sell or hold,

and what prices were entirely those of AIC.

There is a misapprehension in your letter as to the terms of employment. The agreed amount was $20 a week, which did not alter during the time I supplied copy, which was up until December 1971. There was never any suggestion of any bonus from profits of AIC. I did in fact receive a bonus in January 1970 when I took

holidays from The Australian. I cannot recall whether the amount was $400, but am prepared to accept that the information you have is correct. However, the bonus was at the time a complete, and pleasant, surprise. It was not repeated in 1970 or 1971. I have no knowledge of how the amount was calculated, or indeed if there

was any calculation at all. I would tend to doubt it. My own personal assumption then, and now, was that AIC must have had a good year and the bonus was a tangi­ ble expression to those connected with the firm at that time. The bonus was in fact a spontaneous gesture when I said I was going away to the beach for my holidays.

My association with AIC began after I received a telephone call from Mr Brian Douglas. He was seeking someone to supply fundamental details about stocks. As you are probably aware the Guide is sold on the basis that it is a combination of fundamental and technical research methods. I was recommended to Mr Douglas

by Mr Roy Course, a partner in the sharebroking firm Patrick Partners, who was formerly Finance Editor of the Melbourne Age when I worked there.

Shortly before I had been given permission by the then Editor of The Aus­ tralian, Mr Adrian Deamer to undertake part time work. I was in fact given permis­ sion to write anonymously for a rival Sunday publication as long as it did not clash with my work for The Australian, although this never actually happened.

Regarding the Money Show I was approached by Mr Tim Hewat to see whether I would be a regular participant in such a show. He had already arranged with the Nine network in Sydney and Melbourne for the show. My main function was to comment upon and interpret any items of financial interest that had taken

place during the week, and to assist in interviewing guests on the program. Another function was to relate what fundamental information was known about stocks selected for the show. The portfolio was Mr Hewat’s idea who believed it was nec­ essary to hold viewer interest. Purchases and sales were usually decided over the

phone by Brian Douglas and myself late in the week. Sales were not made until after they had been mentioned on the show. Orders were placed by Brian Douglas, or someone at AIC, through an anonymous account to prevent any speculation on the portfolio.

I have been a financial journalist for 15 years, the past six and a half with The Australian. I began writing the Fossicking column in March 1969 and am still writ­ ing it. The column deals exclusively with mining matters which explains why any rumours mentioned were about mineral exploration stocks. As to similarities of

articles in Fossicking and AIC I consider that to a large extent this was inevitable. The Guide after all was publishing already reported statements, and sometimes ru­ mour. In all cases where I reported rumour, which I felt might have some basis, for AIC it was recorded first in Fossicking. In many of the companies quoted in your

81

letter the time gap is two weeks or more which was a long time in market terms con­ sidering the conditions which ruled then. The odd occasion when similar stories were published at the same time came about because the Guide material was written over a weekend, whereas Fossicking is written on Tuesday for Wednesday. Therefore you find an article on Fossicking on 9 July 1969 talking about Planet Gold interested in gold prospects in Victoria

and Guide article about Planet Gold and uranium on 10 July. The Guide material was in fact written the previous weekend, and at that stage I had not heard about the gold prospects. Similarly on 16 July it was reported in Fossicking that a dispute between Planet Gold and BHP had been settled (in BHP’s favour not Planet Gold) whereas the Guide article only noted there was a dispute. The news of the settle­ ment was not then known. If of course there had been further articles on Planet Gold they would have recorded the fact of the settlement and it could be further argued there was a similarity between the reports.

Again with North Flinders which appeared in Fossicking and the Guide on 20 August 1969. The point of the Fossicking article was a suggestion that Mining Finance Corp. could be buying more shares in the company. There was no such suggestion in the Guide. Again with Alliance Oil Development which appeared in Fossicking and AIC Guide on 20 August 1969 the point of the Fossicking article was that the Lacrosse well would be deepened below 10,000 ft. The Guide article and Fossicking both contained known, and therefore similar, material. The prob­ able deepening of the well was not mentioned in the Guide.

Of the other stocks mentioned most were written about in Fossicking first. Do­ minion for example on 12 November 1969 in Fossicking and AIC Guide 19 November. Endeavour Oil Fossicking 12 November Guide 8 January 1970. Carr Boyd Minerals 1 October 1969 the Guide 8 October Apollo 10 September, the Guide 24 September, Great Boulder 11 June, the Guide 19 June. (This particular item contains an instance I can identify where information not supplied by myself was added in. There is a reference to ‘our man in Kalgoorlie’ talking of 14 holes having been drilled. This was not written by me and did not appear in Fossicking around that time.) The time gap between the articles is at least a week. I believe that if any newpaper article I wrote around that time were to have any effect on the sharemarket it would have already done so before the Guide article was published.

There 'are as you point out some occasions where the Fossicking article came after the Guide, although from my examination they are by far in the minority. In each case however, the point of the article is some new development, or possible development. Scamander for example appeared in the Guide 17 July and Fossick­ ing 23 July. However, the Fossicking article dealt with Scamander seeking mineral

sands prospects which was a new development and not in the earlier Guide piece. Both articles of course contained similarly already reported fact. Consolidated "Mining Industries is another example. There was a Guide piece published on 13 August 1969 which repeated some recovery estimates published in Fossicking as

far back as March 1969. Two weeks later on 27 August Fossicking suggested that Cominco of Canada was interested in CMI’s leases, which was subsequently con­ firmed. This suggestion was not in the earlier Guide piece. Therefore while agreeing that some items bore similarity I believe this simi­ larity is superficial in that they contained some similar statements of content. The main point of the Fossicking items however, was invariably different, and not

82

included, Guide reports. The other similarity which occurs to me is in the actual writing style. I believe it probably inevitable that two items written by myself about the same subject will read somewhat similarly, with perhaps the same turn of phrase.

As to the inference which could be drawn that Fossicking articles helped pro­ mote the activities of A ICI cannot really judge. It may be that there is something in that, as it may also have helped any other investment service or broker who hap­ pened to be recommending stocks about which I wrote (and the column dealt with a great many more stocks in the time span than mentioned in your letter) at the time the column was published. What I can absolutely say is that Fossicking has never been deliberately used to promote runs in share prices for anybody. It has a record of which I am proud for accuracy in the statements. It has also inevitably

some mistakes. But an examination will show that the column is devoted to finding out new information and facts about companies. It is not a tipping column and only mentions share prices where they are ger­ mane to the story (such as heavy market activity because of possible takeover

moves). I believe that is one reason why the column is still running today while many boom-conceived, price-orientated columns have ceased. I trust that I have cleared up the matters to which you referred in your letter to your satisfaction. If you have any further queries please contact me.

Yours sincerely B. F r it h

7-4 Hewat Communications Poplars Farm Berwick Road Narre Warren East VICTORIA 3804 Television and Radio Production Tim E. Hewat, Ann Hewat

Mr D. W. Whitbread, 14 May 1972

Secretary, Select Committee on Securities and Exchange, Australian Senate,

CANBERRA, A.C.T.

Dear Mr Whitbread, You wrote to me about ‘The Money Show’, broadcast on GTV-9 more than two years ago; thus you test my memory severely. Concerning the backers of the program’s portfolio: The subscribers were

assembled by the late Kurt von Wolfe who was the fund-raising director for the Queen Victoria Hospital; I do not know the final list, although I know that Dame Mabel Brookes and Sir Rupert Clarke were prepared to be involved. In the event their money was not called. The portfolio was financed by Aus­

tralian Investment Counsellors and the end small final loss was carried by them. (Their return was considerable publicity from the show—which was fair enough.)

24175/ 7 5 -4

83

‘The Money Show’traded through Ian Potter & Co., actually operating under a series of code names because there was considerable interest on the floor of the Melbourne Exchange in ‘Money Show’trading. Of course, our deals were only dis­ cussed on the air after they had been made, to avoid any suspicion of share-tipping.

Through GTV-9’s management, I gather you have all the facts on the show; but should you require anything further, come back to me.

Yours Sincerely, T im E . EIe w a t

for Hewat Communications

7-5

Australian Investment Counsellors Pty Ltd Registered Office: 216 Glenferrie Road, MALVERN, VICTORIA.

12 January 1973

The Secretary, Select Committee on Securities and Exchange Australian Senate, CANBERRA, A C T.

Dear Mr Whitbread, I refer to your letter dated 5 January. I regret the delay in replying but because of our recent change of address, your communication was not received until 11 January.

Mr Tim Hewat was not at any time a portfolio client of A.I.Q I am not aware that any company or person with whom he was associated was ever a client. Mr Hewat with whom I had cordial relations was kind enough to advise me on advertising at one stage and assisted in writing ‘copy’. There was however no for­ mal business arrangement.

The transactions in the accounts of Darken Investments for Mr Hewat were confined to new floats in Quest, Australian Antimony and Halls Peak. Darken Investments was used to take up the shares I offered to Mr Hewat as in those days underwriting brokers required applications for new issues to be lodged within a matter of days from receipt of the prospectus or the opportunity could be lost. In other words Darken Investments was used fof these transactions for administrative purposes.

I hope that the above answers the questions raised by the Committee.

84

Yours faithfully, B r ia n G. D o u g l a s

7-6

The Secretary, Select Committee on Securities and Exchange,

Australian Senate, CANBERRA A.C.T. 2600

Dear Sir, I am writing in response to your invitation to comment on matters raised by the Senate Committee at an interview on 16 June 1972. I would like to write on the following matters:

(1) Share Trading by Darken Investments Pty Ltd, etc. The Chairman invited me to comment on the statement that Darken, etc., traded regularly in the shares recommended in ‘Investograph’ and ‘AIC Investor’s Guide’, and further, that Darken, etc., purchased stock prior to

making strong recommendations. In particular, you also invited me to let you know if I agree and to state if any qualifications to the statement are required. I would like therefore to make the following observations:

(a) It is inevitable that an investment adviser will trade in shares he recommends, either for his clients or his trading account. This has been recognised by the Securities Industry Act in Victoria, which requires disclosure under certain circumstances. (b ) ‘ Investograph ’ is a review of Mining, Oil and Industrial stocks, and in

the period of the boom, covered numerous trading stocks each week, in most cases over 100, and it was inevitable that most stocks pur­ chased by Darken, etc., would be the subject of review by this publi­ cation at the time of purchase. It is important to realise that ‘Inves­

tograph’ went to less than ten brokers in Australia at that time, and possibly two private clients. (c) ‘AIC Investor’s Guide’, although a publication of fundamental and technical review, based its recommendations mainly on market

action—that is action that had occurred or was occurring. The techni­ cal analysis would have revealed either accumulation of stock or an upward movement in price. At its peak, the circulation of this publication did not exceed 2,000,

including overseas subscribers. (d) Turning to the transactions in Darken Investments, etc., I have con-

Austrahan Investment Counsellors Pty Ltd Floor 2 70 Park Street Melbourne South VICTORIA 3205 AUSTRALIA

Investment Analysis: Investment Publications: Portfolio Management: Business Finance B G D /ls 7 July 1972

85

centrated my remarks on ‘trades’ where the purchase price was $3,000 or more, and occurred in the period 1 July 1969—30 June 1970. There are 19 such transactions and they cover purchases of over $100,000 and sales of over $100,000—that is about 50 per cent of all trading carried out. In respect of these 19 ‘trades’, the following observations are made:

(i) The largest transaction was the purchase of 200,000 Bounty Options o f which 100,000 were sold the same day at the same price as they were purchased at, as I considered I was over-com­ mitted. The balance was sold over two months later at a loss ap­ proximating $5,000. (ii) The next highest purchase was around the $6,000 mark, and in­

volved Westmoreland Options. This stock was not featured in the ‘Investor’s Guide’, and received only passing reference along with 114 other stocks in the ‘ Investograph ’. (iii) There were 17 other purchases of $3,000 or over, and in only

three o f these was the purchase closed out in a matter of days. (iv) The remaining 14 purchases were held approximately as set out hereunder: 4 held for 2 weeks

1 held for 3 weeks 4 held for 4 weeks 1 held for 5 weeks 1 held for 9 weeks

1 held for 11 weeks 1 held for 12 weeks 1 held for 13 weeks

(v) Profit from trading in Darken for the year was only $6,241.94. From these observations I am sure you will agree with me that the follow­ ing conclusions can be drawn: (a) Clearly, Darken, etc., did not set out to profit on a large scale from

AIC recommendations. Investment was on a relatively small scale, but because of more pressing pressures from clients, brokers and publi­ cations, etc., the trading was often given little attention. (b) In no way did the purchases or sales in Darken, etc., influence the

market, as to affect the ability of the subscribers, or the public at large, to buy and sell stocks at normal market prices, that is, no attempt was made to ‘run ’ stocks or manipulate the market. (c) Because of the weekly comments on so many stocks, it was inevitable

that some form of recommendation follow most purchases and con­ versely, most stocks recommended were not purchased. (d) Finally, and this I regard as the most important point, it is obvious that there was no organised attempt to profit by selling into possible

purchases by subscribers as a result of an AIC recommendation. (2) Castlereagh Securities The Chairman invited me to comment on the position of Selected Mining Holdings, Castlereagh Securities and AIC publications.

(a) The Board of Selected Mining Holdings and AIC, held the view that

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Castlereagh would be a very successful company. Before Selected Mining Holdings was born, AIC had recommended Castlereagh to subscribers. Castlereagh was linked to Australia’s largest broking house, and what eventually happended to the stock simply could not have been con­

ceived at that time.

(b) The involvement of Selected Mining Holdings and AIC clients represented a very small part of the turnover in Castlereagh shares, and could not have been said to have remotely influenced the market.

(c) Against the background of our high regard for the stock, we noted a very favourable technical movement. Graeme Douglas discussed this with investment advisers of Patrick Partners in Sydney, who recom­ mended the stock and were very confident of its future.

Just prior to this discussion, a joint company with Mineral Securities had been formed for very large projects and we presumed Patrick ’s confidence stemmed from these plans.

(d) Graeme Douglas passed his observations along with the broker’s recommendation to the Board of Selected Mining Holdings. At that time, the Board was interested in taking sizeable positions rather than trade in a great variety of stocks.

(e) The Board required AIC to closely watch the market action of Castlereagh and the upper limit of $500,000 on purchases was only to be spent in very favourable circumstances, but each $100,000 had to be approved specifically by the Board. With this brief, AIC kept a

constant watch on the market for Castlereagh looking for further bull­ ish signs before recommending the commitment of additional funds. At no time did AIC recommend further purchases.

(f) At the time of the Selected Mining purchases, Castlereagh was recom­ mended to Tnvestograph’ and ‘Guide’ clients, and indeed it would have been hypocritical not to have done so. The technical action of the stock at the time of recommendation in our publications was very

bullish, particularly when related to the rest of the mining market. This was the major reason for our recommendation. However, any suggestion this influenced the market is simply not in accord with eas­ ily obtainable facts.

(g) Around the time of the Castlereagh purchase, Selected Mining was fighting a takeover battle with Devex, negotiating mining leases ac­ quisition, and acquiring a 40 per cent interest in Rimibo, and I wish to repeat in the strongest possible terms, that the Castlereagh purchase

was entirely unrelated to any of these negotiations, particularly the joint mineral venture negotiations with Patrick Corporation. I am absolutely sure that every member of the Board at that time could unequivocally confirm this statement, as will Graeme Douglas,

who discussed the Castlereagh situation with Patrick Partners in Syd­ ney.

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(3) Rimibo Resources Ltd (a) I have read the transcript of evidence you forwarded me and I wish to correct an impression that may have been obtained from a reply I gave you.

On page 10928 the Chairman asked—‘Did you regard 40 per cent as a controlling interest?’ (in Rimibo). Major Douglas—‘Yes’. Through its 40 per cent shareholding in Rimibo, Selected Mining could have been in a position to control Rimibo through votes at a meeting. However, in fact, at all times Rimibo was controlled by a Board on which there was no director of Selected Mining. As proved by events after I left the Selected Board, the directors of

Selected Mining had no control over Rimibo which acted very independently. Indeed, most of the provisions in the agreement between the Rimibo Board and the Selected Mining Board which followed the Selected

share purchase, were ignored and there was apparently nothing Selected Mining could do about it. The only major point adhered to was the appointment of AIC as Investment Managers, and in my view from the high praise given by

the Rimibo Chairman at the Statutory Meeting about the end of January 1971, it would seem the Board at that time thought the agree­ ment was in the best interests of the company. It can been seen therefore that in no way was Selected Mining Hold­ ings 40 per cent interest control of Rimibo, as could have been infer­ red from my reply. (b) On page 10926, you asked me did I have any further comment on the

Rimibo matter. Apart from sub paragraph (a), there are several other points I would like to make. As I believe I have explained to you, the Board of Selected Mining Holdings was attracted to Rimibo (although the Rimibo underwriters

approached me) when fearing what Devex might do with the Selected Mining Holdings cash it seemed so eager to control. It was also a sound and attractive investment in the Board’s view. The Selected Mining Holdings Board’s plan was to protect a pro­ portion of the Selected Mining Holdings funds through Rimibo. This was reinforced by the request that AIC be the Investment Manager, which was agreed to by the Rimibo Board. Although it has caused me some problems as head of AIC, the independent attitude of the Rimibo Directors, from the time of the public issue, proved to be ultimately an advantage for Selected Min­ ing. The situation worked even more dramatically than the original Selected Mining Holdings Directors could ever have envisaged. The Rimibo shareholding now appears to be the Selected Mining Holdings major asset. For this I shall always be grateful to the Rimibo Board.

Yours faithfully, B. G. D o u g l a s

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7-7

SELECTED MINING HOLDINGS LIMITED

Minutes of Meeting of Board of Directors held at the Company’s Registered Office, 327 Collins Street, Melbourne, on Wednesday, 7 October 1970, at 10.30 a.m.

(1) PRESENT: Mr B. G. Douglas (Chairman), Messrs. J. R. Abbott, E. E. Falk and A. W. Muddyman. In attendance: Mr R. Gottliebsen (Patrick Partners) (2) MINUTES:

Minutes of previous meeting held 7 September, 1970 were signed as a correct record. (3) BUSINESS ARISING FROM THE MINUTES: A copy of the Press Release on the Company’s formation was tabled.

(4) SHARE ISSUE: It was reported that applications for 2,283,200 shares had been received to date by the Company. (5) BORROWING POWERS:

Letters dated 24 and 25 September, 1970 from Abbott Tout Greer & Wilkinson and Bernard Paul, Marriott & Co., respectively, were received. Mr Douglas reported that the Company’s Manager, had on behalf of the Company, accepted the following share placements—100,000 Narla at

25 cents each, 5,000 Spargo at $3.60 each and 20,000 Aquila at $1.20 each plus charges. Acting on the advice of the Company’s and Underwriter’s solicitors that it was in order for the Company to exercise borrowing powers resol­ ved that the Chairman and Secretary be authorised to approach the Com­

pany’s bankers with a view to obtaining a temporary overdraft up to $500,000 to enable payment of current and future investment transactions. Further Resolved that the Underwriting Agreement be used as col­ lateral for the overdraft and the overdraft repaid when allotment is made

for applications totalling the minimum subscription required by the Com­ pany’s Prospectus. (6) OPTIONS: Acting on the advice of the Company’s solicitors it was unanimously

Resolved that for every two shares allotted or to be allotted one transfer­ able option be allotted.

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7-8

SELECTED MINING HOLDINGS LIMITED

Minutes of Meeting of Board of Directors held at the Offices of Australian Invest­ ment Councellors Pty Ltd, 6th Floor, 464 St Kilda Road, Melbourne, on Monday, 2 November 1970, at 1.00 p.m. (1) PRESENT:

Mr B. G. Douglas (Chairman), Messrs. J. R. Abbott and A. W. Mud- dyman. In Attendance: Mr R. Gottliebsen (Patrick Partners) Mr D. C. Wilmot (Acting Secretary) (2) ALTERNATE DIRECTOR:

Letter appointing Mr R. Gottliebsen as Alternate Director for Mr E. E. Falk for period 16 October 1970 to 23 November 1970, was tabled and appointment approved. (3) MINUTES:

Minutes of previous meetings held on 7 October 1970 and 19 October 1970 were signed as a correct record. (4) BUSINESS ARISING FROM THE MINUTES: Bank Overdraft

It was reported that a temporary overdraft up to $100,000 had been arranged with the Company’s bankers. Insurance Recommendations were tabled; Resolved that the Acting Secretary immediately arrange Personal Accident Insurance cover of $50,000 per

Director.

(5) CORRESPONDENCE: (i) Copy of letter dated 26 October 1970 to Sydney Stock Exchange from B. G. Douglas, stating that no handling fee was paid to Aus­ tralian Investment Counsellors, was tabled. (ii) Correspondence from Bernard Paul Marriott & Co. re Investment

Company Status was tabled and discussion deferred to a later meeting of Directors. (6) SHARE ISSUE: It was reported that the issue closed fully subscribed on 30 October

1970. Issue of scrip was proceeding and it was anticipated that Stock Exchange listing would commence on 19 November 1970. (7) MANAGER’S REPORT: A verbal report was given by Mr B. G. Douglas on the present position

of the Company’s investment in the Stock Market and of possible future trends. Weekly portfolio statements to 30 October 1970 were received. Resolved that an improved form of weekly portfolio statement be

adopted as soon as practicable.

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7-9

GREYFELL LIMITED 327 Collins St, MELBOURNE, Vic., 3000 12 February 1973

The Secretary Australian Senate Select Committee on Securities and Exchange

CANBERRA, A.C.T.

Dear Mr Whitbread, Thank you for your letter of 8 February 1973 requesting some information in respect of two debits to the No. 1 Bank Account of Selected Mining Holdings. I have had the Books of Accounts checked and the payments were as follows—

(a) Paid to Patrick Partners on short term deposit; $

23.10.1970 500,000

4.11.1970 1,000,000

1,500,000

(b ) Received from Patrick Partners— $

9.11.1970 7.12.1970 24.12.1970 26.1.1971

3.2.1971 10.2.1971 15.2.1971

100,000 450.000 200.000 100,000

65,000 400.000 185.000 1,500,000

Although these payments and receipts were before my time, it seems from the Books of Accounts that they were placed by the then Board of the Company with Patrick Partners as a short term deposit holding position until the Company was committed to an investment programme.

I feel that I should add that the name of the Company has been changed to Greyfell Limited at the last Annual General Meeting of the Company and is now quoted on the Exchanges under that name on the Mining Board.

Yours sincerely, GREYFELL LIMITED A. L . L a z a r u s General Manager

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7-10

SELECTED MINING HOLDINGS LIMITED

MINUTES OF MEETING OF BOARD OF DIRECTORS HELD AT THE OFFICES OF AUSTRALIAN INVESTMENT COUNSELLORS PTY LTD, 6th FLOOR, 464 ST KILDA ROAD, MELBOURNE, ON WEDNESDAY 16 DECEMBER 1970, AT 1.30 P.M.

(1) PRESENT: Mr B. G. Douglas (Chairman), Messrs. J. R. Abbott, E. E. Falk and A. W. Muddyman. In attendance: Mr R. Gottliebsen (Patrick Partners) and Mr M. F. Marriott (Company’s solicitor). (2) MINUTES:

Minutes of previous meeting held 7 December 1970 were signed as a correct record. (3) INVESTMENT: Mr G. Douglas (Investment Adviser) reported that orders had been placed for

and on behalf of the Company for the acquisition of shares in Castlereagh Se­ curities Ltd to the value of $ 100,000. He further reported that the results of his research indicated the likelihood of an upward improvement in the value of this stock. Resolved the Company’s Manager be empowered to purchase shares in Castlereagh Securities Ltd up to a cost of $500,000 subject to the prior ap­ proval of Board members being obtained for each commitment of $100,000 up to the maximum of $500,000. (4) MINING VENTURE-PATRICK CORPORATION LTD:

The Chairman and Secretary reported on their discussions with Messrs. M. R. L. Dowling and J. A. Keir of Patrick Partners concerning a proposed offer to the Company by Patrick Corporation Ltd of an 80 per cent interest in mineral prospects. The Chairman and Secretary further reported that it was envisaged that Min­ ing Advisers Pty Ltd would act as Manager for the prospects. This arrangement to be financed by cash, a placement and or allotment at par

by Selected Mining Holdings Limited of 20 cents fully paid shares with attach­ ing options on the basis of one option for every two shares allotted. A report dated 16 December, 1970 from Mr W. M. Billinghurst of the firm W. M. Billinghurst & Associates Pty Ltd on the data provided by Patrick Corpor­ ation Ltd on six mineral prospects, was received. Resolved:

(i) The Company pursuant to its objects and the provisions in the Prospec­ tus dated 9 September, 1970 seek to participate directly in mining activities. (ii) The Board in principle agrees to the acquisition by the Company of

mineral tenements from Patrick Corporation Ltd or from any other parties from whom these could be available it being acknowledged that the consideration for the acquisition of any such interest be satisfied by cash, placement and or allotment at par of 20 cents fully paid shares

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with attaching options on the basis of one option for every two shares allotted. The Board recorded its reasons for this policy re any acquisition and allotment of shares as follows:

(a ) The Company’s Prospectus for its recent offer of shares had indicated that the Company planned to enter into mining ventures either on its own account or in association with other companies, syndicates or per­ sons. (b) It was on the basis of the policy outlined in the Company’s recent

Prospectus that shareholders had subscribed to the offer of shares. (c) Shareholders would expect the Company to enter into mining ven­ tures and accept opportunities of participation in worthwhile mineral prospects.

(d) This proposed offer by Patrick Corporation Ltd would appear to offer such a favourable opportunity for the Company to enter into mining ventures and—

(e) Mining expertise would thus become available to the Company as a result of the services of Mining Advisers Pty Ltd acting as Manager of the Company’s mineral prospects. ( 0 The continuing lack of buoyancy in the investment market. (g) The need to conserve present funds, on the Manager’s recommenda­

tion that these were required to enable sufficiently substantial invest­ ments in selected positions. (h) The need to provide sufficient additional funds from current cash in hand for future working expenses in mining ventures and in particular

for testing and developing the mineral prospects which may be acquired. (i) The allottee company is one with ample resources and reputable standing.

(j) The funds may not be available from shareholders in the present economic and market climate. It was further Resolved that: (a) Subject to Patrick Corporation Ltd confirming the offer made to the

Chairman and Secretary as reported by them to this meeting, this meeting authorises the Chairman and Secretary on receipt of the advice confirming the offer, to engage Mr W. M. Billinghurst of the firm of W. M. Billinghurst & Associates Pty Ltd to undertake a detailed examination of the material available on the mineral prospects and submit to this Board his report on the prospects and

their value. (b) For the assignment Mr W. M. Billinghurst of the firm of W. M. Billinghurst & Associates Pty Ltd be paid a fee of $ 1,000 and reimbur­ sed for his out-of-pocket expenses. (5) DEVEX LIMITED:

The Chairman reported he had received a telephone call on Thursday, 10 December 1970 from a Mr J. S. H. Wills seeking an unofficial meeting with him who had indicated he was representing Devex Limited and stated that his Company had acquired 24 per cent of the Company shares on issue and 18 per

cent of the options on issue.

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The Chairman further reported that Mr Wills called to see him in his office on Friday, 11 December 1970, presented his business card which indicated he was from Sydney Geological and Geophysical Services Pty Ltd, repeated that he was representing Devex Limited and the percentage of shares and options he claimed they had acquired viz 24 per cent and 18 per cent respectively. Mr Wills also advised that Devex Limited wanted control of the Board by having three members out o f a total o f five members, that Mr B. G. Douglas should remain as one o f the Directors with one other who could contribute to the Board. Mr Wills further advised that Devex would pursue the policy of Selected as indicated in its Prospectus and continue with the appointment of Australian Investment Counsellors Pty Ltd as Manager. The Chairman further reported that he advised Mr Wills he would be in Syd­ ney on Monday, 14 December 1970 for discussions with Patrick Partners on matters which were under consideration and related to the Company entering into mining ventures. The Chairman and Secretary reported that whilst in Sydney on Monday, 14 December 1970 for meetings at Patrick Partners concerning the proposed offer to the Company by Patrick Corporation Ltd, a telephone call had been received from Mr R. A. C. Keene seeking an unofficial meeting who had indi­ cated he was a representative from Devex Limited and stated that Devex Lim­ ited had now acquired 32 per cent of the Company’s shares on issue.

The Chairman and Secretary further reported that in response to the request by Mr Keene they visited the office of Sydney Geological and Geophysical Services Pty Ltd, 74 Pitt Street, Sydney and met unofficially with Mr Keene and Mr Wills who was also present. At this meeting Mr Wills stated that

Devex Limited had acquired 32 per cent of the Company’s shares on issue and advised that Devex Limited plans were: (a) to obtain majority representation of the Board by having three of a five member Board or four o f a six member Board with Mr B. G.

Douglas and his nominee being the two other Directors. (b) To pursue aims which would be consistent with ‘Selected ’ Prospectus. (c) To make no change in Secretary and share registrars unless there was an advantage to do so. .

(d) To give the 12 months termination notice to the Manager (AIC) on getting Board control but that the Manager’s services would be retained if performance was satisfactory. The reports were received and it was noted that there was no substantiating evidence to the claim that Devex Limited was the holder of 32 per cent of the Company’s shares on issue and 18 per cent of the options on issue, this Com­ pany presently being shown in the records of the Company as the registered holder of 50,000 shares and 25,000 options.

The meeting closed at 5.30p.m.

Signed as a correct record

Date: / /

Chairman

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7-11

REPORT BY AUSTRALIAN INVESTM ENT COUNSELLORS ON INVESTMENT PORTFOLIO OF SELECTED MINING HOLDINGS Reference is made to letter from the Secretary of Selected Mining Holdings Ltd dated 2 7 January 1971.

There is, of course, no need to emphasise to the Board that any investment in mining shares is speculative and that although the rewards can be great, there is a compensating risk factor involved. Selected Mining Holdings came on the market during the rather strong market conditions which pertained up to the last week or so in October 1970. In fact, it is

appropriate to quote from AIC Guide No. 117 dated 30 September 1970, which has on page 1, the heading for the issue—‘The Bulls Take Over’. We set out below, the situation in the market as we saw it at that time: ‘W e a re n o w p re p a re d to go o u t o n a lim b. T h e m in in g m ark et h a s en te re d a bull

p h a se , a n d th e m o m e n tu m o f th e ad v a n c e c an now be expected to q u ick en alth o u g h o f course as alw ays, th e re w ill b e corrections in th e m ove u p . T h e M e lb o u rn e M etals In d ex w hich p e n e tra te d sev eral w eeks ago, its d o w n w a rd tre n d line, is n o w very close to the p o in t re a c h e d in th e Ju n e “ to p ” an d is g iv in g every in d icatio n th a t a fte r a re tracem en t

it w ill exceed this level. H ow ever, it im m e d ia te ly faces th e resistance fro m the P o seid o n “ t o p ” w hich is clearly sh o w n on th e In d e x b etw een 1090 a n d a b o u t 1140. W e th erefo re a t th e m o m e n t m ust d isco u n t th e possibility o f a n a d v a n c e w ith m o m en tu m sim ilar to th a t w h ich o ccu rred in O c to b e r to D e c e m b e r last year. In m an y w ays th is is in o u r view ,

a m uch h e a lth ie r situ a tio n to an ticip ate w ith bullish co nditions p rev ailin g a n d w ith sp e c u latio n to a g re a t d e g re e , controlled. It w as easy to p ick w in n ers in the P o seid o n boom . I t ’s going to be m o re difficult this tim e. T h e old a d a g e o f “ selling into s tre n g th ” will a p p ly m o re this tim e th a n last tim e. T h e stocks th a t ru n w ill b e different in m an y cases, a n d alth o u g h v irtu ally all m ining

stocks w ill m ove u p w a rd s, th e p ercen tag e m oves in p a rtic u la r issues w ill vary co n sid er­ ab ly a n d it is h e re th a t technical analysis will e n a b le th e investor to select th e rig h t

stocks to b e in a t a n y p a rtic u la r tim e. I f this w ere in o u r o p in io n , a n o ld fashioned bull m a rk e t, w e w ould stro n g ly reco m m en d subscribers to con cen trate on th e thin sp ecu lat­ ive issues a t th e ex p en se o f th e estab lish ed m iners. A lth o u g h th e b est p ercen tag e gains w ill still be m a d e in th e “ s p e c s ” , we believe th a t sub scrib ers m ust n o t ignore the “ blue

c h ip ” issues a t this stage. ’

It can be seen that most people in the market including AIC were particularly bull­ ish at the time, and in fact it will be remembered that on the agreement of the Board, an overdraft was arranged with the Commonwealth Bank prior to the com­ pletion of the Selected Mining Holdings issue to enable money to be put into the

stock market in the good times which appeared to be ahead of us. At about the same time, the Board approved an allocation of $400,000 to Patrick Partners to be invested at their discretion. The two people nominated to run the discretionary accounts at Patricks were Mr A. Mann and Mr W. Edwards and

the allocation was to be $200,000 each. In fact, the transfer of $400,000 to the credit of these discretionary accounts was made on 21 October 1970, although already because of the approval, discretionary purchases had commenced. Quite a proportion of the portfolio as shown on the statement of the 22 January, was pur­

chased by these discretionary accounts. It must be emphasised however that from the period when Selected Mining Holdings began trading up to the date of the statement in question, quite a lot of trading took place not only by the discretionary

95

accounts referred to, but by Australian Investment Counsellors in its own right as Manager. Many of these situations have been closed out (and as a result are not shown on the statement) sometimes at a profit, sometimes at a loss. It must not be thought that no selling or cutting of losses took place, as this is certainly not the case. The review of the Selected Mining Holdings share trading records in detail will clearly reveal this.

The market which was so strong in September and early October, suddenly around the middle of October, not only took a turn for the worst, but experienced a severe cut back. It raised the question as to whether the bull phase which had been predicted would continue, but the situation was extremely confusing and touchy and it was difficult for anybody to be sure whether the market was simply over­ bought and as a result experiencing a normal cut back, or whether basically the undertone was unsound. Even as late as the 20 November in AIC Guide No. 124, although admitting that the medium term outlook was bleak, we indicated our difficulty in forecasting the short term outlook which is of course particularly appli­ cable to traders. We quote:

‘L e t us co m e d irectly to th e p o in t a n d a d m it th a t th e im m e d ia te sh o rt term outlook fo r th e m in in g m a rk e t is by no m e a n s c le a r cut. T h e tr a d in g p a tte rn fo r th e m ajo rity o f stocks show s th a t w e a re n e a rin g on ce a g a in a m o m e n t o f decision a n d p o ses the q u es­ tio n as to w h e th e r th e n ex t m in o r m ove in th e m a rk e t w ill be u p o r dow n. O ne th in g w e c a n b e re a s o n a b ly sure o f saying is th a t if th e m ove is u p , w o rth w h ile ad v a n c e s will only o ccu r in a v ery sm all m in o rity o f stocks. O n th e o th e r h a n d , a d o w n w ard th ru st could ta k e th e w h o le m a rk e t w ith it in the sh o rt term . F u rth e r, a n upside rally is unlikely as we see it a t th e m o m e n t at least, to last for an y ex te n d e d tim e alth o u g h in d iv id u a l stocks w h ich h a v e stro n g fu n d a m e n ta l a p p e a l an d a re actively carry in g o u t th e ir ex p lo ratio n p ro g ra m m e s could m o v e extensively in price, p a rtic u la rly i f they are th e stocks likely to b e h eav ily su p p o rte d in th e m a rk e t by le a d in g bro k ers an d p ro fessio n al trad ers. ’

The market moved in a nebulous manner making it extremely difficult to predict what it was going to do until early in December in AIC Guide No. 126 we indicated that ‘In our view, the possibility of a general upward move for mining shares has been removed in the short term’. As a result of this, I myself and with one of my staff whose main task was to watch the portfolio of Selected Mining Holdings, visited Patrick Partners in Sydney and on 14-15 December discussed the portfolio in detail.

By and large, we found the representatives of Patrick Partners very hopeful in most of the stocks in the portfolio because of each stock’s inherent possibilities whether it was of a speculative nature or whether the companies had already indi­ cated a worthwhile find. As a result of the discussions many stocks that we felt should be sold were therefore retained, and many it was decided to sell when a worthwhile rally occurred which is normally the case even in a falling market. At that time we were leaning towards liquidation of quite a lot of the portfolio, but in fact on the advice of the Patrick representatives, we decided to average down on some holdings. This was subsequently done. There are several points that could be made at this stage:—

(a) A member of Australian Investment Counsellors’ staff was virtually full time on the portfolio and certainly it was his main task in life at all times. (b ) Discussions were continually held with representatives of the underwriting broker not only on the general market and the stocks purchased by them

under discretion, but in regard to the whole of the Selected Mining Hold­ ings portfolio.

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(c) Apart from new issues, virtually no new investments were made once the strength of what now in hindsight can be shown to be a strong rally only in September/October had terminated. The only exception really to this investment approach was the averaging down which was only done on

stocks in which a strong recommendation or case could be made for such action. The problem has been that once committed to stocks in the quantities as shown on the portfolio, one is left with the decision to hold for a strong rally, to hold in the

hope that the worst of the bear market has already taken place, or to liquidate. The decision to liquidate while still difficult at any time, is much more difficult in a large scale portfolio such as that held by Selected Mining Holdings than it is in a small private portfolio. The very action of selling say 110,000 Lamadec Exploration in

the market or 15,000 Conwest in itself could depress the price considerably, and there is always the nagging feeling that when the sale is completed this could well be the ‘ bottom ’ for that particular stock. It is in the market, always easy to be ‘wise after the event’ and no one organis­

ation or person will ever be able to say with confidence what the market is going to do, as investing is an art not a science. The important reaction that any reader to the above must have, is that although the fall in the value of the portfolio is of obvious concern (as at the date in which it is under discussion it had fallen from around $627,000 to just over $300,000—a

slide of 50 per cent) every effort was made to keep the portfolio and each individual investment under constant review, and in fact the number of sales closed out and losses taken in some cases indicates that this was so. To have sold the whole port­ folio out around the end of December, which in our view even in hindsight, would

be the first time at which such a decision could be taken, would have resulted in a large loss being taken in the vicinity of $200,000 and anybody in the market, par­ ticularly in the first week in January when strength seemed to be returning to min­ ing stocks, could well have questioned the wisdom of such a selling operation.

To emphasise this point, on the day in which the Directors resolved to ask for a report on the portfolio from the Manager because of the large paper losses, the question was raised with the Director who put the resolution as to whether he felt that the stock held should be sold even at this late stage. He indicated that it was

probably too late. Yet since that happened, the mining market has not only kept falling, but has fallen at an increasing rate. We repeat, it is easy to be ‘wise after the event’ and there is no need to point out also that a stock once sold at a loss is an actual loss of cash resources whilst there is always the possibility of stock held

through a downthrust eventually reaching its cost price or even going further. It is now intended to review each stock as shown on the portfolio statement as at 22 January and to comment briefly on each.

A.C.M. —Quantity 12,000 A.C.M. Options—Quantity 69,000 These shares were purchased around the 20 October when the market held great hopes for the Mt. Keith nickel find by Metals Exploration and ACM in com­ bination. The purchase in fact was for 17,000 A.C.M. and 89,000 options, and

although fundamentally the stock appeared at that time to have a magnificent future ‘and still does’, some profit taking in regard to 5,000 ACM shares and 20,000 options took place. Subject to constant review, it was decided to hold the

97

rest for long term investment, although this decision was made only after the in­ ability of the broker, Patrick Partners, to sell the whole holding at between 55c and 60c for the shares and 38c and 40c for the options. There is no question of course that the holding was not sold then than for any other reason that buyers for the quantity to be sold at the price, were not available. It was considered at the time to sell below the limits was wrong because of the intrinsic value of the stock.

Aquila—Quantity 20,000

This is a vety tight scrip with a small number of shares on issue, and it was taken as a result of a placement with Ralph King & Yuill at $ 1.20 plus charges. Initially, the stock strengthened shortly after the placement was made, but then quickly cut back as the market deteriorated. It was obvious that when the shares reached around the $1.00 mark the sale of such a large relative holding would only be achieved at mutilation of the market price. In fact, one investor who took 5,000 shares in the placement, attempted to sell his holding through the same broker and was advised later that quite a few of his shares were sold as low as 30c.

Binti Exploration—Quantity 10,000 5.000 of these shares were purchased at $1.50 in mid-October and after dis­ cussions with the Patricks representative a further 5,000 were purchased in early November to average down the cost on the recommendation of the mining adviser at Patrick Partners and the investment adviser because of reported exceptional results from the drilling in W.A.

Castlereagh—Quantity 286,000 These shares were purchased under the strongest possible encouragement of the Patrick mining adviser and the Patrick investment adviser who, just before Christmas 1970, claimed that this stock would probably go up about 50 per cent within the next two weeks and would double within the next five or six months. The purchase had Board approval.

Charterhall—Quantity 11,400

Purchased and retained because of the Westmex association which could have been eventually expected to see the stock at a much higher price.

Conwest—Quantity 15,100

1.000 shares were originally obtained in the float and 5,000 were purchased by the Patrick investment adviser at $3.50. Subsequent purchases were made on the recommendation of Patrick advisers in order to average the price down on the orig­ inal purchases.

Corella—Quantity 44,000

A discretionary purchase by the Patrick investment adviser. The stock has been retained because the price fall was so rapid and severe as to make selling imprac­ tical.

98

Diet Computer— Quantity 2,000

A discretionary purchase by the Patrick investment adviser. The price immedi­ ately declined to $1.00 and has been retained since because of the obvious potential of the stock.

Jimberlana Minerals—Quantity 20,000

This stock was obtained in the float and retained.

Lamadec—Quantity 110,000

A discretionary purchase by the Patrick investment adviser and subsequently retained on the basis of repeated conversation during which both the investment adviser and mining adviser strongly suggested that this stock had great potential because of drilling results at its base metal prospect in A.C.T.

Lefroy Minerals—Quantity 15,000 A discretionary purchase by the Patrick investment adviser of 5,000 shares. The balance purchased to average down the original cost on the recommendation of the investment adviser and mining adviser because of the anticipated Poseidon link for

this company.

Leichardt —Quantity 28,600

Purchased during the October upswing in the market as a trade and retained because of the rapid and extreme price fall and a very thin market.

Leighton Mining—Quantity 10,000 This was a Robertson Thompson new float and retained because it listed near half price.

Metals Exploration—Quantity 5,100

6,800 were purchased at prices around $8.00 by the Patrick investment advisers. More were bought to average down the initial quantity. This stock has been traded reasonably successfully.

Mogul Mining—Quantity 135,000 100,000 were accepted by AIC in the float. A further 35,000 were allocated by Patrick investment advisers without reference to AIC. Retained because of the poor listing price.

Narla—Quantity 100,000 A placement by Potter & Co.—retained because of restriction on selling date by which time the price had fallen heavily. Efforts were made to get permission to sell around 25c but company refused.

Norseman Gold—Quantity 5,000 Sale of this stock was attempted at the same price as the purchase price after the rights to Norseman Titanium had been obtained. Patrick Partners were unable to execute the order and the price fell rapidly.

99

O.B. Nickel Options—Quantity 45,000

Purchased on the basis of obtaining an entitlement to Group Exploration and subsequently retained on the recommendation of Bennett & Co. who claimed ex­ cellent results had been obtained by the company at one of its nickel prospects.

Secmin—Quantity 20,000

A Patrick investment adviser discretionary purchase. Retained because they had fallen to such a cheap price by the time discretionary account terminated.

Sparges Exploration—Quantity 5,000

Comment as above.

Selcast—Quantity 3,800

The bulk of a holding of 23,000 was sold for a small profit—the balance of 3,800 were retained at the discretion of the Patrick investment adviser, although our advice was to sell.

W estmex —Quantity 66,800

Purchased as a medium term investment to be retained at least until drilling will commence on the company’s Kimberley prospect. Our informed sources who have actually visited the site have described the numerous gossin outcrops which have consistently yielded up to 5 per cent nickel, are most promising in appearance and continuity.

Westmoreland—Quantity 6,000

Total purchase 30,000—an investment adviser discretionary purchase. The Harbourside offer has been accepted for balance.

B. G. D o u g l a s Principal AUSTRALIAN INVESTMENT COUNSELLORS PTY LTD

100

7-12

MEMORANDUM OF AGREEMENT

BETWEEN PATRICK CORPORATION LIMITED (hereinafter called ‘the Vendor’) AND SELECTED MINING HOLDINGS LIMITED

(hereinafter called ‘the Purchaser’)

MEMORANDUM whereby the Vendor acknowledges to have sold and the Pur­ chaser acknowledges to have bought the undermentioned Tenements upon and subject to the terms and conditions hereinafter appearing:

THE TENEMENTS: ALL THAT the right title and interest of the Vendor in eighty per centum of the mining interests and prospects set out and described in the report this day of Mr W. M. Billinghurst of W. M. Billinghurst & Associates Pty Ltd. Save and except for the prospect described as ‘Balfour’ therein.

THE PRICE: The sum of $376,000 which shall be satisfied as follows: (a) C ash-$ 176,000 (b) Shares in Selected Mining Holdings Limited at par—1,000,000 shares of 20 cents each fully paid with attaching options on the basis of one options

for each two shares allotted.

PROVISO: The Purchasers’ solicitors to be satisfied that the Vendors have good legal and marketable title to the tenements.

MANAGEMENT: The Vendor and the Purchaser mutually agreed to appoint Mining Advisers Pty Ltd as Managers of the tenements and to test and develop the prospects.

Dated 23 December 1970

For and on behalf of For and on behalf of

PATRICK CORPORATION SELECTED MINING LIMITED HOLDINGS LIMITED

R o y C o u r s e B. G. D o u g l a s

101

CHAPTER 10

Abuses and M alpractices in th e M aking and D isposal of Private Issues

10-1

VAM LIMITED Head Office: 4th Floor 271 Elizabeth Street

SYDNEY, N.S.W. 2000 Registered Office: 8th Floor, 325 Collins Street MELBOURNE, VICTORIA, 3000

19 September 1969.

ANNOUNCEMENT TO THE STOCK EXCHANGE

Directors advise the placement of 100,000 ordinary shares of fifty cents each in the Company through Messrs. Ralph W. King & Yuill for $676,600. This issue is cum option rights announced 11 September 1969. The number of options to be issued increases from 4,385,985 to 4,485,985.

BY ORDER OF THE BOARD, B. W. A t k in s o n , Secretary

10-2

APPLICATION FORM

The Directors Vam Limited Elizabeth Street, SYDNEY N.S.W. 2000

We, PAN AUSTRALIAN NOMINEES PTY LIMITED, of 33 Bligh Street, Sydney hereby apply for 100,000 shares of 50 cents each fully paid at a premium of $6.26. We enclose our cheque for $41,695.21 being the balance due and request you to

allot the shares to us. We agree to be bound by the Memorandum and Articles of Association of the Company.

DATED 19 September 1969.

103

10-3

PAN AUSTRALIAN NOMINEES LTD A/C VAM

Account No. 5 5 0 5 2 7 6

Client No.

Line No. Date

C/N No. Type Details

Purchase Sales and and Debits Credits Balance

5 5 0 5 2 7 6 1 2 9 .7 .6 9 193 S 750 V A M L id 6.90

2 4 5 0 0 V A M L td 6 .94 3 5 6 9 9 .5 2 3 5 6 9 9 .5 2 C R

5 5 0 5 2 7 6 3 2 9 .7 .6 9 194 S 3 4 0 0 V A M L td 6.96

4 1200 V A M L td 6.98 3 1 5 5 5 .3 9 6 7 2 5 4 .9 1 C R

5 5 0 5 2 7 6 5 2 9 .7 .6 9 195 S 3 3 5 0 V A M L td 7.00

6 1300 V A M L td 7.06 3 2 2 0 3 .6 9 9 9 4 5 8 .6 0 C R

5 5 0 5 2 7 6 7 2 9 .7 .6 9 196 S 300 V A M L td 7.10 2 1 0 2 .1 7 I0 I5 6 0 .7 7 C R

5 5 0 5 2 7 6 8 30.7 .6 9 208 S 500 V A M L td 7.00

9 1300 V A M L td 7.10 1 2564.37 1 1 4 1 2 5 .14C R

5 5 0 5 2 7 6 10 3 0 .7 .6 9 2 0 9 s 2 0 0 V A M L td 7.14

11 100 V A M L td 7.16 2 1 1 6 .0 1 1 1 6 2 4 1 .15C R

5 5 0 5 2 7 6 12 3 0 .7 .6 9 2 1 0 s 4 0 0 V A M L td 7.20 2 8 4 2 .5 2 1 190 8 3 .6 7 C R

5 5 0 5 2 7 6 13 31 .7 .6 9 216 s 1600 V A M L td 6.90

14 2 0 0 V A M L td 6.96 12 2 7 0 .2 4 1 3 1353.9 1 C R

5 5 0 5 2 7 6 15 31.7 .6 9 2 1 7 s 1050 V A M L td 7.00

16 50 V A M L td 7.06 7 6 0 2 .6 6 1 3 8956.5 7 C R

5 5 0 5 2 7 6 17 31 .7 .6 9 218 s 100 V A M L td 6.90 681.01 I3 9 6 3 7 .5 8 C R

5 5 0 5 2 7 6 18 1.8.69 222 s 4 5 0 0 V A M L td 6.9 0

19 100 V A M L td 6.96 3 1 3 3 3 .1 9 1 70970.7 7 C R

5 5 0 5 2 7 6 20 5.8.69 293 s 3 6 5 0 V A M L td 6.90 2 4 8 5 7 .5 6 1 9 5 8 2 8 .3 3 C R

5 5 0 5 2 7 6 21 5.8.69 2 9 4 s 1000 V A M L td 7.00 6 9 0 9 .0 0 2 0 2 7 3 7 .3 3 C R

5 5 0 5 2 7 6 22 5.8.69 295 s 500 V A M L td 6.94 3 4 2 4 .8 3 2 0 6 1 6 2 .16C R

5 5 0 5 2 7 6 23 6 .8 .6 9 231 s 500 V A M L td 6.90

24 2 3 0 0 V A M L td 6 .94 19159.46 2 2 5 3 2 1.62C R

5 0 5 5 2 7 6 25 6.8.69 232 s 1300 V A M L td 6.96

26 500 V A M L td 7.00 12384.77 2 3 7 7 0 6 .3 9 C R

5 5 0 5 2 7 6 27 7.8.69 237 s 4 7 0 0 V A M L td 7.00

28 2 1 5 0 V A M L td 7.06 4 7 4 5 3 .9 3 2 8 5 I6 0 .3 2 C R

5 5 0 5 2 7 6 29 7.8.69 238 s 1750 V A M L td 7.10

30 1700 V A M L td 7.16 2 4 2 7 7 .2 3 3 0 9 4 3 7 .5 5 C R

5 5 0 5 2 7 6 31 7.8.69 2 3 9 s 6 0 0 V A M L td 7.10

32 1000 V A M L td 7.16 11271.38 3 2 0 7 0 8 .9 3 C R

5 5 0 5 2 7 6 33 7.8.69 240 s 2 2 0 0 V A M L td 7.10 15416.78 3 3 6 1 2 5 .7 1 C R

5 5 0 5 2 7 6 34 7.8.69 241 s 300 V A M L td 7.20 2 1 3 1 .8 4 3 3 8 2 5 7 .5 5 C R

5 5 0 5 2 7 6 35 8.8.69 2 3 9 s 1600 V A M L td 7.20

1 900 V A M L td 7.24 17678.87 3 5 5 9 3 6 .4 2 C R

5 5 0 5 2 7 6 2 8.8.69 240 s 700 V A M L td 7.30

3 4 8 0 0 V A M L td 7.36 39770.01 3 9 5 7 0 6 .4 3 C R

5 5 0 5 2 7 6 4 8.8.69 241 s 2 4 5 0 V A M L td 7.40 17894.17 4 1 3 6 0 0 .6 0 C R

5 5 0 5 2 7 6 5 8.8.69 242 s 500 V A M L td 7.06 3 4 4 8 .6 7 4 I7 0 4 9 .2 7 C R

5 5 0 5 2 7 6 6 11.8.69 264 s 1600 V A M L td 7.38

7 750 V A M L td 7.40 17132.26 4 3 4 1 8 1 .53 C R

5 5 0 5 2 7 6 8 12.8.69 233 s 2 7 5 0 V A M L td 7.40

9 2 0 0 V A M L td 7.50 21 5 6 5 .8 5 4 5 5 7 4 7 .3 8 C R

5 5 0 5 2 7 6 10 12.8.69 234 s 300 V A M L td 7.38 2 1 8 5 .0 4 4 5 7 9 3 2 .4 2 C R

5 5 0 5 2 7 6 11 13.8.69 197 s 650 V A M L td 7.46

12 4 0 0 V A M L td 7.52 7 7 5 4 .7 7 4 6 5 6 8 7 .19C R

5 5 0 5 2 7 6 13 14.8.69 233 s 400 V A M L td 7.30

14 200 V A M L td 7.60 4 3 8 2 .1 6 4 7 0 0 6 9 .35 C R

5 5 0 5 2 7 6 15 14.8.69 234 s 350 V A M L td 7.60 2 6 2 5 .3 4 4 7 2 6 9 4 .69 C R

5 5 0 5 2 7 6 16 15.8.69 186 s 3 9 5 0 V A M L td 7.10 2 7 6 8 0 .3 0 5 0 0 3 7 4 .9 9 C R

5 5 0 5 2 7 6 17 18.8.69 196 s 450 V A M L td 7.05

18 1150 V A M L td 7.08 11167.24 5 1 1 5 4 2 .2 3 C R

5 5 0 5 2 7 6 19 18.8.69 197 s 100 V A M L td 7.10 7 0 0.59 5 1 2 2 4 2 .8 2 C R

5 5 0 5 2 7 6 20 19.8.69 181 s 1100 V A M L td 6.80

21 2 5 0 V A M L td 6.90 9 0 8 5 .1 4 52 1327.96C R

5 5 0 5 2 7 6 22 19.8.69 c 3218 P / D VAM 457 9 3 2 .4 2 6 3 3 9 5 .5 4 C R

5 5 0 5 2 7 6 23 20.8.69 150 s 150 V A M L td 6.80

24 4 5 0 V A M L td 6.90 4 0 71.22 6 7 4 6 6 .76 C R

5 5 0 5 2 7 6 25 20.8 .6 9 151 s 100 V A M L td 6.94

26 200 V A M L td 7.00 2 0 6 6 .7 6 6 9 5 3 3 .5 2 C R

104

PAN AUSTRALIAN NOMINEES LTD A/C VAM

A ccount N o . 5505276

Client Line C /N Purchase Sates and

No. No. Date No. Type Details and Debits Credits Balance

5055 2 7 6 27 2 1 .8 .6 9 197 S 500 V A M L td 6.80

28 800 V A M L td 6.86 8772.43 7 8 3 0 5 .9 5 C R

5 5 0 5 2 7 6 29 2 1 .8 .6 9 198 S 1400 V A M L td 6.90

30 3 0 0 V A M L td 6.9 4 11589.23 89895.1 SC R

5 5 0 5 2 7 6 31 2 1 .8 .6 9 199 S 6 5 0 V A M L td 6.9 0 4 4 2 6 .6 6 9 4 3 2 1 .8 4 C R

5 5 0 5 2 7 6 32 2 2 .8 .6 9 194 S 300 V A M L td 6.76

33 8 0 0 V A M L td 6.8 0 7370.85 101692.6 9 C R

5 5 0 5 2 7 6 34 2 2 .8 .6 9 195 S 100 V A M L td 6 .94 6 84.96 102377.6 5 C R

10-4

28 Belmore Street, SURRY HILLS 2010 17 August 1972

Mr D. W. Whitbread Secretary Select Committee on Securities and Exchange

Australian Senate CANBERRA A C T.

Dear Mr Whitbread, I have your letter of 10 August 1972 for reply. As I explained at greater length to you by ’phone today, I am not an officer of VAM and did not voluntarily resign from VAM.

The Secretary of VAM is completely unable to assist me with any documen­ tation. Likewise, an indirect and careful inquiry thru W. Ralph King and Yuill has been unproductive.

If with your resources you could obtain for me copies of the “ Marked Trans­ fers” referred to by your Chairman, Senator Rae, I am sure I can bring indepen­ dent evidence to show that the Scrip against which they were marked was that of myself or family.

With Respects,

Yours sincerely, F r a n k C l o s e

105

10-5

NORTH DEBORAH MINING COMPANY N.L 343 Little Collins Street Melbourne Australia 3000. 8 January 1970

The Secretary, The Stock Exchange o f Melbourne, 351 Collins Street, Melbourne 3000.

Dear Sir, North Deborah Mining Company N.L. has placed with Underwriters, Messrs Ralph W. King & Yuill, fifty thousand twenty-five cent fully paid shares ranking pari passu with existing shares, at a premium of $5.35 per share.

The report on the Siberia/Ora Banda work to date is expected shortly.

By order of the Board, I. P. C o r n e l iu s

Secretary

10-6

NORTH DEBORAH MINING COMPANY N.L. 343 Little Collins Street Melbourne Australia 3000

15 January 1970

The Secretary, The Stock Exchange of Melbourne, 351 Collins Street,

Melbourne, 3000.

Dear Sir,

This Company has placed with Underwriters, Messrs. Ralph W. King & Yuill, Members of The Sydney Stock Exchange Limited, a further 200,000 fully paid shares ranking pari passu with existing fully paid shares, at a premium of $5.20 per share net to the Company, thus raising further working capital.

By order of the Board, I. P. C o r n e l iu s Secretary

106

10-7

RALPH W. KING & YUILL 140 Queen Street Melbourne *Members of The Sydney Stock

Exchange Limited 6 January 1970

* Keith C. Phillips, *Ian C. Walton, *Gordon G. King, * William S. Shugg, Margaret H. Mittelheuser (Brisbane), Gregory S. Ficken (Melbourne),

Frank R. Johnson, Lyle S. McCarthy, Alan A. Wigzell, *W. Keith Yuill (Consultant) C. C. Maskiell, Esq. Chairman

North Deborah Mining Company N.L. 343 Little Collins Street Melbourne, Vic. 3000

Dear Sir, We hereby agree to take as Principals 50,000 fully paid 25 cent shares in North Deborah Mining Company N.L. at a price of $5.60 net to the company. It is understood—

(1) That these shares will rank pari passu with existing fully paid shares. (2) That shares certificates will be issued to our applicant Company Ralph King Nominees Pty Ltd in denominations as requested within ten days of the announcement of the placement of shares.

(3) That the Company will not announce the placement until our firm has completed its placement of these shares.

Yours faithfully, G. B. Paech

107

10-8

NORTH DEBORAH MINING COMPANY N.L. 343 Little Collins Street Melbourne, Victoria 3000. 6 January 1970

Messrs Ralph W. King & Yuill 140 Queen Street MELBOURNE, Vic. 3000

Dear Sirs, We are in receipt of your letter dated 6 January 1970 regarding a placement of this Company’s stock. I have been instructed by the Board to accept the offer as outlined in your letter.

Yours faithfully, C. C. M a s k ie l l Chairman

108

10-9

RALPH W. KING & YUILL 140 Queen Street Melbourne * Members of the Sydney Stock Exchange

Limited 9 January 1970

♦Keith C. Phillips, *Ian C. Walton, ♦Gordon G. King, *William S. Shugg, Margaret H. Mittelheuser (Brisbane), Gregory S. Ficken (Melbourne), Frank

R. Johnson, Lyle S. McCarthy, Alan A. Wigzell, *W. Keith Yuill (Consultant).

C. C. Maskiell, Esq. Chairman North Deborah Mining Company N.L. 343 Little Collins Street

Melbourne, Victoria 3000.

Dear Sir, We hereby agree to take as Principals 200,000 fully paid 25 cent shares in North Deborah Mining Company N.L. at a price of $5.45 net to the Company. It is understood—

(1) That these shares will rank pari passu with existing fully paid shares. (2) That share certificates will be issued to our applicant Company Ralphking Nominees Pty Ltd in denominations as requested within ten days of the announcement of the placement of shares.

(3) That the Company will not announce the placement until our firm has completed its placement of these shares.

Yours faithfully, G. B. P a e c h

109

10-10

NORTH DEBORAH MINING COMPANY N.L. 343 Little Collins Street Melbourne, Victoria 3000. 9 January 1970

Messrs Ralph W. King & Yuill 140 Queen Street Melbourne, Vic. 3000.

Dear Sirs, We are in receipt of your letter dated 9 January 1970 regarding a placement of this Company’s stock. I have been instructed by the Board to accept the offer as outlined in your letter.

Yours faithfully, C. C. M a s k ie l l Chairman

110

10-11

RALPH W. KING & YUILL Kindersley House 33 Bligh Street - 20 O ’Connell Street Sydney ""Members of the Sydney Stock Exchange

Limited 24 March 1972

*Keith C. Phillips, *Gordon G. King, *William S. Shugg, Margaret H. Mittelheuser (Brisbane), Gregory S. Ficken (Melbourne), Frank R.

Johnson, Lyle S. McCarthy KCP.DD.

Confidential MrD.W. Whitbread, Secretary, Select Committee on Securities and

Exchange, Australian Senate, Canberra 2600

Dear Mr Whitbread, I refer to your letter of 9 March last and advise that prospectuses were not issued for any of the three private placements of North Deborah shares handled by my firm in late 1969 and early 1970.

As far as I am aware, my firm, in its capacity as brokers to North Deborah, was not required to concern itself with the question of whether the issue of a prospectus under these circumstances was necessary or desirable. This would be a matter for North Deborah. However, my view is that no prospectus would have been necess­

ary as no offer to the public of the shares in question was involved. My view in this regard has been confirmed by Counsel.

Yours sincerely, K. C. P h il l ip s

111

10-12

RALPH W. KING & YUILL Kindersley House 33 Bligh Street—20 O ’Connell Street Sydney ^Members of The Sydney Stock

*Keith C. Phillips, *Gordon G. King, * William S. Shugg, Margaret H. Exchange Limited 15 August 1972

Mittelheuser ( Brisbane), Gregory S. Ficken (Melbourne), Frank R. Johnson, Lyle S. McCarthy KCP:MJH

D. W. Whitbread Esq., Secretary Select Committee on Securities & Exchange, Australian Senate, Canberra, A.C.T.

Dear Mr Whitbread, I refer to your recent letters and reply as follows—

Transcript of F. R. Johnson and P. A. R. Brand:

One copy is returned herewith. Certain small alterations have been made by Messrs Johnson and Brand.

Your letter 7 August 1972—North Deborah:

According to our records House Account Ί 7 sold 3,700 shares at $3.80 on 5 January 1970 and the balance at the close of business that day appears short 4,300 shares. We cannot reconcile your figure of 2,150 shares bought. On the 6 January 1970 purchases totalling 800 were booked as at 5 January

1970 being transactions effected on 5 January 1970 but not reported to the Stock Exchange in time to be included in the work processed by the computer on that day. As regards the balance on 13 January 1970 there appears to be transactions where Ί 7 bought from House Account ’82 on the 9 January 1970 5,250 and 7,500 shares at $4.80 and these seem to be correcting an error which may have occurred in ’82. The aggregate balance of shares held in house accounts remained constant.

Your suggestion that transactions on house account were used to ‘stabilize’ and ‘create an impression ’ is emphatically refuted.

Our Letter 17 April 1972—Contract Notes re: North Deborah:

These matters are referred to in the transcript now returned to you. We have analysed the buys and sells on 7 January 1970 and 9 January 1970 as they refer to transactions with clients and other brokers. It is our opinion that the

112

analysis of the line by line reporting as shown on the scrip ledger card is not sufficient to assess the trading during a particular day but that all transactions must be examined in total. From this analysis we find that we bought on 7 January 1970 700 at 5.50, 300 at

5.70, 1,000 at 5.40 and 1,300 at 5.30 and sold 300 at 5.70, 250 at 5.30 and 300 at 5.20. On this basis Barnum (100 at 5.30) was a correct transaction and brokerage was added to the consideration correctly. This, however, does draw attention to the 300 at 5.20 (Moxham) and in this case we believe an error was made in that there could have been a limit placed by the client and that to keep faith with our client we

booked them to him at his limit and carried the ensuing loss ourselves, whilst still entitled to brokerage. Similarly on 9 January 1970 we bought 3,700 at 5.00, 200 at 5.30, 750 at 5.40 and 1,350 at 5.50 and sold 2,400 at 5.00 and 1,050 at 5.30.

On this basis Crosby and Blockly were correct transactions and brokerage was added to the consideration correctly. However, as regards Westmacott and James (a total of 1,050 at 5.30) we believe that the situation was similar as with Moxham on 7 January 1970.

Your letter 10 August 1972—Vam:

Firstly the transactions on Ί 7 are small in quantity and do not appear to be other than in the ordinary course of business and not affected by the placement. Secondly, further information was given in pages 11216; we have no further comment concerning the market transfers.

Yours faithfully, K. C. P h il l ip s

113

10-13

SENATE SELECT COMMITTEE ON SECURITIES AND EXCHANGE Canberra A.C.T. 5 October 1972

M rK .C. Phillips, Ralph W. King& Yuill, G.P.O. Box 5320, Sydney, N.S.W. 2001

Dear Mr Phillips, I refer to your letter of 15 August 1972, and your comments in respect of contract notes covering certain transactions in North Deborah shares. The Committee, having considered your letter, have asked me to write to you again in order that they can be quite clear as to your meaning.

Are the Committee to understand that, with, say, the sale of 1,000 shares at $5.00 to Crosby, the firm’s House Account, 0010017, was acting as a kind o f‘clear­ ing’ account; in that instead of the operator buying in the market a specific number of 1,000 shares for the client at $5.00, 3,700 were ‘booked’ to account 0010017 during the day, and later in the day 1,000 of these were ‘booked’ to the client at $5.00.

Also, can the Committee take it that on 9 January 1970, when account 0010017 bought 6,000 North Deborah shares and sold 3,450 North Deborah shares, the firm was a net purchaser, as a principal, of the difference of 2,550 shares? Again in your comments the Comittee notes your use of the phrase ‘we bought on 7.1.70’ and ‘Similarly on 9.1.70 we bought’. Would you please advise the Com­

mittee whether the ‘ we ’ refers to purchases in Account 0010017? Finally, the Committee have asked if you would kindly forward a copy of— (i) the ledger account of North Deborah for House Account 0010017 for the period 1 October 1969 to 31 January 1970 and (ii) the ledger account of Vam for House Account 0010017 for the period 1 July

1969 to 30 September 1970. A reply as soon as possible would be appreciated. With many thanks for your assistance.

Yours sincerely, D. W . W h it b r e a d Secretary

114

10-14

RALPH W. KING & YUILL Kindersley House 33 Bligh Street—20 O ’Connell Street Sydney

*Members of the Sydney Stock Exchange Limited 24 October 1972

*Keith C. Phillips, *Gordon G. King, *William S. Shugg, Margaret H. Mittelheuser (Brisbane), Gregory S. Ficken (Melbourne), Frank R. Johnson, Lyle S. McCarthy.

KCP.DD.

D. W. Whitbread Esq., Secretary, Select Committee on Securities and Exchange, Australian Senate,

CANBERRA 2600 Dear Mr Whitbread, I refer to your letter of 5 October and my reply thereto dated 9 October. The firm’s House Account, 0010017 during the January 1970 period was used

for the purpose of ‘clearing’ or adjusting differences between orders and ex­ ecutions. Hence, the ‘ we bought’ refers to entries in account 0010017 which appear as purchases and these entries arose from the conduct of our clients ’ business. How­

ever, in the case of Crosby, the 1,000 shares at $5.00 were booked from market transactions and not from our House Account. On 9 January 1970 our House Account 0010017 was a net purchaser from the market of 2,550 North Deborah shares.

Owing to the elapse of time since this period of hectic trading we are unable to recall all the reasons for the entries in our House Account 0010017. For instance, if we were requested to purchase shares at a given price and the order was sub­ sequently cancelled or amended, the operator may have completed the original

transaction on the trading floor prior to the receipt of new instructions. Such trans­ action may have then been booked to House Account and adjusted at a later date. In terms of your telephone conversation of even date with Mr Brand, would you please amend the transcript on page 11218, line 7, to read \ . . created ’ in lieu

o f‘corrected’.

Yours sincerely, K. C. P h il l ip s

24175/ 75-5 115

10-15

THE STOCK EXCHANGE OF MELBOURNE LIMITED Stock Exchange House 351 Collins Street MELBOURNE, Victoria 3000 9 January 1970

RD K/CT The Chairman, North Deborah Mining Company Limited N.L., 340 Little Collins Street, MELBOURNE, Victoria 3000.

Dear Sir, We refer to your letter of 8 January 1970 to this Exchange advising of a placement with Messrs Ralph W. King & Yuill of 50,000 25 cent fully paid shares in your Company ranking pari passu with existing shares, such placement being effected at a premium of $5.35 per share.

We also refer to your Company’s advices to this Exchange of 7 January 1970, whereby it was stated that no reason was known for the recent price rise in your Company’s shares other than announcements already made to Stock Exchanges. We are concerned principally from the rather incongruous aspect as to the basis of the placement being affected at a premium of $1.40 per share over last night’s

closing price, especially in view of the Company’s denial of 7 January 1970 that it knew of no reason for the recent price rise evident in the Company’s securities. Your prompt written advices are requested.

Yours faithfully, R. D. K n o w l e s Assistant Secretary

116

10-16

NORTH DEBORAH MINING COMPANY N.L. 343 Little Collins Street Melbourne Victoria 3000

9 January 1970

Mr R. D. Knowles, Assistant Secretary, The Stock Exchange of Melbourne, 351 Collins Street,

MELBOURNE, 3000.

Dear Sir, We refer to your letter of even date and wish to advise as follows. When the placement was discussed with the Underwriters, Messrs Ralph W. King & Yuill, the share price ranged from $6.50 to $7.00. To gain the best value from the viewpoint of the Company, the share placement was immediately

arranged at $5.60 per share net to the Company, thus providing increased working capital. While the report on the Siberia/Ora Banda areas is due shortly from the Com­ pany’s Consultants, the Board has no advance knowledge of its contents.

Yours faithfully, for North Deborah Mining Company N.L. C. C. M a s k ie l l

Chairman

117

10-17

ALLSTATE EXPLORATIONS N.L. Suite 31.09 Tower Building Australia Square SYDNEY, 2000

16 October 1972

Executive and Engineering Office; The Secretary, Select Committee on Securities and Exchange,

Australian Senate, CANBERRA, A.C.T.

Dear Mr Whitbread, In response to your letter of 12 October 1972,1 advise that a reply to your letter of 28 September 1972, has been prepared following my return from overseas, and that this present letter deals only with the points raised in your letter of 12 October

1972. I welcome the opportunity to comment on the matters covered in your letter, as I may be able to contribute to the understanding by your Committee of the nature of the operations of a mineral exploration company, as well as to provide realistic comment on the motives and interests of people who take up share placements of mineral exploration companies.

The placement of shares by Allstate in 1969 and 1970 was not based upon or in any way supported by statements or even indications by the company that the funds would be used specifically on any one or any group of its mineral prospects. In fact the company’s two announcements of the placements referred to use of

funds in its ‘expanding exploration programs’, and in its ‘exploration program’. Some or all of the company’s funds would obviously be used to finance further op­ erations on the prospects which the company had at that'time, but the amount of such expenditures would necessarily depend upon the extent to which further expenditure was shown to be worthwhile by ongoing work.

Our appreciation of the realities of a share placement by a mineral exploration company is that the people taking the placement of shares are either consciously taking a chance on one or more of the company’s then-current prospects, or a prospect it may subsequently acquire, developing into a commercial orebody from which they can draw future dividends; or they would be simply indulging in a speculative share market operation in a share the market price of which they con­ sider may go higher and which they hope to be able to sell at a profit. In the absence o f any statement of intent by the company to that effect, we do not consider that

any subscriber would really expect his particular cash payment for shares to be used specifically to explore any given prospect; or that the sum of his own and all other subscriptions at the time would necessarily be totally used on the prospects then held by the exploration company.

118

For the company, the placement results in the raising of speculative money which is used in the speculative activity of mineral exploration, the results of which in the case of Allstate are commented on below.

We do not expect that the Committee will have in mind any general ethical or moral point regarding the speculative element of either the raising of funds for a mineral exploration company or the type of activity on which those funds are spent. Exploration companies are simply at the more speculative end of the spectrum of

investments via the Stock Exchanges. I would suggest that the high price of Allstate shares at the end of 1969 was not due entirely to hopes or expectations regarding the particular prospects which you have mentioned, but would be partly due to the whole of the circumstances of the sharemarket at that time and the interest generated by the company’s Tasmania Gold prospect and its Halls Peak prospect, as well as general expectations which

may arise from a favourable view of the reputation and ability of its management and Directors. It is obvious that the spark which raised the price of the shares to the high level experienced at the end of 1969 was provided by the Poseidon discover­ ies, which lifted the speculative share market generally, and lifted Allstate substan­ tially, because of the above factors and because of its prospects in the general area of Poseidon and the W.A. nickel belt.

If any one of the prospects then current had carried through to the proving up of a commercial orebody, the whole or a majority of the funds raised by Allstate from the share placements would have been needed to take the prospect to the stage of positive feasibility. It is relevant to note that the Allstate Board refused an offer to

place more of its shares at the time, because it considered that the company had acquired sufficient funds for its foreseeable needs. This is not the action of a com­ pany which takes funds from the public without reference to its ability to properly use those funds in the company’s future operations.

In fact none of the mineral prospects which had been announced up to the time of the placements have stood up to detailed geological investigation including drill­ ing· :

But you will appreciate that the process of exploration is a continuing one involving the locating of a prospect, the securing of title to it, the investigation of it stage by stage to the furtherest stage where results cease to warrant additional expenditure, and (on all except a very small proportion) the dropping of that

prospect and going through the same cycle with others. For the information of the Committee I attach a schedule indicating the general location of prospects on which Allstate has spent significant money, and the number of prospects involved. I would comment that the major part of the funds

initially raised by the company on its flotation were in fact spent on the particular prospects on which the flotation was based; but the remainder of its funds—which were made available to the company through the placements in which the Com­ mittee is interested—have enabled the company to extend its operations to a large

number of mineral prospects, and this is surely what a company such as Allstate exists to do. In pursuing the cycle of acquisition investigation and rejection as mentioned above Allstate has now, in the W.A. nickel belt, come up with a promising prospect

located south of the Selection Trust/Agnew discovery and north of Newmont/Ag- new discovery and on the same geological structure as these two mineral finds. All-119

state has carried out sufficient preliminary work on this prospect to establish its strong interest, but having spent substantial funds in exploration leading to the location of this prospect (and several other strong prospects mentioned below), it does not now have sufficient funds to carry through the exploration of these prospects to feasibility.

Allstate is therefore negotiating a farm-out on its W.A. nickel prospect at Agnew, which provides Allstate with a free carried 25 per cent interest up to feasi­ bility, with a 25 per cent contributing interest thereafter. If Allstate had more ready access to funds than it presently does have, it could fund this work itself and retain 100 per cent of the interest instead of allowing 75 per cent of the interest to go to another company and, quite possibly, to a non- Australian party. This is an example where funds for an exploration company should be more readily available, not made more difficult to acquire.

The acquisition of funds from the placements has enabled Allstate to continue its work energetically and effectively on prospects which were not known at the time of the placements. In addition to exploration to rejection stage of a large number of Australian prospects, the funding has enabled Allstate to acquire several most promising current prospects and contractual positions including the follow­ ing:

(a) On 17 August 1972, Allstate announced a joint venture in Central Kalimantan, Indonesia, with companies including MIM Holdings Ltd, regarding an unexplored 10,000 square KM area from which diamonds are known to have been extracted by the local population over a consider­ able period of years.

The partners in this venture include an Indonesian group, which makes the exploration and (if appropriate) mine development and operation work a practical proposition. It must surely be in the interests of the Australian investing public for soundly based exploration and exploitation of this type of mineral prospect

to be initiated and controlled by Australian companies such as Allstate and MIM Holdings. Those investors in the Allstate placements in question, if they have retained their holdings, may still benefit from the investment. even at the price of the placements. (b ) Allstate has also negotiated an agreement with Barringer Research Lim­

ited of Canada, a world leader in the field of mineral detection equipment both airborne and land based, which gives Allstate a five year exclusive right to the use of the Barringer equipment in Australia on unpegged areas, once Barringer commences its Australian operations. An aircraft is cur­ rently being fitted out in Australia with the Barringer equipment.

It is surely in the interests of Allstate shareholders, as well as in the interests of the Australian investing public in general, that the acquisition of funds from the placements in question has enabled Allstate to take such an initiative and to undertake such negotiations. (c) The company’s ‘Weebo Bore’ prospect in the Agnew area o f the W.A.

nickel fields, adjoining Newmont and close to the Selection Trust nickel discoveries, is mentioned above. Allstate’s routine exploration work in W.A. which has eventually resulted in Allstate’s location of this prospect, securing of its title and carry-

120

ing out investigation work to the present stage, has been made possible only by the funds which it acquired from the placements in question. Surely this is the sort of activity which would have been expected by those people who bought placement shares and who did in fact take an

intelligent interest in the prospects and operations of the company. (d) Allstate’s general exploration work has also produced several other prospects of promise which are currently in process of investigation, or are the subject of negotiation with other parties to finance their investigation.

These will be announced by the Company’s Board as appropriate. I hope that the above comments will be helpful to the Committee in relating the acquisition of funds by a mineral exploration company to the expenditure of those funds on mineral exploration activities. I hope also that the references to the moti­

vation of investors, which is near to the heart of the problem, are helpful to the Committee in forming a realistic view of the nature of the funding of a mineral ex­ ploration company, and the expectations of people who purchase shares in a placement from such a company.

In conclusion I feel obliged to express the hope that the eventual recommenda­ tions of the Committee will avoid the serious weaknesses included in legislation on these matters in some other countries where so many restrictions have been placed on the raising of speculative money by mineral exploration companies that mineral

exploration activity by smaller companies has largely been snuffed out. Unless grass roots exploration can be funded by Australians, there is little chance that Aus­ tralians can control or keep a strong equity interest in the Country’s mineral pro­ duction industry.

If in fact it is a national aim to develop the nation’s mineral resources, and if it is a function of Stock Exchanges to enable the raising of money for this purpose (which must be speculative and must be able to be used flexibly in the exploration phase), then I would suggest that legislation based on a logical extension of the line

of approach indicated in your letter under reply, could perhaps be damaging to the interests of the nation. Yours faithfully, D. L. E l s w o r t h

Chairman

10-17

ATTACHMENT A ALLSTATE EXPLORATIONS N.L.

Approximate Gross Expenditure on Prospects to end September 1972.

Number of $’000

Significant Gross

Prospects Expenditure

Western Australia 21 950

Tasmania 2 490

New South Wales 5 180

Queensland 5 130

Indonesia 1 70

Head Office 1 140

TOTALS 35 1,960

121

10-18

VAM LIMITED and subsidiary companies internal correspondence Memo to: Mr F. A. Close from: Surveys & Mining Shares 6 January 1969

Please approve the following: W. C. Stacey 1000 shares Application

The following from Mr J. Gibbs

Applications: Neil Sheers (Sydney Morning Herald) 500 shares Michael Kulakowski 500 shares Jules Zanetti 1,000 shares Cliff Riggs (Daily Mirror) 500 shares Ervin Katz, 1,000 shares

Michael Baume 500 shares Geoffrey Philip Short, 500 shares Peter D. O ’Sullivan (Financial Review) 500 shares F. Close

Footnote by Committee:

The precise allotments were: N. Speirs 500 shares

(spelt incorrectly above) M. Kulakowski J. Zanetti 500 shares

1.000 shares 500 shares 1.000 shares 500 shares

500 shares 500 shares

C. Riggs E. Katz M. Baume G. P. Short P. D. O ’Sullivan

122

10-19

SURVEYS & MINING LIMITED (A Division of Vam Limited) Registered Office: 4th Floor

271 Elizabeth Street Sydney, New South Wales 2000 7 January 1968

Dear Sir, Your name has been nominated by Mr John Gibbs for an allocation of shares in the recent placement of shares in Surveys & Mining Limited at 60 cents per share.

If you would please complete the application form enclosed and forward a cheque for $ made out to Surveys & Mining Limited, a certificate will be issued to you in due course.

Yours faithfully, B. W. A t k in s o n , Secretary

Copies to: Neil Sheers (Sydney Morning Herald) 500 shares Michael Kulakowski 500 shares Jules Zanetti 1,000 shares Cliff Riggs (Daily Mirror) 500 shares

Ervin Katz, 1000 shares Michael Baume, 500 shares Geoffrey Philip Short, 500 shares Peter D. O ’Sullivan (Financial Review) 500 shares

123

10-20

SURVEYS & MINING LIMITED (A Division of VAM Ltd) 4th Floor 271 Elizabeth Street Sydney, N.S.W. 2000 7 January 1968

Mr Donald E. Wilson, 16 Wallace Street, Greenwich, N.S.W. 2065.

Dear Sir, Your name has been nominated by Mr John Gibbs for an allocation of 500 shares in the recent placement of shares in Surveys & Mining Limited at 60 cents per share.

If you would please complete the application form enclosed and forward a cheque for $300.00 made out to Surveys & Mining Limited, a certificate will be issued to you in due course.

Yours faithfully, B. W. A t k in s o n , Secretary

124

10-21

281 Eastern Valley Way, Middle Cove, 2068 11 December 1972

Mr D. W. Whitbread, Secretary, Select Committee on Securities and Exchange, Australian Senate,

Canberra, 2600 Dear Sir, In reply to your letter of November 30, 1972 re the placement of shares by Sur­ veys and Mining Ltd, my recollection is that around that time I was employed by the VAM group of companies as Public Relations Officer.

It is normal procedure for a Public Relations Officer to suggest that a small allo­ cation of shares in a public issue be offered to Press representatives (who do not necessarily accept such offers). I do not recall Mr Kvlakowski or Mr Katz but it is not unusual for a Press

representative to decline an offer of shares but suggest that the allocation be given to someone else.

Yours faithfully, J. R. G ibbs

125

10-22

PATRICK PARTNERS 2 Castlereagh Street, Sydney, 2000 Melbourne, Brisbane, Canberra, Wollongong, Perth, Brussels.

* Members of the Sydney Stock Exchange Limited 13 October 1972

* M. R. L. Dowling, * N. R. Course, * M. A. McGrath, J. A. Keir, *T. R. Allen, R. W. Burge, R. A. Noss, J. S. Corner, W. J. Edwards, Μ. E. Baume, A. Burt, P. Davie, R. N. Gottliebsen Ref. JAK

The Secretary, Senate Select Committee on Securities and Exchange, Australian Senate, CANBERRA, A.C.T.

Dear Sir, I refer to the evidence I gave before your Committee on 11 and 12 September last. Certain matters were left with me for further enquiry and research. I am now able to advise as follows:

CARR BOYD MINERALS LIMITED The Committee has put forward the view, that, on the face of the records, Patrick Partners, as principal, sold heavily the shares of Carr Boyd during the week preceding the public announcement of the Carr Boyd placement in June 1970 and, in fact, while the placement was being negotiated. .

This view is incorrect. Research has shown that, as between Carr Boyd Minerals and Patrick Partners, Carr Boyd agreed, firm, on 17 June to issue to Patrick Par­ tners, acting as brokers for Mining Traders Limited and Castlereagh Securities Limited, 200,000 shares. This was the original total requirement of the Company. On 18 June, the issue price was slightly varied from $3.50 to $3.55, Carr Boyd pay­ ing Patrick’s brokerage out of that price.

The additional 100,000 were never offered to Patrick Partners. The company has informed me that they were introduced only when Messrs D. J. Carmichael & Co. of Perth made representations to the company on 19 June that they be allowed to participate in the placement, they having been closely involved with Patricks when the company’s shares were first floated. The company then, on 19 June, de­ cided to increase their requirement to 300,000 and made the entire additional amount of 100,000 available to Carmichaels. The company says these ar­ rangements were not completed in time to inform the Stock Exchange that after­ noon (Friday). The company reported it to the Exchange in Sydney (not Mel­

126

bourne) by letter dated Monday, 22 June. Officers of the Sydney Exchange say that this letter was not received by the Exchange until about 11 o ’clock on Tuesday, 23 June, when the Melbourne and Perth Exchanges were immediately informed by telex. Both Exchanges queried the terms of the announcement. The queries were referred back to the company which sent a second letter to the Exchange in Sydney immediately. This was broadcast by telex to Melbourne and Perth immediately. It is not correct, as suggested at Page 11418 of the transcript, that Carr Boyd notified

the Melbourne Stock Exchange direct. There was no agreement between Patricks and the company that the necessary announcement to the Stock Exchange would be delayed; the understanding was to the contrary, but it was for the company to make the announcement, not Patricks.

Patricks did not take the shares in the first place, nor did it sell, as principal. They took the placement and sold as brokers for Castlereagh Securities Limited and Mining Traders Limited.

METALS EXPLORATION N.L.

At Page 11453 of the transcript, the Chairman referred to the company’s state­ ment on 6 September to the Melbourne Stock Exchange that, although it was not usually its policy to mark transfers, because of the special circumstances at the time, it had marked transfers for 150,000 of the placement and had agreed to mark

transfers for the balance when issued. I was asked what were the special cir­ cumstances. I replied I did not know. I still cannot say of my own knowledge and I do not wish to speculate.

POSEIDON N.L.

Between Pages 11512 and 11517 of the transcript, the Committee is shown to be dealing with the proposition that substantial transactions involving shares in Poseidon were undertaken by M.T.D. in March/April 1970 and that they resulted in a substantial profit at a time of a falling market for these shares (see Page

11515). In this period, Patrick & Company held 5,000 Poseidon shares and it was agreed with M.T.D. Pty Ltd that it would be held covered against trading by it in Poseidon. These shares were held by the Partnership throughout the period refer­ red to.

I enclose copies of Ledger Account 41 for Poseidon to cover March and April 1970 as requested.

M.T.D. PTY. LIMITED BROKERAGE This is referred to in the transcript at Pages 1 1522 and 11524. The relationship between this evidence and the evidence given by Mr M. R. L. Dowling at Page 10117 is shown in his letter of even date which is enclosed herewith.

A.C.M.

On reading the transcript, it is difficult to see what further information the Com­ mittee requires. Patricks were not underwriters to the issue; they were sub­ underwriters, bound by the Stock Exchange rules not to permit their name to be mentioned in the prospectus. It was not a prestige float at the time the sub­

underwriting commitment was made, and, in fact, a shortfall in the issue was expected. It only became popular when the Poseidon discovery of nickel in areas

127

near to those held by A.C.M. caught the imagination of the market. This discovery was made almost coincidentally with the sub-underwriting commitment and did not have any influence on it. The Patrick Partners allocation was spread between nominee companies for

reasons of security. The prospectus disclosed that the issue was fully underwritten and taken firm, so that the public participated through brokers ’ allocations and not by direct application to the company.

YARRA INVESTMENTS PTY. LIMITED (Reference Pages 11526 and 11560 o f the transcript) Yarra Investments Pty Ltd did not participate in the A.C.M. issue nor did it pur­ chase shares after flotation. The issue took place in November 1969 and the Part­ nership did not acquire the issued shares in Yarra Investments until the end of April 1970. Negotiations with the previous owners of Yarra Investments commen­ ced in May 1969. They fell off"for a period and were renewed again around the end of November and continued until April 1970. The plan was to use Yarra Invest­ ments as a subsidiary of Mining Traders in the same manner as M.T.D. When the purchase of Yarra was postponed it was decided that the incorporation of M.T.D. proceed and it was incorporated on 3 February 1970. In the interim we had opened a share account in our ledgers titled ‘Yarra Investments’. The transactions recorded on that account were taken up by M.T.D. Pty Ltd.

PASAR INVESTMENTS PTY. LTD.

The beneficial owner of the 121,700 shares held by Patrick Nominees is M.T.A. Pty Ltd.

FLINDERS PETROLEUM

Toxteth Exploration Company Pty Limited and Patrick Nominees Pty Limited held the shares in Flinders Petroleum mentioned at Page 1 1588 of the transcript, for Patrick Partners as principal.

Yours faithfully, PATRICK PARTNERS Per: J. A. Keir

128

10-23

CARD No. 564 CARRBOYD

Client No. o f shares

or or ----------------------- or

S /S Bk. Client De- Serial Adjust S/S

Date No. No. Seller’s name broker Trading Price livered No. ments No.

19.6.70 74 W.H. Smith . . . . 500 4.00

74 W.H. Smith . . . . 1,000 4.00

41 Trading . . . 2,000 4.00

41 Trading . . . 4,500 4.10

as at

41 Trading . . . 1,300 4.30

22.6.70 66 Trading Adjust . . . 1,700 2.58 439

41 Trading . . . 5,000 4.25 107

22.6.70 292 0279166 Castlereagh Sec. . . . 50,000 4.52 25.6.70 290/04 ..

22.6.70 129 0019729 MTD Pty Ltd. . . . 100,000 4.52 Cancelled by 128,29/6

41 Trading . . . 500 4.50 669

41 Trading . . . 100 4.40 669

41 Trading . . . 10,300 4.70 670

41 Trading . . . 39,400 4.80 670

41 Trading . . . 29,700 4.80

22.6.70 41 McNall . . . . . . 100 4.40

22.6.70 18 White . . . . . . 500 4.80

22.6.70 16 North . . . . . . 1,000 4.80

22.6.70 16 North . . . . . . 100 4.80

22.6.70 16 North . . . . . . 400 4.80

or Bk. Client

No. Buyer’s name broker Trading Price

25 C o n s t a b le .................... 500 4.00

61 Lamplough . . . . 1,000 4.00

47 C u r r a n ......................... 2,000 4.00

18 White ......................... 4,500 4.10

25 C o n s t a b le .................... 1,300 4.30

0833988 Fravenfeld Inves . . 1,700 2.58

0017426 Laurie Mil bank . . . 5,000 4.25

41 Trading .................... 150,000 4.52

1320829 M in S ecS A /c . . . 500 4.50

1320829 M in S ecS A /c . . . 100 4.40

1320829 M in S ecS A /c . . . 10,300 4.70

1320829 M in S ecS A /c . . . 69,100 4.80

41 Trading .................... 100 4.40

66 Trading Adjust . . . 500 4.80

41 Trading .................... 1,000 4.80

41 Trading .................... 100 4.80

66 Trading Adjust . . . 400 4.80

NOTE: For ease o f reading, only relevant details are shown on this extract from Patrick and Company’s scrip register for Carr Boyd Minerals. Delivery dates, remarks etc. have been deleted.

10-24

PATRICK PARTNERS: PURCHASES AND SALES OF CARR BOYD MINERALS SHARES BY TRADING ACCOUNT 41 29.5.70 to 22.6.70 (Extracted from Patrick Partner’s Scrip Ledger)

Seller Buyer

Card Account No. o f Account No. o f

Date No. No. shares Price No. shares Price

$ $

2 9 .5 .7 0 547 41 2 ,1 0 0 2.40

1.6.70 5 4 7 41 100 2 .6 0

2 .6 .7 0 548 41 900 3 .00

2 .6 .7 0 548 41 900 3 .00

2 .6 .7 0 548 41 300 3.10

2 .6 .7 0 548 41 300 3 .10

2 .6 .7 0 548 41 100 3 .1 0

2 .6 .7 0 548 41 2 0 0 3 .00

2 .6 .7 0 548 41 1,800 3.00

2 .6 .7 0 5 4 9 41 100 3.0 0

2 .6 .7 0 5 4 9 41 5 ,0 0 0 (fro m L o n d o n ) 2.75

2 .6 .7 0 549 41 3 0 0 3.00

2 .6 .7 0 5 4 9 41 100 3.00

2 .6 .7 0 5 4 9 41 2 0 0 3.10

2 .6 .7 0 5 4 9 41 100 3.10

2 .6 .7 0 5 4 9 41 2 ,7 0 0 3 .10

3 .6 .7 0 549 41 2 ,0 0 0 (f ro m o v e rs e a s ) 3.25

3 .6 .7 0 5 4 9 41 2 ,0 0 0 3.00

3.6.70 5 4 9 41 2 ,0 0 0 3.05

3.6 .7 0 5 5 0 41 1,000 3.00

3.6 .7 0 550 41 1,000 3.00

3.6.70 550 41 200 3.00

3.6.70 550 41 800 3.20

T h u r s d a y 4 .6 .7 0 550 41 j,0 0 0 ( f ro m o v e rs e a s ) 3.25

4 .6 .7 0 551 41 300 3 .30

4 .6 .7 0 551 41 500 3 .30

4 .6 .7 0 551 41 2 0 0 3 .30

5 .6 .7 0 551 41 1,000 3.20

6.6.70 552 41 2 ,0 0 0 (fro m o v e rs e a s ) 3.15

6 .6 .7 0 552 41 200 3.20

6.6.70 552 41 100 3.20

6 .6 .7 0 552 41 2 ,0 0 0 3.20

6.6 .7 0 552 41 100 3.25

6.6 .7 0 552 41 3 0 0 3 .20

6 .6 .7 0 552 41 100 3.20

6 .6 .7 0 552 41 100 3.20

6.6.70 552 41 100 3 .20

8.6.70 552 41 2 ,0 0 0 (fro m o v e rs e a s ) 3.20

8.6.70 553 41 2 ,0 0 0 3.25

9.6.70 553 41 1,000 (fro m o v e rs e a s ) 3.06

9.6.72 553 41 300 3.10

9.6.72 553 41 500 3.10

9.6.70 554 41 200 3.10

T h u rs d a y 11.6.70 554 41 1,000 4 .10

11.6.70 554 41 1,000 3.95

11.6.70 554 41 1,000 (fro m o v e rs e a s ) 3.80

11.6.70 5 5 4 41 900 3.85

11.6.70 555 41 2 0 0 4 .10

11.6.70 555 41 1,000 ( f ro m o v e rs e a s ) 3.78

11.6.70 555 41 900 4.00

F rid a y 12.6.70 556 41 700 3.65

12.6.70 556 41 200 3.7 0

12.6.70 556 41 2 ,700 3.8 0 .

12.6.70 557 41 1,000 3.80

130

PATRICK PARTNERS: PURCHASES AND SALES OF CARR BOYD MINERALS SHARES BY TRADING ACCOUNT 41 29.5.70 lo 22.6.70 (Extracted from Patrick Partner’s Scrip Ledger)

Seller

Card Account No. o f Account No. o f

Date No. No. shares Price No. shares Price

Friday $ $

12.6.70 557 41 100 3.85

12.6.70 557 41 1,600 3.80

12.6.70 557 41 500 3.80

12.6.70 557 41 500 3.80

12.6.70 557 41 100 3.70

12.6.70 557 41 100 3.70

12.6.70 557 41 500 3.60

12.6.70 557 41 9 0 0 3.60

12.6.70 557 41 1,000 3.70

12.6.70 557 41 100 3.75

12.6.70 T uesday

557 41 300 3.60

16.6.70 558 41 300 3.91

16.6.70 W ed n e sd ay 558 41 10,000 (f ro m L o n d o n ) 3.69

17.6.70 558 41 100 3.80

17.6.70 558 41 100 3.60

17.6.70 558 41 100 4.6 0

17.6.70 558 41 6 ,9 0 0 4 .50 (to M e lb o u rn e b ro k e r)

17.6.70 558 41 10,000 4 .6 0 (to M e lb o u rn e b ro k e r)

17.6.70 558 41 3 ,1 0 0 4 .60 (to M e lb o u rn e b ro k e r)

17.6.70 559 41 10,400 4 .40 (to M e lb o u rn e b ro k e r)

17.6.70 559 41 3 ,0 0 0 4.55 (to M e lb o u rn e b ro k e r)

17.6.70 559 41 16,000 4 .30 (to M e lb o u rn e b ro k e r)

17.6.70 559 41 200 4.40

17.6.70 559 41 900 4.6 0 (to M e lb o u rn e b ro k e r)

17.6.70 560 41 4 0 0 4.4 0 ( to M e lb o u rn e b ro k e r)

17.6.70 560 41 200 4.30

17.6.70 560 41 500 4 .50 (to S y d n e y b ro k e r)

17.6.70 560 41 10,000 4.4 0 (to S y d n e y b ro k e r)

17.6.70 560 41 2 0 0 4 .40 (to S y d n e y b ro k e r)

17.6.70 560 41 7 0 0 4 .50 (to S y d n e y b ro k e r)

17.6.70 560 41 300 4 .50 (to S y d n e y b ro k e r)

17.6.70 560 41 6 ,0 0 0 4 .40 (to S y d n e y b ro k e r)

17.6.70 560 41 100 4 .4 0 (to S y d n e y b ro k e r)

17.6.70 560 41 4 0 0 4.35 ( to S y d n e y b ro k e r)

17.6.70 560 41 1,900 4.50 ( to S y d n e y b ro k e r)

18.6.70 560 41 100 4.4 0 (to S y d n e y b ro k e r)

18.6.70 561 41 1,100 4.60 (to M e lb o u rn e b ro k e r)

18.6.70 561 41 1,200 4 .5 0 (to M e lb o u rn e b ro k e r)

18.6.70 561 41 9,8 0 0 4.5 0 ( to M e lb o u rn e b ro k e r)

18.6.72 561 41 600 4 .4 0 (to M e lb o u rn e b ro k e r)

18.6.70 562 41 8,3 0 0 4 .70 ( to M e lb o u rn e b ro k e r)

18.6.70 562 41 300 4 .70 (to M e lb o u rn e b ro k e r)

18.6.70 562 41 400 4 .65 ( to M e lb o u rn e b ro k e r)

18.6.70 562 41 100 (fro m c lie n t) 4.55

18.6.70 562 41 400 4 .70 ( to M e lb o u rn e b ro k e r)

18.6.70 562 41 100 4 .70 ( to M e lb o u rn e b ro k e r)

18.6.70 562 41 400 4 .60 (to M e lb o u rn e b ro k e r)

18.6.70 562 41 2 0 0 4.6 0 (to c lie n t)

18.6.70 562 41 100 4.6 0 ( to c lie n t)

18.6.70 562 41 1,000 4.4 0 ( to S y d n e y b ro k e r)

18.6.70 563 41 1,000 4.5 0 ( to S y d n e y b ro k e r)

18.6.70 F rid a y

563 41 200 4 .40 ( to S y d n e y b ro k e r)

19.6.70 563 41 3 ,300 4 .20 (to M e lb o u rn e b ro k e r)

19.6.70 563 41 500 4 .40 (to M e lb o u rn e b ro k e r)

19.6.70 563 41 300 4 .45 (to S y d n e y b ro k e r)

19.6.70 563 41 500 4.45 (to S y d n e y b ro k e r)

19.6.70 563 41 1,000 4.35 ( to S y d n e y b ro k e r)

19.6.70 563 41 100 4.35 (to S y d n e y b ro k e r)

131

PATRICK PARTNERS: PURCHASES AND SALES OF CARR BOYD MINERALS SHARES BY TRADING ACCOUNT 41 29.5.70 lo 22.6.70 (Extracted from Patrick Partner's Scrip Ledger)

Seller Buyer

Card Account No. o f Account No. o f

Date No. Wo. shares Price No. shares Price

F r id a y 19.6.70 563 41 500

$

4.35 (to S y d n e y b ro k e r)

$

19.6.70 563 41 1,900 4 .35 ( to S y d n e y b ro k e r)

19.6.70 563 41 3 0 0 4 .4 0 ( to c lie n ts )

19.6.70 564 41 2 ,0 0 0 4 .0 0 (to S y d n e y b ro k e r)

19.6.70 564 41 4 ,5 0 0 4 .1 0 ( to S y d n e y b ro k e r)

19.6.70 564 41 1,300 4 .3 0 ( to S y d n e y b ro k e r)

M o n d a y 2 2 .6 .7 0 564 41 5 ,0 0 0 4.2 5 ( to L o n d o n )

2 2 .6 .7 0 564 41 1 5 0 ,0 0 0 (fro m C a s tle - 4.52

2 2 .6 .7 0 5 6 4 41 5 0 0 4 .5 0 ( to M in s e c )

re a g h a n d M in in g T r a d e rs )

2 2 .6 .7 0 5 6 4 41 100 4 .4 0 ( to M in s e c )

2 2 .6 .7 0 5 6 4 41 10,300 4.7 0 ( to M in s e c )

2 2 .6 .7 0 5 6 4 41 3 9 ,4 0 0 4.8 0 ( to M in se c )

2 2 .6 .7 0 564 41 2 9 ,7 0 0 4 .8 0 (to M in s e c )

2 2 .6 .7 0 5 6 4 41 100 4 .40

2 2 .6 .7 0 564 41 1,000 4 .80

2 2 .6 .7 0 564 41 . 100 4 .80

2 2 .6 .7 0 565 41 1,000 4 .80

2 2 .6 .7 0 565 41 100 4 .80

2 2 .6 .7 0 565 41 10,000 4.8 0

2 2 .6 .7 0 565 41 3 ,0 0 0 4.8 0

2 2 .6 .7 0 565 41 500 4.8 0

2 2 .6 .7 0 565 41 10,000 4 .80

2 2 .6 .7 0 565 41 100 4 .80

2 2 .6 .7 0 565 41 100 4 .80

2 2 .6 .7 0 565 41 300 4 .5 0

2 2 .6 .7 0 565 41 100 4 .80 41 600 4 .8 0

2 2 .6 .7 0 565 41 5 ,0 0 0 4.85

22 .6 .7 0 565 41 2 0 0 4 .90

2 2 .6 .7 0 565 41 1,000 4 .80

2 2 .6 .7 0 566 41 5,000 4 .80

2 2 .6 .7 0 566 41 800 4.80

2 2 .6 .7 0 566 41 100 4 .80

2 2 .6 .7 0 566 41 1,000 4 .80

2 2 .6 .7 0 566 41 1,500 4 .8 0 '

2 2 .6 .7 0 566 41 4 ,0 0 0 4.8 0

2 2 .6 .7 0 566 41 700 4.8 0

2 2 .6 .7 0 566 41 100 4 .80

2 2 .6 .7 0 566 41 200 4 .5 0

2 2 .6 .7 0 566 41 1,000 4 .80

2 2 .6 .7 0 566 41 200 4 .80

22 .6 .7 0 566 41 3 ,0 0 0 4.8 0

2 2 .6 .7 0 566 41 1,000 4.8 0

2 2 .6 .7 0 566 41 100 4.8 0

2 2 .6 .7 0 566 41 800 4 .7 0

2 2 .6 .7 0 566 41 100 4 .80 41 100 4 .80

132

10-25

PATRICK PARTNERS 2 Castlereagh Street, Sydney, 2000 Melbourne, Brisbane, Canberra, Wollongong, Perth, Brussels.

* Members of the Sydney Stock Exchange Limited 26 October 1972

* M. R. L. Dowling, * N. R. Course, * M. A. McGrath, J. A. Keir, * T. R. Allen, R. W. Burge, R. A. Noss, J. S. Corner, W. J. Edwards, Μ. E. Baume, A. Burt,

P. Davie, R. N. Gottliebsen Ref. JAK The Secretary, Senate Select Committee on Securities

And Exchange, Australian Senate, CANBERRA, A.C.T.

Dear Sir, Receipt of your letter of 19 October last is acknowledged. The document that I produced to the Committee on 11 September was not a copy of the ledger account but was a summary of transactions between 17 and 23 June 1970. I cannot find any reference in my evidence to being asked to produce

details of the transactions in 41 Account between 29 May and 17 June 1970. I have examined the transactions that passed through Trading Account 41 dur­ ing the period from 29 May to 17 June 1970. The total number of shares bought by 41 during that period amounted to 32,400 and the total number sold amounted to

32,400. By far the largest percentage of these, namely 27,000 were transactions with or on behalf of overseas brokers and the margin taken on these transactions would represent our commission and transaction duty. Of the balance of the turnover, 3,000 shares sold on 3 June were an over-sale

which Was covered on the same day at the same price and 2,000 were arbitrage transactions through our Melbourne agent. We trust this information will answer your query.

Yours faithfully, PATRICK PARTNERS Per: J. A. K e i r

133

10-26

* A. C. Goode, * A. Hyden, * G. M. Carson, * L. P. G. Angell, * E. C. Williams, * R. Dreyfus, * J. T. Dominguez, * J. M. Gross, * P. J. Buckley, C. Farquharson Secretaiy to the Partnership: P. J.

Brentnall D. W. Whitbread, Esq., Secretary, Select Committee on Securities and Exchange, Australian Senate, CANBERRA. A.C.T. 2600

A. C. GOODE & CO. Goode House, 395 Collins Street, Melbourne, Victoria, 3000 Sydney Adelaide Brisbane Perth London

Brussels Geneva * Members of the Stock Exchange of Melbourne Limited 3 November 1972

Dear Mr Whitbread, Thank you for your letter of 31 October in which you write relative to a placement of shares in Leighton Contractors Limited in October 1970, by this firm. You advise that the Committee wishes to obtain from me answers to certain questions, to which I will refer by the numbers used in your letter.

(1) The negotiations for the underwriting placement took approximately seven days from the first contact made on this subject. Our Underwriting Department had known Mr Hedley of Leighton Contractors Limited for some time. (2) We were advised by Leighton Contractors Limited that a placement of

Leighton Contractors Limited shares was being made, or to be made, by John N. Robertson, Thompson & Company. (3) Your summary does not exactly relate to the terms of our letter to Leighton Contractors Limited of 21 October 1970. We repeat that the following

statement appeared— ‘You have undertaken to ensure us or our nominees prior right of allot­ ment of 250,000 Leighton Mining N.L. 50 cent ordinary shares to be issued at 25 cents per share in the forthcoming public issue by that Com­ pany. We have passed on this prior right of allotment to those of our clients who accept participation in the abovementioned Leighton Contractors placement of new issue shares. When available we will require a supply of

the Leighton Mining prospectuses which will be forwarded to our clients for completion and for lodgement with you together with application moneys of 25 cents per share by the due date. ’ You will note that in the letter the allocation of Leighton Mining N.L. shares was specifically arranged separately and was in fact a condition of our underwrit-

134

mg offer for the placement of Leighton Contractors Limited shares which the Directors met by ensuring that these shares were made available to us. We confirm that the shares in Leighton Contractors Limited which we placed bore no rights to Leighton Mining N.L. shares. Our right to an allocation of Leighton Mining N.L.

shares arose from a separate arrangement between ourselves and Mr B. McKay Hedley. The majority of the applicants for Leighton Contractors Limited shares did subsequently avail themselves of a right to apply for Leighton Mining N.L. shares

which we gave them, but not all of them did, in fact, do so. When we refer to “ our Nominees” in terms of an underwriting commitment, as we did in this case, we mean those of our clients whom we specify or nominate in this connection rather than a nominee holding such securities on our behalf.

In providing the answer to your query on No. 7 below (photostat of a letter to Leighton Contractors Limited) you will note that the shares issued to us specifically were excluded from any entitlement to the forthcoming public issue of Leighton Mining N.L. shares, and this letter makes such point quite clear.

We did not frame the public announcement by the Company and cannot com­ ment on it. (4) A. C. Goode & Co. acted as underwriter of the placement of shares in Leighton Contractors Limited. In addition, as part of this contract, we

undertook to provide subscriptions for 250,000 shares in Leighton Mining N.L. As soon as we assume an underwriting commitment we rightly regard ourselves as being a principal in the transaction. (5) You enquire as to the first day on which, in our opinion, our clients were

able to deal in the ‘placement shares’. We assume by this you mean the Leighton Contractors Limited shares; these were first listed by The Stock Exchange of Melbourne Limited on 17 December 1970, and could not pre­ viously have been dealt in by a member of, or a shareholder through, the

Stock Exchange. (6) Each placement of shares is regarded by us on its merits, having regard to the conditions prevailing at the time. We limit this answer to placements of shares and fixed interest securities.

Such placement may be: (a) Underwritings, that is, guaranteed placements of shares or bonds which would be allocated to a restricted number of institutions and company clients whose business it was to acquire and/or dispose of

securities. As prime underwriter, we have a liability to subscribe for any shares o'r bonds n o t‘placed’ and we are thus effectively principals in such issues. In many cases these institutions or corporate bodies would also be sub-underwriters of the issue. (b) We may underwrite a placement made partly to selected institutions

whose business is related to acquiring and/or disposing of shares and partly shareholders. (c) We may arrange a placement as a broker with no guarantee or liab­ ility as an underwriter with institutions whose business it is to acquire

and/or dispose of securities.

Yours faithfully, A- C. G o o d e & Co.

135

10-27

SENATE SELECT COMMITTEE ON SECURITIES AND EXCHANGE CANBERRA A CT.

15 November 1972

PERSONAL & CONFIDENTIAL Mr G. Cohen, Chairman, The Swan Brewery Company Ltd,

Box D 176, G.P.O., PERTH, Western Australia 6001

Dear Mr Cohen, It has come to the attention of the Committee that the Swan Brewery Company Ltd has made numerous placements in recent years to three private companies namely, Lucien and Company Pty Ltd, A. G. Glanville and Company Pty Ltd and A. G. Glanville and Company (N.T.) Pty Ltd, and that these companies in turn

have subsequently sold the shares through Messrs Guest and Bell, Stockbrokers of Melbourne. The Committee have already taken evidence from Mr N. Harman and Mr D. Hume of Guest and Bell and now have a number of questions which they would like to give you an opportunity to answer.

(1) (a) The Committee would be interested to know of your reasons for using private placements as a method of raising capital. (b) Would you please explain why Lucien and the two Glanville com­ panies were set up and what particular purposes they fulfil? (c) The Committee have been informed that Lucien and the two Glan­

ville companies are technically not subsidiaries of Swan and on the other hand, their capital structure and operation seem to mean that, in effect, they are little different from wholly owned subsidiaries of Swan.

In setting up the three companies, was it deliberately intended that they should not be subsidiaries, and if that is so, why? (d) It appears to the Committee that the method of bringing into the books of Swan, the assets acquired from Lucien and the two Glanville

companies in exchange for new Swan shares, meant that there was a serious understatement of the value of the assets in the Swan Balance Sheet. On the other hand, from time to time, there was a revaluation of the assets of Swan which led to the Swan shareholders receiving scrip or bonus issues from time to time. Would you kindly advise the method of revaluation of assets and who revalued them? (2) It has come to the Committee’s attention that there were two methods

whereby Lucien and the two Glanville companies sold the new shares

136

which they had acquired from Swan. One was to sell the shares through Guest and Bell on the Market (i.e. on the floor of the Stock Exchange) or off the floor of the Exchange at the going market price. The other method was for Guest and Bell to sell the shares to their clients at some discount on

current market price for the Swan shares already on issue. Would you please advise who made the decision as to which method was to be used and what factors were taken into account in making that de­ cision? (3) It has also come to the Committee’s attention that the Stock Exchanges

were commonly not informed that Swan had made arrangements to place new shares with the three private companies until such time as those three companies had disposed of the shares through Guest and Bell. The Committee would be grateful to know why this procedure was

adopted and in particular, why the Stock Exchanges were not immediately informed of placements as soon as they had been made to Lucien and the two Glanville companies. (4) Finally, the Committee would be pleased to know whether Lucien and

Company Pty Ltd, A. G. Glanville and Co. Pty Ltd, and A. G. Glanville and Co. (N.T.) Pty Ltd made profits and whether or not they declared divi­ dends. The Committee looks forward to your assistance in these matters and would be grateful for a reply, if possible, by say, the end of next week.

Yours sincerely, D. W . W h i t b r e a d

Secretary

10-28

THE SWAN BREWERY COMPANY LIMITED 98 Mounts Bay Road, Perth, Western Australia Chairman of Directors

17 November 1972

Mr D. W. Whitbread, Secretary, Select Committee on Securities and Exchange,

Australian Senate, CANBERRA, A.C.T. 2600

Dear Sir, This acknowledges receipt of your letter of 15 November addressed to me as Chairman of The Swan Brewery Company Limited, and marked ‘Personal and Confidential’.

In reply, I have to advise as follows: — (1) While I had heard that Mr Harman had appeared before your Committee, I have very little knowledge of what took place. I am uninformed as to Mr Hume’s appearance.

137

(2) In answer to your numbered questions, I have to advise as follows:— (1) (a) The Swan Breweiy Company Limited has not used private share placements as a method of raising capital. In the instances under consideration the operation was the acquisition of assets in

exchange for shares or for cash or for a mixture of shares and cash. The Directors have considered this method of acquiring assets to be advantageous to the shareholders, particularly if coupled with bonus issues of shares if and when this seems appropriate. (b) Companies of the Glanville Group have acted as the construct­

ing authority for a number of facilities for the Swan Company and also in the procurement of and transfer of assets to the Swan Company, and they are continuing to do so. So far as The Swan

Brewery Company Limited was concerned the availability of an organisation to master mind some of the Company’s acquisitions and major construction works seemed and has proved to be a good one. The original Company was A. G. Glanville and Com­ pany Proprietary Limited and it subsequently from time to time informed the Swan Company that it suited its operational con­ venience to use one or more subsidiaries as well.

(c) The original Glanville Company was never intended to be a sub­ sidiary of the Swan Company. It seemed to be in the best interests of the Swan Company for it not to be, and the position was gener­ ally accepted. It follows that the later subsidiaries of Glanville were in the same category. (d) I am unable to agree with the first sentence of this paragraph.

The Directors of the Swan Company believe the value of acqui­ sitions to have been correctly stated in the accounts as at the respective dates on which they were acquired. The fact that assets have been acquired for shares and that these assets have been brought into the accounts on this basis has been the subject of specific reference in each Report of the Directors since 1967. In this regard the Report of the Directors for the year ended 28 March 1972 stated: —

O nce again the annual accounts indicate an increase in the issued capital of the Company and this emerges as the result of some 1,976,452 new shares of which 1,956,750 relate to assets which have been acquired on a share exchange basis. It is appar­ ent that the practice of taking the opportunities from time to time to acquire assets in this advantageous fashion is still of consider­ able value to the Company and the accounts once again reflect the assets acquired by this method, together with the not incon­ siderable assets of various kinds which from time to time have

been acquired for cash. It is to be remembered that in some instances these acquistions are for the benefit of subsidiary com- panics and also for use in partnership activities. All the resultant changes appear in due course in the accounts of the parent Com­ pany. The question of whether assets be acquired for shares or

138

cash is always one for determination in each individual case, ac­ cording to which method is most advantageous to the Company and its shareholders at the time. Thus no set practice is desirable or capable of anticipation in advance. ’

With respect to the second sentence, in general this is correct. With respect to the third sentence, the revaluations were made by the Directors after receipt of written advice. The matter of valuation of assets is continually under review and the assets of the Group are continually re-valued upwards or downwards as circumstances indicate. Reference to this is

regularly made in each Report of the Directors and at Annual General Meetings of the Company. (2) The Board of Directors of The Swan Brewery Company Limited has no knowledge as to this. The Swan Board of Directors was never con-

sulated.

(3) I believe you have been misinformed as to this. My enquiries indicate that the Swan Company notified the Stock Exchange of Perth on the usual ‘Green Forms’ on the days on which shares were allotted. (4) The Swan Brewery Company Limited has received dividends quite

regularly from A. G. Glanville and Company Proprietary Limited, the only company in which it holds shares. The Annual Accounts of that Company, duly received by the Swan Company, indicate that it has made profits. In conclusion, it seems useful to say that your letter seems to assume that the only transactions between the Swan Company and the Glanville Company were by

way of shares dealings. Any such assumption would be erroneous as cash trans­ actions also occured.

Yours very truly, G. C o h e n

Chairman

139

10-29

THE STOCK EXCHANGE OF PERTH LIMITED Exchange House, 68 St. Georges Terrace, Perth, Western Australia 6000

RLCijmg 25 September 1972

STRICTLY PRIVATE AND CONFIDENTIAL Mr Davidson, The Stock Exchange of Melbourne

Limited

Dear Sir,

The Swan Brewery Company Limited Further to our telephone conversation of this morning, I set out hereunder the procedure adopted by the above company when making placements for the acqui­ sition of assets.

As I understand it, there are two companies—Lucien Pty Ltd and Glanville & Company Pty Ltd who actually enter into contracts to build hotels and improvements of existing hotels. When these two companies require funds to meet a progress payment the Brewery allots shares to them at par and then presumably they sell them on the market or by placement and with the subsequent funds pay the progress payments.

This means that when the contract is completed the Brewery brings into its books the cost price of the asset, expressed as a factor arrived at by multiplying the number of shares issued at their par value, which amount is debited to fixed assets and, of course, the corresponding credit is in the issued share capital account.

Lucien & Glanville are not controlled by the Brewery; I think that the Directors hold the voting shares but the shares on which the dividends are payable are owned by the Brewery, thus the companies are not subsidiaries of the Brewery. The result of these transactions is that the asset is included in the Brewery’s bal­ ance sheet at its legal cost to the Brewery but not at actual cost. Therefore, provid­ ing an avenue for a revaluation of assets and subsequent bonus issue.

Exactly how the shares allotted to the two companies are sold for cash is some­ thing that I am not certain of but one can only draw logical conclusions. I would like to stress that this is my opinion of what happens and I cannot be adamant that the procedures outlined above are absolutely correct.

Yours faithfully, R. L. C o p p e l General Manager

140

10-30

GUEST AND BELL 8th Floor, 446 Collins Street, Melbourne, 3000

Members of The Stock Exchange of Melbourne Limited David H. Hume, John B. Porter, John L. Daish, Andrew P. Ramsden, Clive J.

Smith, Noel L. Harman Peter J. Balderstone, Robert M. Cowper, Malcolm W. A. Brodie Consultant: W. J. Campbell Guest 20 November 1972

LFK:ES The Secretary Select Committee on Securities & Exchange

Australian Senate, CANBERRA A.C.T. 2600

Dear Sir, As arranged during our interview on Friday, 20 October last, we have inves­ tigated the matters referred to us and now enclose the relevant documents which should be read in conjunction with the notes set out hereunder.

Placement, The Swan Brewery Company Ltd—28 May 1971

We confirm our impressions expressed during the interview that our previous schedule should have described the buyers of the total of 400,000 shares as clients. Included among those client buyers was a company, Pitlochrie Pty Ltd, which pur­ chased 140,700 shares at the placement price of $2.08 plus normal brokerage and stamp duty. The enclosed copy of the ledger account of Pitlochrie Pty Ltd shows

purchases of 100,000 and 45,900 shares on 28 May 1971 and on 31 May 1971 cancel­ lation of 5,200 of those shares included in the parcel of 45,900, making a net total of 140,700. Pitlochrie sold 100,000 of these shares on 28 May 1971 to a Singapore broker at $2.15, 20,000 on 31 May 1971 to a London broker at $2.20, 20,000 on 31

May 1971 to a European broker at $2.12, and the remaining 700 shares on 8 July 1971 to a Melbourne broker at $2.34. Pitlochrie Pty Ltd was charged normal broker­ age and stamp duty on these sales.

Placement, The Swan Brewery Company Ltd—28 July 1970 The total of 100,000 shares involved in this placement were bought by a Syd­ ney broker. It would appear that this broker was at the time looking for quantity in Swan Brewery shares and approached this firm because of its known association

with the company. We in turn approached our clients and advised them of the potential buyer and they instructed us to negotiate an acceptable price. As the par­ cel required was substantial, we negotiated a price of $2.38.

141

Placement, Metramar Minerals Ltd—5 March 1970 The company approached this firm as brokers through Martin Corporation Ltd and advised that it had a parcel of 350,000 new issue shares to be placed and re­ quested us to act on their behalf. Guest and Bell took these shares on hand using Pitlochrie Pty Ltd as a nominee at a price of $ 1.50 net. These shares were then sold as principal (without brokerage) as follows:—

175.000 at $1.50 to a client (Martin Nominees Pty Ltd) (originally booked at $1.55 on 5 March. Cancelled and rebooked at $1.50 on 27 April) 115.000 at $1.55 to Overseas brokers 5.000 at $ 1.55 to Interstate brokers 200 at $2.10 to Interstate brokers

500 at $2.08 to Interstate brokers 600 at $2.10 to Local brokers 1,800 at $ 1.55 to Local brokers 47,900 at $1.55 to Clients 4.000 at $1.65 to Clients In addition, Guest and Bell received a fee of $8,750.00 from the company. Placement, Yellow Express Carriers Ltd

Yellow Express Carriers Ltd approached this firm as brokers and advised that they had acquired a New South Wales transport company for which the consider­ ation was an issue of 506,320 shares which the vendors wished to convert to cash. The company requested us to act on behalf of the vendors using nominee com­ panies. Pitlochrie Pty Ltd was used as nominee for the sale of 187,000 shares and Timothy Investments Pty Ltd was used as nominee for the sale of the balance,

319.320 shares. Both Pitlochrie Pty Ltd and Timothy Investments Pty Ltd were charged normal brokerage and stamp duty as agents for the vendors. The 187,000 shares sold in the name of Pitlochrie Pty Ltd were purchased by a Melbourne broker on 24 November 1970 realising net proceeds of $184,456. Three hundred and two thousand of the shares sold in the name of Timothy Investments Pty Ltd were purchased on 23 November 1970 by a Melbourne broker at $1.05 and the remaining

17.320 shares were sold on the market between 25 November 1970 and 4 March 1971 realising prices ranging between 90 cents and $1.25. The total net proceeds realised on the sales in the name of Timothy Investments Pty Ltd amounted to $334,645.42 (total proceeds overall being $519,101).

As the proceeds of these sales were required urgently a total settlement amount of $521,420 was arranged for 11 December 1970 with Guest and Bell taking the risk on the remaining sales not achieving the expected prices. By arrangement with Yellow Express Carriers Ltd, we remitted an amount of $514,860 to The National Bank of Australasia Ltd. This amount was made up as follows:—

$

Sales in the name of Pitlochrie Pty Ltd 187,000 Sales in the name of Timothy Invest­ ments Pty Ltd 334,420

521,420

Less Guest and Bell’s fee payable by the company 6,560

514.860~

142

Sale by Lucien & Co. Pty Ltd of 145,000 Swan Brewery Co. Ltd shares during the period 26 November 1970 and 15 December 1970

On or about 26 November 1970 we were contacted by Lucien & Co. Pty Ltd who advised that they had a parcel of shares for sale. After consultation it was decided that the market conditions applying at the time made it suitable to dispose of these shares on the market until such time as the need for the proceeds became urgent. This firm as brokers for Lucien & Co. Pty Ltd proceeded to act on this order commencing on 26 November 1970. On or about 14 December 1970 we were again approached by Lucien & Co. Pty Ltd and advised that the total proceeds would be needed fairly promptly and were requested to bid for the remainder of the parcel, namely 95,000

shares. After consideration we agreed to bid for these shares and negotiated a price to Lucien & Co. Pty Ltd of $2.05 net. We then proceeded to place these shares with our clients. The result of this placement is reflected in our schedule previously submitted.

We have now perused the transcript of evidence given on 20 October last and offer the following comments.

Pages 11691 and 11693 On page 11691 the Chairman, referring to the shareholdings in A.G. Glanville & Co. Pty Ltd, indicated that The Swan Brewery Company Ltd owned 1 share of $2,000. On page 11693, again referring to the shares issued by A.G Glanville & Co.

Pty Ltd, the Chairman referred to a total number of shares issued of 2004 with 2000 of them being owned by The Swan Brewery Company Ltd. Should he not have referred to a total number of five shares issued, one of them owned by The Swan Brewery Company Ltd?

Page 11722

On the sixth line of Mr Hume’s comments he has been recorded as having used the term ‘market placement’. We believe he used the term ‘market place’.

Page 11750

On the fourth line Mr Keogh’s comments in the last paragraph there is a mis­ spelling of a company name. The correct name is Wridgeway ‘Creaton’.

Page 11764

The comment attributed to Senator Georges was in fact made by Senator Little. In your letter of 15 November you imply, referring to pages 11697-700 of the transcript, that we were required to supply further information on instructions to sell shares. We believe that this subject was fully covered during the interview. However, we have briefly summarised hereunder the usual chronological sequence of events

preceding these sales. (1) Mr Buchanan, the senior executive of the three companies concerned, tele­ phones one of our partners indicating that one or more of the companies wishes to raise a certain sum of money by selling Swan Brewery Shares. He

usually enquires of the ruling market prices and the strength of the market. (2) Using the criteria listed hereunder he decides whether he should sell on the market or request Guest and Bell to bid for the shares (or a combination of both)

(a) The estimated number of buyers in the market.

143

( b ) The likelihood of those buyers seeking quantity or otherwise. (c) The timespan over which funds are required. (3) If it is considered that there are buyers o f significant quantity present in the market and the funds are not required in a huriy, he will usually decide to

sell on the market. (4) Having made a decision to sell on the market he issues an instruction ac­ cordingly over telex. (5) If the market is thin or the funds are required quickly he may come back to

us and request us to bid for the shares, in which event we will assess the risk involved, and if we see fit, bid for the parcel involved at a discount on the market. (6) He will consider our bid, and if he sees fit, issue instructions accordingly by

telex.

In answer to the further request in your letter of 15 November, we advise that we are unable to give dates of allotment. This information would only be available from the Swan Brewery Company Ltd. During that portion of the interview which was held ‘in camera ’, the Chairman requested particulars of asset revaluations undertaken by the Swan Brewery Com­ pany Ltd during the years 1970/71 and 1971/72. We have spoken to the company on this subject. As we believe that they have been corresponding direct with the Committee, they have undertaken to supply this information rather than pass it through our firm.

We trust that the enclosures and these comments have provided the further information required by the Committee.

Yours faithfully GUEST & BELL L. F. K e o g h for N. L. H a r m a n

144

10-31

THE SWAN BREWERY COMPANY LIMITED 98 Mounts Bay Road, Perth, Western Australia Chairman of Directors

28 November 1972

Mr D. W. Whitbread, Secretary, Select Committee on Securities and Exchange,

Australian Senate, CANBERRA, A.C.T. 2600

Dear Sir, Your letter of the 22 November addressed to the Secretary of this Company has been passed to me for reply. It is the belief of the Board that it is most convenient for all correspondence on the one matter to be dealt with by the one person, and the Board prefers that I deal with it.

In answer to your letter, I have to advise as follows: — (a) 250,000 shares in mid December 1970—allotment approved by the Board on 22 December 1970. (b) 50,000 shares in mid May 1971—allotment approved by the Board on 18

May 1971.

(c) 400,000 shares in mid June 1971—allotment approved by the Board on 8 June 1971. Also for your information I forward herewith copies of the Green Forms and the accompanying letter despatched to the Stock Exchange of Perth with respect to each of the abovementioned allotments, from which it will be observed that they

were despatched on the same day as the approval. With respect to the opening sentence of your letter now under reply, I am asked to remark that the allotments of shares as to which you have enquired were not placements but allotments to the recipients pursuant to their contractual rights.

Yours very truly, G. C o h e n

145

10-32

Senate Select Committee on Securities and Exchange CANBERRA A.C.T.

24 November 1972

PERSONAL Mr David Lance, Garrett, Lance & Co., 60 Pitt Street, SYDNEY N.S.W. 2000

Dear Mr Lance, You will recall your letter to the Committee of 26 June 1972 enclosing copies of clients’ ledgers in respect of the purchases by 5 clients of Devex Ltd shares sold by either D. Lance Trading, D. Lance or Stock Account.

It appears to the Committee that these clients paid brokerage on shares sold to them by you, as a member of the Stock Exchange, when you were selling the shares as principal. Would you please advise the Committee if this was so and whether it was in ac­ cordance with Stock Exchange rules.

Your early reply would be greatly appreciated.

Yours sincerely, D. W . W h it b r e a d Secretary

146

10-33

GARRETT, LANCE & CO. 60 Pitt Street, Sydney N.S.W. 2000, AUSTRALIA * Member of the Sydney Stock Exchange

Limited D. H. Lance*, G. E. Lenzner, J. R. Barr, J. S. Leaver, 28 November 1972

The Secretary Select Committee on Securities and Exchange Australian Senate

CANBERRA A C T.

Dear Sir, Your letter of 24 November 1972 is to hand. On 14, 16, 17 and 18 December 1970 sales were made by D. Lance Trading as set out below. On 31 December 1970 a sale was made by the firm’s stock account,

also set out below. The sale on 31 December 1970 by the firm’s stock account was made‘as principal’. 14.12.70 D. Lance Trading 200

D. Lance Trading 800

D. Lance Trading 1000

D. Lance Trading 500

16.12.70 17.12.70 18.12.70 31.12.70

Xatad Pty Ltd. Terrier Pty Ltd. D. Rumbles Ronail Pty Ltd.

Stock 5 75000 @ 88c Various (As Principal)

The records show that the firm traded actively in Devex Ltd. on 14, 16, 17 and 18 December 1970. On each day the firm’s operators had instructions to sell shares on behalf of D. Lance Trading and on each day shares were sold on behalf of this account on the trading floor. At the same time the firm had buying orders on behalf

of clients and it appears that the operator on each of the days mentioned sold small parcels of shares from D. Lance Trading to clients. It may also be noted that Terrier Pty Ltd, one of the clients to whom shares were married, is the family trading com­ pany of my partner G. Lenzner.

It was not the intention o f‘D. Lance Trading’ to act ‘as principal’ nor would I have been aware at the time that sales were made to clients. The records would show that the sales could have readily been made on the trading floor. However, it is clear to us that a danger lies in inadvertently acting as principals

when operators make bookings on behalf of partners’ private accounts in their normal transactions and accordingly we have subsequently instituted the pro­ cedure that all sales and purchases by partners’ private accounts and family accounts are to be transacted on the trading floor.

Yours faithfully, D. H. L a n c e

24175/ 7 5 -6

147

10-34

Senate Select Committee on Securities and Exchange CANBERRA A C T. 9 March 1972

Mr D. M. Butcher General Manager, The Sydney Stock Exchange Ltd., 20 O ’Connell Street, SYDNEY N.S.W. 2000

Dear Mr Butcher, The Committee has asked me to write to you on two further matters. First, does your Exchange have rules in respect of members acting either as agents or as princi­ pals in dealings in new shares of a listed company before they have been granted quotation. If, for example, a company made a placement of new shares (ranking equally in all respects with the existing shares that are listed), may a broker sell those shares on the floor of the exchange or off ‘change to other brokers or to cli­ ents before they are granted quotation?

Secondly, if a broker were to take up as a principal or as an agent for a client shares in a placement made by a listed company, can those shares be dealt in by members before the exchange has been informed of the placement?

Yours sincerely, D. W . W h it b r e a d Secretary

148

10-35

Senate Select Committee on Securities and Exchange CANBERRA A.C.T. 9 March 1972

Mr R. B. Lee, General Manager, The Stock Exchange of Melbourne Ltd., 351 Collins Street, MELBOURNE VIC. 3000

Dear Mr Lee, The Committee has asked me to write to you on two further matters. First, does your exchange have rules in respect of members acting either as agents or as princi­ pals in dealings in new shares of a listed company before they have been granted quotation. If, for example, a company made a placement of new shares (ranking equally in all respects with the existing shares that are listed), may a broker sell

those shares on the floor of the exchange or off‘change to other brokers or to clients before they are granted quotation? Secondly, if a broker were to take up as a principal or as an agent for a client shares in a placement made by a listed company, can those shares be dealt in by members before the exchange has been informed of the placement?

Yours sincerely, D. W . W h it b r e a d

. Secretary

149

10-36

The Sydney Stock Exchange Limited 20 O ’Connell Street, SYDNEY, N.S.W., 2000 General Manager’s Office DMBrvr

14 March 1972

M rD. W. Whitbread Secretary Select Committee on Securities and Exchange Australian Senate

CANBERRA, A.C.T.

Dear Mr Whitbread:

Further to your letter of the 9 March, I have pleasure in attaching A.A.S.E. Uni­ form Rule D.2 (Sydney By-law 51) and Rule D.3 (Sydney By-law 52) which are self explanatory. All member Exchanges have promulgated these Rules. A broker either as principal or agent would be debarred from dealing on the floor of the Exchange in securities yet to be granted quotation. Off market he may sell securities arising from a shortfall in order to rid himself of the risk if he is a ‘sub­ underwriter’. It is possible therefore for a broker in this position to sell securities off the market prior to their admission to quotation on the floor.

Your second question is somewhat complex, but a broker may be a vital factor in a placement in achieving a desired spread of shares amongst the public such as will enable a company to be granted quotation or where a listed company has been suspended because of lack of spread in achieving a spread enabling its requotation. Merchants Banks are also involved in competition with members in this activity.

The problem with your second question is the precise nature of the transactions involved. There are certainly situations where a broker must take up securities as principal and is entitled to dispose of them prior to their quotation in the market. I trust this information is of assistance.

Yours faithfully, D. M. B u t c h e r General Manager

150

10-37

THE STOCK EXCHANGE OF MELBOURNE LIMITED Stock Exchange House 351 Collins Street

MELBOURNE, 3000 17 March 1972

Mr D. W. Whitbread, Secretary, Select Committee on Securities & Exchange, Australian Senate,

CANBERRA, A.C.T., 2600

Dear Mr Whitbread, I acknowledge your letter of 9 March 1972 relating to Members dealing in new shares of listed companies before the shares have been granted official quotation. In reply to the first question, I advise that Regulation 68 of the Exchange pro­ vides Tn the case of a company on the Official List, only such securities as have

been granted official quotation by the Committee shall constitute valid delivery. ’ Therefore, it follows that if a Member acting either as an agent or a principal dealt in new shares of a listed company before they had been granted quotation, the seller could not force the buyer to accept the delivery.

I also draw attention to Regulation 42 which reads as follows— ‘A Member or Member Firm is prohibited, either in his office or elsewhere, from mak­ ing quotations or dealing in a new issue or placement of securities made for the purpose of qualifying the company for admission to the Official List of one or more of the Aus­

tralian Associated Stock Exchanges, until such securities have been granted official quotation PROVIDED THAT the provisions of this Regulation shall not restrict a Member or Member Firm from disposing of such securities where they comprise an underwriting or sub-underwriting shortfall. ’ In reply to your second question, in addition to my comment in relation to the ans­ wer given in question one, I draw your attention to the AASE Official List

Requirements, Section 3.A. (5) (b), which requires the directors of a company to notify the Exchange immediately of any alteration of the issued securities of a com­ pany, and particulars thereof. I assume your Committee is aware of the restrictions contained in Section 374 of

the Companies Act.

Yours faithfully, R a l p h B . L e e

General Manager

151

10-37

ATTACHMENT A

AUSTRALIAN A SSO C IA TED STO CK E X C H A N G E S -U N IF O R M RULES D2

Dealings in Securities of Unlisted Companies ADOPTED: 2.3.64 ADELAIDE—By-law 82A (2) MELBOURNE-Reg. 43 B R ISB A N E-R eg.6(b) PERTH-Reg. 34

HOBART-Reg. 24C SYDNEY-By-law 51

Unless otherwise determined by the Committees of members of the Australian Associated Stock Exchanges, dealings in the securities of any company which is not on the Official List of one or more of the Australian Associated Stock Exchanges, shall be prohibited within the precincts of the Stock Exchange.

A USTRALIAN A SSO CIA TED STOCK E X C H A N G E S -U N IF O R M RULES D3

Dealings in Securities of Listed Companies yet to be Granted Official Quotation ADOPTED: 2.3.64 ADELAIDE—By-law 82A (1) MELBOURNE-Reg. 42 BRISBANE-Reg. 6 (a) PERTH-Reg. 60

HOBART-Reg. 24B SYDNEY-By-law 52

Members are prohibited, either in their offices or elsewhere from making quota­ tions or dealing in a new issue or placement of securities made for the purpose of qualifying the company for admission to the Official List of one or more of the Aus­ tralian Associated Stock Exchanges, until such securities have been granted official quotation PROVIDED THAT the provisions of this by-law/Rule/Reg. shall not restrict a member from disposing of such securities where they comprise an underwriting or sub-underwriting shortfall.

152

CHAPTER 11

Som e M arket Practices in P u b lic Issues 11-1

Messrs. Saw, Cambridge & Brannelly, 68 St. George’s Terrace, PERTH, 6000

Dear Sirs, In the terms of our letter dated 29 October 1969, an amount of $11,425.08, as detailed below, is due to your Firm. As discussed with Mr Cambridge this morning, we anticipate a number of queries from Brokers throughout Australia regarding discrepancies in the payment of handling fees on applications lodged by them on behalf of Western Queen, Mountain View, Metals Exploration and West Coast shareholders.

To cover this contingency, we are temporarily retaining from the amount due to you, $ 1,425.08. This firm will also retain an amount to cover any additional claim.

D. J. CARMICHAEL & CO. 13 5 St. George’s Terrace Perth, W.A. 6000 Member of the Stock Exchange of Perth

Limited 4 June 1970.

In reply please quote: JKD: JMc

Amounts paid to Underwriters/Sub-Underwriters

James

$

2,500.00 1 cent on 250,000.

Saw Cambridge Handling Fees D.J. Carmichael Patrick & Co.

;e 10,000.00 1 cent on 1,000,000.

3,930.47 1/4 cent on 1,572,188. 30.500.00 1 cent on 3,050,000. 44.250.00 3/4 cent on 5,900,000. 8,081.75 1/4 cent on 3,232,700.

9.375.00 3/4 cent on 1,250,000. 9.375.00 3/4 cent on 1,250,000. 12,000.00 3/4 cent on 1,600,000 130,012.22

Patrick & Co. Western Queen Mountain View West Coast

Total Underwriting Commission Amount paid to U nderwriters/Sub­ Underwriters.

$

170,000.00

Saw, Cambridge & Brannelly 2 /7ths. D.J. Carmichael & Co. 5/7ths.

130,012.22 39.987.78 11,425.08 28.562.70

39.987.78

Your faithfully, D.J. CARMICHAEL & CO.

153

Allocated as follows (our own office information).

$

D.J. Carmichael 3,050,000

SawC.&B. 1,000,000

T.A. James & Co. 250,000.

Patrick 3,232,700.

Directors & Promoters 2,700,000

10,232,700.

11-2

AUSTRALIAN CONSOLIDATED MINERALS N.L.

List of quantities of shares allocated to Brokers Companies and Others Brokers N u m b e r N a m e Q u a n tity

1 T. A . J a m e s 100,000 2 0 ,0 0 0 .0 0

2 R . H . W a rric k 8 5,000 17,000.00

3 J. H o h n e n 6 0 0 ,0 0 0 120,000.00

4 R . P . S. B u rt 3 5 0 ,0 0 0 7 0 ,0 0 0 .0 0

5 H . C ra w fo rd —S a w W h e a tle y 2 0 ,0 0 0 4 ,0 0 0 .0 0

6 E. S. W a lto n —M o u n ta in V iew 2 0 ,0 0 0 4 ,0 0 0 .0 0

7 W es to n J a m e s & C o 5 0 0 ,0 0 0 100,000.00

8 J. G o o d w in 6 5 ,0 0 0 13,000.00

9 A . S. T o m ic h 10,000 2 ,0 0 0 .0 0

10 J. M a u n d 6 2 5 ,0 0 0 125,000.00

11 F . Q u ility C / - G e o rg e M o ss P ty L td 4 0 ,0 0 0 8,0 0 0 .0 0

12 W . L. W . D ra y 4 0 ,0 0 0 8,0 0 0 .0 0

13 H a rris 5 0 ,0 0 0 10,000.00

14 T. A. J a m e s & C o. 2 5 0 ,0 0 0 5 0 ,0 0 0 .0 0

15 S a w , C a m b rid g e & B ra n n e lly 1,000,000 2 0 0 ,0 0 0 .0 0

16 D . J. C a rm ic h a e l 3 ,0 5 0 ,0 0 0 6 1 0 ,0 0 0 .0 0

17 P a tric k & C o., M e lb o u rn e 2 ,9 0 0 ,0 0 0 5 8 0 ,0 0 0 .0 0

18 R . C. S im p so n 100,000 2 0 ,0 0 0 .0 0

19 M eta ls E x p lo ra tio n N .L . 2 ,6 6 7 ,3 0 0 - 1 o p 5 3 3 ,4 6 0 .0 0 ■

20 M o u n ta in V iew G o ld N .L . 1 ,2 5 0 ,0 0 0 -2 o p s 2 5 0 ,0 0 0 .0 0

21 W e s te rn Q u e e n ( 1 9 3 6 ) N .L . 1 ,2 5 0 ,0 0 0 -2 o p ts 2 5 0 ,0 0 0 .0 0

22 A . R . W illiam s 9 5 ,0 0 0 19,000.00

23 W . C. H o ld in g s 1 ,6 0 0 ,0 0 0 - l o p 3 2 0 ,0 0 0 .0 0

2 4 R . H a re & A sso c ia tes ( P a tr i c k ) 3 3 2 ,7 0 0 6 6 ,5 4 0 .0 0

17,000,000 shares

154

11-3

Edjudina Pastoral Co. Via Kalgoorlie WESTERN AUSTRALIA 10 May 1973

B. J. Knox. Secretary (Acting) Select Committee on Securities and Exchange,

CANBERRA.

Dear Sir, In reply to your letter of 30 April 1973 I wish to advise that I was not allocated 625,000 shares by Australian Consolidated Minerals N.L. for distribution amongst members of the public.

By an agreement dated Jan. 23 1969 and registered on that day, numbered 577487 and stamped by The State Stamp Office Perth W.A. a group of people named in the agreement formed The Albion Mineral Prospecting Syndicate. All the people to this agreement were known to each other, most related, and residents of the Wiluna—Mt. Keith district.

A large area o f prospective Mineral Bearing Claims were pegged and appli­ cation to the W.A. Mines Department was successful. A large programme of inves­ tigation and prospecting work was performed. Over $30,000.00 was spent in the usual type of mining operations together with deep drilling to locate ore bodies.

We had considerable success, the result being the discovery of Nickel Ore in considerable quantities at Kingston and Mt. Keith. The Mt. Keith ore body is considered to be the largest ore body yet discovered in Australia, with estimated ore proved of over five hundred million tons.

About October 1969 The Albion Mineral Prospecting Syndicate were ap­ proached by Metals Exploration N.L. and Freeport of Australia Incorporated, and Australia Consolidated Minerals N.L. (a company yet to be incorporated) with an offer to purchase all the Mineral Claims.

The offer was accepted and an agreement of sale was duly signed on October 3 1969. The shares you refer to were part of the sale price to Albion Mineral Prospect­ ing Syndicate Members. They were not for distribution to the public.

The Syndicate supplied the list of all Members entitlement, according to their holdings, and a list of the allotments is enclosed. As an additional inducement to sell our claims to these people we were allotted a further 250,000 shares which we paid 20c. each for.

The list of where these shares went is also enclosed. As you will see the allot­ ments went to the Members of the Syndicate, John Finch, Lorna Glen Station, Wiluna, being the only person not being registered as a Member of the syndicate, but recognised as a Member at all times and who was active in the operations of

Minerals investigation.

155

Three Members o f the Syndicate were appointed as Managers and they were William John Maund, Jack Wiluna Howard, James Thomas Jones. All negotiations of sale and operations were their responsibility. The writer did not have any other dealings with any of the Companies men­ tioned by you, with the exception of a small option with West Coast Holdings, in another area, but this did not come to anything beyond a cursory examination. The writer trusts the above information answers your enquiry but should you need clari­ fication or more details this can be supplied because a good record has been kept by the Syndicate.

I have condensed the contents as much as possible in this letter but it does pro­ vide the essential information which I believe you require.

Yours faithfully W . J. M a u n d

M in e ra l L e a se s 78

S h a re s A llo tm e n t S h a re s

G . L u k in 5 L e a se s a t 4 8 0 7 S h a re s 24035

E . & J. J o n e s 2 L e a se s a t 4 8 0 7 S h a re s 9614

L . S m ith & C o. 1 L e a se a t 4 8 0 7 S h a re s 4807

Μ . E. H o w a r d 1 L e a s e a t 4 8 0 7 S h a re s 4807

C . O . H o w a rd 1 L e a se a t 4 8 0 7 S h a re s 4807

C . J. H o w a rd 1 L e a s e a t 4 8 0 7 S h a re s 4807

L . & J. S tru g n e ll 1 L e a se a t 4 8 0 7 S h a re s 4807

W . L in d fie ld 1 L e a se a t 4 8 0 7 S h a re s 4807

J. Η . N . H o w a rd 1 L e a se a t 4 8 0 7 S h a re s 4807

Μ . E. L. M a u n d 1 L e a se a t 4 8 0 7 S h a re s 4807

D . M . L in d fie ld i L e a s e a t 4 8 0 7 S h a re s 4807

R . S. H o w a rd 2 0 L e a se s a t 4 8 0 7 S h a re s 9 6 1 4 0

J. W . H o w a rd 2 0 L e a se s a t 4 8 0 7 S h a re s 96140

W .J . M a u n d 2 0 L e a se s a t 4 8 0 7 S h a re s 9 6 1 4 0

A . & Z. H a rris 1 L e a se a t 4 8 0 7 S h a re s 4807

J. J a m e s 1 L e a se a t 4 8 0 7 S h a re s 4807

+ 54

375.000

Albion Mineral Prospecting Syndicate W . J. M a u n d

SHARES TO BE ALLOTED AS HEREWITH 250,000 Shares for subscription at 20c. J a m e s T h o m a s Jo n e s 1 L e a se a t 2 7 2 7 2727

E ile e n M a ry J o n e s 1 L e a se a t 2 7 2 7 2727

L e n E rn e s t S m ith .33 L e a se a t 2 7 2 7 909

R o b in J o h n S m ith .33 L e a se a t 2 7 2 7 909

G lo ria M a y S m ith .33 L e a se a t 2 7 2 7 909

C. O . H o w a rd .33 L e a se a t 2 7 2 7 909

C. J. H o w a rd .33 L e a se a t 2 7 2 7 909

J u d ith K a y S tru g n ell .5 L e a se a t 2 7 2 7 1364

L eslie P e te r S tru g n ell .5 L e a se a t 2 7 2 7 1364

W illia m S y d n e y L in d fie ld .5 L e a se a t 2 7 2 7 2727

J o h n H e n ty N o rm a n H o w a rd .33 L e a se a t 2 7 2 7 909

J a c k J a m e s .33 L e a se a t 2 7 2 7 909

G e o rg e l M alc o lm L u k in 5 L e a se a t 27 2 7 13635

R o n a ld S e d d o n H o w a rd 5 L e a se a t 2 7 2 7 59698

J a c k W ilu n a H o w a rd 5 L e a se a t 2 7 2 7 59698

W illia m J o h n M a u n d 5 L e a se a t 2 7 2 7 59698

J o h n F in c h , L o m a G le n S ta tio n , W ilu n a 5 L e a se a t 2 7 2 7 4 0 0 0 0

(6 6 4 6 ) 250000

Albion Mineral Prospecting Syndicate W . J. M a u n d

156

11-4

Edjudina Pastoral Co. Via Kalgoorlie WESTERN AUSTRALIA 25 May 1973

Acting Secretary Select Committee on Securities and Exchange Australian Senate CANBERRA

Dear Sir, Your letter of 15 May 1973 has been received here today, hence the delay in reply. We only have a Road Mail service from Kalgoorlie once every two weeks so correspondence suffers delays.

In regard to Australian Consolidated Minerals N.L. prospectus dated 31 October 1969 making no reference to Albion Mineral Prospecting Syndicates shares I understood at the time that because The Company was only in the process of being formed and was also at the same time negotiating with Metals Exploration

and Freeport of Australia to enter into a partnership everything was in a state of flux. The Albion Syndicate was being pressed hard by several other Companies with offers of purchase at this time but we wanted to retain a sizeable interest in the Min­

eral Claims, and the offers made by Metals Exploration, Freeport and Con­ solidated Minerals suited us best. You will see Consolidated were in the process of forming and would be the only one of the three Companies who would have shares available.

By negotiation we agreed to the proposal that we sell to Metals Ex., for $225,000 cash and we would use this cash to subscribe for the number of shares which we stipulated we wanted as the selling price. This was a verbal agreement but clearly understood by all parties. The cash received was paid into the Syndicate

Banking Account, distributed to each partner as per their holding, and each partner then made their individual application, and making their payment of 20c per share. All parties kept to the agreement in every respect. It would appear to me that these details could not appear in the prospectus because of the time factor. There

would not appear to be any other reason. It should also be remembered that excite­ ment was at fever pitch at the time and many Companies were in the market endeavouring to secure Claims and Options at all kinds of terms and conditions. Metals Exploration and their Partners were anxious to secure the Mt Keith Claims

and not have another Company making a more attractive offer to the Syndicate hence all the hurry. It will be seen that The Albion Mineral Prospecting Syndicate put $175,000 of the $225,000 into Consolidated Minerals and most of us are still holding all our

shares, issued to us, at a discount. This is about the best I am able to give as an ex­ planation to your question.

157

I have a lot of Correspondence on file but doubt if it would be of any value in your enquiries because it deals mostly with offers to purchase, options, and various other approaches that were made. Mostly the fabulous figures appear to be fantastic and most unreal at the mo­

ment. Trusting the information now enclosed will assist your Committee.

Yours faithfully W. J. M a u n d

11-5

R. HARE 18-20 Little Collins Street, MELBOURNE Cl AUSTRALIA RH/js 8 May 1973.

Mr B. J. Knox, Acting Secretary, Select Committee on Securities and Exchange, Australian Senate. CANBERRA, A C T. 2600

Dear Mr Knox, I have for acknowledgement your letter o f 1 May 1973. With respect to the division of shares offered to the public in the public flotation of Australian Consolidated Minerals N.L. in 1969, I am unable to remember the exact circumstances of how the division of shares was made as I cannot find any

relevant written information. For this reason, I must point out that my comments are from memory only and may not be accurate. I can confirm that I was involved in securing for my family and partners and employees of R. Hare & Associates, an allocation of shares in the issue. This allo­ cation o f shares was obtained from Patrick & Co. who were sub-underwriters to the issue. Apart from the fact that a quite large allocation of shares was secured from

Patrick & Co., and that these were distributed as mentioned above, I did not play any other role in the distribution of the shares in the issue. I have no recollection of R. Hare & Associates being offered 332,700 shares for distribution by a party other than Patrick & Co.

I believe the division of shares to Mr D. Campi and Mr K. Fletcher was as you suggest. I doubt that I distributed 173,000 shares, as my records show that I acquired 79,344 shares personally, so I would put the figure at more like 110,000 but have no way o f checking this accurately. As far as I can remember, the distri­ bution was made according to the shares requested by each partner.

In order to explain the relationship between R. Hare & Associates, M.T.A. Pty Ltd and Pasar, it is necessary to explain why M.T.A. Pty Ltd was formed and how it

158

operated. During the period you have referred to, I was acting in a consulting capacity to Patrick & Co. on certain investments. Mr Dowling and I agreed that as I was giving advice in the mining sphere, it would be a good idea to form an invest­ ment company in which my firm had an interest. The essential idea was that this

would be an incentive for me to devote more time and attention to the mining investment work. M.T.A. Pty Ltd was formed and the partners of R. Hare & Associates subscribed for 49 per cent of the issued shares. The control and manage­

ment of this company was in the hands of Mining Traders. I was not consulted regarding purchases and sales of shares, and any advice I gave was to Patrick & Co. or Mining Traders. At no time did I give advice to Patrick & Co. regarding com­ panies which my Firm managed or acted as consultants for, nor was any advice re­ quested. Any purchase or sale of shares by M.T.A. Pty Ltd was completely out of my control.

The purchase of a 49 per cent interest in Pasar came about due to entirely different circumstances. Ian Sturzaker & Co. decided to sell the shares held by themselves and their clients in Pasar. I advised Patrick & Co. of this and a sale was made through that firm. Some time after the transaction was completed I was

advised that the Pasar shares were being held by Patrick Nominees on behalf of M.T.A. Pty Ltd. I raised no objection to this and in any event, it could not be classed as a share trading exercise. For some time my partners and myself have directed the activities of Pasar.

During this period Pasar has not purchased shares for trading purposes in com­ panies which my Firm manages or acts for in a consulting capacity. In reply to the last paragraph in your letter, I believe that Pasar should not trade in the shares of companies for which R. Hare & Associates are consultants or man­

agers. I have already explained our position with M.T.A. Pty Ltd in terms of the control of the activities of that Company.

Yours faithfully, R. Hare

159

11-6

T. A. JAMES & CO. 81 St George’s Terrace, Perth, Western Australia. Stock and Share Brokers Members of The Stock Exchange of

Perth Limited H. L. PHILIPPSON, L. H. S. JAMES, A.A.S.A., D. G. SMITH 26 April 1973

The Secretary, Australian Senate, Select Committee on Securities & Exchange, CANBERRA A.C.T. 2600

Dear Sir, Further to your letter of the 12 April, we advise the following:

(a) our firm received a firm allotment of 250,000 shares in Australian Con­ solidated Minerals because of our close association with a number of the promoting companies, for whom we have acted as brokers for some time

(b) the only issue of shares to a partner was 5,000 to Challenger Investments Pty Ltd in which Mr Lester James and his wife have a 1 /6th share each

(c) the shares issued to members of the families of the partners were as follows— MrsY. D. Philippson 7,500 Mrs P. V. Newman 7,500

Mrs L. James 6,500 These shares were sold as follows— Challenger Investments Pty Ltd 18.12.69 1,000

19.12.69 1,600 12.1.70 1,400 13.1.70 1,000

Mrs L. James 8.1.70 5,000 ΐ

4.2.70 1,500 j

Mrs Y. D. Philippson f

18.12.69 500 19.12.69 7,000

160

Mrs P. V. Newman 18.12.69 800 19.12.69 500 23.12.69 700

9.1.70 300 balance still held to the best of our knowledge.

Yours faithfully, L. J a m e s T. A. JAMES & CO.

11-7

Inward Telex

TO PERTH FROM SYDNEY 4TH NOVEMBER 1969 ATTENTION MR STEELE (INFORMATION MELBOURNE)

RE AUSTRALIAN CONSOLIDATED MINERALS

PLEASE REFER TO JULY 1969 CHAIRMANS CONFERENCE ITEM 10(11) AND LISTING REQUIREMENT 2 A (8). IN LIGHT OF THIS I BELIEVE ANY SHARES ISSUED, FOR ANY REASON TO PROMOTORS AND VENDORS, OR THEIR NOMINEES, AS LISTED IN COMPANY’S TELEX OF 3RD NOVEMBER 1969 SECTIONS 2, 3 AND 4 ARE VENDORS

SHARES. WHAT IS YOUR AND MELBOURNE EXCHANGE’S OPINION.

. . . FOLDS

12.0/N.5-11-69

161

11-8

Australian Consolidated Minerals N.L. Registered Office: C /- Weston James & Co., Chartered Accountants,

11 Howard Street, Perth. RVO’S/GA. 31 October 1969.

The Secretary, The Stock Exchange of Perth, Exchange House, 68, St George’s Terrace, PERTH W.A. 6000.

Dear Sir, With reference to your enquiries in regard to our application for listing of the shares to be issued in the Prospectus dated 31 October 1969,1 have to advise:— (1) There is no arrangement with the vendors of the mining properties being

acquired as referred to in the Prospectus dated 31 October 1969, in regard to their being granted shares in the Company as part consideration for the purchase of their mining areas. The transactions between Freeport of Aus­ tralia Inc., Metals Exploration N.L., and Australian Consolidated Minerals N.L. were in all instances a purchase for cash. In accordance with this situ- \ ation there are no vendors shares in relation to the issue. (2) The Company acknowledges that it will complete under seal an undertak- 1

ing to amend Article 51 to provide for 21 days notice for the purpose of | meetings and closing of the books of the Company as required by the Associated Stock Exchanges as opposed to the requirement of the W.A. Companies Act of 14 days notice.

Yours faithfully, R. V. O ’S h a n n a s s y

Secretary

REC’D 31 October 1973

162

11-9

The Secretary, The Stock Exchange of Perth, 68 St George’s Terrace, PERTH, W.A. 6000.

Australian Consolidated Minerals N.L. Registered Office c/- Weston James & Co., Chartered Accountants

11 Howard Street, Perth RVO’S/GA. 3 November 1969

Dear Sir, With reference to the enquiry of the Sydney Stock Exchange Ltd re the possi­ bility of the issue of shares to the equivalent value of $599,001 to vendors of properties included in the Prospectus to be issued by the Company, we would advise—

(1) The transaction between Australian Consolidated Minerals N.L. and all vendors is for cash. (2) The only shares that will be allotted by Australian Consolidated Minerals N.L. to either of Metals Exploration N.L., Mountain View Gold N.L. or

Western Queen (1936) N.L., will be in respect of a short fall by their respective shareholders not taking up their entitlement. (3) As to A. W. Harris and Z. O. Harris, Australian Consolidated Minerals N.L. has not agreed to allot them shares in respect of the purchase of their

mining tenements and as such it is not expected any allotment will be made to them unless they lodge an application for shares in the ordinary course of events through one of the Underwriting Brokers. (4) As to Albion Mineral Prospecting Syndicate, Australian Consolidated

Minerals N.L. has not agreed to allot them shares in respect of the pur­ chase of their mining tenements and as such it is not expected any allot­ ment will be made to them unless they lodge an application for shares in the ordinary course of events through one of the Underwriting Brokers. We would also emphasise that any money payable by this Company to any of the vendors will be made after the completion of the proposed issue, probably late December, 1969, and as such, no moneys are being provided by Australian Con­ solidated Minerals N.L., with which any vendors (should they apply for shares to a

Underwriting Broker, in the normal course of business) may take up shares in the Company. We feel that under the circumstances there are no vendors shares in relation to the proposed issue and as such the so marking of scrip does not apply.

We confirm we will add to the Prospectus under Item 9( b) page 22 the $ 1 pay­ able to Metals Exploration N.L.

163

By Order of The Board R. V. O ’SHANNASSY Secretary

11-10

Australian Consolidated Minerals N.L. Registered Office: 12th Floor, St. George’s Court, 16 St. George’s Terrace PERTH, WESTERN AUSTRALIA,

6000

CHAIRMAN’S ADDRESS TO SHAREHOLDERS STATUTORY MEETING, 17 APRIL 1970

Following the successful launching of Australian Consolidated Minerals N.L.— quoted in 1969 as the ‘Float of the Y ear’—your Directors have been active in administering the affairs of the Company. For your information, there were at the time of the issue, 16,757 shareholders on the Register. Currently, there are 19,091 shareholders now listed—2,946 resident in the United Kingdom, 8,097 in Western Australia, 7,694 in the other Australian States, 105 in New Zealand and 249 in other overseas countries, 12,049 transfers having been processed since listing. Also, since listing, 708,436 options have been converted to shares, making the present issued share capital of the Com­ pany 17,713,436 shares of 20c each, a paid up capital of $3,542,687.

So that the affairs of the Company could be efficiently handled from its incep­ tion and pending the appointment o f technical staff—no easy task in these times— the Board is pleased to report that Mr. A. T. Climas, a retired Mining Engineer, generously accepted the temporary appointment as Manager and he has estab­ lished our own office at 16 St. George’s Terrace, Perth and is capably controlling

field work of the Company in co-operation with our field officer, Mr. John Good­ win, who is based in the Murchison. With the present day growth of the mining industiy, particularly in the mineral exploration field, the Company has, in com­ mon with other major organisations, experienced great difficulty in the recruitment of a top executive. Applications were called for on a world wide basis, and I am very pleased to be able to announce that only this week have we been able to con­ clude the appointment of a General Manager, a man experienced in mining and exploratory operations both in Australia and overseas, and I am confident that this move will be reflected in an acceleration o f the Company’s field activities from the time his contract commences on June 1 st next. However, it is pleasing to know that despite the difficulties encountered in obtaining technical staff, we have in the meantime been able to retain the services of a firm of international geologists, Messrs. Mackay and Schnellmann Pty. Ltd., thereby ensuring a reliable follow-up of field work being undertaken by our staff, and providing adequate supervision of the exploratory programmes in the areas held by the Company. The policy of the Board, in relation to mineral exploration, is being directed to a combination of joint venture activities and independent investigations, with a view to reducing explo­ ration costs on the one hand, but preserving the right to ‘go it alone’ if thought advisable.

The Board has already had discussions with several leading overseas mining houses which could lead to valuable associations, and assured financial backing should a mining operation eventuate; and, as a diversification, has also established

164

contact with several experienced prospectors, thus keeping abreast of the various aspects of mineral exploration. As a result of direct pegging by Mr. Goodwin, the following Mineral Claims have been acquired in our own right: 16 claims in the Weld Ranges, north of Cue; 23 claims at Mt. Clifford, north of Leonora; and 10 claims at Mt. Mulcahy, near Big

Bell. The former two areas were pegged for nickel and associated minerals, the lat­ ter area for copper. Exploration programmes are currently under way. In addition to the mineral claims detailed in the Company’s Prospectus, a further six claims have been pegged at Mt. Sir Samuel, north of Agnew, making 19 in all—held independently by A.C.M.; whilst 7 claims at Yaloginda, south of Meekatharra, and 4 claims at Lake Austin south of Cue, and 12 claims at Murphy Hills, north of Laverton, have been pegged under Joint Venture agreements with Metals Exploration N.L. and Freeport of Australia Inc. As announced last week in the Company’s quarterly report, A.C.M. has purchased its partners’ interests in the Murphy Hills claims, and has entered into an agreement with Westralian Nickel Exploration N.L. to investigate a group of mineral claims for nickel, held by the two Companies.

It is of interest to note that A.C.M. is engaged in the exploration of 293 Mineral Claims (84,086 acres) in Joint Venture arrangements and 68 Mineral Claims (19,259 acres) on its own account. In addition of course, we hold 19 Gold Mining Leases at Day Dawn and Big Bell, and it is to be hoped that the day is not too far

distant when the price of gold will again enable us to consider active exploration of these former well known gold mines. In relation to many areas which are the subject of joint ventures with Metals Ex­

ploration and Freeport, the quarterly report of the former Company, to 31st March, has just been received and may be summarised: Metals Exploration N.L.—Quarterly Report to 31 March 1970 Mt. Keith Nickel Prospect, W.A. 33 1/3 per cent interest

Geological mapping, rotary and diamond drilling continued during the period. Total diamond drilling footage was 5,937’ for 6 holes completed and 3 commenced. Holes M.K.D. 7, 8, 9, 10 and 12 were spaced over a distance o f4000’north of

Hole M.K.D. 5 (previously reported). Holes M.K.D. 8, 9 and 12 also intercepted broad band disseminated nickeliferous sulphides as encountered in M.K.D. 5. A considerable amount of follow-up drilling and metallurgical testing will be required to determine if these zones represent economic mineralisation.

M.K.D. 11 was located 5500’ south of M.K.D. 5. M.K.D. 14 and 15 are cur­ rently being drilled to the immediate south of M.K.D. 5. M.K.D. 13 is located on a separate target zone.

Kingston Nickel Prospect, W.A. 33 1 /3 per cent interest Work on this prospect is at the preliminary stage with surveying, ground magnetics, surface sampling, geological mapping and rotary drilling in progress. During the period, 34 rotary holes were drilled for 4645 ’. Murchison Nickel Prospect, W.A. 25 1/2 per cent interest

During the period, exploration continued on numerous prospect areas in the Murchison. Most work was concentrated on Yarraquin, Culculli and Yaloginda. Extensive surface sampling and ground magnetics were carried out. The pro­ gramme will be stepped up during the next quarter.

165

The magnitude o f some of the areas, currently being examined under our joint venture agreements, will demand a large scale exploration programme, and as suc­ cess in exploration is usually in proportion to work done, shareholders should not expect immediate results in the early examination of these prospects. Quarterly reports will be issued unless something of significance occurs, and Board members will make regular trips to obtain first-hand information of the Company’s field developments. Before concluding, I should mention that our Deputy Chairman, Mr. Hohnen returned this week from an overseas visit, and was able to renew a number of contacts which, I feel sure, will be of immense benefit to the Company.

I now move for the adoption of the Statutory Report, and ask for a seconder to the motion. Before putting the motion to the Meeting, I invite any questions which shareholders might care to put.

0001IV 20 AM 9: 13

11-11

News Release From: Metals Exploration N.L. For: The Stock Exchange of Melbourne and Associated Stock Exchanges Press

18-20 Little Collins Street, MELBOURNE 3000 0084X3 PM 4:45

Metals Exploration N.L. Directors are concerned about misleading reports con­ cerning the formation of Australian Consolidated Minerals N.L. and the position with regard to local and overseas shareholders of the Company. Metals Exploration N.L. is not the promoter of the new Company. Rights of its shareholders to shares in Australian Consolidated Minerals N.L. arise solely from an offer by the promotors of Australian Consolidated Minerals N.L. Reports that Australian Consolidated Minerals N.L. is a Metals Exploration N.L. ‘spin-off’ are

therefore incorrect. The Company has made arrangements to ensure that the Prospectus and Letter of Entitlement will be forwarded to all shareholders by air delivery immediately the material is available from Australian Consolidated Minerals N.L.

Directors also advise that all valid transfers lodged with the Company’s share registrar are being processed within the statutoiy one month period from the time of receipt by the share registrar.

In the case of closure of books to determine entitlements and the period the issue will remain open, Metals Exploration N.L. will comply strictly with the pro­ cedure laid down and required by the Company’s Act and the Australian Associated Stock Exchanges. Recent reports from London regarding the unfavour­ able position of United Kingdom shareholders with respect to entitlements to par­ ticipate in the issue by Australian Consolidated Minerals N.L., if correct, must therefore refer to factors beyond the control of Metals Exploration N.L.

R. Hare

Melbourne, 3 November 1969 Chairman

166

11-12

AUSTRALIAN CONSOLIDATED MINERALS N.L.

TABLE OF THE TWENTY LARGEST SHAREHOLDERS ON THE REGISTER OF THE COMPANY N a m e a n d a d d ress N o. o f shares h e ld No. o f o p tio n s h e ld

A .N .Z . N o m in e e s L im ite d , G .P .O . Box 2 8 4 2 A A M elb o u rn e, Vic. 3001 3 9 2 ,1 0 8 3 9 2 ,1 0 8

A .N .Z . N o m in e e s L td G .P .O . Box 4 0 9 9 , S y d n ey , N .S .W . 2001

B an k o fN .S .W . N o m in e e s P ty L td , T h e W ales H o u se , 66 P itt S tree t,

S y d n ey , N .S .W .

D a rw in C a m p i, 9 M a n o r S treet, B rig h to n , Vic. 3 1 8 6

C a rm ic h a e l N o m in e e s P ty L td G .P .O . Box M 943 P e rth , W .A . 6001

C .B .A . N o m in e e s P ty L td , 3 3 5 -3 3 9 C o llin s S tree t, M e lb o u rn e , Vic. 3 0 0 0

C h u rc h H ill S ecu ritie s A u st P ty L td , C / - M erry & M erry , 30 O rd S tree t, W e s t P e rth , W .A . 6005

C o m m e rc ia l N o m in e e s P ty L td , 343 G e o rg e S tree t, S y d n e y , N .S .W . 2001

J a c k W ilu n a H o w a rd , A lb io n D o w n s S ta tio n , V ia L e o n o ra , W .A . 6438

R o n a ld S e d d o n H o w ard , A lb io n D o w n s S ta tio n , L e o n o ra , W .A . 6 4 3 8

M eta ls E x p lo ra tio n N .L ., 18-20, L ittle C o llin s S treet, M e lb o u rn e , Vic. 3000

M in in g T r a d e rs L td , G .P .O . Box 2 850, S y d n ey , N .S .W . 2001

M o u n ta in V iew G o ld N .L ., 17 E m e ra ld T ee, W est P e rth , W .A . 6005

N a tio n a l N o m in e e s L td, 3 4 0 -3 4 6 , G e o rg e S treet, S y d n e y , N .S .W . 2 0 0 0

P a tric k N o m in e e s P ty L td , G .P .O . B ox 2 8 5 0 S y d n ey , N .S .W . 2001

P a tric k S e cu rities P ty L td , G .P .O . Box 2 8 5 0 S y d n ey , N .S .W . 2001

R. H a re & A sso ciates P ty L td , 2 F lo o r, 20 L ittle C o llin s S treet,

M e lb o u rn e , Vic. 3000

2 4 0 ,0 0 0 2 4 0 ,0 0 0

2 2 5 ,0 0 0 2 2 5 ,0 0 0

101,000 101,000

8 2 4 ,2 3 9 8 2 4 ,2 3 9

175,000 175,000

2 0 0 ,0 0 0 2 0 0 ,0 0 0

2 2 0 ,0 0 0 2 2 0 ,0 0 0

107,900 107,900

116,300 116,300

5 7 8 ,5 8 4 5 7 8 ,5 8 4

2 5 0 ,0 0 0 2 5 0 ,0 0 0

193,702 3 8 7 ,4 0 4

185,000 185,000

2 70,000 2 7 0 ,0 0 0

157,700 157,700

110,500 110,500

167

N am e and address No. o f shares held No. o f options held

W e s te rn Q u e e n ( 1 9 3 6 ) N .L . 55 S t G e o r g e ’s T e rra c e , P e rth , W .A . 6 0 0 0 2 3 5 ,0 0 0 470,000

C a m b ra N o m in e e P ty L td , C / - S a w C a m b rid g e & B ra n n e lly , 68 S t G e o r g e ’s T e rra c e , P e rth , W .A . 6 0 0 0 190,000 190,000

J a c k M a u n d , C / - E d ju d in a S ta tio n , V ia K a lg o o rlie , W .A . 6 4 3 0 9 7 ,3 0 0 97,300

4,869,333 5,298,035

11-12

ATTACHMENT A

AUSTRALIAN CONSOLIDATED MINERALS N.L.

DISTRIBUTION SCHEDULE N u m b e r o f T o ta l sh a re s T o ta l N o. o f

P a r c e l s ize s h a re s h e ld h e ld o p tio n s h e ld

5 0 0 o r less 13,720 2 ,7 1 3 ,0 5 5 3 ,9 6 9 ,5 5 3

5 0 1 ,1 0 0 0 1,609 1,371,882 1,771,882

1,001 -1 ,5 0 0 338 4 3 9 ,9 7 7 5 3 9 ,9 7 7

1,501 -2 ,0 0 0 332 6 3 9 ,9 8 7 6 9 9 ,9 8 7

2 ,0 0 1 -3 ,0 0 0 176 466,631 508,631

3 ,0 0 1 -4 ,0 0 0 111 4 1 1 ,0 1 6 4 2 6 ,0 1 6

4 ,0 0 1 -5 ,0 0 0 128 6 2 4 ,1 1 8 6 4 9 ,1 1 8

5 ,0 0 1 -1 0 ,0 0 0 151 1,166,942 1,237,930

1 0 ,0 0 1 -2 0 ,0 0 0 75 1,126,635 1,143,447

2 0 ,0 0 1 -3 0 ,0 0 0 34 8 2 8 .9 7 7 8 2 8 ,9 7 7

3 0 .0 0 1 -5 0 ,0 0 0 27 1,223,202 1,223,202

5 0 ,0 0 1 -1 0 0 ,0 0 0 16 1,220,545 1,290,545

1 0 0 ,0 0 1 -2 0 0 ,0 0 0 10 1,537,102 1.73 0 ,8 0 4

O v e r 2 0 0 ,0 0 0 9 3,234 ,9 3 1 3,479,931

17,005,000 19,500,000

168

11-13

Patrick Partners 2 Castlereagh Street, SYDNEY 2000 Melbourne, Brisbane, Canberra,

Wollongong, Perth, Brussels. * Members of the Sydney Stock Exchange Limited *M. R. L. DOWLING, *N. R. COURSE,

*m . a . McG r a t h , j . a . k e i r , *t . r . ALLEN, R. W. BURGE, R. A. NOSS, J. S. CORNER, W. J. EDWARDS, M. E. BAUME, A. BURT, P. DAVIE, R.

N. GOTTLIEBSEN REF.: JAK 13 October 1972

The Secretary, Senate Select Committee on Securities and Exchange, Australian Senate,

CANBERRA, A.C.T.

Dear Sir, I refer to the evidence I gave before your Committee on 11 and 12 September last. Certain matters were left with me for further enquiry and research. I am now able to advise as follows:

CARR BOYD MINERALS LIMITED The Committee has put forward the view, that, on the face of the records, Patrick Partners, as principal, sold heavily the shares of Carr Boyd during the week preceding the public announcement of the Carr Boyd placement in June 1970 and, in fact, while the placement was being negotiated.

This view is incorrect. Research has shown that, as between Car Boyd Minerals and Patrick Partners, Carr Boyd agreed, firm, on 17 June to issue to Patrick Partners, acting as brokers for Mining Traders Limited and Castlereagh Securities Limited, 200.000 shares. This was the original total requirement of the Company. On 18 June,

the issue price was slightly varied from $3.50 to $3.55, Carr Boyd paying Patrick’s brokerage out of that price. The additional 100,000 were never offered to Patrick Partners. The company has informed me that they were introduced only when Messrs D. J. Carmichael & Co. of

Perth made representations to the company on 19 June that they be allowed to par­ ticipate in the placement, they having been closely involved with Patricks when the company’s shares were first floated. The company then, on 19 June, decided to increase their requirements to 300,000 and made the entire additional amount of

100.000 available to Carmichaels. The company says these arrangements were not

169

completed in time to inform the Stock Exchange that afternoon (Friday). The com­ pany reported it to the Exchange in Sydney (not Melbourne) by letter dated Monday, 22 June. Officers of the Sydney Exchange say that this letter was not received by the Exchange until about 11 o ’clock on Tuesday, 23 June, when the Melbourne and Perth Exchanges were immediately informed by telex. Both Exchanges queried the terms of the announcement. The queries were referred back to the company which sent a sec­ ond letter to the Exchange in Sydney immediately. This was broadcast by telex to Melbourne and Perth Immediately. It is not correct, as suggested at page 11418 of the transcript, that Carr Boyd notified the Melbourne Stock Exchange direct.

There was no agreement between Patricks and the company that the necessary announcement to the Stock Exchange would be delayed; the understanding was to the contrary, but it was for the company to make the announcement, not Patricks. Patricks did not take the shares in the first place, nor did it sell, as principal. They took the placement and sold as brokers for Castlereagh Securities Limited

and Mining Traders Limited.

METALS EXPLORATION N.L. At Page 11453 of the transcript, the Chairman referred to the company’s state­ ment on 6 September to the Melbourne Stock Exchange that, although it was not usually its policy to mark transfers, because of the special circumstances at the time, it had marked transfers for 150,000 of the placement and had agreed to mark transfers for the balance when issued. I was asked what were the special circumstances. I replied I did not know. I still cannot say of my own knowledge and I do not wish to speculate.

POSEIDON N.L. Between Pages 11512 and 11517 of the transcript, the Committee is shown to be dealing with the proposition that substantial transactions involving shares in Poseidon were undertaken by M.T.D. in March/April 1970 and that they resulted in a substantial profit at a time of a falling market for these shares (see Page

11515). In this period, Patrick & Company held 5,000 Poseidon shares and it was agreed with M.T.D. Pty Ltd that it would be held covered against trading by it in Poseidon. These shares were held by the Partnership throughout the period refer­ red to.

I enclose copies of Ledger Account 41 for Poseidon to cover March and April 1970 as requested.

M.T.D. PTY LIMITED BROKERAGE This is referred to in the transcript at Pages 11522 and 11524. The relationship between this evidence and the evidence given by Mr M. R. L. Dowling at Page 10117 is shown in his letter of even date which is enclosed herewith.

A.C.M. On reading the transcript, it is difficult to see what further information the Com­ mittee requires. Patricks were not underwriters to the issue; they were sub­ underwriters, bound by the Stock Exchange rules not to permit their name to be mentioned in the prospectus. It was not a prestige float at the time the sub­ underwriting commitment was made, and, in fact, a shortfall in the issue was expected. It only became popular when the Poseidon discovery of nickel in areas near to those held by A.C.M. caught the imagination of the market. This discovery

170

was made almost coincidentally with the sub-underwriting commitment and did not have any influence on it. The Patrick Partners allocation was spread between nominee companies for reasons of security. The prospectus disclosed that the issue was fully underwritten and taken firm, so that the public participated through brokers’ allocations and not by direct application to the company.

YARRA INVESTMENTS PTY LIMITED (Reference Pages 11526 and 11560of the transcript) Yarra Investments Pty Ltd did not participate in the A.C.M. issue nor did it pur­ chase shares after flotation. The issue took place in November 1969 and the Part­ nership did not acquire the issued shares in Yarra Investments until the end of April 1970. Negotiations with the previous owners of Yarra Investments com­

menced in May 1969. They fell off" for a period and were renewed again around the end of November and continued until April 1970. The plan was to use Yarra Investments as a subsidiary of Mining Traders in the same manner as M.T.D. When the purchase of Yarra was postponed it was decided that the incorporation

of M.T.D. proceed and it was incorporated on the 3rd o f February 1970. In the interim we had opened a share account in our ledgers titled ‘Yarra Investments’. The transactions recorded on that account were taken up by M.T.D. Pty Ltd. PASAR INVESTMENTS PTY LTD

The beneficial owner of the 121,700 shares held by Patrick Nominees is M.T.A. Pty Ltd.

FLINDERS PETROLEUM Toxteth Exploration Company Pty Limited and Patrick Nominees Pty Limited held the shares in Flinders Petroleum mentioned at Pages 11588 of the transcript, for Patrick Partners as principal.

Yours faithfully, PATRICK PARTNERS Per: J. A. Keir

171

11-14

Messrs. Patrick & Co., Sharebrokers, 150 Queen Street, MELBOURNE, VIC 3000. Refer Mr. R. Course KRB/GA. 23 October 1969

Re: Australian Consolidated M inerals N .L

Dear Sirs, We refer to a recent letter written by Mr. R. V. O ’Shannassy and confirm that we are offering you the sub-underwriting and firm allotment of 5,900,000 shares in Australian Consolidated Minerals N.L. for a fee of .75 cents per share. Of these

shares 2,667,300 are to be reserved for Metals Exploration N.L. shareholders. Please acknowledge your acceptance of this offer to D. J. Carmichael & Co.

D. J. C a r m ic h a e l & Co. Saw, C a m b r i d g e & B r a n n e l l y

JOINT UNDERWRITERS

172

11-15

Patrick & Company 151 Queen Street, Melbourne 3000 43 Northbourne Avenue, Canberra City 2601

181 Keira Street, Wollongong 2500 2 Castlereagh Street, Sydney 2000

Members of the Sydney Stock Exchange Limited M. A. McGrath, T. R. Allen; Members of the Sydney Stock Exchange Limited J. A. Keir, R. A. Noss, W. J. Edwards,

J. S. Corner Ref: NRC/BE MELBOURNE, 30 October 1969

D. J. Carmichael & Co., G.P.O. Box M943, PERTH, W.A. 6001.

Dear Sirs,

Re: Australian Consolidated M inerals N.L.

As requested in your letter dated 23 October 1969 we hereby confirm our accept­ ance of your offer of the sub-underwriting and firm allotment of 5,900,000 shares in Australian Consolidated Minerals N.L. for a fee of .75 cents a share. We also confirm that of these shares 2,667,300 are to be reserved for the shareholders of Metals Explo­

ration N.L. We thank you for the opportunity of participating in this issue and would like to take the opportunity of wishing you every success with the float.

Yours sincerely, PATRICK & COMPANY N. R. C o u r s e

173

11-16

D. J. Carmichael & Co. 135 St George’s Terrace, PERTH, W.A. 6000. Members of the Stock Exchange of Perth

Limited Donald G. Maloney, Kenneth W. Court, R. L. (Lin) Phillips, Peter C. Hawkins, John K. Dorrington In reply please quote: DGM:SW

7 May 1973

Mr. B. J. Knox, Secretary (Acting), Select Committee on Securities and Exchange, Australian Senate, CANBERRA, A.C.T. 2601

Dear Sir, In reply to your letter of the 4th instant we advise that during this period of ex­ tremely heavy turnover in the speculative market, shares that were sold on behalf of partners’ family share trading and investment companies, were not segregated from the normal client business.

Yours faithfully, D. G. M a l o n e y D. J. CARMICHAEL & CO.

174

11-17

PATRICK PARTNERS 2 Castlereagh Street, Sydney 2000 Melbourne, Brisbane, Canberra,

Wollongong Members of the Sydney Stock Exchange Limited M. R. L. Dowling, N. R. Course,

M. A. McGrath, J. A. Keir, T. R. Allen, R. W. Burge, J. S. Comer, W. J. Edwards Μ. E. Baume, A. Burt, P. Davie,

R. N. Gottliebsen, L. J. Milligan, D. I. Thorpe Ref: JAK 13 October 1972

The Secretary, Senate Select Committee on Securities and Exchange, Australian Senate,

CANBERRA, A.C.T. 2600

Dear Sir, My attention has been drawn to evidence given before your Committee by my partner, Mr J. A. Keir, recorded at pages 11522 to 11524, which appears to differ from evidence which I gave the Committee reported at page 10117 of the tran­

script. Mr Keir’s evidence relates to the charging of brokerage by Patrick Partners to M.T.D. Pty Limited on transactions handled by the firm for the company as broker. Brokerage was usually not charged to M.T.D. Pty Limited. The reason was that

the partners owned, directly or indirectly, in excess of 75 per cent of its issued capi­ tal. When I gave the evidence recorded at page 10117, my mind did not specifically advert to M.T.D. Pty Limited although I did refer to ‘occasional principal trans­

actions in which, of course, commission is not p a y a b le I was referring to the Min­ ing Traders group generally.

Yours faithfully, M. R. L. D o w l i n g

175

11-18

The Sydney Stock Exchange Limited 20 O ’Connell Street, Sydney, N.S.W. Chairman’s Room JHC;mp

14 December 1971

Mr. D. W. Whitbread, Secretary, Select Committee on Securities and Exchange, Australian Senate,

CANBERRA, A.C.T. 2600

Dear Mr. Whitbread, I wish to acknowledge receipt of your letter of the 10th instant, and note your enquiry regarding the Rules and Regulations of this Exchange in respect to the charging of brokerage, and in this respect I enclose herewith a copy of By-law 27.

The rates laid down by the brokerage By-law covers the charging of brokerage for both buying and selling to all persons or all organizations, other than Members or partners of Member Firms, and is therefore applicable to wives, relations, family companies and associated companies.

I have no knowledge of any exceptions being made to the requirements of the By-law during the past five years.

Yours faithfully, J. H. C o o p e r Chairman

176

11-19

RIMIBO RESOURCES LIMITED

Minutes of Meeting of Directors held at 140 Queen Street, Melbourne, on 3 December 1970 at 9.00 a.m.

PR E S E N T

SH A R E IS S U E

A U S M IN C O SE R V IC E S PTY. L T D . P R O P O S A L

A L T E R N A T IV E TO A U S M IN C O S E R V IC E S

P T Y L T D .

Messrs. K. R. Farfor (Chairman), J. S. Hancock, A. D. Killey, R. O. Parsons, and G. W. Briggs (Secretary) Mr M. F. Marriott was also in attendance. Mr Parsons advised the meeting of the position in relation to the public subscriptions to the Company’s share issue.

During discussion Mr Marriott advised that he considered that the Company could not withdraw the prospectus. The underwriting agree­ ment with Mr Parsons was a contract which could not be varied prior to the statutory meeting of the Company.

Mr Parsons tabled a copy of his letter to Ausminco Services Pty Ltd advising them of the Board’s discussions in relation to their proposals. Mr Parsons then advised that Ausminco Services Pty Ltd had agreed verbally to the terms of that letter but would also request that

the cash funds of the Company be placed on call at 6 and three-quarter per cent per annum with Martin Corporation Ltd. It was agreed that the allotment of 1,000,000 ordinary shares in the Company to Ausminco Services Pty Ltd should be effected if and when

a letter is received from that Company— (a) confirming that Ausminco Services Pty Ltd does not intend to materially vary the investment policy of Rimibo Resources Limited from that stated in the Statement by the Chairman of

Directors which was included in the prospectus issued by Rimibo Resources Limited, and (b) requesting that Ausminco Services Pty Ltd be appointed con­ sultants to Rimibo Resources Limited.

Mr Hancock advised the meeting that a proposal similar to the Ausminco Services Pty Ltd proposal could be forthcoming from another party. It was agreed that consideration should only be given to such a pro­

posal if it is received prior to finalisation of the Ausminco Services Pty Ltd proposal. The meeting closed at 10.00 a.m.

Signed as a correct record K . F a r f o r

Chairman

177

11-20

Keith Farfor 226 Swanston Street MELBOURNE 3000 23 February 1973

The Secretary, Select Committee on Securities and Exchange, Australian Senate, CANBERRA A.C.T. 2600.

Dear Sir:

RIMIBO RESOURCES Receipt is acknowledged of your letter on this subject dated 19 January 1973, and I am sorry for the delay in answering, which was brought about by my having been out of Melbourne.

I note that you would like my own recollections of the matters discussed at the meeting of 3 December 1970, in which the Minutes record that Mr Marriott, a Solici­ tor to the Company, advised he considered the Company could not withdraw the Prospectus.

My recollection is that at this time there was an indication of a downturn in the market, and the Board discussed with Mr Parsons who was, of course, one of our Directors as well as the Underwriter, whether the level of subscription from the public would be likely to increase substantially by the due date.

I, and several other members of the Board, were not very optimistic about the level increasing and in order to inform myself as to what might happen in relation to the underwriting, I raised the question of the liability which the Underwriter had to the Company.

Mr Marriott, who was also present at the meeting in the role of Solicitor to the Company, stated that there was an enforceable agreement between the Company and Mr Parsons, and that this could not be varied prior to the statutory meeting of the Company.

I was satisfied with the advice given, which answered my query at the time. The matter had been raised by me and another of the Directors and was not initiated by Mr Parsons. I trust that this satisfactorily answer your queries.

Yours sincerely, K e it h F a r f o r

178

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Memorandum of Messrs B. G. Douglas, E. E. Falk and A. W. Muddyman meeting with the Board of Directors and Underwriting Brokers of Rimibo Resources Ltd on Thursday, 17 December 1970, at 8.30 a.m.

Selected Mining Holdings Limited Solicitor Mr. M. F. Marriott for and on be­ half of “ Selected” made the undermentioned offer which was accepted by the Board of Directors and Underwriting Brokers of Rimibo Resources Ltd. Application for 1,200,000 shares in Rimibo Resources Limited at par in the cur­ rent issue, such shares to be issued to nominees H.P.M. Nominees Pty. Ltd (464.000) , Repton Nominees Pty. Ltd (328,000) and Lanifer Nominees Pty. Ltd (408.000) .

This offer being subject to the following conditions:— (1) The present Board not to vary the financial structure of the Company. (2) Mr. E. E. Falk to be appointed Secretary of Rimibo Resources Limited and Grant and Falk to take over the share register of Rimibo at a time to

be decided by the Directors; at the present time it is intended that this should be at the time of the statutory meeting. (3) Australian Investment Counsellors Pty. Ltd to be appointed forthwith as manager and investment consultant of Rimibo upon the following terms:—

(a) 5 years initial term, renewable thereafter annually, initial term not terminable except for fraud or gross incompetence on Australian Investment Counsellors ’ part; (b) Remuneration to be management expenses of $15,000 per annum

plus 3/4 per cent of the market value of the investment fund annually; (c) Australian Investment Counsellors’ duty to be to provide all invest­ ment advice and services, and clerical and executive services not pro­ vided by the Secretary and his office. We consent to Australian Invest­

ment Counsellors’ engagement with Rimibo. (4) A director of Selected Mining Holdings Limited to be a counter-signatory to Rimibo’s bank account forthwith after full proceeds of issue are deposited with Rimibo’s bank, which must be by Thursday, 24 December 1970.

1970.

(5) Up to three representatives of Selected Mining Holdings Limited to be en­ titled to attend all Board meetings of Rimibo until Selected gets Board representation on the Rimibo Board. (6 ) There to be at least 200 applicants to the issue. ( 7) Rimibo to do all things necessary to apply and obtain listing.

24175/ 7 5 -7

179

11-22

BERNARD PAUL MARRIOTT & CO. ( Incorporating Hepworth & Paul and M. F. Marriott & Co.) 9th Floor, 412 Collins Street,

MELBOURNE, 3000 461 Nepean Highway, CHELSEA, 3196 Barristers and Solicitors B. Paul, L.L.B., M. F. Marriott, L.L.B. Commissioners of the Supreme Courts of

all States, N.T., N.Z. and of the High Court of Australia for taking affidavits. Our Ref. MFM/MB/C 17 December 1970

Richard Parsons & Co., 140 Queen Street, MELBOURNE, 3000.

Dear Sirs,

Re: Rimibo Resources Limited

We apply to you as Underwriters to allocate to clients of ours 1,200,000 shares in the abovementioned Company at par in the current issue, such shares to be allocated to our clients: nominees H.P. & M. Nominees Pty Ltd (464,000) Repton Nominees Pty Ltd (328,000) and Lanifer Nominees Pty Ltd (408,000).

This offer is subject to the following conditions: (1) The present Board not to vary the financial structure of the Company. (2) Mr E. E. Falk to be appointed Secretary of Rimibo Resources Limited and Grant & Falk to take over the share register of Rimibo at a time to be

decided by the Directors; at the present time it is intended that this should be at the time of the statutory meeting. (3) Australian Investment Counsellors Pty Ltd to be appointed forthwith as manager and investment consultant of Rimibo upon the following terms:

(a) 5 years initial term, renewable thereafter annually, initial term not terminable except for fraud or gross incompetence on Australian Investment Counsellors ’ part; (b) remuneration to be management expenses of $ 15,000 per annum plus

three quarter per cent of the market value of the investment fund annually; (c) Australian Investment Counsellors’ duty to be to provide all investment advice and services, and clerical and executive services not

provided by the Secretaiy and his office. (4) A representative of our clients to be a counter-signatory to Rimibo’s bank account forthwith after full proceeds of issue are deposited with Rimibo *s bank, which must be by Thursday, 24 December 1970.

180

(5) Up to three representatives of our clients to be entitled to attend all Board meetings of Rimibo until our Clients get Board representation on the Rimibo Board. (6 ) There to be at least 200 applicants to the issue. (7) Rimibo to do all things necessary to apply for and obtain listing. Our cheque in favour of Rimibo is delivered herewith, strictly upon the foregoing conditions.

Our clients have seen the investment policy set out in the Prospectus of Rimibo and assure you that they have no intention of substantially departing from it.

Yours faithfully, BERNARD PAUL, MARRIOTT & CO. M. F. M a r r io t t

181

11-23

RIMIBO RESOURCES LIMITED Minutes of Directors Meeting held at 140 Queen Street, Melbourne, on 17 December 1970, at 8.30 a.m.

p r e s e n t Messrs. K. R. Farfor (Chairman), M. F. S. Hancock, (Alternate for

J. S. Hancock), A. D. Killey and R. O. Parsons and G. W. Briggs (Sec­ retary). Messrs. Marriott, Falk, Douglas and Muddyman were also in attendance. The minutes of the previous meeting were read and signed by the

Chairman as a correct record. Mr Parsons advised the meeting that Ausminco Services Pty Ltd had not paid the application money for the 1,000,000 ordinary shares allocated to them. This was a unilateral breach of their agreement with Mr Parsons and Mr Parsons was to advise them accordingly.

Mr Marriott advised the meeting that Selected Mining Holdings Limited were prepared to subscribe for 1,200,000 ordinary shares in the Company subject to certain conditions relating to the management of the Company. After discussion it was agreed that the Secretary should advise Selected Mining Holdings Limited that the Company was prepared to allot 1,200,000 shares to Selected Mining Holdings Limited, and that their other requests would be considered but not be­ fore the statutory meeting of Members of the Company had been held. m a n a g e m e n t It was agreed that the Company should enter into a management

a g r e e m e n t : agreement with Australian Investment Counsellors Pty Ltd for an ini­

tial period of five years whereby Australian Investment Counsellors Pty Ltd will advise and counsel the Company in regard to its invest­ ments. Authority was given for the Common Seal of the Company to be affixed to the relevant agreement.

The meeting closed at 11.00 a.m.

m i n u t e s O F

P R E V IO U S M E E T IN G : S H A R E IS S U E :

S E L E C T E D M IN I N G H O L D IN G S L I M I T E D -P R O P O S A L :

Signed as a correct record. K. F a r f o r Chairman

182

11-24

P R E S E N T :

M IN U T E S O F P R E V IO U S M E E T IN G :

S H O R T TERM IN V E S T M E N T

PO L IC Y :

RIMIBO RESOURCES LIMITED, MINUTES OF MEETING OF DIRECTORS HELD AT 140 QUEEN STREET, MELBOURNE, ON 5 JANUARY 1971, AT 8.30 A.M.

Messrs K. R. Farfor, J. S. Hancock, A. D. Killey, R, O. Parsons and G. W. Briggs (Secretary). Messrs. E. E. Falk, B. G. Douglas and M. W. Marriott were also in attendance. The minutes of the previous meeting were read and signed by the

Chairman as a correct record. Minutes of meeting held at 8.30 a.m. on 23 December 1970 were also signed as a correct record. Mr B. G. Douglas tabled a report by the Company’s Investment Manager, Australian Investment Counsellors Pty Ltd, as to the proposed short term investment policy of the Company.

After discussion it was resolved that the short term investment pol­ icy of the Company should be— (i) The Company initially concentrate on an aggressive share trading with a view to building up shareholders ’ funds.

(ii) The Manager subject to the abovementioned restrictions be hereby given authority to invest up to $400,000 in the stock market in the manner the Manager considers appropriate. (iii) The Manager be empowered to write and trade in the option

market, up to a limit of $ 100,0 0 0 . It was also resolved that the following limitations be imposed upon the Company’s Investment Manager— (i) No investment or trading position be taken in any one stock in

excess of $ 100,0 0 0. (ii) If the Manager wishes to exceed the $100,000 level, verbal approval confirmed in writing by two other Board Members, must first be obtained and for investments in excess of $50,000

in any one stock all Board members shall be advised of such action by the Manager. (iii) The Manager shall not obtain borrowed funds without first obtaining approval of the Board.

(iv) The Manager shall not, without first obtaining approval of the Board, invest in shares of unlisted companies or in companies prior to listing, unless the Prospectus states that the Company concerned has been accepted for listing on an Australian Stock

Exchange.

(v) The Manager shall not commit the Company to act as an underwriter or sub-underwriter without Board approval, but may discuss such action on the Board’s behalf. (vi) The Manager shall not commit the company to acquire a con­

trolling interest in any other company or make a take over offer for any other company without Board approval, but may discuss such action on the Board’s behalf.

183

(vii) The Manager shall not transact dealings in the market in ‘shorts’ unless he first has the agreement of at least two other Board Members. m i n i n g The following mining ventures which were discussed at the meet-v e n t u r e s : jng on 9 December 1970 were again considered—

(a) Copper prospect at Cone Bay in Kimberley’s region of West Australia. (b) Copper and nickel leases at Mt Linden and Kanowna in West Australia.

D R I L L I N G C O M P A N Y IN V E S T M E N T :

L A N D S U B D IV IS IO N P R O JE C T S :

P U R C H A S E O F O P T IO N S :

S T A T U T O R Y M E E T IN G :

P A Y M E N T O F A C C O U N T S :

(c) Copper mine at Mt Perry in Queensland. (d ) Molybdenite and wolfram leases at Mt Moliagul, Victoria. It was resolved that no action be taken in regard to the Mt Moliagul leases but that the geologists reports on the other ventures should be submitted to Australian Investment Counsellors Pty Ltd for consider­

ation. The proposed investment in the diamond drilling company was again discussed and the proposals referred to Australian Investment Counsellors Pty Ltd for consideration.

Mr Marriott advised the meeting that a successful land developer could be interested in discussing certain land subdivision projects with the Directors. Mr Marriott was instructed to ascertain more detailed proposals and advise the Board accordingly.

Mr Parsons offered to sell to the Company options to take up 670,000 ordinary shares at 25 cents each fully paid in Goldrim Mining Australia Limited, at a price of 10 cents per option. Messrs Hancock and Killey declared their positions as Director and Secretary respec­ tively, of Goldrim Mining Australia Limited and abstained from dis­ cussing or voting on the matter.

It was agreed that the Chairman should discuss the matter with Australian Investment Counsellors Pty Ltd and advise the Board of their decision.

It was resolved that the Statutory meeting of the Company should be held on 28 January 1971 at 12.00 noon at the Princes Gate Confer­ ence Centre, 151 Flinders Street, Melbourne. The Secretary was instructed to make the necessary arrangements for the meeting.

It was resolved that the following account should be passed for payment— Australian Groundwater Consultants Pty Ltd (costs re investiga­ tion of Molybdenite and wolfram leases at Mt Moliagul): $596.25.

The meeting closed at 12 noon.

Signed as a correct record. K e it h F a r f o r

Chairman

11-25

P R E S E N T :

M IN U T E S O F P R E V IO U S M E E T IN G :

M IN IN G V E N T U R E S :

L A N D S U B D IV IS IO N P R O JE C T S :

P U R C H A S E O F O P T IO N S :

S H A R E A U D IT :

P A Y M E N T O F A C C O U N T S :

M A N A G E R S B A N K A C C O U N T :

D E P O S IT S A T C A L L :

RIMIBO RESOURCES LIMITED.

Minutes of Directors Meeting held at 140 Queen Street, Melbourne, on 25 January 1971, at 8.30 a.m.

Messrs. K. R. Farfor (Chairman), J. S. Hancock R. O. Parsons and G. W. Briggs (Secretary) Messrs. E. E. Falk, B. G. Douglas, A. W. Muddyman and M. F. Marriott were also in attendance.

The minutes of the previous meeting were read and signed by the Chairman as a correct record.

Mr Douglas advised that Australian Investment Counsellors Pty Ltd had considered the information submitted at the previous meeting but did not recommend action on any of the leases.

It was agreed that the Manager should investigate further mining prospects on behalf of the Company.

Mr Marriott advised that he was continuing to ascertain detailed information and would report further progress at the next meeting.

The Chairman advised that after discussion with Australian Invest­ ment Counsellors Pty Ltd it was decided not to purchase the options to take up 670,000 ordinary shares at 25 cents each fully paid in Goldrim Mining Australia Limited.

The share audit report by Marquand & Co. on the allotment of 3,000,000 ordinary shares and 1,500,000 options by the Company was tabled and the comments contained therein noted.

It was resolved that the following accounts be passed for payment— $ Molomby & Molomby 502.00

G. J. L. Group (Printers) Pty Ltd 13.80

Richard Parsons & Co 5,823.87

Australian Investment Counsellors Pty Ltd 3,750.00

It was resolved to approve the opening of a current account styled “ Rimibo Resources Limited—Managers Account” with the Bank of New South Wales, St. Kilda Road Branch. Signatories to that account to be Mr B. G. Douglas together with either of Mr E. C. Lord and Mr J.

C. Blaine.

Mr B. G. Douglas advised that the manager had deposited $200,000 at six and a quarter per cent per annum on seven days call with Direct Acceptance Corporation Ltd.

185

11-26

Australian Investment Counsellors Ptv Ltd Floor 2, 70 Park Street Melbourne South Victoria 3205 Australia Investment Analysis, Investment

Publications, Portfolio Management, Business Finance BGD Is

c . „ . „ . . 21 March 1972

Select Committee on Securities and Exchange, Australian Senate, CANBERRA A.C.T. 2600

Dear Mr. Whitbread, I refer to your letter dated 15 March 1972. I have refreshed my memory by discussions with members of the former Board of Selected Mining Holdings Ltd, and now wish to advise that the three nominee companies are not related in any way to me or Australian Investment Counsellors Pty Ltd, and were related to Selected Mining Holdings Ltd only insofar as they held the Rimibo shareholding on its behalf.

They were nominee companies of our professional advisers or associates. The nominee companies used were: (a) Repton Nominees—Nominee company of Richard Parsons & Company, Underwriting Broker to Rimibo Resources Ltd.

(b) Η. P. & M. Nominees—Nominee company of Rimibo Resources Ltd. Sol­ icitor and Selected Mining Holdings Ltd. Solicitor—Bernard Paul Marriott & Co. (c) Lanifer Nominees—Nominee company of Marquand & Co., Secretary,

Rimibo Resources Ltd. The disclosure that one company was to take a major position in Rimibo Resources Ltd may have prejudiced its flotation and could have been contrary to the interests of subscribing shareholders at the time the shares were listed.

Also, at the time, there were indications of a market raid of Selected Mining Holdings Ltd shares by a group, which in the opinion of the Selected Mining Hold­ ings Ltd Directors, placed the interest of shareholders last in those companies which it attacked. This rendered it in our judgement desirable for the Selected Min­ ing Holdings Ltd. Directors in the interests of their shareholders, to conceal from

the raider as long as they could, the fact that Selected Mining Holdings Ltd would have control (through Rimibo Resources Ltd) of substantial liquid funds, which would have been an added attraction to any raider intent on siphoning off" liquidity to its own advantage.

The Board resolved to make a report to the Stock Exchange on the 18 December 1970 (see copy attached). Before any further report could be made, the Board was changed on 27 January 1971. Yours faithfull

B r i a n G. D o u g l a s

186

11-27

PRESENT:

MINUTES OF PREVIOUS MEETING

SHARE ISSUE-SERVICES PTY LTD:

RIMIBO RESOURCES LIMITED MINUTES OF MEETING OF DIRECTORS HELD AT 140 QUEEN STREET, MELBOURNE ON 2 DECEMBER 1970, AT 9.00 a.m.

Messrs. K. R. Farfor (Chairman), J. S. Hancock, A. D. Killey, R. O. Parsons and G. W. Briggs (Secretary): Mr M. F. Marriott was also in attendance.

The minutes of the previous meeting were read and signed by the Chairman as a correct record.

Mr Parsons advised the meeting of the response of the investment public to the Company’s share issue. The proposal by Ausminco Services Pty Ltd for the allotment of 1,000,000 ordinary shares in the Company was again discussed.

It was resolved to advise Ausminco Services Pty Ltd that the Com­ pany was not prepared to appoint that Company’s three nominees as directors of Rimibo Resources Limited. It was noted that the appoint­ ment o f such additional directors would be in conflict with, and a

material alteration of, statements contained in the Company’s prospectus. It was further resolved that Ausminco Services Pty Ltd be asked whether they intended to materially vary the investment policy of the

Company as stated in the Statement by the Chairman of Directors which was included in the Company’s prospectus. Mr Parsons was instructed to advise Ausminco Services Pty Ltd of the Board of Directors decisions and to ascertain whether they wished

to proceed with their proposal. The meeting closed at 10.00 a.m.

Signed as a correct record K e it h F a r f o r

Chairman

187

11-28

' Select Committee on Securities and Exchange Australian Senate CANBERRA A.C.T.

5 July 1972

PERSONAL & CONFIDENTIAL Mr R. O. Parsons, Richard Parsons & Co., 140 Queen Street,

MELBOURNE VICTORIA 3000

Dear Mr Parsons, You will recall during the hearing before this Committee on 15 June 1972 some questions relating to the sub-underwriting of Rimibo Resources Ltd (ref. pp. 10782,3 transcript) and your agreement to supply such information by letter.

In supplying to the Committee a full list of the sub-underwriters of the Rimibo Resources float and information as to the extent to which each sub-underwriter was successful (in percentage terms), would you also please supply copies of letters received from the sub-underwriters agreeing to accept their sub-underwriting com­ mitment.

With many thanks.

Yours sincerely, D. W . W h it b r e a d Secretary

(Handwritten comment) These cannot be traced in the file, however proof that cheques were paid to the brokers etc. for the commissions has been sighted by me.

R.O.P. 11/7/72

188

11-29

Senate Select Committee on Securities and Exchange CANBERRA A.C.T. 3 January 1973

PERSONAL AND CONFIDENTIAL Mr R. O. Parsons, Richard Parsons and Co., Box 5026Y, G.P.O., MELBOURNE, VIC. 3001

Dear Mr Parsons,

In your evidence given before the Committee on 15 June 1972, you referred to the need for the Committee to examine the Minutes of Rimibo Resources Ltd during December 1970. The Committee subsequently carried out that review and, in addition, also referred to the list of sub-underwriters you provided in response to my letter of 5 July 1972.

I have now been asked to write to you about a matter related to the Rimibo flotation. Your list of sub-underwriters show that the total sub-underwriting amounted to 825,000 shares, leaving your firm as the underwriter with the ultimate responsibility for the subscriptions covering 2,175,000 shares at 25 cents each.

The question the Committee is interested in is the extent of your liability as underwriter if the Selected Mining Subscription had not been forthcoming. It appears that there would have been a 58 per cent shortfall (the 18 per cent shortfall that did occur, p. 10776 of the transcript, plus the 40 per cent subscription by Selected Mining) making a total of 1,740,000 shares.

Your evidence shows, as I have said, sub-underwriting covering 825,000 of these shares, which would have left, according to these calculations, 915,000 shares as having to be subscribed by Richard Parsons and Co. at 25 cents each that would have involved an outlay of $228,750.

Would you please advise the Committee whether your firm was in a position at that stage to finance such a commitment? I have also been requested to ask you to forward to the Committee, copies of your firm’s Balance Sheets as at 30 June 1970 and 30 June 1971 or alternatively

you may prefer to give permission for those balance sheets previously submitted to the Committee for statistical analysis to be decoded and perused by the Committee. The reason the Committee is taking this step is that it is interested generally in the financial strength of underwiters of public issues on the capital market, and in the

case of Rimibo, it believes it must independently verify the position of the under­ writer. Your continued co-operation in this matter and an early reply will be greatly appreciated.

Yours sincerely, D. W . W h i t b r e a d

Secretary

189

11-30

Senate Select Committee on Securities and Exchange CANBERRA A C T.

5 January 1973

PERSONAL AND CONFIDENTIAL Mr R. O. Parsons, Richard Parsons & Co., Box 5026Y, G.P.O., MELBOURNE VIC 3001

Dear Mr Parsons, Further to my letter of 3 January 1973, there are two further matters on which the Committee seeks your assistance. First, would you please advise the total subscription to the Rimibo Resources Ltd issue made by you and your firm and immediate members of your family?

Secondly, on reading the underwriting agreement between you and Rimibo the Committee observes that you undertook to provide the subscriptions within 31 days of the registration of the prospectus. The Committee understands that the prospectus was registered in Victoria on 17 November 1970, which appears to

mean that the last day upon which you could meet your obligation was 18 December 1970. Would you please advise whether the above information is cor­ rect? Your further co-operation and reply as soon as possible will be greatly appreci­ ated.

Yours sincerely, D. W . W h it b r e a d Secretary

190

11-31

Richard Parsons & Co. 140 Queen Street, MELBOURNE 3000 Stock and Share Brokers R. O. Parsons, Member of the Stock

Exchange of Melbourne Ltd. 12 January 1973

Secretary Select Committee on Securities & Exchange Australian Senate,

CANBERRA A.C.T. CONFIDENTIAL

Dear Sir, I have received your letters dated 3 and 5 January and am pleased to supply the information requested. Your letter of 3 January—

(1) In answer to your question as to what would have been the extent of my firm’s liability if Selected Mining had not subscribed, I must agree with your calculations of 58 per cent but the question is hypothethical as this situation did not arise. Any underwriting is a matter of judgment on the

part of the underwriter as to the worth of the stock to be issued and of its interest to the investing public. Prior to agreeing to act as underwriter I had a first hand knowledge of the investment requirements of a number of my clients and I knew subject to sudden variations in the market the extent to

which I could rely on them for support. On this basis I am of the opinion that my firm was in a position to finance the commitment. It should be recalled that from the date of an­ nouncement of the issue my firm had arranged with our clients for sub­ scription of 2,128,100 shares and I had for myself and my immediate fam­ ily taken 410,900 shares. In addition we had placed 294,000 shares firm

with the subunderwriters and they had subunderwritten a further 895,000 shares. We had been approached immediately after issue by good clients who had assured us they would take 40 per cent of the issue. As the closing date came nearer I felt these clients may not be ready to subscribe within

the time and accordingly opened discussions with Selected Mining Hold­ ings Ltd who had been introduced to me as interested in taking 40 per cent. (2) I have no objection to the balance sheets previously submitted to the Com­ mittee being decoded and perused by the Committee. Your letter of 5 January—

(3) The question in the second paragraph has been answered in paragraph 1 above. (4) The information set out in the third paragraph is correct.

Yours faithfully, R i c h a r d P a r s o n s

191

C H APTER 12

The Irrecon cilab le C onflicts of an O ption D ealer

The Secretary, Senate Committee on Securities and Exchange, Australian Senate, CANBERRA, A.C.T. 2600

Attention Mr B. J. Knox

Dear Sir,

Increment Fund Incorporated (In Liquidation) Dividend Fund Incorporated (In Liquidation)

In my capacity as liquidator o f the abovenamed companies, and in reply to your letter dated the 17 April 1973,1 hereby confirm that the details of my conversation with Dr Rose were as follows: Increment Fund Dividend Fund

Incorporated Incorporated (In Liquidation) (In Liquidation)

$ $

330 163

76,592 82,833

779,410 400,356

_______ $856,002 _______ $483,189

125,281

33,576

Number o f Members Shareholders ’ Funds Issued Capital Share Premium

Estimated Deficiency as per State­ ment o f Affairs (subject to the costs o f liquidation) Estimated Surplus as per State­

ment o f Affairs (subject to the costs o f liquidation)

12-1

HORNEMANN, MACAW & OLDFIELD ‘Goode House’ 395 Collins Street

Melbourne, Australia 3000 Chartered Accountants Associated Offices in all States

N. R. Macaw, F.C.A., D. O. Oldfield, F.C.A., R. W. Daff, F.C.A., G. E. Nicoll, F.C.A., R. J. Gilchrist, A.C.A., P. I. Buzzard, A. C.A. 19 April 1973

193

In addition the estimated deficiencies o f the two subsidiaries as per the State­ ment o f Affairs (subject to the costs o f liquidation) are: $ Increm Pty Ltd (In Liquidation) 567,892

DivPty Ltd (In Liquidation) 366,483

934,375

In arriving at the estimated deficiency for Dividend Fund Incorporated (In Liquidation) o f $125,281 and the estimated surplus for Increment Fund Incor­ porated (In Liquidation) o f $33,576, I have taken into account the substantial estimated deficiencies in the two subsidiaries by including loan accounts at their estimated realisable value, not the book value.

If there is any further information you require do not hesitate to contact me.

Yours faithfully, D. O . O l d f ie l d

12-2 (a )

Senate Select Committee on Securities and Exchange, CANBERRA, A.C.T. 12 July 1972

Messrs Citron, Williamson, Croft & Co., Lloyds Bank Building, 55-61 Moregate, LONDON WC2, U.K.

Dear Sirs, This Committee has been informed that your firm underwrote part of the public issue of Trendex Mineral Corporation in 1970-71 and that you then sub­ underwrote part of the issue with Trendex & Co. Pty Ltd. The Committee would be grateful if you would advise if that is true, and if correct, the extent to which your firm sub-underwrote the issue with Trendex & Co. Pty Ltd.

Would you also please advise the Committee if there was any short fall in pub­ lic subscription leaving some of the shares to be taken up by the underwriter and sub-underwriters? Finally, would you please advise what happened to any commitment that was incurred by Trendex & Co. Pty Ltd in its sub-underwriting.

The Committee would also be most grateful if you would send copies of any documents or correspondence relating to this matter. A reply at your very earliest convenience will be greatly appreciated.

194

Yours faithfully, D. W . W h it b r e a d

Secretary

12-2 ( b )

CITRON & CO. Formerly Citron, Williamson, Croft & Co.

Stock & Sharebrokers 7 Leonard Street, LONDON, EC2A4AQ 4/5 Copthall Court,

LONDON, EC2R7LS 19 July 1972

D. W. Whitbread Esq., Secretary, Australian Senate, CANBERRA, A.C.T.

Dear Mr Whitbread, Trendex Mineral Corporation

Thank you for your letter of 12 July 1972. Your Committee is quite correct in understanding that we, as a firm, underwrote the U.K. end of the Trendex Mineral Corporation issue in 1970-1971. We underwrote one million shares for an underwriting fee of 3.5c per share at an issue price of 50p per share, subject to the guarantee that Trendex & Co. Pty Ltd sub-underwrote from us 750,000 shares at

the above price, leaving us only to place 250,000 shares, a copy of the guarantee under the Common Seal of the Company is enclosed herewith marked Copy ‘A ’. We must point out that Trendex & Co. Pty Ltd at that time were the Managers of Trendex Mineral Corporation and this guarantee was the only reason we under­ took to underwrite the issue here in the U.K.

With regard to the second paragraph of your letter in fact we placed firm, with our clients, the 250,000 shares which we undertook to place in our underwriting contract. On 17 December 1970, Dr Garretty appeared at our office in London and delivered a letter to us, copy of which is enclosed herewith marked ‘B’, in which he

defaulted on the sub-underwriting agreement of Trendex & Co. Pty Ltd. This therefore left us as main U.K. underwriters with a liability for 750,000 shares at 50p each, or 375,000 pounds. Subsequently over-subscription from the Australian end reduced our liability to 506,000 shares at 50p each for a total sum of 235,417

pounds, and as a result of Trendex & Co. Pty Ltd defaulting on their sub-un­ derwriting commitment we had to meet this loss and did so by subscribing for 506,000 shares mentioned above on 31 December 1970, a copy of which is enclosed herewith marked ‘C \ With reference to the third paragraph of your letter, Trendex & Co. Pty Ltd did not meet their sub-underwriting commitment and we

refer you to the letter marked ‘A ’. Throughout the preliminary negotiations between ourselves and Trendex we had advised them for some time of the inadvisability of an issue of this type at this time. There were also a number of discrepancies within the prospectus which we

could not accept; for example, the U.K. underwriting position and sub-underwrit-195

ing position was never indicated in the prospectus which would have seemed to us to be misleading. Further, when it became apparent that Trendex had defaulted we approached our own Stock Exchange Committee for advice and obtained their per­ mission to send telexes to the Chairman o f the Melbourne Stock Exchange acqaint- ing him o f the position here in the U.K. regarding the whole issue. This was done

because we felt that due to the default by Trendex & Co. Pty Ltd, who were also the Managers o f Trendex Mineral Corporation, that even at this late stage as no deal­ ings had yet taken place in the shares, it might be possible, even now, to return to applicants the monies subscribed to this issue.

We think this covers the points raised in your letter, although o f course there is a mass o f correspondence between Trendex and ourselves going back several months prior to the issue which are available for your perusal at our office.

Yours sincerely, Citron & Co.

196

12-2 (b)

TRENDEX & CO. PTY LTD The Leaders in Market Action Analysis INVESTMENT COUNSELLORS 9th Floor,

343 Little Collins Street, . MELBOURNE 16 October 1970

A TTA C H M EN T A

Citron, Williamson, Croft & Co., 55-61 Moorgate, LONDON EC2. U.K.

Dear Sirs, Trendex and Co. Pty Ltd guarantees to take firm up to 750,000 ordinary shares in Trendex Mineral Corporation Limited of the underwriting commitment of Citron, Williamson, Croft and Co. in the event of Citron, Williamson, Croft and

Co. being unable to place its full commitment of 1,000,000 shares. The 750,000 or­ dinary shares referred to will include the 250,000 stated in the Prospectus as having been reserved for placement with the clients of Trendex and Co. Pty Ltd. The commitment of Citron, Williamson, Croft and Co. could thereby be con­

strued to place 250,000 ordinary shares in Trendex Mineral Corporation Limited but with the right to make such further placements as Citron, Williamson, Croft and Co. can arrange. Citron, Williamson, Croft and Co. will receive an underwrit­ ing fee of 3.5 cents per share for each of the 250,000 shares so placed and will also receive 3.5 cents for each share additionally placed by them in excess of the 250,000 shares. In addition, Citron, Williamson, Croft and Co. will receive an

underwriting fee of 3.5 cents per share in respect of the 250,000 ordinary shares reserved and placed with the clients of Trendex and Co. Pty Ltd.

Yours faithfully, M. D. G a r r e t t y Chairman o f Directors

P. D. G a r r e t t y Director

THE COMMON SEAL of TRENDEX AND CO. PTY LTD was hereunto affixed by authority of the Board and

attested by:

THE COMMON SEAL

OF TRENDEX & CO.

PTY LTD.

197

12-2 (b)

TRENDEX & CO. PTY LTD Incorporated in Australia London Office: Finsbury Court,

Finsbury Pavement, LONDON EC2 Investment Counsellors Directors: M. D. Garretty D.Sc.

(Australian), T. M. Ormiston D.F.C., P. D. Garretty Ll.B. (Australian), Joyce D. Garretty M.A. (Australian) 17 December 1970

Citron, Williamson, Croft & Co., 55-61 Moorgate, LONDON EC2

Dear Sirs, In view o f the acts and omissions of your Firm regarding the Trendex Mineral Corporation Limited issue, we are of the opinion that this Company does not have any sub-underwriting obligation.

Yours faithfully, M. D. G a r r e t t y TRENDEX & CO. PTY LTD

A TTA C H M EN T B

198

12-2 (b)

CITRON, WILLIAMSON, CROFT & CO. Stock & Sharebrokers 55-61 Moorgate, LONDON, EC2R6BP.

and Stock Exchange. 31 December 1970

Trendex & Co. Pty Ltd, Finsbury Court, Finsbury Pavement,

LONDON, EC2.

Received from Citron, Williamson, Croft & Co. the following documents: (1) Application form for 506,000 Ordinary Shares in Trendex Mineral Corpor­ ation Limited together with cheque for £235,417 0s. 0d.;

(2) Receipt from Citron, Williamson, Croft & Co. for underwriting com­ mission of A$35,000 (£16,333); (3) Receipt from Theodore Goddard & Co. for £.1,250 0s. Od. in respect of legal charges incurred in the Trendex Mineral Corporation issue.

Signed: For and on behalf of

. Trendex & Co. Pty Ltd.

ATTACHM ENT C

199

12-3(a)

Senate Select Committee on Securities and Exchange, CANBERRA, A.C.T. 12 July 1972

Mr A. L. Lazarus General Manager Lemarne Corporation 1 st Floor, 327 Collins Street, MELBOURNE Vic. 3000

Dear Mr Lazarus, Would you please advise the Committee if, in your knowledge, Trendex & Co. Pty Ltd sub-underwrote part of the public issue of Trendex Mineral Corporation’s shares in 1970-71 and if it did, from whom it accepted this sub-underwriting and whether it incurred any commitment.

Would you also please send to the Committee copies of any documents or cor­ respondence you have on this matter. Your early attention to this request would be appreciated.

Yours sincerely, D. W . W h it b r e a d Secretary

2 0 0

C.D. 12-3(b)

LEMARNE CORPORATION LIMITED 1st Floor, 327 Collins St., MELBOURNE, 3000

REF.: all: ml 14 July 1972 .

The Secretary, Select Committee on Securities and Exchange, Australian Senate, CANBERRA, A.C.T. 2600.

Dear Mr Whitbread, Reference your letter of 12 July 1972 in respect of the sub-underwriting of the public issue of Trendex Mineral Corporation Ltd shares in 1970-71. The sub-underwriting Agreement was referred to in paragraph 12(c) of the Ad­ ditional Statutory Information of the prospectus and was with Citron, Williamson, Croft & Co. the London underwriters of the issue. A copy of the undertaking by

Trendex & Co. Pty Ltd signed under Common Seal by two directors of that com­ pany is attached. A commitment was incurred under this sub-underwriting Agreement and a copy of the letter from Citron, Williamson, Croft & Co. to Trendex & Co. Pty Ltd

London office dated 10 December 1970 is attached setting out the position at that date. It is understood that this commitment was materially reduced by further sub­ scriptions becoming available in both the United Kingdom and the Australian ends of the issue but the final figure would require some further research. In the interest

of the expediency which you requested I am forwarding this information to you as it stands. Yours sincerely, A . L . L a z a r u s

General Manager

201

12-3 (b)

TRENDEX and CO. PTY LTD 16 October 1970

Citron, Williamson, Croft and Co., 55-61 Moorgate, LONDON EC2. U.K.

Dear Sirs, Trendex and Co. Pty Ltd guarantees to take firm up to 750,000 ordinary shares in Trendex Mineral Corporation Limited of the underwriting commitment of Citron, Williamson, Croft and Co. in the event of Citron, Williamson, Croft and Co. being unable to place its full commitment of 1,000,000 shares. The 750,000 or­ dinary shares referred to will include the 250,000 stated in the Prospectus as having been reserved for placement with the clients of Trendex and Co. Pty Ltd.

The commitment of Citron, Williamson, Croft and Co. could thereby be con­ strued to place 250,000 ordinary shares in Trendex Mineral Corporation Limited but with the right to make such further placements as Citron, Williamson, Croft and Co. can arrange. Citron, Williamson, Croft and Co. will receive an underwrit­ ing fee of 3.5 cents per share for each of the 250,000 shares so placed and will also receive 3.5 cents for each share additionally placed by them in excess of the 250,000 shares. In addition, Citron, Williamson, Croft and Co. will receive an

underwriting fee of 3.5 cents per share in respect of the 250,000 ordinary shares reserved and placed with the clients of Trendex and Co. Pty Ltd.

A TTA C H M EN T A

Yours faithfully, M. D. G a r r e t t y Chairman o f Directors

P. D. G a r r e t t y Director

THE COMMON SEAL of TRENDEX AND CO. PTY LTD was hereunto affixed by authority of the Board and attested by:

THE COMMON SEAL

OF TRENDEX & CO.

PTY LTD.

202

12-3 (b)

CITRON, WILLIAMSON, CROFT & CO. Stock & Sharebrokers 55-61 Moorgate, LONDON EC2

And Stock Exchange. WDC/JP 10 December 1970

A TTA C H M EN T B

Trendex & Co. Pty Ltd, 32 Finsbury Court, Finsbury Pavement, LONDON EC2.

Dear Sirs,

Trendex Mineral Corporation Sub-underwriting Agreement

We have been advised by Trendex Mineral Corporation today that the number of shares not subscribed for in the United Kingdom issue of Trendex Mineral Cor­ poration is 714,800. They also advise us that the position in Australia is that appli­ cations for 1,103,642 shares are at hand and are either allotted or awaiting cheque

clearance, which appears to be 103,642 shares are available to assist the United Kingdom sub-underwriting. We are therefore calling on you, the Managers of Trendex Mineral Corpor­ ation, under Clause 10b of the Underwriting Agreement with ourselves to lodge

with us within 14 days of the date hereof, valid applications in terms of the Prospectus accompanied by payment in full for 714,800 shares at 10/- a share. This amount will be reduced to the extent that Australian applications in course of processing may be applied towards the relief of the United Kingdom underwriting

and you will no doubt advise us as soon as possible of this figure.

Yours faithfully, Citron, W illiamson, Croft & Co.

203

12-4( a )

Senate Select Committee on Securities and Exchange, CANBERRA, A.C.T. 12 July 1972

Dr M. D. Garretty 18 Lansell Road, TOORAK Victoria 3142

Dear Dr Garretty, On behalf of the Committee I wish to thank you for your letter of 27 June 1972 jointly signed by your son and yourself and duly witnessed. It has been suggested to the Committee that the London underwriter of part of

the public issue of Trendex Mineral Corporation sub-underwrote some of the shares with Trendex & Co. Pty Ltd which was unable to meet its commitments. Would you please advise the Committee if Trendex & Co. Pty Ltd did in fact act as a sub-underwriter and if so, to what extent? In addition, would you please advise if there was any commitment?

The Committee would be pleased to have any other comments you may wish to make on this matter.

Yours sincerely, D. W . W h it b r e a d Secretary

12-4(b)

18 Lansell Road, TOORAK, Victoria, 3142.

D. W. Whitbread, Esq., Secretary, Select Committee on Securities and Exchange, The Senate, Parliament House, CANBERRA, A.C.T. 2600.

Dear Mr Whitbread, In response to your letter of 12 July, the short answer to your questions is that Trendex & Co. Pty Ltd did not act as a sub-underwriter to the London underwriter of Trendex Mineral Corporation Ltd, and had no commitment to do so.

To assist you in understanding why the contrary may have been suggested to you, I give the following run down of relevant facts and events leading up to the float of Trendex Mineral Corporation Ltd, as far as I can recall them.

204

It was suggested early in October 1970 by the London office of Trendex & Co. Pty Ltd that Trendex & Co. sub-underwrite up to three quarters of the London broker’s load, provided he forthwith executed the underwriting agreement and did his best to foster and place the issue in the United Kingdom.

Trendex & Co. Pty Ltd did provide such an undertaking. On or about 16 October the broker (Citron, Williamson & Croft) informed the London office of Trendex & Co. (which informed me) that the underwriting agree­ ment had been signed, and that Citron had already placed a total of 500,000 shares (one half of the U.K. allocation), and that Citron was confident of securing sub­ scriptions in excess of 1,000,000 shares in all. It is my recollection that the underwriting agreement which Citron signed at that time was a simple (perhaps one page) document, said to be the standard in London.

Very soon thereafter, Citron repudiated the agreement, stating (I believe) that their solicitors wanted a much more elaborate document along the lines of the Aus­ tralian underwriting agreement (of Corrie & Co.) of which they now had received a copy.

All sorts of obstacles to going on with the deal were raised, one after the other, by Citron, who decided to withdraw if they could from any underwriting agree­ ment at all. At first Citron offered me (for Trendex & Co. I presume) up to 20,000 pounds to abandon the whole proposal to float Trendex Mineral Corporation. Then he changed his ground to maintaining that no agreement to underwrite existed.

Pressure was brought to bear on Citron & Co. by Corrie & Co., and by Trendex & Co., to go ahead and execute the redrafted underwriting agreement. To this end Trendex & Co. sent a senior representative (not myself) to London some time in November. His instructions (inter alia) were to stay in London until Citron

concluded the agreement. The agreement was signed.

From that point onwards Citron failed to take any constructive underwriting action at all, and in fact sought to find any pretext under which they could evade it. This attitude continued notwithstanding pressure to perform, from Trendex & Co., from Corrie & Co., and from the Australian Stock Exchange. I personally went to

London to try to sort things out and to try to influence Citron & Co. to act. On ar­ rival I dismissed the London manager of Trendex & Co., Mr T. M. Ormiston, on Monday 14 December. I sought a discussion with Citron, Williamson, Croft & Co., to offer any help I could, and to assist them to get on with the job. Their attitude

precluded even sensible discussion, and I had to leave without achieving anything (other than to obtain confirmation that Citron was doing all in his power to frus­ trate the issue). By way of example, Citron maintained that because of his (er­ roneous) interpretation of the technical meaning of the words ‘listing’ and ‘quota­

tion’ (expressions which were used in the underwriting agreement) the agreement was void.

In these circumstances, after pleading with Citron to act as an underwriter nor­ mally is expected to do, Trendex & Co. finally informed Citron, Williamson, Croft & Co. by letter hand delivered on 18 December, that in view of the acts and omis­ sions of Citron, Williamson, Croft & Co., Trendex & Co. considered that it did not

have any sub-underwriting commitment.

205

This had no apparent effect on Citron & Co. who continued to maintain that the underwriting agreement was invalid, that it did not bind them to perform, and that they did not intend to perform. Citron maintained that they were not committed as underwriter, right up to within 24 hours of the latest time for their performing under the agreement.

However (as a result, presumably, of pressure or legal advice) Citron, William­ son, Croft & Co. finally did acknowledge the agreement and lodge applications ac­ cordingly, on 31 December 1970, which was the last day open to them under the agreement.

Had Trendex & Co. actually had a commitment to sub-underwrite, it would have had to be satisfied not later than 24 December, which was seven days before Citron acknowledged that the agreement was valid.

Yours sincerely, M. D. G arretty

12-5

Glomex Mines N.L. 22 January 1971

Mr D. Burnett, The Managing Director, Australian Mutual Growth Fund, Norwich House, 6-10 0 ’Connell Street, SYDNEY, N.S.W. 2000

Dear Sir, We authorise your Fund to act on our behalf in the purchase, with a view to ac­ quisition of control, Trendex Mineral Corporation shares.

Yours faithfully, GLOMEX MINES NO LIABILITY N. C. H a n d l e y Director

12-6

TRENDEX MINERAL CORPORATION LTD

Minutes of Meeting of Directors of the Company held at 343 Little Collins Street, Melbourne on Wednesday, 27 January 1971, commencing at 9.20 a.m. (1) PRESENT: Sir Horace Petty (Chairman), Dr M. D. Garretty, Mr P. D. Garretty,

Mr A. L. Lazarus. In Attendance .Mr K. H. Grant (Secretary), Mr A. D. Prisk.

206

(2) PROSPECTIVE ACQUISITIONS: The Board was informed of the latest investigations into several pro­ spective acquisitions, particularly Triako and Longreach Oil Ltd. The desirability of acquiring a controlling interest in these two companies was

considered at length by the Board.

(3) MELBOURNE STOCK EXCHANGE REQUEST: The Secretary informed the Board of a telephoned request just received (at approximately 10.30 a.m.) from the Melbourne Stock Exchange in which it sought a statement from the Board on the reasons for the rise in

the price of the Company’s shares. The following statement was approved by the Board and telephoned to the Melbourne Stock Exchange at about 11.30 a.m. ‘The Board understands that the English underwriters have disposed of large parcels of Trendex Mineral Corporation shares which substantially

depressed the share opening price. Trendex Mineral Corporation has made arrangements to acquire the interest of Devex Limited in Selected Mining Holdings. This gives Trendex Mineral Corporation what can be regarded as a controlling interest in

Selected Mining Holdings. Placements of 100,000 Trendex Mineral Corporation shares each with Selected Mining Holdings and Rimibo Resources Limited have been made at par.

It is understood that interests not associated with Trendex Mineral Cor­ poration are buying on the market. It is likely that a further report will be issued shortly’. The Melbourne Stock Exchange was requested to telex the statement to

the Perth, Adelaide, Sydney, Brisbane and London Exchanges. The text was also conveyed by the Company to Devex Ltd, by telephone.

(4) PROSPECTIVE ACQUISITIONS (Cont’d ): Discussion continued relative to the Company’s consideration of an offer for shares of Triako and Longreach Oil Ltd. RESOLVED on the recommendation of the Company’s Investment Man­

agers: (i) That a takeover bid be made for the acquisition of not less than one- third of the issued capital of Longreach Oil Ltd, on the basis of two (2) shares of Trendex Mineral Corporation Ltd for every five (5)

shares of Longreach Oil Limited. (ii) that the Company’s Solicitors be instructed to immediately institute the necessary formalities to give effect to the above. (iii) that the following Board statement be immediately telephoned to the

Melbourne Stock Exchange: ‘Trendex Mineral Corporation intends today to deliver to Longreach Oil Limited notice of intention to make a bid for not less than one-third of the issued capital of Longreach Oil Limited on the

basis of two shares of Trendex Mineral Corporation for every five shares of Longreach Oil Limited ’. (The statement was telephoned to the Melbourne Stock Exchange at 11.50 a.m.)

207

(5) SERVICE CONTRACT-M r A. L. LAZARUS: Draft contract, as prepared by the Company’s Solicitor», was tabled. The draft is to be considered prior to the next Board Meeting. ( 6 ) CLOSURE:

There being no further business before the meeting, the Chairman declared it closed at 1.30 p.m.

Signed as a correct record H. P e t t y Chairman

Date: 3/2/1971

12-7

Telex message

TO SYDNEY FROM MELBOURNE. 28 JANUARY 1971.

ATTENTION: MR MITCHELHILL.

FOR INFORMATION O N LY -N O T FOR RELEASE.

TRENDEX MINERAL CORPORATION LIMITED.

FOLLOWING IS THE GENERAL TEXT OF QUESTIONS POSED TO MR. K. H. GRANT, SECRETARY OF TRENDEX THIS MORNING:— (1) WHAT IS THE PERCENTAGE HOLDINGS OF GLOMEX MINES N.L. IN TRENDEX ACCORDING TO THE COM PANY’S

RECORDS. (2) SPECIFY RECORDS REFERRED TO ABOVE. (3) WHAT ARE THE PERCENTAGE HOLDINGS AND RELA­ TIONSHIP BETWEEN TRENDEX AND

(i) SELECTED MINING (ii) RIMIBO RESOURCES, AND THESE TWO COMPANIES AND TRENDEX FOLLOWING THE PLACEMENTS ANNOUNCED 27 JANUARY? (4) AT WHAT DATE DO THE PLACEMENTS BY TRENDEX OF

100,000 SHARES TO BOTH RIMIBO AND SELECTED MINING BE­ COME EFFECTIVE? (5) FROM WHAT SOURCE, WHEN AND IN WHAT FORMAT WAS TRENDEX ADVISED THAT GLOMEX HAD ACQUIRED 51%

OF ITS ISSUED CAPITAL? (6 ) WAS FORMAL INTENTION OF OFFER DESPATCHED TO LONGREACH OIL, WHICH COMPANY ADVISED WOULD BE DELIVERED ON 27 JANUARY 1971?

. . LAMONT

208

12-8

TRENDEX MINERAL CORPORATION LIMITED 343 Little Collins Street, Melbourne 3000.

The Secretary, 29 January 1971

The Stock Exchange of Melbourne Limited, 351 Collins Street, MELBOURNE, Victoria 3000.

Dear Sir, Further to our letter of today’s date, we set out below the information covering the balance of your requests of 28 December 1971:— (1) Based on figures of registered holdings, supplied by the respective share

registers, the percentage holdings are calculated as follows: — Registered Holding as percentage o f

Issued Capital

Glomex Mines N.L. in Trendex Mineral Corporation Ltd Nil Rimibo Resources Ltd in Tredex Mineral Corporation Ltd Nil Selected Mining Holdings Ltd in Trendex Mineral Corpor­ ation Ltd Nil

Trendex Mineral Corporation Ltd in Selected Mining Holdings Limited Nil

Selected Mining Holdings Ltd in Rimibo Resources Ltd Nil (2) To the best of the Company’s knowledge, the respective beneficial owner­ ships are:— Beneficial Ownership

as percentage o f Issued Capital

Rimibo Resources Ltd in Trendex Min­ eral Corporation Ltd (pending ratification by the

Board of Rimibo Resources Ltd of the placement of Tren­ dex Mineral Corporation Ltd shares through its Investment

Manager, it is not clear to us whether or not there is any beneficial holding)

Selected Mining Holdings Ltd in Tren­ dex Mineral Corporation Ltd 4.8

209

Trendex Mineral Corporation Ltd in Selected Mining Holdings Ltd 34.2 Selected Mining Holdings Ltd in Rimibo Resources Ltd 40

In respect of the beneficial holding of Glomex Mines N.L. in Trendex Mineral Corporation Ltd, the only information available to us is as set out in paragraph (2) of our earlier letter today. It is noted however that of the 1,369,000 reported total market sales of Trendex Mineral Corporation Ltd shares, 667,000 appear to have been effected after Glomex Mines N.L. had stated that it held 51 per cent of Tren­ dex Mineral Corporation Ltd’s shares. There is no registration in the name of Glomex Mines N.L. in the initial issue of Trendex Mineral Corporation Ltd.

Yours faithfully,

for TRENDEX MINERAL CORPORATION LTD A. D. P r i s k f o r K . H . G R A N T

Secretary

12-9

SCHEDULE

First date on which Trendex Mineral Corporation shares were purchased by Selected Mining Holdings Limited was 28 January 1971. The purchases on that date were as follows: — No. o f

Shares Broker 7 9 ,8 0 0 R o a c h W illia m s & Co.

10,000 C o n s ta b le & C o.

3,7 0 0 C o rrie & Co.

1,000 E ric M o rg a n & C o.

900 Ia n P o tte r & Co.

5,000 V in to n S m ith D o u g a ll & Co.

400 H . W . B a y le y & Co.

300 J. & J. N o rth

2 ,0 0 0 R a lp h W . K in g & Y uill

700 L io n el A. M c F a d y e n & Co.

3,500 A . L. N e v itt D r a p e r & Co.

1,800 O rd M in n e tt, T. J. T h o m p so n

4 ,000 P . S. S h a d fo r th & S on

2 ,500 M cK in le y W ilso n & Co.

4 9 ,600 P a tric k P a rtn e rs

2 4 9 ,4 0 0 P a tric k P a rtn e rs

7,400 P a tric k P a rtn e rs

12,800 P a tric k P a rtn e rs

2 ,9 0 0 P a trick P a rtn e rs

10,600 P a trick P a rtn e rs

Name Shares Registered in 6 0 ,0 0 0 C o m m o n w e a lth T ra d in g B ank N o m i­ nees

19,800 S elected M ining H o ld in g s L im ited S elected M ining H o ld in g s L im ite d S elected M ining H o ld in g s L im ite d S elected M ining H o ld in g s L im ited S elected M in in g H o ld in g s L im ited S elected M in in g H o ld in g s L im ited S elected M in in g H o ld in g s L im ited S elected M in in g H o ld in g s L im ited S elected M in in g H o ld in g s L im ited S elected M in in g H o ld in g s L im ited S e le c ted M in in g H o ld in g s L im ited S elected M in in g H o ld in g s L im ited S elected M in in g H o ldings L im ited S elected M in in g H o ld in g s L im ited See below S ee below S ee below See below See below S ee below

A total of 408,700 shares were purchased through Patrick Partners, 150,000 being registered in the name of Wales Nominees (Vic) Limited and 258,700 in Patrick Nominees Limited. It is not clear which name was used for the above purchases by Patricks.

210

I

C/N No.

No. shs. Stock

S E L E C T E D M IN IN G H O L D I N G S - O P T I O N S P U R C H A S E D W R IT IN G C O M P A N Y

Realised Profit or Loss on Transaction

Type

opt.

Prem. Exp.

Exp. per prem. Total Sales Pros-

date sh. price cost proceeds Loss Profit Balfund U'writers pectors Betas

Fund cust. M.A.P.S.

3308 3.000 B.H .P. 0 .2 M C 5.4.71

3 3 0 9 3.0 0 0 B.H .P. 0 .2 M C 5.4.71

3312 500 P o seid o n 0 .2 M C 5.4.71

3313 500 P o seid o n 0.2 M C 5.4.71

3316 500 Q ld . M ines 0.2 M C 5.4.71

3317 500 Q ld M ines 0.2 M C 5.4.71

3318 500 Q ld M ines 0.2 M C 5.4.71

3319 500 Q ld M ines 0.2 M C 5.4.71

3320 10,000 W .M .C . 0.2 M C 5.4.71

3321 10,000 W .M .C . 0 .2 M C 5.4.71

3323 4 ,000 K a th le e n Inv 0.2 M C 5.4.71

3324 3,000 K a th le e n ln v 0 .2 M C 5.4.71

3 3 5 4

N>

10,000 U ta h M ining 0.2 M C 10.4.71

Ξ 3355 10.000 U ta h M ining 0 .2 M C 10.4.71

3356 10,000 M etals Ex 0.2 M C 10.4.71

3357 10,000 M etals Ex 0 .2 M C 10.4.71

3358 5,000 C .R .A . 0 .2 M C 10.4.71

3359 5,000 C .R .A . 0.2 M C 10.4.71

3388 1,000 Q ld M ines 0.2 M C 15.4.71

3393 2,000 K a th le e n Inv 0.2 M C 15.4.71

3394 2.000 K a th le e n Inv 0.2 M C 15.4.71

3162 3.000 W .M .C . 0.2 M C 21.3.71

3163 3.000 W .M .C 0.2 M C 21.3.71

3165 1,000 Q ld M ines 0.2 M C 2 1 .3 7 1

3164 1,000 Q ld M ines 0.2 M C 21.3.71

3168 1.000 K a th le e n Inv 0.2 M C 21.3.71

3167 1.000 K a th le e n ln v 0.2 M C 21.3.71

3179 5.000 H am ersle y 0.2 M C 21.3.71

3180 5.000 H am ersley 0 .2 M C 21.3.71

3182 500 P o seid o n 0.2 M C 21.3.71

3183 500 P o seid o n 0.2 M C 21.3.71

3184 500 P o seid o n 0.2 M C 21.3.71

3195 7.000 K a th le e n Inv 0.2 M C 21.3.71

3197 5.000 H am ersley 0.2 M C 21.3.71

3196 5,000 H am ersley 0 .2 M C 21.3.71

3199 500 Q ld M ines 0.2 M C 21.3.71

3198 500 Q ld M ines 0 .2 M C 21.3.71

2.21 13.30 6 .6 3 0 .1 0 3,450.00 3.180.10

2.21 13.30 6 ,6 3 0 .1 0 ex. fo r scrip

5.00 38.00 2,5 0 0 .1 0 1,000.00 1,500.10

5.00 38.00 2.5 0 0 .1 0 1,000.00 1,500.10

3.50 21.00 1.750.10 750.00 1,000.10

3.50 21.00 1,750.10 750.00 1,000.10

3.50 21.00 1,750.10 750.00 1,000.10

3.50 21.00 1,750.10 750.00 1,000.10

.74 4.60 7,400.10 5,6 0 0 .0 0 1,800.10

.74 4.60 7,400.10 5,6 0 0 .0 0 1,800.10

1.41 8.60 5,640.10 ex. fo r scrip

1.41 8.60 4.23 0 .1 0 4,5 0 0 .0 0 269.90

.50 3.50 5,00 0 .1 0 7,0 0 0 .0 0 1,999.90

.50 3.50 5.000.10 7,000.00 1.999.90

.90 5.04 9,0 0 0 .1 0 4,6 0 0 .0 0 4,4 0 0 .1 0

.90 5.04 9,0 0 0 .1 0 4 ,6 0 0 .0 0 4.4 0 0 .1 0

1.70 11.20 8,5 0 0 .1 0 1,000.00 7,500.10

1.70 11.20 8.500.10 1,000.00 7,500.10

3.90 24.50 3,9 0 0 .1 0 o p t. exp. 3 ,9 0 0 ;i0

1.51 9.00 3,020.10 800.00 2,22 0 .1 0

1.51 9.00 3,020.10 800.00 2,220.10

T R E N D E X M IN E R A L C O R P O R A T IO N L I M I T E D 1.80 9.80 5.400.10 ex. fo r scrip

1.80 9.80 5.400.10 ex. fo r scrip

4.90 24.00 4.900.10 1.000.00 3,900.10

4.90 24.00 4.900.10 1,000.00 3,900.10

1.63 9.70 1.630.10 9 0 0.00 730.10

1.63 9.70 1,630.10 900.00 730.10

.95 5.40 4,750.10 o p t. exp. 4.7 5 0 .1 0

.95 5.40 4,7 5 0 .1 0 o p t. exp. 4.750.10

6.00 36.50 3.000.10 ex. fo r scrip

6.00 36.50 3.000.10 ex. fo r scrip

6.00 36.50 3,000.10 ex. fo r scrip

1.48 9.45 10,360.10 8.050.00 2.310.10

.89 5.44 4.450.10 o p t. ex 4.4 5 0 .1 0

.89 5.44 4,4 5 0 .1 0 o p t. ex 4.4 5 0 .1 0

4.40 24.50 2,2 0 0 .1 0 2 5 0,00 1,950.10

4.40 24.50 2,2 0 0 .1 0 250.00 1.950.10

. . . 2 ,6 4 0 .0 0

1.250.00

1,250.00

8 65.00

8 65.00

8 65.00

865.00

1.200.00

1,200.00

Loss

6 30.00 Loss

2,50 0 .0 0

L oss

2 ,5 0 0 ,0 0

3.7 0 0 .0 0

. . 3,7 0 0 .0 0

6.80 0 .0 0

1,980.00

3 .5 9 0 .0 0

. . 6 .8 0 0 .0 0

1,980.00 12,665.00 2.84 5 .0 0 8 6 5.00 3 .5 9 0 .0 0 . . 13.955.00

3.6 0 0 .0 0

6 00.00

4.4 0 0 .0 0

6 0 0.00

3 .6 0 0 .0 0

4 .4 0 0 .0 0

4 .1 0 0 .0 0

1.800.00

1.400.00

4 .1 0 0 .0 0

1.800.00

12-11

G RA N T& FALK Public Accountants Chartered Secretaries Hooker House 327 Collins Street MELBOURNE 3000 5 June 1972

GF/AB

Mr D. W. Whitbread, Secretary, Select Committee on Securities and Exchange, Australian Senate, CANBERRA, A.C.T. 2600.

Dear Sir,

re: Selected Mining Holdings Ltd

I refer to your letter of 2 June. Enclosed is photocopy o f ‘Evaluation of Share Price of Stock Options of Aus­ tralia Pty Ltd ’ which I believe is the document referred to in your letter. The hand­ written notes are my own.

Yours faithfully, K. H. G rant

212

EVALUATION OF SHARE PRICE OF STOCK OPTIONS OF AUSTRALIA PTY LTD Introduction:

None of the several usual methods of evaluation of a proprietary company have much applicability in the case of Stock Options of Australia Pty Ltd for the following reasons: (a) The business of the company is in a rapidly expanding field.

(b) Up to the end of 1969 the company was securing a dwindling proportion of the available market. Business was being lost to competitors by reason of lack of management attention and unsuitable staff. Only since the new management began to make its presence felt during 1970, has the trend been reversed. (c) The evidence shows that under the new management the company is rap­

idly increasing both its absolute level of business and its proportion of the total business available. (d) Profit and Loss statements and Balance Sheets in the past have been severely influenced by the fluctuating fortunes of other companies in the

family group (for which it has acted as a kind of bank), and by the under­ standable desire to avoid showing undue taxable profits in one company while at the same time having losses in others with related shareholdings and interlocking directorates. (e) The staff and equipment establishment has now been brought to the point

where considerable—perhaps fourfold or fivefold—increases in the level of throughput can take place without marked effect on total cost or standing charges. (f) Thus, with costs not far short of static, the likely considerable increases in

turnover in the months and years ahead will have a multiplying effect on net profit. .

(g) Therefore to develop a profit forecast, attention has been focussed on esti­ mates of future costs, plus projections of future likely earnings. (h) From this emerges the conclusion that a reasonable expectation for future profit levels is as follows:

Year Ended 30th June

Profit Before Tax Profit After Tax

Amount Rate Amount Rate

$ per cent $ per cent

1971 46,000 184 24,650 98.6

1972 101,000 404 47,475 214

1973 131,000 524 61,725 111

It is concluded that the asking price of $15.00 per share is reasonable, and allows ample scope for future growth, especially in the hands of a parent public company, in whose hands the dividends would be rebatable for tax purposes.

The Option Business:

The assumption has been made that this report will be considered by individuals having a reasonable degree of familiarity with the put and call option business.

213

Therefore I shall not presume upon the time of the reader by unnecessary descrip­ tive material. Recent developments which have a bearing, though, call for some mention. For a decade the Stock Exchanges have tolerated the option brokers, and the Option Brokers Association Limited, but have declined to recognise them for­ mally. Negotiations now reaching a conclusion, however, are expected to lead very quickly to formal recognition by the Exchanges, and a mutual agreement is under consideration by both parties. The agreement is expected to provide that all option business not transacted on the floor of the Exchanges themselves (and this latter is negligible) must be directed by brokers thro'ugh Members of the Option Brokers Association. Moreover, Members of the Exchanges will be prohibited from tran­ sacting business with option negotiators who are not Members of the Association— and this is expected to put out of business several fringe operators in Sydney and Melbourne who are thought to process a fair deal of paper at present.

It can be expected, also, that formal announcement by the Exchanges of the link with the Association will give a considerable fillip to option business generally, and lead to brokers feeling free to advise their clients to purchase options. At pres­ ent, many brokers are hesitant to transact option business (although it is permitted by the Exchanges), and many investors and traders will not deal other than through their own brokers.

Growth o f Business Over the Years:

The industry was pioneered by Stock Options of Australia Pty Ltd, which first introduced options to Australia in 1960. Business was erratic in the years to 1965 inclusive. Although competition had emerged, sales reached $318,566 and $309,737 in the years to 30 June 1966 and 1967 respectively. Sales quadrupled in the year to 30 June 1968, under the influence of the beginning of the awakening which was to be­ come a lasting feature of the Australian investment scene. The year to 30 June 1969 was poorer, in that the big market advance of the previous 12 months was halted, but sales edged up to $1,311,880. The year to 30 June 1970 saw a big drop in the market index, and under such conditions total option business always falls off noticeably. Nevertheless total sales by Stock Options of Australia Pty Ltd eased back only mar­ ginally, to $1,253,650.

The fact that the position was almost held in the year to 30 June 1970, notwith­ standing deteriorating market conditions and opportunities for option business, must be attributed mainly to the appointment, halfway through the year, of Mr J. N. McCoy, as General Manager. Thus even during the heavy market plunge to 27 May last year, the company began to pick itself up from the low market share level to which it had fallen, and to gain an increasing share of the market. By the end of the financial year, at 30 June 1970, the changes wrought by Mr McCoy had begun to have real effect. This is shown by the fact that in the disastrous market conditions in the last half of 1970, the company nevertheless was able to achieve sales of $714,149 (for the first half of the financial year). This is at a greater annual rate than for any previous year in the history of the company. For the month of January

1971, there was a further substantial rate of increase, turnover being $177,826—or an annual rate of around $2,133,000. For February, turnover was $192,616, and profit was $ 11,780, costs being contained within budget figures.

214

Gross Profit:

The tabulation (Table 1) shows the figures for the last few years. Table 1 Statement of Sales and Purchases

Period S a le s P u rch a ses G ross P rofit

$ $ $

Y ear e n d ed 30 J u n e 1966 3 1 8 ,5 6 6 2 6 4 ,0 5 0 5 4 ,516

Y ear e n d ed 30 J u n e 1967 3 0 9 ,7 3 7 2 6 2 ,7 4 8 4 6 ,9 8 9

Y ear e n d ed 30 J u n e 1968 1,244,263 1,414,299 102,964

Y ear e n d ed 30 J u n e 1969 1,311,880 1,206,900 104,980

Y ear e n d ed 30 J u n e 1970 1,253,650 1,162,366 9 1,284

Six m onths to D e c e m b e r 1970 7 1 4 ,1 4 9 6 4 5 ,1 8 5 6 8 ,9 6 4

M onth o f J a n u a ry 1971 177,826 163,293 14,533

M onth o f F e b ru a ry 1971 192,616 1 73,904 18,712

Eight m o n th s to F e b ru a ry 1971 1,084,591 9 8 1 ,3 8 2 103,209

It will be obvious that as a percentage of sales, gross profit or mark-up has fallen considerably from 1966 and 1967, to a low point in the 1970 year. There has since been an improvement. The first reason for the fall is that gross mark-up is determined by a standard scale or commission rate, which has changed over the years, and now is at a lower average rate than formerly. This accounts for the bulk of the sudden drop in percentage rate, which took place between 1967 and 1968. Another contributing factor is that because the commission rate is not a simple per­ centage of the price of the stock, but has a significant element of sliding scale con­ trol, the percentage of gross profit on total sales can vary according to the average price level of stocks upon which options are effected.

There are other contributing causes. Option premiums (gross profit to the com­ pany) vary not only with the price of the stock concerned, but also with the nature of the option. Longer term options attract a higher percentage commission than short term options; double options and straddle options also attract a lower percen­

tage rate for the same time period. Again, it has been the practice for options pur­ chased on behalf of Funds and other companies associated with the Stock Options of Australia Pty Ltd group (through interlocking directorates or otherwise) to be transacted by Stock Options of Australia Pty Ltd free of any charge for commission

or mark-up. Of course this arrangement will not exist in the future, and because it can confidently be expected that the organisations in question will continue to pur­ chase options through Stock Options of Australia Pty Ltd, this should contribute a significant addition to gross income.

Management and Personnel:

Stock Options of Australia Pty Ltd was sponsored by Dr M. D. Garretty, who personally played a large part in its development in the early days. In more recent years, his interests have become quite diversified, and the blunt truth of the matter is that Stock Options of Australia Pty Ltd fell into the category of a self-supporting

toy, left virtually to its own devices except in so far as its substantial money turn­ over could be used as a bank from which to finance or support newer and less pros­ perous ventures. Certainly it is true that for several years in the early sixties, when the Options project was new and receiving careful nurture, it was being supported

financially to an extent of tens of thousands of dollars, under circumstances in which a more realistic businessman or entrepreneur might well have closed it down for good, and cut his losses. However, emergence from the stock market doldrums

215

of the early sixties, and the effect of the vigorous educational program being carried out, pulled the company out of its loss position in due course, and it began making profits. Then the tide turned, and a healthy surplus of income over expenditure extin­ guished the family advances to the company, and permitted drawings to take place to finance new ventures. The position today is that the continued hunger for funds for other projects leaves Stock Options of Australia Pty Ltd in a persistent condition o f inadequate liquidity.

At one stage for a few years the company operated offices not only in Mel­ bourne but also in Sydney, Brisbane, Adelaide, and Canberra. With the introduc­ tion of telex and direct telephone dialling (STD) it was found economical to elim­ inate all offices except Sydney and Melbourne—although very recently the com­

pany has become a one-third shareholder in a joint operation in Adelaide (Share Options Pty Ltd) with another option company and a group of broker nominees.

For many years the company had as its chief employee in Melbourne a man who had acquired a good working knowledge of the option business. However he was unable either to control staff or to work with others, and because of negligible attention from the shareholders and Directors who were busy on other projects, the Melbourne operation regrettably was allowed to fall into a state of decrepitude. Much the same happened in Sydney, where the office was in charge of a talented young woman, who nevertheless found that the years of responsibility and tension palled. For some time, being in charge of the Sydney office had been not only a novelty but also a distinction for her, but by the end of 1969 her yearning to be part of a more substantial organisation under a male administrator finally reached de­ cision point. At the end of 1969, both the Melbourne and Sydney operators gave notice and left the company. This" meant that something had to be done. Neverthe­ less it was not an unmixed disaster. It had been found impossible to have others work under the Melbourne manager (and he was not equal to the task of adminis­ tration and delegation in any event ), and he was not able to run the job with the as­ sistance of others. With him gone, the opportunity was taken to appoint Mr John N. McCoy, who left his position as Senior Marketing Manager for Heinz to.join Stock Options of Australia as General Manager. His brief was to take full charge of the company, to build up the Sydney and Melbourne offices with suitable personnel, train them, institute proper records and facilities appropriate to an expanding or­ ganisation, and to help the company regain its former leadership of the option mar­ ket.

Mr McCoy has revitalised the company, engaged competent and enthusiastic operators in Sydney and Melbourne, introduced data processing and office systems methods, and turned the company decisively along the road to substantially increased turnover both in absolute terms, and as an increasing proportion of the total market shared with other option firms. McCoy is well known as an adminis­ trator, and indeed gives lectures to specialty classes in administrative and systems subjects at the University.

Costs have been fairly high during the changeover period. Staff selection, the compilation of specialised computer programs to deal with the unusual documen­ tation and accounting problems, and the accounting costs in the changeover period, have been much higher than normal. This is reflected in the accounts for the year ended 30 June 1970 and 31 December 1970. However the stage has now been

216

reached when costs can be stabilised at a significantly lower level, and this is un­ likely to be exceeded materially even if turnover can be built up—as is expected—to several times the present level in the reasonably near future.

Computer Processing:

A considerable sum—amounting to many thousands of dollars—has been spent on systems analysis, programming, test runs, and document design, to enable the business of Stock Options of Australia Pty Ltd to be streamlined in such a way that a high level of throughput can be attained quickly without the need for recruiting

additional staff. One of the difficulties in the securities industry generally is the need felt by most firms for additional skilled staff when turnover rises. In the broking business this expresses itself as a sudden demand for scrip clerks, contract note typists, and so forth. In the options business the need is felt for additional clerks, contract note typists, and certificate and notification typists. Although there is no scrip work, the clerical and typing work is more involved than in normal share broking offices, because the calculations are more complex, and because consider­

ably more documents are used per transaction than in ordinary share broking. It is not possible to employ clerks and typists to do this work without a period of specialised training, whereas in the broking field straight copy typists can be more readily adapted.

The impressive fact about Stock Options of Australia Pty Ltd in this regard is that the basic negotiation of the business could readily be handled at a much higher volume level by the present staff establishment, which might seem more than adequate for current needs, but has the advantage of providing full flexibility for illness, annual leave, and the like. The contract notes, option certificates, follow-up

documents, and even debtors’ reminder letters, are automatically produced by the computer. .

The computer operation on a daily basis has been costing hitherto $50 per day or more. A contract which has now been arranged has cut this to around $ 15 to $20 per day, and the charge would not be materially increased even if the level of turn­ over were to rise notably. Moreover, this computer work is now done in the city

itself, so that contract notes and other documents can be mailed out on the day on which the business is transacted, which pleases customers. Until recently, the com­ puter work was carried out at a bureau in the suburbs, and the transport and super­ vision delays retarded the despatch of paper by one full day.

Budget Costs:

The accompanying monthly expense budget is based upon experience to date, modified by the known economies which now have been effected in respect of data processing, accounting services, and printing, in particular. I am satisfied that adequate provision has been made for all charges, in the light of the experience of

the company to date, and that adequate provision has been made for salaries— which are by far the largest item of expenditure. The monthly figure, at $7,610, or $91,320 per year, is unlikely to rise by more than a few thousand dollars even at a very much higher level of turnover—assum­

ing of course that no new branches interstate or elsewhere are established, for which there are no present plans.

217

Table 2

Monthly Expense Budget Calculated as from 1 March 1971

A c c o u n tin g S ervices

$

2 0 0

A d v e rtis in g 333

A u d it F e e s 66

C o lle ctio n E x p e n s e s 70

C o m m is sio n 250

D a ta P ro c e s sin g 400

D e p re c ia tio n 43

In s u ra n c e 25

P o s ta g e , D u ty S ta m p s , B an k C h a rg e s 100

L e a s e o f O ffice M ac h in e s 260

P a y ro ll T a x 58

P a y ro ll S erv ic e s 50

P r in tin g a n d S ta tio n e ry 50

R e n t a n d E le c tric ity 4 0 0

R e p a ir s a n d M a in te n a n c e 50

S a la rie s 4 ,0 0 0

S u b s c rip tio n s a n d P u b lic a tio n s 40

S u p e ra n n u a tio n 87

T e le p h o n e 800

T ra v e llin g a n d E n te rta in m e n t 200

7,482

Let us assume costs at the budget level of $90,000 per year, for the ensuing year, plus a ten per cent increase (compounded) per annum thereafter, to allow for con­ tingencies. The profit and loss statement for Februaty 1971, just to hand, shows that the reorganisation already has been effective in cutting costs to the budget level. Of course the actual figure for the year ending 30 June 1971 will be larger, be­ cause the streamlining only now is becoming effective. However the budget should

be fully realised over the next four months, so that total costs for the current finan­ cial year should be around $ 111,0 0 0 , taking actual costs to date plus budget costs for the remainder of the year.

Therefore costs for the next three financial years, allowing for the 10 per cent compound rate of increase to cover contingencies, should be:

Table 3

$

T o y e a r e n d e d 3 0 J u n e 1971 111,000

T o y e a r e n d e d 3 0 J u n e 1972 9 9 ,0 0 0

T o y e a r e n d e d 30 J u n e 1973 109,000

Revenue Estimate:

The following tabulation shows actual revenue per year for the five financial years to 30 June 1970, plus four alternative estimates for the year to 30 June 1971. The first method shows a simple doubling of the revenue for the first six months of the year, namely the six months from July to December 1970. This gives the worst likely result, because in the last six months of 1970 the share market plunged disas­ trously, and option demand likewise fell away to a low ebb. The second basis uses the actual revenue of the six months just mentioned, plus the January figures, con­ verted to an annual basis. The third estimate uses the first six months revenue, plus the second half of the year at the January rate. The fourth estimate shows what the revenue for the year to 30 June 1971 would be if the whole year had been pro­ ductive at the January rate. We must remember, in this, that January in any case was not a good month in the market, generally.

218

Table 4

Year Ended 30 June Revenue

$

1966 54,516

1967 46 ,989

1968 102,964

1969 104,980

1970 91,284

(1 ) Y ear to 30.6.1971 on basis o f six mon ths to 31.12.70

($69 ,964) 139,928

(2 ) Y ear to 30.6.1971 on basis o f seven months to 31.1.71 ($84 ,497) 144,852

(3 ) Y ear to 30.6.1971 on basis o f first ha lf year plus sec- '

ond ha lf a t January rate ($14 ,533) 157,162

(4 ) Y ear to 30.6.71 on basis o f January rate 174,396

We now come to a projection for the expected revenue for future years, based on several assumptions. Assumption “ A” supposes that the rate of increase of revenue over the years from 1965 to 1971 will continue, assuming that the revenue for 1971 will be only at the rate achieved in the first six months to 31 December

last. A more reasonable projection is to assume that the rate of growth will be gover-ned by the increasing market awareness of option dealing, such as took place in the years 1965/66 to 1967/68, but without any allowance for the merchandising

aggressiveness which the company now has. On that basis, the figures shown in Column “ B” are derived. If we make reasonable allowance for aggressive management such as the com-pany now possesses, resulting in an increasing share of the total market, plus even only a moderate return to bullish market conditions, the position could improve

dramatically. Assuming a moderate improvement in market conditions in the second half of the current financial year, leading into mildly bullish conditions, on average, thereafter, it certainly must be conceded that figures of the order of those shown in Column “ C” are by no means out of court. It might be considered that

this is perhaps drawing a long bow, but large and prosperous enterprises always have been created by people who have achieved what most others at the outset would have thought to be fanciful. Good conditions and good management are needed, of course. However the company now certainly has good management and

drive. It is hard to believe that the securities industry growth in the years ahead will not provide the other component.

Table 5

Revenue Projections on Basis of Several Hypotheses Year to 30 June A B C

$ $ $

1971 140,000 157,000 180,000

1972 156,000 200,000 250 ,000

1973 175,000 240,000 320,000

Profit Forecasts:

For the purpose of deriving a reasonable estimate of likely profit, let us take for revenue purposes only the moderate projection shown by Column “ B” in Table 5, derived from the existing growth rate without allowance for improved manage-ment or aggressiveness. From this we deduct the projected costs as shown in Table

3. From the resulting figures we deduct company tax at the public company rate, on

219

the assumption that the company will become a subsidiary of a public company. We then have (Table 6 ): T a b le 6

G ross N e t

Y e a r to 3 0 J u n e R e v e n u e C osts P ro fit T a x P rofit R a te

1971

$ $ $ $ $ p e r cent

157,000 111,000 4 6 ,0 0 0 2 1 ,3 5 0 2 4,650 98.6

1972 2 0 0 ,0 0 0 9 9 ,0 0 0 101,000 4 7 ,475 53,525 214

1973 2 4 0 ,0 0 0 109,000 131,000 61,725 6 9,275 277

The last column shows the earning rate on the capital of the company, which is $25,000.

Valuation:

The question of valuation is largely subjective. From the standpoint of the pres­ ent owners of the company, the estimate naturally will be high. They sponsored the company a decade ago, when the Australian market was at best a very quiet scene, and both investors and brokers alike were completely ignorant of put and call options in any form. The company has fought with determination to have the option business understood and accepted in Australia, and by dint of perser- verance, sometimes under adverse financial conditions, has succeeded in bringing

Stock Options of Australia Pty Ltd to the stage of being a profitable and firmly established enterprise. It has also carried the whole options industry, competitors and all, to a level of complete acceptance in the financial community. It is natural that the owners of the company visualise for it a future of continued leadership and expanding profitability. On the other hand, the prospective purchaser naturally seeks to buy at a price which discounts heavily the future. He may ask himself whether a new operation starting from scratch would not be a cheaper investment.

To be sure, a new company could be established for a capital outlay only a frac­ tion of the asking price for this established enterprise. Nevertheless, the fraction would still be a significant amount of money, and in any event could not be less than $25,000 which is the minimum entrance requirement to the Option Brokers Association Limited. However a good deal more would be needed. Prospective

costs could hardly be much less than the $90,000 budget for Stock Options of Aus­ tralia Pty Ltd, and would certainly be more if staff had to be trained (as they would), if the operation had to be done manually or a computer program designed, and if the advantages of part-time availability of accounting and other services were not available (as they are to Stock Options of Australia Pty Ltd). Moreover, working capital needs to be at a high level if the company is not to suffer the disad­ vantages which follow delayed payments to option writers—which are inevitable if it is necessary to wait to receive payments from purchasers, first.

In attempting to assess a reasonable present day price for the shares of Stock Options of Australia Pty Ltd, it seemed best to accept the basis of a “ five times earning rate”, and at the same time to accept only the moderately favourable pro­ jection for future growth. It is true that a valuation on five times earnings may seem

imprecise for a company in a field of fluctuating fortunes such as the stock market. On the other hand, as Table 5 shows, considerably higher revenues can be estimated for future years if we are to take into account the probability that the ad­ ministrative and developmental capacities which Mr McCoy already has ably demonstrated, are assumed to have a continuing effect in the future.

220

Then there is the question of whether the valuation should be based on earning capacity before tax, or after tax. It is reasonable, naturally, to take after-tax figures into account. On the other hand, if the purchaser is a public company, then it would be foolish to overlook the implications of earning power before tax. Earnings would be taxed in the subsidiary company, but would be rebatable in the parent company. Thus if earnings from Stock Options of Australia Pty Ltd as a subsidiary

are to be compared with earnings by the parent company from other activities (such as manufacturing, or share trading), then the only fair way is to judge the return on outlay (purchase price) on a before-tax basis, in the case of Stock Options of Australia Pty Ltd.

The earning rate before tax, and the earning rate after tax, for the moderate “B” projections, are shown in the following Table 7: T a b le 7

E a r n in g r a te E a r n in g ra te

Y e a r to 3 0 J u n e , b e fo re ta x a f t e r t a x

p e r cen t p e r cen t

1971 184 98.6

1972 404 2 1 4

1973 524 277

We can now devise a tabulation (Table 8 ) which shows the price at which the $2.00 Fully Paid Shares of Stock Options of Australia Pty Ltd should be valued, on the basis of five times the relevant earning rate per annum. T a b le 8

Y e a r to 3 0 J u n e

F ive tim es e a rn in g s b e fo re ta x

F ive tim es e a rn in g s a fte r ta x

$ $

1971 18.40 9.86

1972 ' 40.40 21.4 0

1973 52.40 27.70

Conclusion:

Table 8 indeed shows a very wide range of figures for the valuation per share under different conditions, present and future. So wide is the variation, that in mak­ ing a positive recommendation one is forced back to making an intelligent judge­ ment. It is understood that the owners are prepared to sell their holding, under cer­

tain conditions, at $15.00 per share. In my opinion this leaves plenty of scope for future appreciation under sound management.

221

12-12

SELECTED MINING HOLDINGS LIMITED

Minutes of Meeting of Directors of the Company held at 327 Collins Street, Melbourne on Monday, 24 May 1971, commencing at 10.00 a.m.

(1) PRESENT: Dr M. D. Garretty (Chairman), Messrs P. Frankel, P. D. Garretty, K. H. Grant and B. K. Taylor. In Attendance: Mr A. D. Prisk (Acting Secretary).

(2) SPECIAL PROJECT No. 1 : It was reported that the number of shares purchased now totalled approximately 40,000. It was agreed to continue the market purchases, as quickly as practicable.

Following discussion it was agreed to invite Trendex Group Superan­ nuation Fund, Trendex Mineral Corporation Ltd and other associated Companies to consider joining the project on the following basis: (i) such company(s) to participate in the venture with a sharing of the

proceeds, provided that SMH receives 25 per cent of any ‘dealing’ profits accruing to TMC and others; and (fi) such company(s) to make loans for the purpose of the project, collec­ tively up to half the sum required, at an interest rate to be arranged,

but to be in excess of the rate paid to SIL having regard to the fact that associated companies would have a security for the loans a second mortgage ranking after the SIL mortgage on Special Project shares acquired.

It was further agreed, in principle, that Rimibo be included in the above category, provided that SMH is satisfied with the aspects of security and the retention of control.

(3 ) SHARE AND OPTION TRANSFERS: Copies of the Brokers’ Notes received over the past week were examined by Directors and registration of the shares and options con­ tained therein was approved.

(4) FINANCIAL STATEMENTS: Investment Portfolio Statement as circulated, was received. The docu­ ment is to be code dated in future. The Acting Secretary reported a current Bank balance of $9,309.60 in funds.

(5 ) RIMIBO RESOURCES LTD: It was reported that an informal meeting of the Rimibo Board is to be held tomorrow, 25 May 1971.

( 6 ) ARDEN MINING N.L.: The Chairman indicated that the following (original) prospects are now no longer available: W.A.—Youanmi prospect

222

S.A.—Mt Arden and Donnelly’s prospects (part of the Mt Arden-Don- nelly’s-Great Gladstone group). The Chairman further reported that Arden wished the Company to place with it a sum comparable to that originally proposed. It was agreed to defer the matter to the next meeting for further consideration.

(7) MINERAL CLAIMS: No further developments since the previous Board meeting.

(8 ) GENERAL BUSINESS: .

(a) Group Structure Grant & Falk’s memorandum dated 17 May 1971 and Dr M. D. Garretty’s memorandum dated 20 May 1971 were noted. The holding company concept, as outlined by Mr E. E. Falk in the

abovementioned memorandum, was accepted in principle by the Board. (b) Talks with Nicholas Group Mr Frankel outlined his brief contacts with Brayburn & Co. Pty

Ltd. He was authorised to arrange discussions between representa­ tives of the Company and the Nicholas group, to be held as soon as possible, in pursuance of matters referred to in (a) above. (c) Stock Options o f A ustralia Pty Ltd

The Cadwalledar report of January 1971 and Stock Options’ Bal­ ance Sheet of 30 April 1971 were referred to. The Chairman declared his interests, as a Director of Stock Options of Australia Pty Ltd. Fol­ lowing discussion the Board agreed in principle with the concept of purchasing Stock Options of Australia Pty Ltd as a going concern, but it considered that a written and comprehensive proposition should be

prepared by the vendors incorporating the specific aspects of future prospects and management security for and repayment schedule of loans, bank overdraft situation and schedule of, and arrangements with creditors for, repayment of liabilities. (d ) A ustralian Investment Counsellors Pty Ltd

It was reported that AIC is about to move to alternative premises. Following discussion it was RESOLVED— (i) that the arrangements with AIC covering the general accounting of the Company, at a cost of $1,800 per month, be terminated in

favour of such office and staffing facilities being provided at 343 Little Collins Street, Melbourne. (ii) AIC to be notified verbally of the above decision, which is to be subsequently confirmed in writing.

The Management Agreement with AIC was discussed and it was RESOLVED to formally issue a notice of termination of the Management Agreement, to take effect as soon as is considered reasonable. Authority was given to negotiate, if necessary, a

shorter termination period than that specified in the Agreement.

(9) NEXT MEETING: Wednesday, 26 May 1971 following the discussion with Brayburn & Co. Pty Ltd.

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(10) CLOSURE: There being no further business before the meeting the Chairman declared it closed at 12.45 p.m. Signed as a correct record

P e t e r F r a n k e l

M. D. G a r r e t t y

Date: 21 June 1971. Chairman

12-13

SELECTED MINING HOLDINGS LIMITED

Minutes of Meeting of Directors of the Company held at 327 Collins Street, Melbourne on Thursday, 27 May 1971 commencing at 11.10a.m.

(1) PRESENT: Dr M. D. Garretty (Chairman), Messrs P. Frankel, P. D. Garretty, K. H. Grant, B. K. Taylor. In Attendance: Mr A. D. Prisk (Acting Secretary) (2) SALE OF SECURITIES:

Discussion continued on the availability of funds following the sale of the Company’s stocks, as per the Memorandum dated 20 May 1971 from Messrs M. D. Garretty and P. D. Garretty. Dr Garretty and Mr P. D. Gar­ retty confirmed that the purchase price of 5,000 BHP and 8,000 Kathleen Investments, lodged with Stock Options of Australia Pty Ltd on the exer­ cise of the options, cannot now be refunded.

Prior to terminating the meeting it was agreed that the Company’s Investment Committee be disbanded for the time being and that any action taken generally by any Company Committee be subject to the prior approval of the complete Board.

(3) CLOSURE: The meeting was formally terminated at 11.55 a.m.

Signed as a correct record P e t e r F r a n k e l

Date: 28 May 1971 Chairman

12-14

TRENDEX MINERAL CORPORATION LIMITED

Minutes of Meeting of Directors of the Company held at 343 Little Collins Street, Melbourne on Friday,28 May 1971, commencing at 10.10a.m. (1) Present: Dr M. D. Garretty, Mr P. D. Garretty, Mr. A. L. Lazarus, Mr K. H.

Grant. In Attendance: Mr A. D. Prisk (Secretary). (2) Chairman: By common consent, Mr K. H. Grant took the Chair for the meeting.

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(3) Statement by Chairman: In his verbal statement the Chairman stated that:— (i) Yesterday’s proposals to Selected Mining Holdings Ltd, concerning Stock Options of Australia Pty Ltd and Trendex & Co. Pty Ltd, were

assumed to have been placed before the group of associated com­ panies. On this basis he had discussed the matter with his T.M.C. co­ Director, Mr A. L. Lazarus. (ii) The proposals were unacceptable and no intention existed to further

consider them. (iii) There appeared to be an irrecoverable debt of approximately $100,000 in relation to T.M.C. and it is considered that a statement should be issued to the Melbourne Stock Exchange on the matter.

(iv) He (the Chairman) had been advised that it was unwise for him to further discuss the matter without the presence of his legal adviser. The Chairman then formally moved, Mr A. L. Lazarus seconded, that, unless evidence is forthcoming to show that the debt can be set­

tled within 7 days, a report on the matter be issued forthwith to the Melbourne Stock Exchange, by order of the Board. The motion was put and subsequently declared carried by the Chairman (K. H. Grant and A. L. Lazarus voted in favour of the motion; M. D. Garretty and

P. D. Garretty abstained from voting). The Chairman stated that in these circumstances he considered it incumbent to give Dr M. D. Garretty and Mr P. D. Garretty the op­ portunity to resign as Directors of the Company and associated com­

panies. Dr Garretty and Mr P. D. Garretty were given leave to withdraw to privately consider their positions. Upon resumption of the meeting, Mr P. D. Garretty, speaking on behalf of Dr Garretty and himself, stated that in the circumstances he

and Dr Garretty considerered they must resign as Directors of T.M.C., Selected Mining Holdings Limited and Associated Companies. (4) Management Agreement with Trendex & Co. Pty Ltd: Dr Garretty asked whether any consideration had been given to the

Management Agreement between Trendex & Co. Pty Ltd and the Com­ pany. The Chairman replied that no consideration had been given at this stage. Dr Garretty indicated that consideration of the matter today by T.M.C. would be appreciated. (5) Resignations:

Joint letter dated 28/5/1971 from Dr M. D. Garretty and Mr P. D. Garretty, resigning forthwith as Directors of the Company, was tabled. Resolved that the resignations be accepted, effective forthwith. (6 ) Closure:

There being no further business before the meeting the Chairman declared it closed at 10.35 a.m.

Date: 7/7/1971

225

Signed as a correct record K. H. G r a n t Chairman

12-15

SELECTED MINING HOLDINGS LIMITED

Minutes of Meeting of Directors of the Company held at 327 Collins Street, Melbourne, on Friday, 28 May 1971, commencing at 11.05 a.m. (1) PRESENT: Dr M. D. Garretty, Messrs. P. Frankel, P. D. Garretty, B. K. Taylor,

K. H. Grant. In Attendance.Mr A. D. Prisk (Acting Secretary). (2) CHAIRMAN: Mr P. Frankel was, by common consent, appointed Chairman of Direc­

tors of the Company and he took the Chair. (3) MINUTES: Draft minutes of the Board meeting held on Thursday, 27 May 1971 were examined. Following agreed upon amendments, the minutes were

finalised and signed by the Chairman as being a correct record of the pro­ ceedings. (4) STATEMENT BY CHAIRMAN: In his verbal statement the Chairman stated that:

(i) Under the present circumstances it was not possible for the Company to purchase Stock Options of Australia Pty Ltd. (ii) It is considered proper for the Company to advise the Melbourne Stock Exchange that the debt of approximately $ 139,000 owing to the

Company may not be recoverable, but without divulging the name of the debtor. (iii) That the statement to the Stock Exchange should be made under the authority of the Board.

Dr Garretty and Mr P. D. Garretty indicated that they did not wish to comment. Mr K. H. Grant then moved, the Chairman seconded, that in the opinion of this Board the Melbourne Stock Exchange should be

advised of the the debt owing to the Company of approximately $ 139,000 which may not be recoverable, but that the name of the deb­ tor be not divulged. The motion was put and subsequently declared carried by the Chairman (Messrs. P. Frankel, K. H. Grant and B. K. Taylor voted in favour of the motion; Dr M. D. Garretty and Mr P. D. Garretty ab­ stained from voting). (5) RESIGNATIONS:

The Chairman stated that in the circumstances he invite the resigna­ tions from the Board of Dr M. D. Garretty and Mr P. D. Garretty. Joint letter dated 28/5/1971 from Dr M. D. Garretty and Mr P. D. Garretty, resigning forthwith as Directors of the Company, was tabled.

RESOLVED that the resignations be accepted, effective forthwith. The Chairman stated that as a sequence of the S.M.H. events, it was considered that Dr M. D. Garretty and Mr P. D. Garretty should be invited to resign from the Board of Rimibo Resources Ltd. Dr Garretty and Mr

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Garretty indicated their intentions to resign from the Rimibo Board and they handed a joint letter (undated) of resignations from the Rimibo Board, to the Chairman. (6 ) BANK AUTHORITIES:

RESOLVED that the Company’s Bank Authorities with the Common­ wealth Trading Bank of Australia, 495 Bourke Street, Melbourne, be amended in accordance with the above Directorship changes. (7) NEXT MEETING:

Monday, 7 June 1971 at 10.00 a.m. (8 ) CLOSURE: There being no further business before the meeting, the Chairman declared it closed at 11.20 a.m.

Signed as a correct record P e t e r F r a n k e l

Chairman

Date: 21/6/1971

12-16

P R E S E N T :

C A M E L O T M O T E L S L T D :

M O R T G A G E L O A N :

RIMIBO RESOURCES LIMITED MINUTES OF MEETING OF DIRECTORS HELD AT 140 QUEEN STREET, MELBOURNE, ON MONDAY, 1 MARCH 1971, AT 2.15 p.m.

Messrs K. R. Farfor (Chairman), J. S. Hancock, R. O. Parsons and A. D. Killey. Mr G. Douglas was also in attendance. Mr Farfor reported on discussions with the Directors of Camelot Motels Ltd and, in particular, with that company’s proposed

acquisition of Byjet Pty Ltd, After consideration of the security offered and the information presently available to the Board, the views of the Investment Manager were sought. Mr Douglas stated that whilst the proposal has a number of attractive features, he was of the opinion

that the security offered was not adequate and that insufficient infor­ mation had been made available upon which to make a considered recommendation and therefore he could not recommend the invest­ ment to the Board.

Mr M. F. S. Hancock, a Director of Camelot Motels, was then in­ vited to join the meeting and after further discussion, it was resolved that the Company decline the offer to participate with Camelot Models Ltd in the acquisition of Byjet Pty Ltd.

Mr Farfor tabled an application for a mortgage loan from Mr Graeme John Stephens of 6 Lilian Street, Glen Waverley, for a loan of $27,000 for a term of six months. It was resolved that the application be approved in principle and the loan granted subject to the following conditions:

1. Security to be registered first mortgage on property known as 117 High Street, Glen Iris. 2. Collateral security by way of second mortgage over property at 6 Lilian Street, Glen Waverley, or 444 Warrigal Road, Ashwood.

227

3. Rate of interest 10 per cent flat. 4. Progress payments only to be made against architect’s certificates. 5. All fees in connection with the loan and the discharge thereof to be paid by the borrower. s e l e c t e d Mr Killey tabled a letter dated 26 February 1971, from Weigall

h o l d in g s ar|d Crowther, Solicitors, acting for Selected Mining Holdings Ltd,

l t d : Trendex Mineral Corporation Limited, and Stock Options of Australia

Pty Ltd, and stating therein that transfers of shares constituting a con­ trolling interest in Rimibo Resources Ltd had been lodged with the Share Registrar and that they desired the Board to resign in favour of Directors nominated by Selected Mining Holdings Ltd. The letter also requested that no action in relation to investment or distribution of the

funds or assets of Rimibo Resources Limited or in relation to the busi­ ness of capital of the Company be made until the Board was reconstituted in accordance with their request. Mr Killey advised that the share transfers listed as Item 5 of the let­ ter had not been received by the Share Registrar. It was resolved that Messrs Molomby & Molomby be requested to reply to the letter reminding the writer of the supreme court writ issued by Glomex Mines N.L. and that the Board were conscious of their obligations to the Company and also that they were of the opinion that they should not vacate their positions as Directors otherwise than in strict conform­ ity of the Companies Act and the Company’s Articles of Association. The meeting closed at 4.15 p.m.

Signed as a correct Record. K. F a r f o r Chairman

12-17

18 Lansell Road, Toorak, VICTORIA 3142 Telephone 24 9838

Mr D. W. Whitbread, Secretary, Select Committee on Social Securities and Exchange, Australian Senate,

CANBERRA, A.C.T. 2600

Dear Sir,

I was unhappy about the discussion concerning Rimibo Resources, in Mel­ bourne on Friday, 16 June, because I felt that the Committee still had the impres­ sion, at its conclusion, that the Rimibo operation had been directed towards the personal betterment of myself or my son or my family companies. The subject was not fresh in my mind, and I was unable to recall certain facts which are material, and which I believe would have removed the impression referred to.

228

Last week I arranged a discussion with my son, Mr Peter D. Garretty, as a result of which I am now able to set down the following. He concurs in this letter, and also signs it. Trendex Mineral Corporation Limited was formed and money raised from the public with the express intention that the company would be managed by Trendex & Co Pty Ltd. Because such a large proportion of the capital was in a single block in the hands of the London underwriter it became apparent even before the com­ pany’s shares were quoted that the company was vulnerable to attack (especially from any group which might seek to acquire a large block of shares via the under­ writers).

Therefore the only way in which the stated objectives of the company could be preserved was to expand as rapidly as possible. Some of the expansionary moves contemplated were detailed in the Glomex documents which you have. Consistent with this was the purchase of the controlling interest in Selected Mining Holdings Ltd, with the goodwill of the existing board of that company, and at their instigation. The purchase was made at a price approximating the asset backing at the time, and was fully justified especially because a premium ordinarily is payable for a controlling interest. The nominees of Trendex Mineral Corporation on the board of Selected Mining Holdings were Mr K. H. Grant and the two under­

signed. An important asset of Selected Mining Holdings was its holding in Rimibo Resources. It had been represented by the Selected Mining Holdings board, and by the deal negotiator Mr E. E. Falk (of Messrs Grant and Falk) that existing ar­

rangements provided for the retirement of the entire board of Rimibo Resources immediately following that company’s Statutory Meeting (which was about to be held), in favour of the nominees of Selected Mining Holdings. Both the old and the

new boards of Selected Mining Holdings were taken aback when this undertaking was dishonoured. The board of Trendex Mineral Corporation, the board of Selected Mining Holdings, Mr Falk, and Mr Brian Douglas, all considered that the agreement as to board control of Rimibo should be enforced. It should not be for­

gotten that offers were made both privately, and later publicly, for one of the exist­ ing board of Rimibo to retain his seat on a reconstituted board. Eventually discussions got to the stage at which Rimibo insisted that we had to demonstrate that the Selected Mining holdings interests held more than 50 per cent

of the Rimibo capital, and that it be registered to the extent necessary to do this. Because no further progress could be made by negotiation, it was decided to requisition a General Meeting of Rimibo. It was proposed that three directors be elected at the meeting, on behalf of Selected, namely Mr Falk and the two under­

signed. This nucleus was to have been expanded immediately. Selected Mining Holdings and Trendex Mineral Corporation behind unpre­ cedented delay and obstruction in having their shares in Rimibo registered in their own names. Although it was not seriously believed that Selected’s big parcels

(which had been held in the names of Parsons family or nominee companies) would actually be used by Parsons in his own interests and against Selected, at the requisitioned meeting, it was necessary to ensure that every available share be mar­ shalled, to be able to demonstrate the greater than 50 per cent interest. This high

level of interest had not been sought originally, but it seemed that achieving it would be about the only way of obtaining peaceful honouring of the agreement.

229

At the time of the meeting, we believe, Selected Mining Holdings held 1,200,000 shares, Trendex Mineral Corporation held 302,000 shares, and Stock Options of Australia Pty Ltd held 4,000 shares. The last mentioned parcel was purchased because of the obstacles being experienced in obtaining registration for a similar number of shares owned by Trendex Mineral Corporation (the purchase of 4,000 by Stock Options being made from the parties able to give immediate de­ livery). Stock Options of Australia Pty Ltd (and indeed any of the family com­ panies) had not sought any share interest in Rimibo, and the action on the 4,000 shares (only an insignificant parcel, really) was taken as a service to the public companies, because it seemed to be the only way of avoiding registration obstruc­ tion.

(One parcel of—we think—100,000 shares of Rimibo had been purchased through Stock Options of Australia Pty Ltd for and on behalf of Trendex Mineral Corporation, as one means of securing registration of that quantity without exciting interest and subsequent obstruction to registration; we believe that the purchase was by way of options which were then exercised on behalf of Trendex Mineral Corporation. In this connexion Stock Options was acting as a dealer in options only, and had no beneficial interest in the 100,000 shares.)

Concurrently with the protracted discussions with the Rimibo board it became known to us from several sources that some form of alliance was being reached be­ tween the existing Rimibo board and Glomex. This meant that there was a pincer movement developing against the Trendex-Selected-Rimibo group. Also there was a sudden spurt in the market buying of Selected shares, which pushed up the price while the buying (of a ten per cent parcel) took place. We discovered that this buy­ ing was being done for Parsons through another broker, presumably to cover the tracks. We did not know the reason, but concluded that the parcel might be used to requisition a Meeting of Selected Mining Holdings. This seemed futile, because Trendex Mineral Corportion had effective voting control of Selected for practical purposes. However such a requisitioned meeting might be used as a basis for seek­ ing an Injunction to (a) prevent Trendex Mineral Corporation using its control of Selected, or (b) prevent Selected using its control of Rimibo, or (c) prevent Selected carrying on its normal business— or all three. Such Injunctions had already been sought by Glomex against Trendex Mineral Corporation.

It was against this background that it was decided to effectively alienate the Rimibo share parcel from Selected Mining Holdings, so that if the Glomex interests did seek such restraints from the Court, the alienation could be disclosed, thus (hopefully) spiking the guns, and giving breathing time.

It should now be evident why the defensive measures necessitated the use of a private company, unlikely to be ‘got a t’ by the Glomex interests, and why any pub­ lic disclosure of the sale would not have been in the best interests of the share­ holders of Selected. It also should be clear why it was important that Selected not

have the right to rescind the agreement of sale. The agreement had outlived its use­ fulness (and was promptly rescinded by Underwriters Pty Ltd with the approval of Selected) once the Rimibo meeting had taken place without restraining legal action being sought by Glomex.

The agreement between Selected and Underwriters of course was known to, and was approved by, the then board of Selected (including Mr Grant as well as ourselves), and also by Mr Falk (a proposed director of Rimibo). At this stage we

230

cannot recall whether Mr Peter Frankel was a director at the time, but if not he cer­ tainly was aware of it immediately on becoming a director of Selected. Mr Frankel of course threw his whole energy behind the move to enforce the agreement concerning the board membership of Rimibo, and played a dominant part in the public relations aspect of the requisitioned meeting. He made certain precautionary arrangements in respect of the meeting, held at the Chamber of Commerce, of which both he and Mr Falk were Committee members.

We believed that the requisitioned meeting would be adjourned by the Chair­ man of Rimibo on a show hands (the Articles precluding any poll on this matter). That is why it was necessary to have as many individual proxies as possible, present at the meeting. Hence the selection of a reasonably well organised body of people, who would be available in person—the engineering students. This was whole hear­ tedly supported by the full board of Selected. Naturally in the event the Rimibo chairman did not seek adjournment—but there was an astonishing number of other shareholders at the meeting, some of whom stated that they had been urged to come in person, by Mr Parsons.

All action in respect of the control of Rimibo by both of the undersigned, and by any of our family companies, was undertaken solely in the best interests of the public companies of which we were directors or proposed directors. There was no private benefit motive. We hope we have demonstrated this.

M i c h a e l D u h a n G a r r e t t y

P e t e r D u h a n G a r r e t t y

S ig n ed b e fo re m e in M e lb o u rn e th is tw e n ty -s ev e n th d a y o f J u n e , 1972:

(S ig n a tu re a p p e n d e d ) J.P .

12-18

SELECTED MINING HOLDINGS LIMITED

Minutes of Meeting of Board of Directors held at the office of Trendex & Co. Pty Ltd, 9th Floor, 343 Little Collins Street, Melbourne, on Tuesday, 13 April 1971, at 10.00 a.m.. (1) PRESENT:

Dr M. D. Garretty (Chairman), Messrs P. D. Garretty, K. H. Grant and B. K. Taylor. (2) RIMIBO RESOURCES LIMITED: The Directors considered a report from Dr M. D. Garretty and Mr P. D.

Garretty that: — (a) It is becoming likely that at least one of the companies Noske and Adelaide Motors will be a part of the group in the near future. (b) Internal divisions and financial difficulties beset Glomex Mines and its

shareholders (which as previously expected should lead to the elimination of the danger to the interests of this company which was posed by the bid for control).

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Therefore an opportunity exists to continue with the aims of the group, amongst which is the reduction of the burden on an individual company of holding a greater proportion of its capital in the form of shares in another member company in the group.

Dr M. D. Garretty declaring his interest and abstaining from voting, it was Resolved(moved Mr K. H. Grant, seconded Mr P. D. Garretty) that an Agreement between Selected Mining Holdings and Underwriters Pty Ltd in the form prepared by Abbott Stillman and Wilson be executed. (3) DIRECTORATE:

Resolved that an invitation be extended to Mr Peter Frankel to join the Board of the Company, Dr M. D. Garretty to discuss the matter with Mr Frankel. The meeting closed at 10.40 a.m.

Signed as a correct record M. D. G a r r e t t y Chairman

Date: 19/4/1971

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CHAPTER 13

M isleading R eports from Q ueensland M ines

13-1

QUEENSLAND MINES LIMITED Suite 3701, Australia Square, SYDNEY, N.S.W. 2000

5 February 1971

The Secretary, Sydney Stock Exchange Ltd., 20 O’Connell Street, SYDNEY 2000.

Dear Sir, This report is issued in compliance with the Stock Exchange listing requirements. The Company, in addition to carrying out geological investigation within its vari­ ous exploration areas, completed the following developmental work.

Nabarlek Deposit— N.T. Prospecting Authority 2046 Forty seven drill holes with a total footage of 14,023 feet were completed between 1st July 1970 and 31st January 1971. Drilling, with the exception of some deep exploratory holes, is of a pattern of 50 foot centres with intersections at vertical depth of 50 feet, and is to be followed by

another line at 50 foot centres to vertical depth of 100 feet and a further one at 50 foot centres to the bottom of the economic mineralisation. Completion of such drill pattern will establish proved reserves and grade of the main orebody, exposed or partly exposed. It is expected the main drilling programme

will be completed by July this year, but will be followed at subsequent times by further deep drilling and drilling to the south seeking an extension of the orebody. No calculation of proved reserves and grade is possible at this stage, but drilling indicates a strike length of the northern lode of 850 feet and reserves of at least 55,000

short tons of UaOs. Drilling has confirmed the existence of an outstanding high-grade uranium deposit. Due to the wet season, little ground reconnaissance has been possible to date, although the Company was able to extend its ground reconnaissance some 20 miles

from Nabarlek, locating three anomalous areas which are worthy of further investiga­ tion. Helicopter-supported ground parties will commence field work during February on the balance of the Prospecting Authority. Our aerial reconnaissance and field surveys, together with discoveries by other

companies within the area, indicate this part of the Northern Territory is a major uranium province, in which this Company has substantial areas covered by Prospect­ ing Authorities.

233

N.T. Prospecting Authority 2221

Aerial radiometric and magnetic surveys were completed. Three helicopter- supported outcamps for geologic field parties will be operative in early February and will start semi-detailed work in areas selected, based on an evaluation of existing geo­ logic maps and the radiometric and magnetic surveys.

Katherine Area— N.T. Prospecting Authorities 2222 and 2223

Aerial reconnaissance and ground investigations were completed without locating any economic mineralisation and the Authorities will be abandoned.

Rum Jungle— N.T. Prospecting Authority 2501

Following withdrawal from the Katherine area, ground investigation of this area has commenced. The area is held in conjunction with Australian Aquitaine Petroleum Pty. Limited.

Mount Isa Area

Twenty-five percussion drill holes with a total footage of 6,186 feet were completed on uranium prospects held by the Company under lease within the Mount Isa district to indicate diamond drilling targets for this year.

Westmoreland

Drill holes completed during 1970 were 70 diamond with a footage of 35,768 feet and 170 percussion with a total footage of 7,368 feet. The original estimate of reserves was 10,300 short tons of U’Os. With one third of the primary zone still to be drilled, present reserves are 10,549 short tons U3O8.

Drilling at the Long Pocket area proved the extensive surface mineralisation did not extend to depth. Inferred reserves are 2,000 short tons of ILOs of a grade of 1-2 lb., which are not being taken into reserve calculation, but could be of economic value as long term reserves.

Other known anomalies within our prospecting area are now being investigated.

Expenditure

Expenditure for the quarter ended 31st December 1970 totalled $428,000 and for the year ended that date totalled $2,084,000, subject to year end adjustments and audit.

Yours faithfully, QUEENSLAND MINES LIMITED E. R. Hudson Chairman & Managing Director

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13-2

QUEENSLAND MINES LIMITED EXTRACT FROM PROCEEDINGS OF THE ADJOURNED 10TH ANNUAL GENERAL MEETING OF MEMBERS HELD AT 2.30 P.M. ON WEDNESDAY, 2 JUNE 1971, ANZAC HOUSE AUDITORIUM, 26

COLLEGE STREET, SYDNEY

Q. Mr Chairman—My name is Perl and I have three questions with regard to the Nabarlek area:

1. Will you re-affirm the statement you made on behalf of the Company on 1st September 1970 that drilling and costeaning the first lens gave indicated re­ serves of 55,000 short tons Uranium Oxide with an average grade of 540 lbs per short ton of ore?

2. Will you give full details, including complete assays, of each of the 40 dia­ mond drill holes completed by December 31st, 1970, as referred to in the Annual Report?

3. Will you give the approximate time when the Company first became aware of the presence of the dolerite sill in the central part of the deposit, as referred to in the Annual Report?

HUDSON: You have given me your name— perhaps you might indicate whom you represent.

PERL: I don’t think it makes any difference.

HUDSON: I think it does— we would like to know whom you are representing?

PERL: I identified myself at the door—I have a valid representation as a share­ holder and the answers that you give shouldn’t make any difference.

HUDSON: You refuse to identify yourself beyond giving your name.

PERL: I have already done so at the door.

A. The first question—do I re-affirm that on the drilling and costeaning at the 1st September last year the indicated reserves as disclosed by our geologists were 55,000 tons of 540 lbs grade—the answer is ‘yes’.

[The second question]—I do not intend to give you full details of the 40 drill holes. They are not a matter for the shareholders, and the Board and its technical people will assess the results of these holes in due course when the deposit has been fully drilled.

[The third question]—I became aware of the dolerite sill (I’m speaking from memory) I should say around November/December—approximately November/ December.

PERL: Could I have clarification of the first question? You have reaffirmed that at the present time the indicated reserves are 55,000 short tons . . .

HUDSON: I did not; you asked me whether on the 1st September as a result of the then known diamond drill holes and the then costeans it was stated that the indi­ cated reserves were 55,000 tons on 540 lbs grade.

235

PERL: But my question is, will you reaffirm now whether this is still the position?

HUDSON: I will neither confirm nor deny it. We gave indicated reserves at the time the deposit was found and we have since set about proving the reserves and we are how in the process of proving and until they are proved I refuse to make any further comment.

HUDSON: Do you represent Nestel Holdings? That last speaker—do you rep­ resent Nestel Holdings?

PERL: Mr Chairman—I have identified myself at the door.

HUDSON: I asked you a question—do you represent Nestel Holdings?

SHAREHOLDER: You have no right to ask it.

PERL: Thank you.

HUDSON: I have quite a right to ask it.

SHAREHOLDER: I don’t think so.

SHAREHOLDER: I think he has.

HUDSON: That’s enough—I ’m in charge of the Meeting and if I want to ask a question, I will ask it.

Q. Mr Chairman—my name is T.C. Hastings, I come from Neutral Bay and I am a small shareholder in this Company. I have no other interests apart from the fact that I am a small shareholder and I think perhaps I speak for many small shareholders like myself. I spoke to you at the end of the K.I. Meeting of which I am also a shareholder.

These are the questions I would like to put to you. First of all, I would like to ask you, Mr Chairman. Since I asked you a question at the close of the Meeting of K.I. concerning the uneasiness in the minds of thousands of shareholders, I have been ap­ proached by many fellow shareholders to seek from you and your Board today ans­ wers to questions which are necessary to enable us (the ordinary shareholders who form your company) to make up our minds on how to vote at this vital Meeting of Q.M.

You said at the Meeting last week that your duty was to your shareholders, yet, on the spur of the moment and without full discussion of all the facts, a record number of us were asked to demonstrate by a show of hands vital decisions which could affect the whole future course of the company which is claimed to have the richest uranium find in the world. Now I say this to you with all respect, Mr Chairman, this type of pressure voting must not be allowed to occur again. It is not true democratic voting

and it causes the suspicion of planned tactical moves aimed at serving only the interests of groups, and not the shareholders as a whole.

So, Sir, with all respect, I have these questions to put to you and on what you say, or elect not to say, will depend the reaction of the stock markets of Australia today.

The first question is this:

Why have we been kept up to now completely in the dark as to progress or lack of it at Nabarlek, since your first announcement that our company has the richest uranium deposit in the world. Now since you announced it, and your subsequent hur­ ried visit to the Prime Minister which made world headlines, you for reasons perhaps known only to yourself maintained a complete and utter silence. Now what has been

236

going on at Nabarlek all these months? What has been revealed and what have you achieved on your visits abroad—I presume at the Company’s expense?

That is Question No. 1.

A. HUDSON: Well, there are two questions involved in that, namely, (a) the criticism that we have not disclosed to you the full information regarding Nabarlek; and (b) you want to know what I was doing overseas. Is that the position?

HASTINGS: Yes, that is broadly the position, because 8 months ago you made this announcement and in 8 months you have not made one public announcement nor have you issued one circular to your shareholders. Not you, yourself, but I am talking about your company as a whole. I know you have been a busy man, and this criticism is not aimed at you personally in that sense.

HUDSON: As Chairman, I have to take responsibility for the Board and I accept that responsibility.

The original assessment or indication of reserves at Nabarlek was made on the in­ formation then available. They were shown as indicated and not as proved reserves. Now it was very important that a quick assessment of this deposit be made for advice to the Stock Market. You will appreciate our shares had remained at a steady angle,

although the Directorate had known of the existence of Nabarlek for some two months. I obtained a detailed report from the technical people who advise the Board and the report was as indicated to the market and shareholders—that reserves in this

deposit were as stated at 55,000 tons.

Following an indication of reserves, which is our usual custom—for instance we gave indicated reserves the prior year for Westmoreland at 10,000 tons and I think the proven reserves today are 14,000 tons—we then seek to go about and establish what are the reserves at Nabarlek and what is the average grade. And this is going to

require about 100 drill holes to establish. We have done 40 at this time. The results of those 40 holes do not give a conclusive answer nor a full answer and in my view, whatever the position might be, it would be most inadvisable to give a further assess­ ment on one half of the necessary drill holes. We will not finish the total drill holes

until December, and until they are finished you cannot get an accurate assessment. Uranium mineralisation varies terrifically every few feet. It needs close drilling to give an average grade and until we finish the full amount of drill holes we are not in a pos­ ition to determine them. But I can say this, that from the indication of drilling to date

this deposit is still the best deposit in the world.

HASTINGS: Thank you, Sir, and now Question No. 2 .1 appreciate that answer very much.

HUDSON: Now secondly I will answer your question as to why I have been wasting your Company’s money on a trip overseas.

HASTINGS: I didn’t say you had been wasting the Company’s money, I said that you had a duty to report to the Company, and if I hadn’t asked you this question you would not have reported, except in general terms . . .

HUDSON: Can I say this to you? Getting uranium contracts is a bit like fishing. You haven’t got a fish until you’ve got it in the bag. If you understood the problems and difficulties of negotiating uranium contracts, perhaps you would be a bit more

237

understanding. I went first to Europe to negotiate three uranium contracts for delivery in 1971-72—others in 1973-74.1 was unsuccessful in obtaining the 1971-72—which in any event would have caused us considerable problems in supplying. I am hopeful (and again I say I ’m hopeful) that, of three contracts currently being negotiated in Germany for 1974, of getting at least one or two.

I went to London because I am making arrangements with the United Kingdom Atomic Energy Commission to convert our material into UFe because the modem method of selling uranium is not in the form of U b Os but in UFs. I have satisfactorily concluded arrangements with U.K., which gives this company a considerable

advantage.

I then went to Japan and saw every power station, every Government instrumen­ tality interested in purchasing uranium, and I am currently negotiating with Japan for contracts from 1974 up to 1980. Again I say that I will not complete these contracts within a short period of time, but I ’m hopeful they are going to be successful. Other­ wise we wouldn’t be setting about to bring this mine into operation in 1974. But until

a contract is signed we have extreme competition from both South Africa and from France, both of whom have stockpiles and are prepared to undercut every price that is made. It is a very competitive market, but I still think, even in spite of this competition, that we will obtain some contracts, although I am not prepared to sell forward our reserves at any give-away price. It takes a lot of negotiations and a considerable amount of detailed travelling to finally obtain overseas uranium con­ tracts and that is the reason for my visits overseas.

HASTINGS: Well, thank you very much, Sir, and my reply to your address is that I think it was a most comprehensive answer, it was very long delayed and I do not think that the public relations branch of your company does you justice. I mean that sincerely.

Q. How do you think we feel, Sir (and again I put this to you most respectfully) as small ordinary shareholders, wondering what the heck is going on when it is revealed that Castlereagh Securities, of which Mr Dowling is the head, has bought approx, (and here I am going on what I ’ve read and piecing together) about a 20 per cent interest in our company. You have elected to tell us nothing, either by circular or by announcements in the press, while Mr Dowling, and Mr Roberts for that matter, have had access to all the reports on Nabarlek through their presence on the Board, and for that matter there must be the suspicion that Patrick Partners would know what was going on. Now is it always to be a case of the ordinary shareholders (the backbone of any company) being the last to know what their company has, while there is such room for possible manipulation, and will our stock markets, in view of this, ever achieve the stability necessary for healthy trading and fluctuation?

A. You are posing some problems in the answering of these questions, of course. The position of the Directorate may have changed with Castlereagh buying a large holding. I agree on that. I think I have already indicated that.

Following the death of three original directors, Sir John Northcott, Sir Alex Reid and Dr Frank Louat, there was an imbalance on the Board in that Messrs Dowling, Robers and Ferguson were associated with Patricks, but I think the answer to some of your criticisms is this, that if the Board knew more than the shareholders and your

suggestion that the thing isn’t as good, why in the hell do they go on buying?

238

HASTINGS: You asked me a question then—you said, ‘Why in the heck do they goon buying?’

HUDSON: Well, I ’ll put it this way to you. You are suggesting that they knew a lot more than the shareholders knew.

HASTINGS: That is correct.

HUDSON: Now I want to say this to you. The procedure that I adopt to the Board and to the shareholders, is this:

That I request our Chief Geologist to give me a signed statement of the position of reserves and drilling and if they alter the position in my opinion then I take that signed statement to the Board, the Board approves of it and it is then released the same day to the Stock Exchange. My Directors would probably not know much more

(unless they wanted to go out and look around and draw their own conclusions and not take it for granted) than the shareholders. I can say that my Directors did not know about Nabarlek until two days before it was announced.

The position is that you have in a company such as ours a very strict procedure, in that your top technical men must issue a report to me as Managing Director and that report then becomes available to the Board. If the report indicates in any way a vari­ ation (a significant variation) the Stock Exchange is immediately notified. I agree that Directors must of necessity get information earlier than shareholders, because they

are, in fact, directing the company and it is obvious that they must have a better knowledge of the company’s affairs than the average shareholder. You can’t supply 17,000 shareholders with the same knowledge that a close Board has. But this goes with every company in the world, not only this company, and there is nothing in the

wide world you can do to prevent directors getting more information than the share­ holders. After all, it is for the shareholders to determine who their directors are, whether they have confidence in them, whether they have loyalty in them, and it amounts to that.

HASTINGS: Alright, Sir, finally I would like to ask you this.

Mr Chairman, men in high power, in companies as important and vital to the economy as Q.M. and its parent, K.I., have (may I humbly suggest) a bounden duty to, at all times, allay fears, scotch false rumours, and speak clearly on protest and even at times lack of it at a mine as important as Nabarlek. Now our stock markets have

been made the laughing stock of the world by what has been described as the ‘casino like’ trading which occurs. Up to now we small shareholders, the countless thousands of us, have had no avenue in which to express our disquiet— we have been, to put it

very plainly, Sir, sick to the pits of our stomachs at what has been happening and many of us have had to pay the price of inefficient, and at times corrupt methods, of the powers-that-be in many mining companies.

HUDSON: Now just a moment— this is a Meeting of Q.M. and not the Senate Committee in Canberra.

HASTINGS: Sir, I realise that . . .

HUDSON: . . . and I ’m not going to allow you use this Meeting to ventilate your views of the stock market. My view might be exactly the same as yours, but it is not relevant to this Meeting.

HASTINGS: It is relevant . . .

239

HUDSON: There is a newspaper column in which you can advertise your views, and there is a Senate Committee you can go and attend but this is a meeting of a com­ pany and unless your remarks are relative to this Meeting, I do not intend to allow them.

HASTINGS: Alright, Sir, my remarks will now be relevant and I will finish. I have this to say to you. Sir, we regard you as an honest man and a man of high integ­ rity. We also regard you as a man of exceptional ability. But, however, neither you nor your company apparently has the slightest knowledge of the value of public relations

(and I think that what you have said here revealed it) because you have said it, in some cases, eight months too late. I feel you owe it to us, not only your shareholders, but the people of Australia, to give frequent, concise and clear reports on what is hap­ pening at what you claim to be the ‘world’s richest uranium deposit ’.

HUDSON: Maybe my views about public relations, in regard to a mining com­ pany, are somewhat different to a lot of people’s views. I have been aware of what has been happening to the mining market for some period in the last year. I know the slightest talk, the slightest rumour, will immediately put up shares and cause some poor person to lose money. I am very conscious that I do not have public relations and this company is here for one purpose—to find ore bodies, to prove them, to develop them and go into production. Now I don’t care a damn about the stock market. I ’ve got a duty to perform which is different to playing the stock market or assisting share­ holders to play the stock market. This company’s shares have a very good reputation. This company’s shares have stood right through the collapse of the stock market at very high levels and I am not going to be a party to seeing some widow lose a lot of money because I make some statement that I can’t fully back, and I ’ll tell you that while I am Chairman I will make no statements that will enable people to manipulate the stock exchange to their own advantage.

When I make a statement it will go to all the shareholders at the one time, and I ’m not interested in public relations—I ’m interested in building a company.

MR DRUITT (SHAREHOLDER): My name is John Druitt and I have been a shareholder of Kathleen Investments for over ten years and Queensland Mines Lim­ ited since its commencement.

I would like to ask you a series of questions which will be concise and brief. .

Q. 1. Did the proxy vote of Kathleen indicate support for Mr Dowling commensur­ ate with that for the Chairman?

2. Is there any chance of Noranda gaining control of Kathleen?

3. Is there any possibility of the Company being taken over by any other group?

4. Why were Messrs Kennon & Rodgers appointed directors before the Annual General Meeting?

5. What protective measures are in hand at Nabarlek to protect the work staff against the intense radiation from the rich ore?

A. HUDSON: Your first question was— Did I hold proxy votes commensurate with those held by the Patrick organisation? The answer is ‘yes ’.

A. No. 2: There is not the slightest chance of Noranda gaining control of this company. It is an overseas company who is limited to 5 per cent and they would have a scramble to get 5 per cent. I think perhaps I will turn to that more in answering your

!

next question—but I will say this. I have seen some reports in the papers that Noranda is in a favourable position. Noranda is not in any favourable position.

Mr Rodgers is an Australian, he is an engineer and I am satisfied that he sits on the Kathleen Board as an ordinary director in the interests of the shareholders. If he shows any other interest, I ’d know what I ’d do about it. Noranda hasn’t the slightest (and I ’ve received this assurance) interest other than as an investment. Nor do I see in

any way the slightest risk of Noranda obtaining any influence in management control of the company at all.

A. Nos. 3 & 4: I want you to realise this. Maybe I have been silent on a lot of matters. As your Chairman one of the main duties is to keep a harmonious Company, because nothing can affect the market more for our friends here than a split in the company. And one of my duties is to try and hold it together.

And for this reason I haven’t said as many things as I could have said.

A. No. 4 :1 have been asked this question— ‘Why did I agree to the appointment of Messrs Kennon & Rodgers?’

For some years, as I have indicated to you, there was an imbalance in our Board in that three directors were associated with Patrick & Co. After the Minsec collapse, I be­ came aware of the Power Resources Scheme. I then saw the position that Patricks could control the Board and could also have a big pressure from a large shareholding. I regarded this as a dangerous position. Whether it would or would not have been, I

am not making any comment. All I say, I did regard the position as vitally dangerous. Mr Rodgers and Mr Kennon approached me and said that they would be interested in purchasing the shares of Minsec if they had representation on the Board. I took

advantage of the opportunity to get a better-balanced Board by getting two other Di­ rectors on. But before I agreed to their appointment to the Board, I obtained their unqualified assurance that they were interested only as investors, and that they would not, under any condition or circumstance, use their shareholding to collaborate with

any other large shareholder. Although they have only been on the Board for a period of a month or two, I have the utmost confidence that the assurance to me is going to be carried out and I think they will both make excellent Board Members and I think they give the Board balance.

On the question of Kathleen Investments being taken over, I suppose there are two factors to consider when discussing whether your company can be taken over. One is your Board, and are they completely loyal to you, and the other is the loyalty of the shareholders to their company. If the shareholders of the company are loyal to

their company, and attended Meetings, and if they couldn’t attend, issued proxies, and policed who went on their Board, they would be able to effectively resist any takeover, even if an outside interest bought 35 per cent of the shares. You can only have a takeover by controlling the Board, by outside shareholders massing sufficient

voting power, to be able to put their representative on the Board and to be able to control the management of the Board to their own interests. Now candidly, it mainly depends on the loyalty of the shareholders to their own company. All I can say about most Australian shareholders is that they are damned apathetic. What they do mostly

when they get proxies is to throw them in the waste-paper basket. So if you are going to complain about a takeover it is up to you people to do something about it. You are the ones who can stop it. You can’t ultimately stop someone if they want to go into the

241

market and purchase a 51 per cent interest. But whether any company can do that today is, in my opinion, extremely doubtful.

No overseas corporation can do it because it is prohibited by the Regulations. All our major companies in Australia are Australian companies and it is a nice thing about Australian major companies they don’t go about trying to take over other Aus­ tralian companies—they go about finding their own resources.

I couldn’t imagine Broken Hill Proprietary, North Broken Hill or South Broken Hill, etc., trying to take over your company without the consent of the directors and shareholders. So that unless you get a power group together—and I will say this now— that Power Resources to me was an impractical idea. I cannot concede that you are going to have an effective takeover made to you. The thing to control is your own Board and its loyalty to you. That is in your hands.

SHAREHOLDER: My name is Bovill and I represent a small company with a relatively small shareholding in Q.M., which it has held since the company became public. I would firstly like to say how fully I understand your dilemma and your prob­ lems in not being able to make any announcements of tonnages and grades at the Nabarlek deposit. I must confess I am immeasurably heartened by your statement today that had there been any change in the original statement that 55,000 tons with a grade of 540 lbs it would have been indicated immediately, and this I think should be interpreted in the context in which you said it—not that you can confirm anything be­ cause, quite obviously, with the very close spacing of drilling that is necessary to do this before you can make any confirmation—that at least we have not had anything to alter that view of your technical people. I would rather like to have some further infor­ mation on this dolerite sill. When the announcement was originally made, I think it was stated that the deposit was open-ended at the bottom, and at one end. Does the

finding of this sill mean that it is no longer open-ended or that the sill came after the mineralisation— in other words, what is the significance, if any, of this sill?

HUDSON: There is some uncertainty about the significance of the sill at the present time. The sill apparently came after mineralisation, and it is at a depth of about 170 feet. We are drilling under the sill at the present time to see what happens to the mineralisation underneath. Some drills have disclosed mineralisation under the sill and we have not yet been able to determine whether the mineralisation contains uranium or not. I ’m pleased with your understanding of the position because any statement I make now which is not absolutely in conformity with the drilling could only confuse the issue. I must see those other 40 drill holes before I can give you a final answer, and I think if I made a statement now it wouldn’t help. I think that you can only now assess the thing in toto and that can be made only after we have done the full work. You see, people don’t appreciate we started drilling there not a year ago in difficult country. As a matter of fact during the wet season we couldn’t use one of our drills because the leg used to sink into the ground. The drilling has now been delayed, and no-one can prove out an ore body as quickly as we proved ours. It will be proved as quickly as possible. I am confident of the deposit, whatever it might be, but I will not be led into making a statement now of the position unless I have the correct tech­ nical evidence to support it.

I ’ve simply said this—whatever it is, whatever it might be, I don’t think it will make much material difference to Q.M., because what we do know makes it an ex­ tremely rich and a very good deposit. I wouldn’t be going ahead, trying to negotiate

242

contracts for 1974, if I didn’t have the fullest confidence that I could go into pro­ duction in a proper way in 1974.

SHAREHOLDER: Mr Chairman, my name is P. T. Edwards of Castlecrag, a very small shareholder in Q.M. I would like to refer to the Balance Sheet and I see that the exploration and development expenditure is 2.1 million per annum and yet our current liquid assets are sufficient for about 6 months. Could I ask you how the company can finance the next 3 or 4 years?

A. HUDSON: You mean what I think I will do? I don’t know, shareholder— maybe I will be able to make some arrangement where I don’t have to issue further capital and I would like to do that if possible—because the smaller the capital the bet­ ter for the shareholder. If I can’t make those arrangements, then of course I will make

an issue of shares and as you know they’ll always go back to the original shareholders. K.I. never makes a placement— there’ll never be a placement of shares in Q.M. If there is any alteration in the issue of the shares, it will be to the current shareholders.

I cannot tell you at this stage just what would be the situation—I ’ll be giving con­ sideration to it shortly. I did point out, I think, in my report of K.I. that K.I. has assets in excess of $100 million, and debts of $2 million. I did tell our Bank Manager that statement was directed at him. So I don’t know but at some time or other, obviously,

this company will have to make another share issue— just when or how long I ’m not too sure—I might obtain loan funds to carry on, or I might try to obtain them in another way, by selling forward uranium for delivery at a later date. Whatever I do will be in the best interests of the shareholders—I can give you an assurance that there

will be no placement of shares to any organisation or company— if we do issue shares to get further money at a premium it will be issued back to the shareholders.

SHAREHOLDER: My name is Saxton of Paddington and my question relates to the map on Page 6 of the report.

Q. It would appear that Mount Isa Mines had over-pegged certain sections of the uranium lode at Red Tree in the Westmoreland area. Could you please advise if over-pegging had in fact taken place?

A. HUDSON: No, actually, the position is quite the reverse. When we decided to take this area up we made an application for an authority to prospect for about 300 sq. miles. It is only when we obtained the authority to prospect that we noticed there were two leases currently held in Mount Isa Mines’ name in this particular area. I

understand the leases are held in conjunction with CRA and they were looked at by the company some years ago and were decided of no economic value and were left. Since we have been there they have been drilled. They are relatively small areas, as you can see, and they are not sufficiently big to be developed themselves and I have

some hopes about them myself of being able to make a deal with them. I can say they were held for some 10 years before we went there.

SHAREHOLDER: My name is Paul Haig and I represent 3 or 4 companies with small interests in Q.M. and also in K.I.

I think that, like myself, all shareholders here today will appreciate the obvious sincerity and informative way in which you have answered all the questions and have given your views on the situation and we all regret the position in which you have been placed through no fault of your own. It does occur to me on the question of pub­

lic relations that your views are no doubt correct but it would be of great benefit to the

24175/75-9

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shareholders generally, if some post annual meeting report should be published by the company. I realise that it would not be possible to cover all the points that have been raised here today but I think it would be of great use to the shareholders gener­ ally if they got a circular from the company in which at least the more important points you made and perhaps some of the questions were set on record. I know in Australia there are only a few companies—such as the Bank of N.S.W., etc.— who do publish post annual general meeting reports but this is not so in the world and we all know in America it is the usual thing.

I think in view of all the circumstances that have taken place and all the problems that have arisen, it would be to the benefit of K.I. and Q.M. that such a report be published and I submit this to you for your favourable consideration.

A. HUDSON: Thank you, Mr Haig—I will give it careful consideration and submit it to my Board.

SHAREHOLDER: My name is Fred Beriy— I am a shareholder and so is my family— there is one question which has not been asked and not been answered.

Q. Was any information additional to that available to the shareholders generally given by the company or the directors to Noranda Mines or their represen­ tatives to enable them to come to a decision as to whether they would buy the shares in this company?

A. HUDSON: I ’m pleased you said there has only been one question that hasn’t been asked.

No discussion at all took place with Noranda or the AMP Society relative to the company’s exploratory activities nor was any information supplied. I can say that be­ yond question as far as I am concerned (and I had discussions with these men and with their representatives before they came on to this Board) that they had no more knowledge than what the ordinary shareholder has.

SHAREHOLDER: Cole is my name, representing a small company shareholding.

Q. Will the company advise the current position of overseas shareholdings and could the company possibly keep shareholders more frequently informed of the pos­ ition from time to time during the next few months?

A. HUDSON: You have asked a very awkward one there, because the com­ pany doesn’t decide—it is decided by the Registrar of Companies in Canberra. At this stage they have not yet been able to complete an assessment. You must remember that I thought we had 19,000 shareholders but one of the papers said I was overstat­ ing it—but say we had 17,000. There are a lot of people who own shares with a foreign

address and the Registrar in Canberra has been fairly busy over the past three months trying to sort it out because it involved communicating with those shareholders. Maybe in about a month to 6 weeks the company will know what its overseas shareholding is worth—numbers actually. At this stage we don’t know, as it depends on information supplied by the Registrar in Canberra. I don’t know that is of much relevant importance to the shareholders—the thing is overseas shareholding is limited to 15 per cent and supplying shareholders with a tally— whether it is 14,14ιΛ or 15 per cent—I don’t know that it would be of much value to them because you can guess that in our company quite a lot of shares have been dealt with on the English market. This

has been variable up and down each month I suppose.

244

Do you really feel that it could be important to shareholders knowing that the maximum is 15 per cent?

COLE: I feel that it would be quite important to those people who would like to be shareholders.

HUDSON: Well they can enquire of the Secretary of our company once we have the score and get immediate advice on the position. I had discussions in London with the Stock Exchange on this question and probably we might keep them informed to help the overseas purchasers as far as the English buying is concerned. But I am in­

clined to think that the full 15 per cent will be taken up and maintained, and there won’t be much variation, but you will have 15 per cent and other overseas purchasers will be blocked from obtaining registration. That looks the answer to me at the present time.

Are there any further questions?

An earlier question was asked regarding the radiation effect at Nabarlek.

A. HUDSON: Well I had a couple of big lumps of ore in my office, and I did have a geologist next door who complained bitterly because he used to keep a geiger- counter on it and finally they decided, for my safety, to remove it from my office.

We’ve had discussions with the Atomic Energy Commission here who are quite expert in this field and the problem as you know is radiation. I think it is fair to say we will not be able to mine—we’ll have to open cut. It would be too dangerous, I feel (and we have been informed to this effect), for us to shaft and try and mine this de­

posit out—we will have to do a major open-cut. If this is done and reasonable pre­ caution is taken by the men to wash their hands and not roll cigarettes, there is no real danger in the mining of the property.

SHAREHOLDER (MR DRUITT): I have already had the privilege of ad­ dressing this Meeting so I won’t introduce myself again.

May I refer to the Nabarlek Ordinance which limits the overseas ownership of Q.M. to an individual 5 per cent for a total of 15 per cent. All this business was hur­ riedly implemented by Mr Gorton at a time when it appeared that Q.M. was in danger from overseas interests. At this stage Mr Hudson was driving ahead looking

through his windscreen, perhaps neglecting the rear-vision mirror. The method of control imposed by the Ordinance creates many areas of doubt— is it unique to Queensland Mines or does it apply to all uranium companies in Australia? How does it apply to companies like Mount Isa Mines, Union Carbide, Rio Tinto, Noranda and

many others. The overseas ownerships of these companies far exceeds the ratio of the Ordinance. (Indistinct tape) Are they expected and called or is it that Queensland Mines is one out?

As a consequence of this Ordinance our shares have been delisted from overseas exchanges and our stature greatly diminished. A great degree of uncertainty exists at the international level and must affect the development of the uranium industry in this country and this at a time when we require vast sums far beyond the Australian

capacity to build enrichment plants to absorb the major production of uranium. Surely a better method of controlled ownership is needed and needed urgently.

(Again distorted tape)

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DRUITT (continued): Might I analyse the position of Q.M. as it appears to me, and also K.I.? We find that more than 5 per cent of Kathleen’s capital is owned by the AMP Society and another 5 per cent by Noranda Mines.

HUDSON: This is not correct.

(Indistinct tape) I feel this strength can be of benefit to our company. Another 10 per cent is owned by Castlereagh and this I do not welcome, I do not feel these can be readily absorbed on the Australian market alone, and that is my comment.

HUDSON: I think we have now had quite a lot of discussion and at this stage I am going to put the motion and would ask all those in favour to raise their hands.

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13-3

QUEENSLAND MINES LIMITED Suite 3701, Australia Square,

SYDNEY, N.S.W. 2000 13 August 1971

Chairman and Board of Directors, .

Queensland Mines Limited, SYDNEY 2000.

Sirs, The undersigned officers of Queensland Mines Limited agree that the statement of estimated tonnage and grade of ore reserves submitted to the Board of Directors of Queensland Mines Limited at today’s meeting represents a fair appraisal of the actual

position based on the information available at this date. We have reviewed the draft release to the Stock Exchange and agree with its contents.

Yours faithfully, R. D. Hutchinson P. R. Stork

QUEENSLAND MINES LIMITED

MEMO TO: The Chairman and Directors FROM: R. D. Hutchinson DATE: 16 August 1971

As requested by the Chairman on July 6, the writer formed a committee with Dr Rod and Mr Stork in order to assess the ore reserves of Nabarlek. We commenced work during the week ending July 9. As instructed, we assembled all available infor­ mation from Nabarlek and made the best estimate of ore reserves possible, using

whatever methods seemed most suitable to us. This work was completed on August 11, and the results were submitted verbally to the Board at its meeting on August 12 and 13, supported by relevant plans, sections, assay information and calculations.

The estimate was done using a normal cross-sectional ore estimation method. Re­ serves were calculated in two categories as follows: 1. Ore based on a cut-off grade of 0.1 per cent UsOs per short ton, and including all ore up to a grade of 5 per cent UaOg per short ton.

2. High grade ore based on a cut-off grade of 5 per cent UsOs per short ton. The following assumptions were made because the urgency of the matter precluded a detailed computerised statistical analysis of assay data. 1. Grade 0.1 per cent up to 5 per cent UsOg.

In determining the length of drilling intercepts to be used in this study, samples below cut-off grade up to 3 feet in length were included if the material both above and below was above cut-off grade. 2. Grade above 5 per cent UgOs.

247

(a) Exact assay limits were rigorously followed. (b) For indicated high grade ore it was assumed that the extension of the high grade ore laterally in each direction in the plane of the section was twice the length of the intercept.

(c) For inferred high grade ore it was assumed that the high grade lenses ex­ tended to the mid point between drill holes. All assay data from the results of 105 drill holes, of which 28 did not intercept ore, and from the surface costeans were plotted on cross sections on a scale of 10 feet to the inch. Raw assay data were used in all cases. Separate geological interpretations for each cross section were made by Dr Rod and checked, and modified where necessary,

to fit the above assumptions, by Mr Stork and -riie writer. The area for each ore type in each cross section was determined by planimeter readings and the grade was determined by the weighted average of grades from drill intercepts and surface assay data.

As the calculation of ore reserves was to follow a block-wise method, the block grade was determined by a weighted average of the grades of each two adjoining sec­ tions. Cross section areas for the two sections bounding each block were also averaged before computing block volume. Block volumes were determined by multiplying the average block cross section by the block length. The tonnage factor used to arrive at crude ore tonnage was 11.5 cubic feet per short ton. After the computation of each

block, the total ore reserve calculation was developed additively and the results were as follows: Proved ore 398,500 tons @ 16 lbs per short ton = 3,144 tons UsOs Indicated ore 36,400 tons @ 240 lbs per short ton = 4,388 tons IFOs

Inferred ore 11,600 tons @240 lbs per short ton = 1,400 tons UsOs

Total 8,932 tons UsOs

All supporting data is available at the office for inspection.

R. D. Hutchinson

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13-4

CORPORATE AFFAIRS COMMISSION 175 Castlereagh Street, SYDNEY, N.S.W. 2000 16 December 1974

Mr D. V. Selth, Secretary, ,

Senate Select Committee on Securities and Exchange, Parliament House, CANBERRA, A.C.T.

Dear Mr Selth, I refer to your telephone conversation with me on 13th December seeking infor­ mation with respect to enquiries made by the Commission in connection with Queensland Mines and Kathleen Investments. I set out hereunder the questions which you raised with me, together with the answers thereto:

Q.l. What were the results of enquiries made by the Commission in relation to share trading in Queensland Mines and Kathleen Investments which were announced about August 1971?

A. In a news release dated 17th August, 1971 the Attorney General said, inter alia— (i) the Commission had commenced inquiries into share trading in Queensland Mines Limited and Kathleen Investments (Australia) Limited;

(ii) the inquiries were, among other things, to ascertain if there has been any informed selling or insider trading in securities of either company; (iii) the inquiries would be directed towards determining whether there is evi­ dence of any offence against the provisions of the Securities Industry Act of

this State and, if so, the prosecution of the offenders; and (iv) both companies were incorporated in the A.C.T. The inquiries for the purpose stated under (ii) Were completed prior to 19th October, 1971 and failed to disclose any evidence of a breach of the insider trading

provisions of the Securities Industry Act. As regards the matter referred to under (iii) inquiries were concentrated on an­ nouncements to the Stock Exchanges made by Queensland Mines Limited on and after 1st September, 1970. The purpose was to ascertain whether any announcement,

and in particular that of 5 th February, 1971, offended against s.73 of the Securities In­ dustry Act. A report on this aspect of the inquiries was referred to the Crown Solicitor who advised that no offence had been committed. A further matter arising out of the inquiries was the possibility of an offence hav­

ing been committed against s.124 of the A.C.T. Ordinance. The Commission was advised that the Companies Office in Canberra, after receiving legal advice on the problems relating to jurisdiction, decided that further inquiries into this matter should not be proceeded with.

Q.2. Was any action taken? A. No proceedings were instituted for the reasons stated above.

249

Q.3. Was any report made? If so, is it public? A. No formal report was made.

Yours sincerely, Mr F. J. o. Ryan Commissioner for Corporate Affairs

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13-5

QUEENSLAND MINES LIMITED

MANAGING DIRECTOR’S REPORT 23 July 1970

A review of expenditure of Queensland Mines indicated that, if the present costs of exploration were maintained to the end of the year, the Company would be short of funds by October to an amount of $214,000 and to $371,000 before the new call, necessitating the Company financing its commitments for two months. Statement of

projected expenditure is attached.

A reorganisation of the development and administration of the Company was effected during the month. Costs at Westmoreland have been materially reduced. Withdrawal of two diamond drills at Westmoreland and one diamond and one per­ cussion at Mount Isa, with reduction in staff, will reduce costs in these areas by $250,000 by December. The drilling out of the Red Tree primary zone, which nor­

mally would have been completed by December, will now run on to probably the middle of next year. All forward exploratory work beyond Long Pocket is suspended until the next wet season and concentration will be given to determining reserves in the Long Pocket mineralised areas and extension of secondary reserves at Red Tree.

Mount Isa drilling is limited to one percussion drill at present seeking a new target for diamond drilling. Deep drilling of the Valhalla Lease gave no conclusive exten­ sion of reserves at depth. A check of drill holes disclosed they flattened. For the time being, no further drilling will take place at Valhalla.

Two diamond drills will be operating at Oenpelli, one already in operation and the other to commence in the next week. Priority in expenditure until October will be given to Oenpelli. The costeaning of this area by backhoe to a depth of 12 feet disclosed a 2Vi foot reef of pitchblende of approximately 72 per cent uranium, or

about 1,350 lb to the ton. The material within a distance of 30 feet was highly mineralised in a range of 10-500 lb to the ton. The strike of the lode would appear to be 900 feet with a possible extension under a laterite covering to the south. Plans, assays and additional information will be available at the Board Meeting.

Dr Rod and other Company geologists who have inspected the area consider there is every possibility of the mineralisation extending to depth. The area is flat and there is about 4,000 tons of material at the surface, the higher grade portion of which will need to be removed before the wet season or stored in a shed.

The area has been inspected by the Atomic Energy Commission and correspon­ dence and discussions have taken place with the Commission with a view to retaining the Rum Jungle plant to enable the high grade ore from the deposit to be processed, giving the Company an opportunity to move into production and attaining a cash

flow position by 1972. Carting costs are estimated to be $8 per ton, but should the ore body persist at depth, such cost would be negligible having regard to the grade of ore, which will enable the Company to sell at a considerable profit below the present world price of $US7.00. Copy of correspondence with the Atomic Energy Com­

mission is attached. Negotiations are at present pending with Tokyo Electric for a possible contract for supply during 1971 at a price of $US7.00 per lb. The plant at Rum Jungle is due to

251

close in April next and a conference is taking place in Canberra to consider the trans­ fer of the plant from the Department of National Development to the Department of the Interior which, if effected, would mean the break-up of a large part of the Rum Jungle operation.

Unfortunately we are not in a position to determine reserves or to make any con­ crete proposal to the Government, although I understand the Atomic Energy Com­ mission, following inspection, are of the opinion that we should be able to supply Rum Jungle with ore to extend its operation. Maps and samples of the ore will be available at the Board Meeting.

Our exploratory work from Katherine is now well under way and aerial pho­ tographic magnetic and spectrometer flying are being studied to delineate specific tar­ gets. The helicopter has arrived in Sydney and is being assembled and radiometric equipment installed. The helicopter will leave for Darwin on 17th August. One of its first assignments will be close spectrometric flying of our A to P in the vicinity of Oen- pelli. Peko Wallsend have found a deposit some 20 miles west of Oenpelli and it is thought that the 15 miles from Oenpelli to our boundary should receive urgent close scrutiny.

E. R. Hudson

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13-6

DOWNING & DOWNING (Solicitors and Notaries) 21 Howard Street, PERTH, 6000

Western Australia.

22 December 1971

Edward Frank Downing, Q.C. Robert Holmes V. J. A. O’Connor, LL.B. Derek Rose Gascoine, LL.B.

REF. RH/DB

The Secretary Select Committee on Securities & Exchange Australia Senate CANBERRA A.C.T. 2600

Dear Sir,

re: J. H. Hohnen

Further to our previous correspondence we now enclose as requested our client’s statement of facts in the form of a statutory declaration. Our client retired some two and half years ago as the result of a severe coronary occlusion followed by a second attack. As a result of the wide publicity given to the

statement made by your Chairman with regard to our client’s share purchases be­ tween the 31st August 1970 and the 3rd September 1970 our client was caused great distress and embarrassment, particularly as our client was then overseas and was not aware that investigation was being made into his affairs. His medical adviser con­

siders that a personal attendance before your Committee could seriously affect his health and it is hoped that the very full statement submitted herewith will meet the Committee’s requirements. Nevertheless if so required our client is prepared to attend before the Committee in which case we assume his expenses of attending will be reim­

bursed to him.

Yours faithfully, DOWNING & DOWNING

Western Australia Statutory Declaration

I JOHN HAROLD HOHNEN of 44 View Street Peppermint Grove in the State of Western Australia Mining Engineer do solemnly and sincerely declare as follows: 1. I am an Australian by birth. My parents were Australian and in fact I am of the 4th generation of an Australian family.

2. In the month of August 1970 I received an invitation by telephone from Mr John Roberts, Chairman of Longreach Metals NL, to join a party proposing a visit by air to

253

a number of mines in Northern Australia. He asked me to join the party as there was a spare seat in the aircraft. I have known Mr Roberts for approximately 10 years and had assisted him as consultant in matters pertaining to the Ripon Hills ferruginous manganese deposits held by Longreach Metals NL.

3. I accepted Mr Roberts’ invitation, travelled by air to Sydney (paying my own fare) and there met the other members of the party, some of them for the first time. 4. On the 23rd day of August 1970 we left Sydney by air for Mount Morgan and after looking at operations at Mount Isa, Westmoreland and Tennant Creek we visited Nabarlek on the 27th day of August 1970 of which to that time I had no pre­ vious knowledge and was quite unknown to me.

5. At Nabarlek I was shown some costeens and some drill cores which indicated that a rib of pitchblend had been intersected and I was impressed by what I saw and by the potential which was thus indicated. I have since learned that an announcement to shareholders of Queensland Mines had been made and published to the Sydney Stock Exchange on the 3rd July 1970.1 was not aware of nor had I seen the announce­ ment at the time of my visit to Nabarlek. 6. At no time was it suggested by Mr Dowling or any other member of the party that there was anything confidential in what we learned during the visit to Nabarlek or, for that matter, in what we had seen at any of the other mines visited by the party. In fact, with the knowledge of Mr Dowling, I brought away with me a number of specimens from Nabarlek which I showed to various persons, feeling perfectly free to do so. 7. From Nabarlek we went to Mr Antico’s property at Mudginberry where we spent the night and the next day flew to Darwin where Mr Dowling left the party and we then proceeded to Port Hedland where we stayed overnight and went on to visit Ripon Hills on the 28th August 1970. After visiting Ripon Hills we returned to Port Hedland where I left the party and returned to Perth by McRobertson Millar Airlines arriving in Perth on the 28th August 1970. 8. On Monday the 31st August 1970 following my return, by telephone I discussed the possibility of making some investments with two Melbourne sharebrokers and explained the circumstances in which I had some knowledge of Nabarlek and I was told that the then Chairman of Queensland Mines had through the Sydney Stock Exchange issued a preliminary statement to shareholders on that day the 31st August

1970 and the shares had moved upwards. I instructed these two brokers and also a Perth merchant banker to make a purchase of shares in Queensland Mines and Kathleen Investments for me, my family and for certain companies with which I am associated. To buy shares under such circumstances is normal procedure for visitors to mines particularly from overseas after they are shown the potential of particular min­ ing operations. The following shares were purchased at my request:

D a t e C o m p a n y B o u g h t fo r N o . P ric e T h r o u g h w h o m

3 1 .8 .7 0 Q u e e n s la n d M in e s C . H . T r a d i n g P ty L td 1000

$

11.02 P e r th m e r c h a n t b a n k e r s

as p o rtf o lio m a n a g e rs

3 1 .8 .7 0 Q u e e n s la n d M in e s C . H . T r a d i n g P ty L td 1000 11.02 P e r th m e rc h a n t b a n k e rs

a s p o rtf o lio m a n a g e rs

3 1 .8 .7 0 Q u e e n s la n d M in e s C . H . T r a d i n g P ty L td 300 10.60 P e r th m e rc h a n t b a n k e rs

a s p o rtf o lio m a n a g e r s

3 1 .8 .7 0 Q u e e n s la n d M in e s C . H . T r a d i n g P ty L td 2 0 0 10.80 P e r th m e rc h a n t b a n k e r s

a s p o rtf o lio m a n a g e rs

3 1 .8 .7 0 Q u e e n s la n d M in e s C . H . T r a d i n g P ty L td 5 0 0 11.10 P e r th m e rc h a n t b a n k e rs

a s p o rtf o lio m a n a g e rs

254

D ate C o m p a n y B o u g h t fo r N o . P ric e T h r o u g h w h o m

3.9.70 Q u e e n s la n d M in e s C . H . T r a d i n g P ty L td

$

1 0 0 0 s ix m o n t h s c a l l

o p t i o n s p r e m i u m

$ 8 ,2 5 0 .0 0 e x e rc is e p ric e

$ 2 3 .0 0

P e r th m e rc h a n t b a n k e r s

a s p o rtfo lio m a n a g e r s

31.8.70 Q u e e n s la n d M in e s J. H . H o h n e n 2 0 0 4.60 F ir s t M e lb o u rn e b ro k e r

31.8.70 Q u e e n s la n d M in e s S h e rlo c k R iv e r C o . P ty 2 0 0 11.00 F ir s t M e lb o u r n e b ro k e r

31.8.70 Q u e e n s la n d M in e s S h e rlo c k R iv e r C o . P ty

L td

2 0 0 10.80 F ir s t M e lb o u r n e b ro k e r

31.8.70 Q u e e n s la n d M in e s S h e rlo c k R iv e r C o . P ty

L td

2 0 0 10.20 F ir s t'M e lb o u m e b ro k e r

31.8.70 Q u e e n s la n d M in e s S h e rlo c k R iv e r C o. P ty

L td

140 10.60 F ir s t M e lb o u r n e b ro k e r

31.8.70 Q u e e n s la n d M in e s S h e rlo c k R iv e r C o. P ty

L td

60 10.50 F ir s t M e lb o u r n e b ro k e r

31.8.70 Q u e e n s la n d M in e s J. H . H o h n e n 100 10.80 S e c o n d M e lb o u rn e b ro k e r

31.8.70 Q u e e n s la n d M in e s J. H . H o h n e n 100 11.20 S e c o n d M e lb o u r n e b ro k e r

31.8.70 Q u e e n s la n d M in e s J. H . H o h n e n 100 8.00 c o n trib s ’ ’

31.8.70 Q u e e n s la n d M in e s J. H . H o h n e n 150 8.60 c o n trib s ' '

31.8.70 Q u e e n s la n d M in e s J. H . H o h n e n 50 8.40 c o n trib s ' '

31.8.70 Q u e e n s la n d M in e s G . H o h n e n 100 10.60 c o n trib s ' '

31.8.70 Q u e e n s la n d M in e s G . H o h n e n 100 11.20 S e c o n d M e lb o u r n e b ro k e r

31.8.70 Q u e e n s la n d M in e s M . H o h n e n 100 10.60 S e c o n d M e lb o u r n e b ro k e r

31 .8 .7 0 Q u e e n s la n d M in e s J. R . H o h n e n 100 11.00 S e c o n d M e lb o u r n e b ro k e r

31 .8 .7 0 Q u e e n s la n d M in e s D . J. H o h n e n 100 11.00 S e c o n d M e lb o u r n e b ro k e r

31 .8 .7 0 Q u e e n s la n d M in e s C . J. H o h n e n 100 11.00 S e c o n d M e lb o u r n e b ro k e r

2 .9 .7 0 Q u e e n s la n d M in e s C h u rc h H ill S e c u ritie s

A u st. P ty L td

70 20.0 0 F ir s t M e lb o u rn e b ro k e r

2 .9 .7 0 Q u e e n s la n d M in e s C h u rc h H ill S e c u ritie s

A u st. P ty L td

9 3 0 19.50 F ir s t M e lb o u rn e b ro k e r

3 1 .8 .7 0 K a th le e n In v e s tm e n ts J. H . H o h n e n 100 4.30 F irs t M e lb o u rn e b ro k e r

3 1 .8 .7 0 K a th le e n In v e s tm e n ts J. H . H o h n e n 300 4.20 F irs t M e lb o u rn e b ro k e r

3 1 .8 .7 0 K a th le e n In v e s tm e n ts J. H . H o h n e n 100 4.23 F ir s t M e lb o u r n e b ro k e r

1.9.70 K a th le e n In v e s tm e n ts J. H . H o h n e n 300 4.60 F irs t M e lb o u rn e b ro k e r

3 .9 .7 0 K a th le e n In v e s tm e n ts M iss J. H o h n e n 1 0 0 0 6 m o n t h s c a l l

o p t i o n s p r e m i u m

$ 1 ,4 5 0 .8 0

F ir s t M e lb o u rn e b ro k e rs

3 .9 .7 0 K a th le e n In v e s tm e n ts M rs M . H o h n e n 1000 e x erc ise p ric e 4.80 F ir s t M e lb o u r n e b ro k e r

9. C. H. Trading Pty. Ltd. is a wholly owned subsidiary of Church Hill Securities Aust. Pty. Ltd. in which my family company St. Just Investment Pty. Ltd. owns one third of the issued share capital. Sherlock River Co. Pty. Ltd. is a company in which my said family company holds

a substantial interest. 10. I wish to make it perfectly clear that I did not personally for myself or any mem­ bers of my family at any time use a nominee company nor was there any attempt made by me to conceal the purchases. The 2,000 Queensland Mines shares purchased

as above on the 31st August 1970 and 1,000 Options in Queensland Mines purchased as above on the 3rd September 1970 for C. H. Trading Pty. Ltd. were purchased on my suggestion to the portfolio managers for C. H. Trading Pty. Ltd. I have since learned that these shares were purchased and held in the name of the managers nomi­

nee company. The 1,000 Queensland Mines shares purchased on the 2nd September 1970 for Church Hill Securities Aust. Pty. Ltd. were purchased through the first Mel­ bourne brokers, in the name of that company. 11. I have for many years as a mining engineer been associated with major mining companies and projects both in Australia and elsewhere and have always conducted

my affairs in accordance with the highest ethics of the profession. Since my retirement

255

I have retained my interest in mining as a director and consultant to various com­ panies. I regarded the purchase of the shares in Queensland Mines and Kathleen Investments as a normal business transaction. 12. The above purchases constituted the whole of my investments in Queensland Mines and Kathleen Investments and there were no purchases at my request or instigation through any broker in Australia other than those mentioned nor were any shares purchased for or on my behalf or for members of my family or for any com­ pany in which I am associated outside Australia.

And I make this solemn declaration by virtue of section 106 of the Evidence Act 1906 DECLARED at Perth in the State of Western Australia J. M. Hohnen this 22nd day of December 1971 Before me: (Signed)

256

13-7

THE MOUNT ISA SYNDICATE

Report on Visit to Queensland and Northern Territory, May 11th-19th, 1971.

Paul Bentivoglio Colin Callegari Peter Davies Robert Gottliebsen Jack Hurley Garry McDouall

Lionel Milligan Brian Nolan John O’Connor Kerry O ’Connor

John Sennitt Robert Smith Ray Willing Malcolm Wilson

Members of Mt Isa Syndicate Investment Adviser, Patrick Partners Mining Analyst, A.M.P. Society Economic Adviser, New Zealand Insurance

Partner, Patrick Partners Investment Officer, National Mutual Life Investment Officer, Colonial Mutual Life Geologist, Patrick Partners

Investment Manager, Castlereagh Securities Mining Analyst, Darling and Company Manager, Commercial Nominees, C.B.C. Bank Investment Officer, Australasian T & G

Investment Analyst, Ord B.T. Investment Manager, N.R.M.A. Investments Investment Analyst, Patrick Partners

General Impressions The following report covers the 5,000 mile trip through Queensland and the Northern Territory that the Mount Isa Syndicate made during May 1971. In the short space of nine days, we visited no less than 14 major mineral developments and gath­

ered a substantial amount of first-hand information on the companies involved.

The overall impression from the trip is that over the next few years we can expect a rapid expansion in mineral output in northern Australia as new mines come into pro­ duction and existing mines increase their rates of output. At Mary Kathleen, M.K.U. is preparing to recommence operations in 1974 and Mount Isa Mines is developing its

Hilton deposit for 1978 production. At Tennant Creek, Peko-Wallsend is about to bring its Warrego mine into production and shaft sinking at Gecko is in progress; to the north at Gove the 12 miles conveyor belt system is in place and bauxite shipload­ ing will commence on schedule to begin shortly, mining will commence in June 1973,

and the first ore is scheduled to go down the track in January 1974.

But more importantly—as far as the share market is concerned— was the significant amount of valuable information we were able to obtain from the company personnel, which has helped provide a much fuller picture of the mining operations than a mere reading of the directors ’ intermittent public statements on their progress.

A brief resume of the trip is as follows:

11 May Flew from Sydney to Mount Isa, then in afternoon visited Mary Kathleen uranium.

12 May Underground and surface visit to Mount Isa mine. Visit to Hilton silver-lead-zinc deposit.

257

13 May Flew to Gunpowder and saw Mammoth mine and copper concentrator of Surveys & Mining. Then flew to Lady Annie where Broken Hill South showed us over their phosphate deposit and then Placer Exploration showed us over their copper and lead-zinc prospects. 14 May Full day with Peko Mines at Tennant Creek. Saw Peko, Juno, Warrego

and Gecko mining operations. 15 May Flew over McArthur River where M.I.M. Holdings have huge zinc-lead-silver deposit. Then flew on to Groote Eylandt in morning and saw B.H.P’s manganese mining. Then flew to Gove to see Nabalco’s bauxite

and aluminium operations. 16 May Visit to Nabarlek to see Queensland Mines ’ uranium deposit. 17 May Flew to Weipa to see Comalco’s bauxite mining, then on to Townsville for the night. 18 May Saw Greenvale nickel deposit in morning, then flew south to see Utah’s

Blackwater open-cut coal operations. 19 May Drove to Mount Morgan to see Peko-Wallsend’s open-cut, then drove to Moura to see Thiess-Peabody-Mitsui’s coal operations, then flew back to Sydney.

Nabarlek

On Sunday morning we left Katherine early and arrived at the Nabarlek airstrip at 9.30, where we were met by the geologist in charge of the project, Mr Okuyu. ‘Ocky’ told us that they have drilled 89 drill holes at Nabarlek and drill hole No. 90 was started on the day we were there. Drilling so far has totalled 23,000 feet. The extent of drilling compares to only ten drill holes which had been drilled when Queensland Mines announced they had 55,000 tons of uranium oxide. So far most of the drilling has been done to tiy and prove up this 55,000 tons. We were told that in December next Mr Hudson may make a further announcement on higher ore reserves.

Current exploration activities

The company currently operates three outcamps with a total of 20 people. The parties go out on Monday morning and don’t come back until the next Saturday. To locate anomalies the company uses a helicopter with a scintollometer for prospecting. Aerial surveys by the D.M.R. using a DC3 on quarter mile spacings last year found plenty of anomalies and it was this original survey which resulted in the discovery of Nabarlek. We saw an aerial survey map in the office and it showed that there were perhaps 50 to 70 anomalies which had been discovered on Queensland Mines areas and it is only one of these anomalies which has produced these very substantial re­ serves of uranium oxide. So far they haven’t done any work in the northern part of AT2046 but they will commence a survey in the central area in a fortnight’s time.

The orebody, which has a length of 830 feet, maintains a steady strike and dip and has a number of individual ore shoots and lenses, with solid or patchy pitchblende surrounded by zones of disseminated pitchblende. In the central part of the deposit, at a depth of 210 feet, a dolorite sill striking at 292 degrees and dipping 19 degrees towards south-south-west was located. Deep drilling showed the sill to be 700 feet thick. Under the sill the same type of metamorphics as existed at the surface occurs again.

258

The company has commenced deeper drilling to ascertain whether the metamor- phics under the sill contain mineralisation. When we were there a drill was going down and its programmed depth was 1,600 feet. It had reached 1,100 feet and was still in dolorite. We were told that the drilling has only once been through the 1,400 feet level, but we weren’t able to ascertain what the result of this drilling was. In a couple of weeks time Queensland Mines will have four drills going in the central area to prove up the orebodies.

No. 1 drill hole

We were shown the results of the first drill hole the company put down and it showed a marked gradation in the ore values obtained.

Nothing

4 to 1201b/ton

140 ft

260 to 1000 lb/ton

20 to 150 lb/ton

153 ft 160 ft

As can be seen, the 13 feet of high grade ore between 140 and 153 feet averages 30 per cent, or 700 lbs to the ton and the grade falls away from this central part of the core. Minor copper traces were found in the area but these have not been shown to be

economical and Ocky told us they probably won’t proceed on the copper.

Beatrice prospect This is 20 miles south of Nabarlek and present indications are that it is 600 feet long. The best sample in manually dug costeans gave greater than 2 per cent UsOs.

259

13-8

QUEENSLAND MINES LIMITED

MANAGING DIRECTOR’S REPORT 19 November 1970

Nabarlek Thirty five drill holes have been completed with a total footage of 9,984 feet. Grades are very variable as the drills move north and south of the high grade zone. It is considered sufficient drilling will be completed by April next year to enable a final

assessment of reserves. A separate report on results of drilling will be issued at the Board Meeting.

In line with negotiations for contracts, it is planned to bring this orebody into pro­ duction in the latter part of 1973, which will necessitate material extension of techni­ cal staff in Queensland Mines in the early part of next year to undertake studies on plant engineering etc. I am having discussions with some experienced U.S. contracting firms, who would build a plant on a turn key basis.

Three hundred and fifty tons of ore of a + 10 lb grade was excavated and stock­ piled. This material was to be forwarded to Rum Jungle but, as a result of lack of vari­ ous departmental co-operation, permission to export has not been received. The Atomic Energy Commission are submitting a plan to Cabinet this week to maintain

Rum Jungle in operation on the basis of this Company supplying them with ore dur­ ing the next 3 years.

Exploration has been fanning out from Nabarlek and two new anomalies have been located within 12 miles therefrom. Uranium ochres were found in shallow pits within the metamorphic rocks, of a grade ranging from 2-6 lb.

The camp is being completed at Nabarlek to allow drilling to be maintained dur­ ing the wet season.

Katherine The helicopter has been doing field work on A.P. 2222 and 2223 at Katherine. No uranium anomalies or other mineral occurrences were discovered and these Authori­ ties will be abandoned. The camp at Katherine will be moved in June 1971 to Batchelor to undertake the exploration of A.P. 2501, the joint venture with Aquitaine which is under our management.

The helicopter has moved to Nabarlek, which will enable exploration work to be carried out during the wet season on Mrs Stevens’ area, although no large scale ground exploration will commence until the end of the wet. Examination of our own A.P. 2221 south of Mrs Stevens ’ area will not commence until the end of the dry

season, although some reconnaissance surveys will be undertaken.

Mount Isa Work at Mount Isa continued on a reduced scale. Drilling has been confined to a lease known as the Watta, which is now being evaluated. Next year deep drilling of the Valhalla lease will be undertaken. A survey of the deep drill holes by instruments on loan from Mount Isa Mines showed previous deep drills had deviated.

260

Westmoreland

Discussions took place with the Queensland Government in regard to expenditure conditions at Westmoreland, which require an expenditure of $700,000 per annum over the next two years. The Government indicated their willingness to reduce our expenditure requirements to $50,000 per annum, but no formal approval has yet been received.

Drilling continued in the Red Tree joint zone by diamond drill to establish proved reserves. One Halco rig has been testing the new anomaly at Namalangi East and at Long Pocket. One Halco rig and two diamond drill rigs were withdrawn. The Long Pocket area has proved disappointing. Although fairly high grade min­ eralisation was located over an extensive surface area, drilling established mineralis­

ation did not continue to depth and indications are that the area has a substantial quantity of lower grade material of 1-2 lb, which could not be regarded as of any economic significance, except on a long term basis. We are surrendering 289 square miles of the A. to P., retaining 100 square miles— which contains the only mineralisation. It was thought some copper mineralisation existed in the balance of the area, but investigations by ourselves, Anaconda and AMAX were not favourable.

It is intended to maintain the camp with about 17 personnel until the dry season, when more extensive exploration will be undertaken. Normal development of the Mount Isa and Westmoreland areas was interrupted by the necessity of transferring our activities to the Northern Territory. While greater

emphasis will be placed next year on exploration therein, more progressive develop­ ment will take place at Mount Isa during the wet season to bring our reserves to 10,000 tons.

Uranium sales

Discussions have taken place with the Minister for National Development and we have requested no guideline price be determined by the Government, but each con­ tract be made subject to Government consent. Market conditions prior to 1975 are difficult, some uranium is being offered by the

South Africans and French down to US$6.00. No great increase in demand will take place until about 1975, with a major upsurge in 1976-1977, although negotiations for substantial contracts will commence in 1972-1973 because of the necessity to com­ plete negotiations for delivery of uranium 3 years prior to consumption to enable en­

richment and core construction. I feel that the Government will agree to the request, which will allow continuation of my present efforts to obtain any available small contracts for delivery 1972-1975 on a basis of US$6.00, rising to about US$6.20 for delivery in 1974 and US$7.00 in

1975. The policy at present being adopted is to offer material on a more than competi­ tive basis in order to get a cash flow for the Company during the next 3-4 years. I have had extensive discussions with representatives of most of the consumer countries, both on a short term and long term basis. Of particular interest were dis­

cussions with Westinghouse on a requirement of 25,000 tons for delivery 1975-1990. Problems with this contract are the possibility of devaluation of the U.S. dollar and the lifting of the American embargo. These aspects are being studied and further dis­ cussions will take place. Westinghouse is the most interesting buyer because of its

large requirement and the fact that it is the largest consumer, requiring the material

261

for the initial cores in its reactor construction program throughout the world. The em­ bargo problem may not be as great as anticipated because Westinghouse could use the uranium on plants being constructed outside the U.S. A study has been made of the Japanese market and attached is a statement show­

ing the plus and minus quantities of each of the Japanese reactors. The majority of Japanese trading houses have exclusive contracts with various uranium producers. These are as follows: - with DENISON (Canada)

- with RIO ALGOM (Canada) - with NUFCOR(S. Africa) - with EL DORADO (Canada) - with C.E.A. (France) - with KERR McGEE ( U.S.A.)

Mitsui Bussan Kaisha Mitsubishi Shoji Kaisha Sumitomo Shoji Kaisha Marubene-Iida Nissho-Iwai C. Itoh & Co. Ltd.

I have made contact with the individual utilities and expect to visit Japan early next year for discussions. It may be necessary to set up a sales organisation in Japan, but this will be dependent on the attitude of the utilities and their nomination of agencies.

Discussions have taken place with representatives from Germany of Uran- gesellschaft, which is the uranium based organisation of Metallgesellschaft. It is con­ sidered that the only way we can maintain close contact with uranium demand in Central Europe would be in conjunction with a major German organisation.

The suggestion being developed is that a joint company be formed by Queensland Mines and Urangesellschaft, in which Q.M. will hold a 51 per cent interest, but man­ agement will be undertaken by Urangesellschaft, and that this joint company pur­ chase from Q.M. and re-sell on a commission basis. I have made an offer to Uran­ gesellschaft for a new small contract for delivery in 1972-73 preparatory to further

discussions on the possibility of a joint company. Previously, I had made contact with the Italian atomic energy agency E.N.I., and have been in touch with Somiren—a major part-owned Government organisation— with a possibility of appointing them the Company’s agents for Italy.

Discussions have also taken place with the United Kingdom Atomic Energy Auth­ ority. The trend, particularly in the European market, is for the utilities to require the material converted to UFe and delivered to an enrichment plant in the U.S. on a c. and f. basis. The only conversion plant in Europe is in Britian, run by the U.K.A.E.A. They have indicated they are prepared to convert our material and undertake delivery to an enrichment plant in the U.S., and are of the opinion that they can deliver UFe to a

U.S. enrichment plant at a cheaper conversion cost plus transport than if the material were sent from Australia to a conversion plant in the U.S. for delivery to an enrich­ ment plant. The authority has agreed that it will give me a fixed price to take the material from a shipment port in Australia to Britain, convert it and transfer it in cylinders to an en­ richment plant in the U.S., looking after all transportation problems. If they are cor­ rect in their estimates—and they have made a very careful study—an arrangement with the U.K.A.E.A. for the sale of UFi rather than UsOs would be of material advantage.

The purchasing officer for the U.K.A.E.A. is shortly visiting Australia and will have discussions with me on the possibility of sale to the Authority. The Authority purchases uranium for the various utilities in Britain.

262

I have been in contact with Brazil, who are installing a new reactor, and through various agencies with Switzerland. On my last visit to Europe I had discussions with the Spanish authority, and I see little hope of selling them uranium, although I have written to them and will see them again. The French are currently financing a natural uranium reactor in Spain and most of their present contracts are with the French.

At this stage, although nothing definite has been finalised, there does appear to be a possibility of obtaining some small short term contracts and favourable long term contracts. I am particularly anxious to push the contract position prior to 1976 in view of Peko’s statement that they do not intend to go into production until this period, be­ cause of the possibility that the Commonwealth Government might not consent to my selling under the prices being offered by Peko—and the more contracts that can be

finalised before Peko come into the picture, the better for the Company. Both Italy and Germany have an 8 per cent interest with the French in their de­ posits in Niger on the basis of their taking 8 per cent of the output. The quantities at present being produced by Niger are not great even although French/African pro­

duction will be expanded to approximately 6,000 tons by 1975-1976.

E. R. Hudson

JAPAN

URANIUM, AN N U A L EXCESS OR DEFICIENCY U n itS /T U 30 8

Y ear H okkaido Tohoku Tokyo C hubu Hokuriku K ansai Chugoku Shikoku Kyushu Japco Total

1969 530 90 90 120 790

1970 -210 90 310 120 310

1971 90 493 210 90 330 -200 90 1,103

1972 90 -95 -330 90 -450 100 290 -305

1973 -320 -264 -180 90 -430 -20 -350 -1,474

1974 90 63 -160 -300 -1,410 -10 10 90 -1,627

1975 -280 0 -873 -160 120 -110 10 0 -1,293

1976 20 886 -1,690 10 -1,290 -580 -110 -620 -3,374

1977 -80 -570 -1,340 -290 . 20 -1,250 10 -100 10 -3,590

1978 -70 20 -800 -1,470 20 -1,470 -160 -100 -170 -4,200

1979 -70 -270 -1,390 -1,550 -100 -2,120 -260 -490 -900 -90 -7,240

1980 -70 -840 -1,970 -980 -100 -2,320 -850 -100 -270 -90 -7,590

1981 -70 -250 -50 -1,180 -100 -2,520 -260 -210 -450 -90 -5,180

1982 -70 -420 -690 -1,160 -100 -1,930 -430 -200 -430 -90 -5,520

1983 -70 -400 -610 -1,160 -100 -2,130 -410 -200 -430 -90 -5,600

1984 -70 -400 -3,110 -1,160 -100 -2,110 -410 -200 -430 -90 -8,080

1985 -70 -400 -3,110 -1,160 -100 -2,110 -410 -200 -430 -90 -8,080

Total -920 -3,560 -12,540 -12,240 -560 -20,960 -3,640 -1,900 -4,000 -630 -60,950

263

13-9

CHAIRMAN’S REPORT

(Prepared for inclusion in this prospectus) Castlereagh Securities Limited (herein called ‘Castlereagh’ or ‘the Company’) has been formed to raise a substantial volume of capital by public subscription for investment in the equity of Australia’s expanding mining companies and in allied industries. The mineral industry is one of the most rapidly growing sectors of the Aus­ tralian economy, and one which is making a steadily increasing contribution to Australia’s national product and to export earnings. It can be foreseen that this indus­ try will need the strongest possible support that can be provided by Australian finan­ cial institutions if it is to have access to an adequate flow of development capital in the years ahead.

The accompanying mining industry statistics, on pages 9 to 13 of this prospectus, provide measures of the remarkable and continuing expansion which is taking place in all phases of mining activity in Australia. In recent years, exploration techniques have become more sophisticated and more capital intensive, and the economies to be gained from the organisation of exploration on a large scale have become widely recognised. Increasing outlays on exploration and improved methods are yielding a rising quota of mineral discoveries, which must result in an escalating demand for capital to bring mines into commission and to undertake refining and marketing operations; the volume of capital required to finance these latter activities will be much greater than the capital needed for exploration.

In these circumstances, even the larger and established mining companies which are able to provide a sizeable part of their capital requirements from internal cash flow can be expected to draw heavily on external capital sources, while the smaller and less well established mining companies will have to draw almost all of the funds needed for development from the capital market.

It will be a primary objective of this Company to contribute to capital formation within these developing companies by attracting a capital inflow from large and small investors which collectively is of significant amount, and by investing this capital in worthwhile development opportunities as they arise.

The Company’s investment policies will be as follows: (i) To participate directly in mining projects either on own account or, more readily, as a joint venture partner. (ii) To contribute to the formation of new mining companies intending to engage

in exploration, mining, refining and marketing activities, by providing finance and technical assistance. (iii) To invest on a substantial scale in share placements and public issues of es­ tablished companies within the mineral industry and its ancillary industries. (iv) To hold mining and industrial stocks for purposes of both short and long

term investment. Castlereagh will commit significant proportions of its capital to individual pro­ jects, and will take major shareholding positions in companies. Its interests will eventually include direct mining operations, controlling interests in subsidiaries and

minority shareholdings.

264

It is the Company’s aim to offer to the mining industry the financial resources and the investment skills of a large mining-finance house. Essential requirements in the effective exercise of this function are that the capital of investors should be mobilised with the utmost economy, and management costs of the Company set at the minimum figure consistent with careful and effective control of its resources. The initial capital raising programme of the Company and its administration have been planned with these objectives in view.

There are considerable advantages to be found in adopting the large scale financ­ ing programme planned by this Company: (i) The Company will be in a position to employ competent research and inves­ tigation systems which will enable it to appraise and select investments with the great­

est care. (ii) The Company will hold part of its assets in relatively liquid form so that it will be able to contribute at short notice to special investment situations, joint ven­ tures and the urgent capital requirements of expanding companies.

(hi) The considerable volume of capital which the Company proposes to raise would enable it to participate effectively in those large-scale development projects where investment is restricted wholly or largely to institutional investors. (iv) The investment and financial advisers, sponsors and directors of the Com­

pany combine wide experience in mining-management and finance. Their extensive financial and technical associations within the mineral industry, and within industry generally, can be expected to provide Castlereagh from time to time with investment opportunities in new issues of merit.

Initially, the assets of the Company will be held in the form of mining and indus­ trial stocks and liquid assets. As demand for additional development capital by the mineral industry provides the Company with investment projects consistent with its long-term objectives such assets will be converted into the shareholdings and other

interests referred to above. In matters of financial and investment control, it is intended that the Company should draw upon the advice and initiative of Patrick & Company (Members of The Sydney Stock Exchange Limited), a sponsor of the Company. In dealing with ques­

tions of mineral geology and related subjects, Castlereagh will have available to it from time to time the knowledge and expert advice of Australian Mineral Develop­ ment Laboratories, Burrill and Associates Pty Ltd, R. Hare & Associates Pty Ltd, and Layton and Associates Pty Ltd, consulting geologists to the Company.

It is recognised that implementation of Castlereagh’s policies, to be successful, must be based upon detailed knowledge and understanding of current developments within the mineral industry. For this reason, Castlereagh has been provided with the considerable degree of support from specialist mining and financial advisory groups

referred to above. In addition, Castlereagh has as one of its sponsors Mining Traders Limited, a company which may best be described as progressing along the course of investment banking. Under appropriate conditions, Castlereagh will seek to partici­ pate with the Mining Traders Group in particular mining projects and investments.

In the expectation that Castlereagh’s policies will call for an increasing flow of funds for investment in the mining industry over time, it is planned, given appropriate conditions, that the present issue to the public will be followed by supplementary issues over future years.

265

Castlereagh will provide for investors a diversified interest in exploration, mining, refining and marketing companies operating within the Australian mineral industry. The Company is confident that the mineral industry will continue to offer expanding opportunities for profitable investment, and considers that its objectives and invest­ ment policies will enable it and its shareholders to participate fully in the benefits to

be derived from this growth.

J. S. MILLNER, Chairman.

Sydney, 5 May 1970.

266

13-10

A Proposal for a Prospectus for

POWER AND RESOURCES OF AUSTRALIA LIMITED Directors JAMES SINCLAIR MILLNER, Parnell Avenue, Carlingford, Syd­ ney, N.S.W., Company Director.

KENNETH HAROLD McMAHON, 38 Seaforth Crescent, Seaforth, Sydney, N.S.W., Company Director.

THOMAS ALEXANDER NESTEL, 18 Thomas Street, Roseville, Sydney, N.S.W., Company Director.

FRANCIS ALBERT ROBERTSON, 20 Lucretia Avenue, Lon- gueville, Sydney, N.S.W., Company Director.

Secretary MAX LEONARD LIPS, 24 Newark Crescent, Lindfield, Sydney, N.S.W., Accountant.

Registered 12th Floor, 2 Castlereagh Street, Sydney, N.S.W. Office

Auditors Bowie, Wilson, Miles & Co., 171 Clarence Street, Sydney, N.S.W.

Solicitors to Allen, Allen & Hemsley, 55 Hunter Street, Sydney, N.S.W. the Company

Bankers to Australia & New Zealand Bank Ltd, Bank of New South Wales, the Company Commonwealth Trading Bank of Australia

Investment Patrick Corporation Limited, 2 Castlereagh Street, Sydney, N.S.W. Bankers

Share Registry Cooper Brothers & Co., 20 O ’Connell Street, Sydney, N.S.W.

Underwriters Patrick Partners (Members of The Sydney Stock Exchange Limited)

2 Castlereagh Street, Sydney, New South Wales

151 Queen Street, Melbourne, Victoria

379 Queen Street, Brisbane, Queensland

189 St George’s Terrace, Perth, Western Australia

28-36 Ainslie Avenue, City Square, Australian Capital Territory

181 Keira Street, Wollongong, New South Wales

13 Place Leemans, Brussels, Belgium

Solicitors to the Underwriters

267

POWER AND RESOURCES OF AUSTRALIA LIMITED (Incorporated in New South Wales on 1970 under the Companies Act, 1961, as amended)

PROSPECTUS

Of an issue at par o f20,000,000 ordinary shares of 50 cents each payable in full on application

Authorised Capital

300,000,000 shares of 50 cents each $150,000,000

Issued Capital 2 subscribers’ shares issued to the subscribers to the Memorandum of Association $1

100,000,000 ordinary shares of 50 cents each issued as paid to 10 cents per share for cash to Mincast Pty. Limited $10,000,000 16,000,000 ordinary shares of 50 cents each issued at par for cash to Mincast Pty. Limited $8,000,000

5,000,000 ordinary shares of 50 cents each issued as paid to 10 cents per share for cash to Patrick Corporation Limited $500,000

3,000,000 ordinary shares of 50 cents each issued at par for cash to Patrick Corporation Limited $1,500,000

14,000,000 ordinary shares of 50 cents each issued at par for cash to financial institutions $7,000,000

Shares Now Offered for Subscription 30,000,000 ordinary shares of 50 cents each at par of which 20,000,000 are reserved for prior right of application by the shareholders of:

Castlereagh Securities Limited Mineral Securities Australia Limited Aberfoyle Limited Cudgen R.Z. Limited Consolidated Rutile Limited $15,000,000

$42,000,001

Uncalled Capital Shares Held in Reserve

$42,000,000

131,999,998 ordinary shares of 50 cents each $65,999,999

300,000,000 $150,000,000

268

Patrick Corporation Limited, Investment Bankers, have undertaken to arrange provision of a credit line of $............. as and when required.

CHAIRMAN’S REPORT/STATEMENT BY DIRECTORS Power and Resources of Australia Limited (herein called ‘the Company’) has been formed by Mineral Securities (Australia) Limited (herein called ‘Minsec’) and Castlereagh Securities Limited (herein called ‘Castlereagh’) to provide a corporate base for large scale investment in the production and marketing of Australian mineral fuels and other mineral resources.

The initial capital inputs required to finance this undertaking have already been subscribed in cash by the sponsors and by financial institutions. The balance of the funds required to complete the first stage of the Company’s investment base will be raised by the current issue, which is the subject of this prospectus. Patrick Corporation

Limited, acting as investment bankers, have undertaken to arrange from time to time certain short term loans to the Company to assist its development programme.

Minsec and Castlereagh have made it possible for the Company to obtain large minority shareholdings in the equity of Kathleen Investments (Australia) Limited (herein called ‘Kathleen’) and in Thiess Holdings Limited (herein called ‘Thiess’) by selling x per cent of the issued ordinary capital of Kathleen and y per cent of the ordi­

nary issued capital of Thiess from their own holdings to the Company at a discount on current market prices of these securities. At the date of this prospectus the Company has committed the greater part of its capital, including the proceeds of the current issue, to the foregoing purchases. However, considerable flexibility has been allowed in the structuring of the Company to enable rapid access to both capital and loan

funds as the need arises. Kathleen and Thiess have substantial interests in the pro­ duction and marketing of uranium and coal respectively as described on Page__ of this prospectus. Apart from the intrinsic merits of these investments, it has been con­ sidered essential, at the outset, to purchase these shareholdings as a means of provid­ ing the Company with a strong and established base in the mineral fuel industry.

Minsec and Castlereagh are mining finance and development houses, which in­ clude amongst their principal objectives the raising of capital for long and short term investment in the mineral industry. Their long term investments may include con­ trolling interests and substantial minority positions in mining companies. In the case

of Minsec, this company’s holdings already include control of seven mines, which produce eight different minerals. After careful analysis of the size, development prospects and profitability of important sections of the mineral fuel industry, Minsec and Castlereagh have concluded that they should join forces, through the agency of

Mincast Pty Limited (herein called ‘Mincast’), to undertake investments in this sector which otherwise would be unavailable to their respective shareholders because of the magnitude of funds required to obtain a significant position.

Investment in this sector, if it is to provide any measure of control to the investing companies, must be on a very large scale; it is also recognised that such investment must be supported by a specialised management group able to draw upon intensive technical and marketing research which again calls for large scale operations; while

formation of a broad capital base at the beginning of operations will assist with future financing.

269

Concurrently with the current public issue dealt with in this prospectus, a Notice of Offer in terms of Part B of the Tenth Schedule of the Companies Act of New South Wales, indicating the intention of the Company to make a takeover offer for x per cent of the ordinary shares in y has been delivered to the Chairman of y. Should the offer be made and accepted on the terms indicated, it will increase the issued and paid up capital of the Company by $ . . . to $ millions. There will be a corresponding increase in assets held by the Company.

As an extension of its short term expansion, the Company intends to add to its investments in the mineral industry (maintaining its emphasis upon mineral fuels) to the extent of its liquid capital resources, as may be considered appropriate from time to time.

As a matter of long term development policy, the Company will maintain an in­ tensive search for additional major developments in the production and marketing of proven fuels and other minerals. New projects will be subject to close analysis to ensure that they meet the expansion objectives of the group. It is the intention of the Company to develop a network of interrelated mining activities, each of which has proven mining potential (possibly with attendant exploration prospects), and is

capable of development by capital intensive mining techniques. Marketing and finan­ cial aspects of each project will also carry considerable weight, and it is regarded as necessary to bring together projects which lend themselves to large scale long term marketing contracts and related financing agreements.

Statement of Acquisition of Assets

Minsec and Castlereagh have sold to the Company x ordinary shares of 50 cents each par value fully paid in Kathleen at an average price o f ..............per share and y ordinary shares of 50 cents each par value fully paid in Thiess at an average price o f .............. per share, making a total consideration of $ ...............The average price for these purchases was established by averaging sale prices recorded on The Sydney Stock Exchange in the month preceding these transactions.

Minsec and Castlereagh have taken up their interest through Mincast Pty Limited, a company owned as to 50 per cent by Minsec and 50 per cent by Castlereagh by the subscription for cash by Mincast for 100,000,000 ordinary shares of 50 cents each issued as paid to 10 cents per share and 16,000,000 ordinary shares of 50 cents each fully paid.

Mincast has agreed not to sell any of its partly paid shares in the capital of the Company until such shares have been paid up in full, and in any event not before the expiration of three years of the date of this prospectus; further the uncalled balance on the contributing shares held by Mincast will not be called up in any part before

30/6/72 without the consent of Mincast.

Alternative last sentence:

The uncalled balance on the contributing shares held by Mincast may only be called up in any part before 30/6/72 with the consent of Mincast.

Objects of the Company To invest in, control and organise management and finance for the development, production and marketing of Australian mineral resources and associated industries either directly or in consortium or association with established companies.

270

Purpose of the Issue

The issue will furnish the Company with additional funds for investment in development projects within the mineral industry. In selecting the initial investments, emphasis has been placed upon the production and marketing of coal, uranium and other mineral fuels.

271

13-11

NOTICE TO SHAREHOLDERS OF KATHLEEN INVESTMENTS (AUSTRALIA) LIMITED 1. You will probably have read in the press reports of certain allegations made against me, M. R. L. Dowling, and, to a lesser degree, Mr J. E. Roberts, as directors of Kathleen Investments in the course of the evidence given by Mr K. H. McMahon be­ fore the Senate Select Committee on Securities and Exchange.

2. I am preparing a sworn statement to be submitted to the Select Committee and I have accepted an invitation to appear before it early in June.

3. Since the Annual Meeting of Kathleen Investments will take place before I give evidence, I think I should answer the allegations now.

4. Mr McMahon alleged that Mr Roberts and I, as Directors of Kathleen Invest­ ments, acted improperly in that we did not inform our co-directors of a plan by Min­ eral Securities Australia Limited that it and Castlereagh Securities Limited (of which company we are also directors) combine to form a company to take over Kathleen Investments.

We deny any impropriety. The facts are as follows:

5. Minsec proposed that Castlereagh Securities join with it to pool their sharehold­ ings in Kathleen Investments for the purpose of floating a company which would obtain a 51 per cent interest in Kathleen Investments. I rejected the proposal as unrealistic and impractical as it involved about $90,000,000 expenditure and because such a company could not be floated on the market. The Board of Castlereagh Securi­ ties Limited rejected this proposal for the same reasons. Subsequently, Minsec modified the proposal by reducing the proposed shareholding in Kathleen Invest­ ments to approximately 20 per cent.

At a joint meeting of representatives of Minsec and Castlereagh Securities, this modified proposal was accepted in principle on condition that a secured interest in coal plus a third mineral interest in prospect, also, be part of the proposed float and that the market conditions be favourable. It was also agreed, without question, that, as soon as the project appeared to have any chance of proceeding, the Board of Kathleen Investments should be advised and Mr Hudson invited to join the Board of the proposed company. Indeed, I suggested he be asked to become Chairman or President of the Board.

6. In fact, the whole project was shelved indefinitely at that meeting because at no stage did it look like getting off the ground, as the share market generally was falling. There was nothing for us to report to the Board of Kathleen Investments. No question of any conflict of interest or duty arose.

7. It was suggested in a question put to Mr McMahon and widely reported to the Press that, without revealing my intention to the other directors of Kathleen Invest­ ments and Queensland Mines, I took deliberate steps with major overseas consumers and producers to take control of those companies in contravention of the Nabarlek Ordinance. This suggestion is highly damaging and totally untrue, and in all fairness to Mr McMahon, he did not assent to it.

272

8. Something was said about my wearing many ‘hats’. There is nothing very remarkable about this. I am active in the financial world: hence I have a number of business interests. I have always used the experience I have gained in the best interests of Kathleen Investments and the other organisations with which I am concerned.

9. Mr Roberts has read this letter and associates himself with it. I enclose a proxy in favour of your specific nominee or the Chairman of your company, directing him at the Annual General Meeting on 28th May, 1971, to vote for the re-election of Mr Roberts and myself as directors. If you have already given a proxy, the enclosed proxy will supersede it.

10. We would far prefer that, if it is possible, you attend that meeting and vote in person, but, if you are unable to do so, please return the proxy to the Chairman, Kathleen Investments (Australia) Limited, Level 37, Australia Square, Sydney, New South Wales, 2000, by return mail as proxies have to be in the Chairman’s hands forty-eight hours before the meeting.

20 May 1971

M. R. L. Dowling J. E. Roberts

13-12

A U S T R A L I A N S H A R E H O L D E R S A S S O C I A T I O N

5 9 Elizabeth Street, Melbourne, 3000. Telephone: 62-5885

KATHLEEN INVESTMENTS (AUSTRALIA) LIMITED

Dear Shareholder, The Australian Shareholders ’ Association would like to draw your attention to the forthcoming election of directors of Kathleen Investments (Australia) Limited. Normally most shareholders do not exercise their vote on such occasions, or at

best send a blank proxy to the Chairman of the Company without indicating any special voting directions. However, in this instance certain unusual features have arisen, and the Associ­ ation would like all members of the Company to give them particular consideration. You are therefore urged to cast your vote, either for or against two of the retiring di­ rectors, in accordance with your own individual assessment of the situation. Only in this way will it be possible for shareholders’ true feelings in this matter to be ascertained.

The importance of this particular election lies in the fact that it will be the first occasion on which shareholders have the opportunity to express their views on the desirability of having sharebrokers as directors of public companies since the hearings of the Senate Select Committee on Securities and Exchange drew to public attention the conflicting interests which can arise. It is also the first occasion since the Sydney Stock Exchange introduced its rules regarding broker-directors.

The position of a company director is one of great responsibility, a responsibility which he must exercise in the interests only of the company itself and its members as a whole, and not in the interests of individual members or of others. While some people may well be able to carry out such a responsibility despite apparent conflicts, the real point is that, in the public field, justice should both be done and appear to be done.

In this particular case the spotlight has been turned on Mr M. R. L. Dowling by. the allegations made by Mr K. H. McMahon, the former chairman of Mineral Securi­ ties Australia Limited in the hearings before the Senate Select Committee. Mr McMahon gave evidence which revealed what appeared to be very severe conflicting interests which Mr Dowling was alleged to have had at the time when Minsec and Castlereagh Securities Limited were heavy buyers of shares in Kathleen Investments (Australia) Limited and Queensland Mines Limited. Mr Dowling has not as yet had the opportunity to comment on Mr McMahon’s evidence, so it would be quite wrong to suggest that he did act other than in the interests of Kathleen Holdings (Australia) Limited.

This is not the real issue. The point is whether any person should be allowed to have conflicting interests in the public company area at all. For guidance of shareholders the following background information is supplied:— Mr M. R. L. Dowling is standing for re-election to the Board. He is a director of Castlereagh Securities Limited which acquired a large parcel of Kathleen Invest­ ments shares at about the time of the announcement of the Nabarlek uranium find.

274

Castlereagh is a share trader and investor of considerable size, and was sponsored by the Sydney stockbroking firm of Patrick Partners. Mr Dowling is also senior partner of this firm, which has been very actively in­

volved as brokers, underwriters and advisors to clients in the recent mining share boom. Mr J. E. Roberts is also standing for re-election to the Board. He is a director of Castlereagh Securities Limited, Patrick Corporation Limited, and many other com­ panies, as well as Kathleen Investments (Australia) Limited and Queensland Mines Limited.

Before shareholders exercise their right to vote at the forthcoming meeting the Association recommends that they should seriously consider whether, as a matter of principle, public company boards should include members who may have interests which could conflict with those of the companies themselves.

When you have formed your views, please indicate them by sending the enclosed proxy form to the chairman of the meeting marking the paper to either instruct your proxy to vote fo r the re-election of Messrs Dowling and Roberts or against the re­ election of Messrs Dowling and Roberts.

Do not forget to sign the proxy form, have it witnessed, and post it to reach the Secretary of Kathleen Investments (Australia) Limited no later than 9.00 a.m. on Wednesday, 26th May, 1971.

R. W. Parry, President, Victorian Branch, 59 Elizabeth Street,

Melbourne 3000. (Phone: 62 5885)

17 May 1971

The Australian Shareholders’ Association (a non-profit organisation formed in 1960 to promote the interest of investors on the Stock Exchange) recommends that shareholders in Kathleen Investments (Australia) Limited should attend and par­ ticipate in the company’s annual general meeting on 28th May, 1971. The Associ­ ation will, on request, endeavour to present the views of any shareholder unable to

attend in person. Investors who support the general philosophy of the Association or who would like to participate in its educational activities are cordially invited to become mem­ bers. Annual subscription is only $5.

275

24175/ 75-10

13-13 THE SYDNEY STOCK EXCHANGE LIMITED, 20 O ’Connell Street, SYDNEY, N.S.W. 2000 26 March 1975

Mr D. V. Selth, Secretary, Senate Select Committee on Securities and Exchange, Australian Senate,

Parliament House, CANBERRA, A.C.T., 2600.

Dear Sir, I must apologise for the length of time that has elapsed before I have been able to reply to your letter of 20th February in which you sought our views concerning the evidence given by Messrs Hudson and Madden as set out on pages 2179 and 2180 of your Committee’s Transcript of Evidence.

Unfortunately, we are not able to be of any great assistance to you in this matter in view of the personnel changes that have taken place since the relevant time period concerning Queensland Mines’ quarterly reports. These staff changes apply not only to the then Manager of Companies, Mr L. Foldes, who is now in Hong Kong, but also to the positions of General Manager and Chairman of the Exchange.

It is difficult, therefore, for us to comment on these matters other than to acquaint you with the requirements and procedures operating at that time. The most important and overriding consideration then, as now, would be Requirement 3.A.( 1) of the Australian Associated Stock Exchanges, which states that

a company should notify the Exchange immediately of any information concerning the company or any of its subsidiaries necessary to avoid the establishment of a false market in the company’s securities. Accordingly, any significant mining and/or min­ eral exploration activity, such as the entering into of joint exploration agreements with other companies, receipt of significant geologist reports, etc., must be advised to the Home Exchange by the listed company as soon as the event occurs.

Accordingly, the quarterly report should be a summary of the exploration and/or development which occurred during the quarter, together with advice of the expendi­ ture incurred thereon. Significant events such as those outlined above should justify their own immediate report.

The Requirements of the Australian Associated Stock Exchanges in relation to reporting by mining and/or mineral exploration companies changed considerably during the period 1st January, 1969 to September 1971, and we detail below the per­ tinent listing requirements that were in force during this period:

Listing Requirement, Section 3.F.(1) 1.1.1969—1.3.1970 To publish at quarterly intervals during each year or more frequently if the com­ pany desires, production and development reports, and to forward four copies thereof promptly to the Exchange.

276

Listing Requirement, Section 3.F.(1) and (2) 1.3.1970— 31.12.1970 (1) To publish at quarterly intervals during each year or more frequently if the company desires, production and development reports, and to forward four copies thereof promptly to the Exchange. (2) Notwithstanding Official List Requirement 3.F.( 1) above, all Mining and Oil

Companies which are prospecting and/or exploring and/or engaged in search for minerals including oil shall provide on a quarterly basis, and more frequently when circumstances warrant full disclosure of production, devel­ opment and exploratory activities and expenditure incurred therein. Six cop­ ies of such Report shall be lodged with the Stock Exchange not later than the

end of the month following the termination of the quarterly period. Where there has not been any production, prospecting and/or exploring activities the Company shall lodge a report to that effect.

September, 1971, Amendment (1) To publish at quarterly intervals during each year or more frequently if the company desires, production and development reports, and to forward six copies thereof promptly to the Exchange.

(2) Notwithstanding Official List Requirement 3.F.( 1) above, all Mining and Oil Companies which are prospecting and/or exploring and/or engaged in search for minerals including oil shall provide on a quarterly basis, and more frequently when circumstances warrant a report giving details of any changes

in the company’s issued capital and full disclosure of production develop­ ment and exploratory activities and exenditure incurred thereon. Six copies of such Report shall be lodged with the Stock Exchange not later than the end of the month following the termination of the quarterly period. Where there

has not been any production, prospecting and/or exploring activities the Company shall lodge a report to that effect. A period of grace is usually granted following the introduction of any listing re­ quirement to enable companies to become conversant with and set up the organis­ ation necessary to obtain the information required to be reported. We believe that in

the introduction of Listing Requirement 3.F.(2) in March 1970 a period of one quarter was allowed in order for companies to become familiar with their obligations. The majority of companies report strictly on a calendar quarter basis, i.e. periods to 31st March, 30th June, 30th September and 31st December. Many companies in­

clude in the Chairman’s address to the Annual General Meeting information necess­ ary to comply with the quarterly reporting requirement in respect of the first quarter of any financial year, and this practice is accepted by the Exchange. Similar infor­ mation may be contained in the company’s interim (i.e. half-yearly) report.

It is difficult for us to add anything further to the foregoing, for the reasons stated earlier—namely staff changes that have taken place since 1970. We regret, therefore, that we have no way of verifying what conversations took place between the Exchange and Queensland Mines at the time in question.

Again, we do apologise for the delay in replying to your letter and the fact that we are not able to assist you as much as we would like in this matter.

Yours faithfully, J. H. Valder Chairman

277

CHAPTER 14

M insec

14-1

PEXA OIL N.L. Challenger House, 15 Young Street, SYDNEY 2000.

1 May 1973

Mr B. J. Knox, Acting Secretary, Senate Select Committee on Securities and Exchange,

CANBERRA, A.C.T. 2600

Dear Sir, The Chairman has handed your letter of 13 April to me and has asked that I provide all the information requested by you. Regarding the major components of the 1971 loss:—

(a) Share Trading Losses: $

Queensland Mines Limited 793,321

Mineral Securities Australia Limited—Ordinary 152,879

Mineral Securities Australia Limited—Preference 90,466

1,036,666

(b) Provision for Doubtful Debts: Interest due from Mineral Securities Australia Limited (In Liquidation) from the date of Liquidation till 30 June 1971 51,916

(c) Provision for Diminution in Value o f Shares in listed Companies: Amad—fully paid 137,256

Amad—contributing 662,802

800,058

(d) Provision for Non Recovery of Principal: Advanced to Mineral Securities Australia Limited (In Liqui­ dation) 183,250

279

(e) Provision for Diminution in Value o f Shares in Unlisted $

Company: I refer you to point (b) of the Auditor’s Report on these accounts. 550,002

(f) The other major contributing factor to the loss of $4,057,211 is the write off of exploration on projects abandoned of 1,383,185

I refer you to note 12 to the Company’s 1972 Report (a copy of which is attached) which sets out the current position relative to the loan to Mineral Securi­ ties Australia Limited (In Liquidation). Note 8 (d) also provides further information regarding item (e) above.

As regards to your final point, I am not_aware of any facts relating to the Min­ eral Securities Australia Limited Group’s dealings in the shares of the Company other than that two Companies, Amad N.L. and Petroleum Securities Australia Limited, purchased between them a controlling interest in the Company. I under­ stand that these purchases were made through the ANZ Nominees Limited.

I trust the above information will be sufficient for your purposes. If anything further is required, please contact the writer.

Yours faithfully, PEXA OIL N.L. D . J. L o v e jo y ,

Acting Secretary

280

1 4 -2

Mr B. J. Knox, Acting Secretary, Senate Select Committee on Securities and Exchange, CANBERRA. A.C.T. 2600

AMAD N.L. 10th Floor, Challenger House, 15 Young Street, Sydney 2000. 7 May 1973

Dear Sir, The Chairman has handed your letter of 12 April to me and has asked that I provide all the information requested by you. Regarding the major components of the 1971 loss:—

(a) Loss on Short Term Investment Sales: See Schedule No. 1

(b) Loss on Short Term Investments written down to Market Value: See Schedule No. 2

(c) Shark Bay Joint Venture: The Company had a substantial investment in a joint venture $ with Pilbara Minerals Pty Limited, Garrick Agnew Pty Limited and J. O. Clough and Son Pty Limited.

The joint venture was winning gypsum and salt in the Shark Bay area of Western Australia. The loss incurred by the joint venture for the year ended 30 June 1971 was 258,038

Upon review, the Directors had written off the total invest­ ment in this joint venture (see note 11 to the Accounts) as they no longer consider the joint venture a viable prop­ osition.

Capital investment written off 1,074,288

1,333,226

(d) Exploration Expenditure Written Off: In accordance with Company policy, expenditure on an explo­ ration area is written off when that area is abandoned. 782,124

(e) Interest Due from Mineral Securities Australia Limited (In Liquidation) : Provision against non receipt of interest due from the date of liquidation to 30 June 1971 20,322

281

(f) Write Down o f Principal Advanced to Mineral Securities $

Australia Limited (In Liquidation): The loan was written down to Directors valuation 1971 by provision for non receipt of ______ 237,000

(g) Loss on Sale o f Long Term Investments: Naracoopa Rutile Limited—ordinary 9,394

Naracoopa Rutile Limited—9% redeemable preference shares 4,056 Christie Colliery Pty Limited 60

13,510

(h) Write Down o f Long Term Investments to Net Realisable Value: Lamadec Limited 68,572

Pexa Oil N.L. 200,000

Chenderiang Tin Dredging Limited 226,720

495,292

All the above figures relate to the consolidated Profit and Loss Account, the total loss which is shown as 4,414,318

Your reference to the write down of an investment in a subsidi­ ary Company of $384,301, as shown in the Company’s Profit and Loss Account, seems to be adequately covered by its description, i.e. the writing down to net asset value of the total investment. The write off is represented by the accumulated

losses of the subsidiary Company, 368,701

and the premium paid on acquisition of the Company’s 900,000 $ 1 ordinary shares 15,600

384,301

I am enclosing for your reference a copy of the Company’s 1971 and 1972 Annual Reports, in particular, I refer you to Note 2 (b) in the 1972 Report, regarding the current position of loans to Mineral Securities Australia Limited (In Liquidation).

As regards trading in the Company’s securities by other Mineral Securities Australia Limited group Companies, I am not aware of any dealings other than that Corinthian Petroleum Pty Limited, a subsidiary of Pexa Oil N.L., pur­ chased 5% of the issued capital.

I trust the above information will be sufficient for your purposes, if anything further is required, please contact the writer. „, „ . , ,

Yours faithfully, AMAD N.L., D . J . L o v e jo y .

Secretary

282

14-2

Schedule No. 1

SHORT TERM INVESTMENTS SOLD

Archean Mining Investments Limited Australian Consolidated M inerals—options Bounty Oil N.L. Brins Australia Limited

Daydawn M inerals N.L. Esperance Minerals N.L. Geometals N.L.

G.M.C. ,

Halls Peak Limited Hastings Explorations Hill 50 Consolidated Haoma G old Mines International M ining Corporation Jim balana Minerals N.L.

Kathleen Investments Lamadec Lim ited—ordinary Lamadec Lim ited—options Longreach M etals N.L. Mincorps Limited Mineral Securities Australia Limited —ordinary M ineral Securities Australia Lim ited—preference

Metals Exploration Minefields Exploration N.L. Murchison Central M inerals N.L. Northwest Mining N.L.

Nickelfields N.L. Newmex Explorations N.L. Oil Investments Limited Ocean Resources N.L.

Poseidon N.L. Queensland Mines Limited Resources Exploration N.L. Selcast Explorations N.L.

Taiga Explorations Limited Toledo M inerals N.L. Valiant Explorations N.L. W estmoreland Minerals N.L.

Western Mining Corporation Limited West Australian W oollen Mills Western Nickel Exploration N.L. West Coast Holdings

W oodsreef Limited

Profits Losses

369

21,539 18,570 1,302 7,866

111

4,405 594

8,972 23,445 1,752

192

24,862

l",2 56 65,972

37,821

12,102 8,315 11,994 76,281 171,100

8,444

13,764 4,534 13,797

1,497

16,274

61

729

602,372 34,212 87,604

1,524 821

648

22,924

173,515

2,929 469

15,380

123

50,033

$269,596 $1,280,878

$1,011,282

283

14-2

Schedule No. 2

SHORT TERM INVESTMENTS WRITTEN DOWN TO MARKET VALUE

H arbourside Oil N.L.

Losses 276,508

Hastings Explorations N.L. L am adec Explorations N .L.—ordinary

54,570 13,400

L am adec Explorations N .L.—options 36,238

Longreach M etals N.L. 4,141

Queensland Mines Limited 265,870

Resources Explorations N .L.—fully paid 4,690

Valiant Exploration N.L. 16,535

W oodsreef Limited 11,900

Other

$683,852 2,300

$686,152

284

1 4 -3

MINERAL SECURITIES AUSTRALIA LIMITED

Extracts from Document

‘FINANCIAL EVALUATIONS’

CONTENTS

Group Philosophy

Acquisition time tables

Consolidated Profitability

Consolidated Cash Flow

MSAL Liquidity Statement

MSAL Forecast Balance Sheet

Group Operations

Summary

Cudgen Group

Aberfoyle Group

Robe River

285

M IN E R A L S E C U R IT IE S A U S T R A L IA L IM IT E D

Acquisition Time Table

Sept. 1970— *MSAL Board resolves to increase its holdings in “ group” com­ panies *In consequence buying on market of following stocks gets under way

Aberfoyle Ardlethan Amad (small) Cleveland Cudgen Cons Rutile G Plateau (small) Oil Inv. PSAL Pexa (small) Paringa (small) R River

*Group Planning Dept, undertakes review of possible expansions and also undertakes valuations.

Oct. 27 1970— MSAL Board to review position Oct. 27 1970— Robe River Ltd releases qtrly and is now a subsidiary of MSAL Nov. 4 1970- MINCAST HOLDINGS P /L formed Nov. 5 1970— Aberfoyle & Cleveland AGM’s and Cleveland announces expan­

sion

Nov. 13 1970— PSAL AGM, indicates incr. R R. holding (to 5%), parent coy trades profitably, and forewarns diversification, (eg A. J. Chown? [Illegible] etc Nov. 16 1970— Consol Rutile Announces Expansion Nov. 24 1970 MSAL AGM indicates R. R. expansion trading profitably, enlarge

on importance Cleveland, Cons. Rutile expansion to MSAL, refer to MINCAST Holdings P/L, Western Ventures Dec. 1 1970— Bids & Brokers ’ Circulars Dec. 1970— Castlemin Ltd formed.

Dec. 1970 Approach Burns Philp etc re MSAL placements.

286

M IN E R A L S E C U R IT IE S A U S T R A L IA L IM IT E D

Group Philosophy 1 To increase holdings in group companies to 85-100%

Advantages to MSAL

e Increases consolidated profit • Improves borrowing capacity • Strengthens base for furthering group expansion • Minimises conflicts of interest in future allocation of new ore reserves

• Makes easier the allocation of 7 7 D benefits to group companies with tax problem • In long term builds up good will of minority shareholders • Upgrading market value of subsidiaries (through consistent buying, scrip

shortage, generous div, policy) provides collateral for MSAL loans as well as upgrading Net Assett Backing of MSAL • Indirectly gives opportunity to Funds & related institutions to invest in group

Disadvantages to MSAL • Issue of extra MSAL scrip ( although it does go to solid shareholders) • Criticism of minority shareholders 2 Castlereagh Securities—Mineral Securities Aim:

To join forces and form a major acquisition type natural resource company, with ultimate capital of $ 100-200 millions.

Castiemin Ltd

30%

Nominees of Patrick Corpn

70%

50/50 CastleSec —MSAL

Say Mincast Holdings Pty Ltd *

* Financiers * UsOs marketers * Powerful Friends

* Small % Public

* Mining & financial Knowhow * Introduce ideas * Assess ideas from Patrick Corpn. ‘ Group ’ or elsewhere

* Jointly place small % public

* 1st Project is Nabarlek * Future projects could include Coking Coal, Iron [illegible]

287

Nabarlek * Final aim is for Castlemin to acquire 51 % KI. * This would give MSAL an 8.75% indirect interest in QM plus say 5.25% direct interest and could consolidate that holding.

QM

51%

25%QM

17.5% QM

KI

51%

C/Min

70%

Mincast

50%

MSAL 8.75% QM& 5.25% 14% QM

* Approx Cost 8.75% QM = $20m (via KI). 5.25% QM = $ 10m (optimal).

* Moves: 1 Form Mincast Holdings P /L forthwith. 2 Structure Castlemin Ltd Formally as soon as Castlereagh Sec— MSAL have between them 25% of KI—currently [illegible].

Funding * Increase in Group Companies — Long Term Debt — MSAL scrip ( bids)

— MSAL Placing ( Burns Philp, etc.) — MSAL equity issue — Disposal of some existing holdings to ‘ friends ’ * Castlemin

— Long Term Debt — Placing of surplus Castlemin — Possible sale of QM’s — MSAL placing (Patrick [illegible]) — MSAL equity issue

Technical * MSAL market could be weaker during currency of bids * Who will buy group coys during currency of bids * Who will buy MSAL up to Dec 1 to ensure that MSAL/group relation

pricewise is reasonably maintained

288

M IN E R A L S E C U R IT IE S A U S T R A L IA L IM IT E D

C O N S O L ID A T E D P R O F IT A B IL IT Y F O R E C A S T

A $ million after tax

Net Contribution by

Y/E

June 30 71 72 73 74 75 76 77 78 79 80

Operating Mines: A berfoyle 1.9 2.1 1.8 1.5 1.4 1.2 1.2 1.0 0.4 0.3

C u d g en 1.2 2.4 2.4 2.6 2.5 2.8 2.9 0.5 see note

R o b e R iv er (0.3) 1.1 8.3 7.7 14.6 18.9 10.6 11.6 11.3 11.6

C le v ela n d —d irect 0.1 0.4 0.5 0.5 0.4 0.4 0.4 0.4 0.4 0.4

C /R u tile —d irect 0.2 0.9 1.7 2.0 2.0 2.5 2.1 0.5 - -

T o ta l M ining 3.1 6.9 14.7 14.3 20.9 25.8 17.2 14.0 12.1 12.3

Share Trading: M SA L 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0

P S A L consol 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0

In te re st a n d tax (3 .0 ) (3 .0 ) (3 .0 ) (3 .0 ) (3 .0 ) (3 .0 ) (3 .0 ) (3 .0 ) (3 .0 ) (3 .0 )

T o tal 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0

N E T C O N S O L ID A T E D P R O F IT

6.1 9.9 17.7 17.3 23.9 28.8 20.2 17.0 15.1 15.3

S U M M A R Y O F B E N E F IC IA L E Q U IT Y

Company % % % %

A berfoyle 59.25 77.5 85.0 85.0

C u d g en 57.75 75.25 83.5 83.5

R o b e R iver 48.0 50.0 50.0 50.0

C le v e la n d —d irect 7.5 20.0 35.0 35.0

C /R u tile —d irect 7.5 20.0 35.0 35.0

N O T E ( I ) C U D G E N P R O F I T - D O E S N O T A L L O W F O R P O S S IB L E A D D IT IO N A L R E S E R V E S F R O M

C O O L O O L A A R E A 2

(2 ) E X C L U D E S C O N S O L ID A T E D R U T IL E D IV ID E N D

289

MINERAL SECURITIES (AUSTRALIA) LIMITED

Forecast Cash Flow Available from the Group

S ’000

1970-7/ 1971-72 1972-73 1973-74 1974-73 1975-76 1976-77 1977-78 1978-79 1979-80 Total

Aberfoyle G r o u p .............................. 2.661 2,823 4,059 4,828 4.837 4,829 3,524 2.989 903 1.631 33,084

Cudgen Group .............................. 4,870 3,499 7,190 8,607 7.201 9.803 7,546 1.638 .. .. 50,354

Robe River L t d ..............................................1,000 2,500 4,200 2,200 2,200 2,200 2,200 2,200 2,200 20,900

Petroleum Securities Group . . . 3,000 3.000 3,000 3.000 3,000 3.000 3.000 3,000 3.000 3,000 30,000

Minsec ............................................ 3,000 3,000 (1.600 ) 3,000 3,000 3.000 3.000 3,000 3,000 3,000 25,400

13.531 13,322 15,149 23,635 20,238 22.832 19,270 12,827 9,103 9.831 159,738

Less: Outside Dividends paid by Sub­ sidiaries ........................................(1,556) (1,266) (803) (803) (803) (782) (782) (782) (518) (518) (8,613)

1 1,975 12.056 14,346 22.832 19,435 22,050 18,488 12,045 8,585 9,313 151,125 Less: Preference Dividends . , . (288) (288) (288) .. .. .. .. .. .. .. (864)

Consolidated Cash Flow . . . . 11,687 11,768 14,058 22,832 19,435 22,050 18,488 12,045 8,585 9,313 150,261

290

M IN E R A L S E C U R IT IE S A U S T R A L IA L IM IT E D

F O R E C A S T L IQ U ID IT Y

$ million

26.10.70

$ million

Beyond 20.6.71

L o a n s fro m G ro u p C o m p a n ies ( n e t ) ..............................................

Inter Company Loan-C all ....................................................................................................... 7.6

6 m o n th s b i l l s .............................................................................................. ILO

T e rm ................................................................................................. 11-7

^ O w ing to b ro k e rs ( n e t)

ί - O w in g to b a n k . .

L oss a t C all

6.3 Add net cash from group c o m p a n ie s .......................................

Confident that further call monies will be available . . . . Robe River Ltd, 5% of net tangible assets .............................

30.3 Ord B.T. 6 months rollover to Sept 1971 ..............................

10.1 Ord B.T. 6 months rollover to Oct. 1 9 7 1 ..................................

0.7 Bill Acceptance 6 months rollover to Oct. 1971 ....................

___ K .& Y . 3-year rollover to Oct. 1973 .......................................

47.4 9.4 Confident that this source will c o n t i n u e ..................................

m o

6.0 12.3

5.0 1.8 ___ 6.8

1.0 1.0 5.0 5.0 ___ 12.0

6.0 2.0 0.5

T O T A L IN D E B T E D N E S S 38.0 39.6

M e rc h a n t B an k fin an cin g o n b a c k -to -b a c k b a s i s ....................... 8.5

P ossibilities—Z u ric h $U S 5 ................................................................ 4.5

E u ro d o lla rs .......................................................... 5.0

57.6

292

S h a re s in g ro u p a cq u ire d by offer .

P u rch a ses o f sh a re s in g ro u p fo r cash

$ m illion

30.6.71

2.5 2.0 ----- 9.0

5.7

35.0

3.6 2.0 0.5 16.5 34.4

0.5

37.5 13.0

14.7 58.5

73.2

5

7.8

8.3

57.5

(4* 2 )

118.8 3.6

73.2

ROBE RIVER AUSTRALIA LIMITED-PROFITABILITY

$ m illion

J u n e 30 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980

Surplus from operations . . .

L e ss—

I n t e r e s t a n d

5.85 26.0 26.0 39.0 46.5 46.5 46.5 46.5 46.5

adm in . . . . 0.6 4.6 5.6 6.8 5.8 4.7 2.9 1.1 1.1 0.3

D e p re cia tio n . 3.6 3.7 3.7 3.9 3.9 3.9 3.9 4.2 4.2

[illegible] . . . 18.2 18.2 18.7 18.7

C O N S O L ID A T E D N E T P R O F IT . (0 .6 ) (2 .3 5 ) 16.7 15.5 29 .4 37.9 21.5 23.3 22.5 23.3

M ineral S e cu rities— In te r ( p e r cen t) 41 50 50 50 50 50 50 50 50 50

$ m illion . . . (0 .3 ) 1.1 8.3 7.7 14.6 18.9 10,6 11.6 11.3 11.6

MINERAL SECURITIES AUST. LTD

PRESENT VALUE OF MINSEC ORDS. GIVEN INCREASES IN HOLDINGS IN GROUP COMPANIES

Present value o f holding or contribution

$ ’000

R o b e R i v e r ......................................................... 82,775

A berfoyle ......................................................... 25,175

C lev elan d ......................................................... 5,790

C u d g en ............................................................... 17,530

C ons. R u t i l e ......................................................... 11,017

Q M .K I.& C u rre n t A s s e t s ............................. 18,000

PV o f S h a re tra d in g P r o f i t s ............................ 20,270

180,557

L ess: L iabilities ............................................. 53,500

127,057

L ess: Pref. R e d e m p t i o n .................................. 5,750

121,307

D iv id e d by 4.5 ord s = 2 7 .0 0

293

1 4 —4

IN THE SENATE SELECT COMMITTEE ON SECURITIES AND EXCHANGE

ON the twenty first day of June one thousand nine hundred and seventy one KENNETH HAROLD McMAHON of 38 Seaforth Crescent, Seaforth Sydney in the State of New South Wales Company Director being duly sworn makes oath and says as follows:

1. During the hearing being conducted by the Senate Select Committee on Se­ curities and Exchange on Monday, 10 May 1971 in the Australian Senate at Can­ berra in the Australian Capital Territory the following questions form part of my evidence on oath and are recorded in the transcript, pages 6082-6086—

‘Senator Rae

Mr McMahon Chairman Senator Rae

Mr McMahon Senator Rae

Mr McMahon Senator Rae

Mr McMahon Senator Rae Mr McMahon

Senator Rae

Mr McMahon

I wish to ask Mr McMahon, bearing in mind those matters which I have enumerated, whether he would explain how he, on the next day, 3 February, agreed to Mineral Securities redeeming a large volume of shares from the First and Second Australian Growth and Income Funds, which in fact produced some approximately $3m, when at the same time as having that knowledge which I have men­ tioned, you were also, first, Chairman of Directors o f the funds and, second, knew the funds were heavily invested in companies of the Minsec group, and third, that you knew that the Minsec group was about to be suspended from listing and, fourth, that the calculation for the redemption of Minsec shares was based on share prices as at the end of the preceding week and you say—I just add—that you would not be certain as to exactly when they were calculated- Now can you answer the remainder of the questions?

May I speak to my legal adviser?

You may.

It may help you if I just go throught these various points and just obtain your assent or otherwise to them, and then ask you for the answer to the question. First o f all, you were Chairman of Directors of the fund, the two funds.

Yes.

Secondly, you knew that the funds were heavily invested in com­ panies in the Mineral Securities group.

Yes.

Thirdly, you knew that Mineral Securities group were about to be suspended from listing.

I must have known that we would be requesting, I guess.

I am sorry, would you repeat your answer please.

I must have known, I think, that we would be requesting suspen­ sion.

And the final matter that I put to you, is that the calculation for the redemption of Minsec shares in the funds was being based on share prices as at the end of the preceding week and you said you were not sure as to what date.

It never crossed my mind, actually.

294 -

Senator Rae

Mr McMahon Senator Rae

Mr McMahon Senator Rae

Mr McMahon Senator Wheeldon

Mr McMahon Senator Wheeldon Mr McMahon

Senator Wheeldon

Senator Rae

Mr McMahon

Senator Wheeldon

Mr McMahon

Senator Rae

Mr McMahon

Senator Rae

No, but you had then, as a Chairman of Directors of the funds, been aware of the general method in which redemption was to be calculated, I presume.

I think so, yes.

Bearing in mind those matters, bearing in mind the earlier matters that were the general knowledge of the directors as to Mineral Se­ curities’ situation, how did you agree to, or acquiesce in the redemption by Mineral Securities of nearly $3m worth of shares in

the funds?

I do not believe— Can I just add this before you answer. If there is some aspect of this which, in relation to your being asked this question, or some aspect in which you in any way question the fairness of the question, I

would be quite happy to have that raised.

No, I do not question the fairness of it.

Perhaps at the same time, while you are speaking to Mr Hiatt, you could make certain that there is complete clarity in your mind that you are agreeing to the propositions that are being put.

I will try and answer to the best of my ability.

I mean on the factual question.

Mr Chairman, could I have an adjournment of just a few minutes on the basis that, as Chairman of both those funds and Mineral Se­ curities, I had an obvious conflict in this specific instance. I would just like to work out in my own mind, who I am speaking as.

I think it is important that, first of all, you are quite sure about the facts that are implicit in the question and, second, that you are clearly answering what is involved. We can have an adjournment.

I just wanted to add this—that if Mr McMahon wished to inspect any o f the documents to which I have made reference, then presumably that would be quite in order for him to do so.

Thank you, Senator. I do not need it. I just need time to work my mind out.

You are quite certain what the factual questions are. I suggest we adjourn to 3.10 p.m. Will that be long enough or do you want longer?

I will answer the question now, if I may. I did not consciously ana­ lyse it at the time when things were hectic—the actions. My simple explanation now is that as Chairman of Mineral Securities I wanted to save Mineral Securities and I thought there was a reasonable

chance of doing so. As Chairman o f the Growth Funds I felt that the funds would be better off in the long run also if Mineral Securi­ ties were safe.

So it was bearing those factors in mind so far as you can now, look­ ing back, rationalise?

Yes, that is retrospective. At the time I did not consciously analyse it.

So that what you are saying to us is that now, looking back, it appears that you as an individual in your dual capacity as the Chairman of Mineral Securities and the Chairman of the funds, were prepared to take and sanction short term action to endeavour

to rescue Mineral Securities with the intention and the hope that this would secure a long term position?

295

Mr McMahon Senator Rae Mr McMahon

Yes.

A long term advantage to both? Yes.’

2. During the said hearing on the same day shortly before the said questions and answers recited in paragraph 1 of this my Affidavit the following questions and answers form part of my evidence on oath and are recorded in the transcript, page 6074.

‘Senator Rae

Mr McMahon Senator Rae

Mr McMahon

So we have by Tuesday, 2 February, a question of survival and these important facts which I have mentioned and which you have agreed to. Bearing those in mind I ask you how you, the vety next day, agreed to the Minsec redemption o f a very large volume of shares from the First and the Second Australian Growth and Income Funds when you were Chair­ man o f Directors of the funds and knew that the funds were heavily invested in companies in the Minsec group which you were, on that day, about to have suspended from listing.

I am sorry, but I did not catch those last few words.

I will repeat the lot because it is quite a long one and there are a number of points. I want you to explain how you agreed to the Minsec redemption of a very large volume of shares in the First and the Second Australian Growth and Income Funds when these situations existed: (1) That you were Chairman of Directors of the funds; (2) that you knew that the funds were heavily invested in the companies in the Minsec group; (3) that you knew that you were on that day going to have those companies suspended from listing; and (4) that the calculation for the redemption of the Minsec shares in the funds was being based on share prices as at Friday, 29 January, which would by' then—that is by the redemption time—be a totally unreal figure.

I really have no explanation, Sir. ’

3. During the said hearing between the evidence recited in paragraph 2 hereof and paragraph 1 hereof I was told that the minutes of the Share Committee Meet­ ing of the first Australian Growth and Income Fund held on Wednesday, 3 February 1971 at 9.30 a.m. record under the heading ‘ Redemptions

‘It was resolved that Redemption Numbered 300 as detailed on Redemption Journal 52 in respect of one million shares should be executed. ’

I accepted at that time and still accept as correct the time and date of the said meet­ ing and the content of the said minute.

4. Immediately after I was told about the said minute referred to in Paragraph 3 hereof and as part of the proceedings Senator Rae stated that the minutes of the Share Committee Meeting of the second Australian Growth and Income Fund held on Wednesday, 3 February 1971 at 9.40 a.m. record as the only business that:

‘It was resolved that redemption numbered 51 as detailed on Redemption Journal 37 in respect of 2,219,780 shares should be executed. ’

I accepted at that time and still accept as correct the time and date of the said meet­ ing and the content of the said minute.

5. At the times of the two said meetings referred to in Paragraphs 3 and 4 hereof I say that my state of knowledge and belief included: A. That Mineral Securities Australia Limited was not insolvent which said belief was specifically reaffirmed by Mr Russell Bainton, Q.C. in the pres­

ence of Mr K. O. Humphreys during the night of 3 February 1971.

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B. That the announcement that the consolidated net profit, subject to audit from both mining operations and share trading of Mineral Securities Australia Limited and its subsidiaries for the six months ended 31 December 1970, being in excess of $3,500,000 required revision by

deducting therefrom all profit learned on 1 February 1971 to be derived from sales of shares in Robe River Limited which were sales to Messrs. Hattersley and Maxwell, Sharebrokers, as principals. I further knew that instead of a profit for the period there was a loss of approximately

$3,000,000.

C. That Mineral Securities Australia Limited was confronted with a most serious liquidity problem. I say that at the time of the said meetings of the said Funds Share Committees at 9.30 a.m. and 9.40 a.m. on 3 February 1971 I neither knew nor believed nor had I considered or discussed nor

had it been suggested to me that the Board or I or any other director of Mineral Securities Australia Limited was going to have suspended from Stock Exchange listing either the said Company or any of its subsidiaries, or then proposed to seek such suspension. 6. I say that the actual decision to seek suspension of Stock Exchange listing for Mineral Securities Australia Limited was made only late in the afternoon of 3

February 1971. To the best of my recollection, knowledge and belief the question of seeking suspension was not considered or discussed by me prior to the decision to dictate and deliver a letter to the Stock Exchange seeking the said suspension.

7. I say that the occasions in my evidence where I concurred with Senator Rae that I must have known that we would be requesting suspension of listing arose from my attempts without documents to reconstruct a great number of events, hap­ penings and conversations which occurred in a confused situation on 2 and 3

February 1971, without me directing my mind to my knowledge or belief at any specific time during the said two days nor in particular to the period between 9 a.m. and 10.30 a.m. on 3 February 1971.

8. To the best of my knowledge I was informed of the intention to redeem the said shares, on the morning of 3 February 1971 prior to the said meetings.

SWORN by the Deponent at Sydney on the day and year first hereinbefore writ- Kenneth McMahon

ten. Before me:

G. E. S. Hughes A Commissioner of Affidavits for the State of New South Wales IN t h e SENATE SELECT

COMMITTEE

ON SECURITIES AND EXCHANGE AFFIDAVIT Deponent: Kenneth Harold McMahon. Sworn: 21 June 1971. Cutler, Hughes, Harris & Garvin,

Solicitors, 16 Barrack Street, Sydney. 29-7821.

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1 4 - 5

COOPER BROTHERS & CO.

COOPER BROTHERS, WAY & HARDIE CHARTERED ACCOUNTANTS Resident Fanners: JAMES H. JAMISON, NEIL H. MORRIS, KENNETH WOOD, DAVID F. MYLES,

J. MAXWELL CARLISLE, JOHN P. BRAGG, JOHN N. MILES, WALTER H. BRATBY, JOHN B. STUDDY, MICHAEL J. SHARPE, T. ALAN McLEAN, RONALD G. DAVIES, RODERICK C. CAMERON, RICHARD W. N. GIBB, PAUL J. C. BUSH, PAUL D. R. ISHER WOOD, JOHN R. GOODDARD, EVAN P. GROOMBRIDGE,

ALAN S. NE1LSON, GEOFFREY S. KIRK

NORWICH HOUSE, O’CONNELL STREET, SYDNEY 13 December 1971

Dr P. J. Rose, C/o The Institute of Applied Economic Research, University of Melbourne PARKVILLE, VIC. 3052

Dear Sir, Senate Select Committee on Securities and Exchange and Mineral Securities Australia Limited (In Liquidation) On 19 November 19711 forwarded to you a copy of a hand-written schedule summarising buying and selling of shares of Mineral Securities Australia Limited (In Liquidation) Group as disclosed by the company’s record. The summary for­

warded to you covered the period 1 July 1970 to 8 February 1971.

I now enclose a typed Statement of Purchases and Sales of investments for the Mineral Securities Australia Limited (In Liquidation) Group which consists of the company and its two wholly owned subsidiaries, Mineral Securities Investments Pty Limited and Norausam Pty Limited (both of which are now in liquidation). Appendix I is for the period 1 July 1970 to 8 February 1971 and Appendix II covers

the years 30 June 1969 to 1970. In respect of Appendix I the buying and selling in September to December mainly occurred as set out hereunder: Purchases Sales

$ $

Kathleen Investments (Australia) Limited 11,118,104 132,659

Queensland Mines Limited 16,883,500 329,930

Robe River Limited 21,941,196 14,532,296

Theiss Holdings Limited 2,642,941 65,845

The Robe River Limited purchases above include the purchase by the subsidi­ ary company of $15,696,878, the shares of which were made available through a transaction with brokers by the parent company.

As mentioned to the Secretary of the Committee by my Mr E. P. Groombridge I have prepared a further Statement for the same period as that covered by Appen­ dix I in respect of each investment for purchases and sales in dollar value. However, the investment records are in the possession of the New South Wales inspectors and I have had insufficient time to extract these details any earlier. A further problem

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occurred in that the previous accountants of the company had inserted inadequate references. The Statement has not been completely balanced to the investment con­ trol, however, it is within a reasonable amount for my purposes. I can make this Statement available to you on this understanding should you so require it.

A copy of this letter has been forwarded to the Secretary of the Committee.

Yours faithfully, E. P. GROOMBRIDGE forJ. H. JAMISON Official Liquidator

APPENDIX I

MINERAL SECURITIES AUSTRALIA LIMITED (IN LIQUIDATION) Statement of Purchases and Sales of Investments for the period from 1 July 1970 to 8 February 1971

Total Total

Purchases Sales

Ό-71 $ $

July 1970 4,993,283 13,574,709

August 1970 878,177 3,762,879

September 1970 25,888,159 2,097,634

October 1970 20,353,555 9,232,244

November 1970 12,706,801 3,055,874

December 1970 9,908,572 2,847,206

January 1971 437,441 370,498

to 8 February 1971 5,925 3,191,901

75,171,913 38,132,945

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APPENDIX II

MINERAL SECURITIES AUSTRALIA LIMITED (IN LIQUIDATION)

Statement of Total Purchases and Sales of Investments for Years Ended 30 June 1969 and 1970

1968-69 Purchases Sales

July 1968 1,656,959 766,507

August 1968 2,655,497 495,661

September 1968 1,076,562 1,056,139

October 1968 235,841 681,383

November 1968 1,646,139 671,717

December 1968 1,522,772 1,445,998

January 1969 2,035,592 2,215,605

February 1969 4,359,781 2,743,384

March 1969 5,193,834 624,484

April 1969 2,290,305 997,994

May 1969 7,780,872 3,528,305

June 1969 924,249 1,267,098

$31,378,403 $16,494,275

1969-70 July 1969 1,912,437 1,988,755

August 1969 2,343,322 4,149,689

September 1969 734,869 341,005

October 1969 9,161,735 3,008,826

November 1969 3,103,273 11,180,691

December 1969 11,814,863 2,803,817

January 1970 5,058,957 8,601,241

February 1970 3,156,640 10,744,537

March 1970 2,941,922 1,713,036

April 1970 2,309,184 1,023,965

May 1970 766,854 811,860

June 1970 30,504,587 3,342,614

$73,808,643 $49,710,036

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CHAPTER 15

Summary: T he F ailin gs of th e E xistin g R egulators

15-1

Special Report to the Committee by Mr E. H. Niemann, Chartered Accountant, 23 November 1971 DRAFT 1. The reconciliation of accounts between brokers requires time and patience. When the market is very active, and there are delays in the registration of transfers, the amount of work involved in the reconciliation increases greatly. This increase arises partly from the growth in the number of transactions, and to an even greater extent from the increase in adjustments for dividends, calls, rights to new issues and the like, because the rightful owner of the shares is not being registered as such, as soon as he would be in more normal times. At any time, reconciliation of these

accounts is time consuming and requires significant accuracy and patience. Both during and after the mining share boom of 1969 and 1970, the problems of recon­ ciliation were greatly intensified.

Despite the work involved, I see no justification in brokers’ reconciliations not being done regularly and properly. I believe no accountant or auditor is justified in preparing or approving a Balance Sheet where the brokers balances have not been properly reconciled, any more than he would be in accepting an unreconciled bank

balance. The longer a reconciliation remains incomplete, the more difficult it is to do. The Stock Exchange of Melbourne Ltd (and its predecessor) has been active in enforcing the reconciliation of balances between members. Generally speaking, the standard is good, and proper reconciliations are effected in reasonable time. I can­

not speak directly for other Exchanges.

This is certainly not the position in relation to trading with interstate brokers.

The Rules of the Melbourne Stock Exchange (and uniformly throughout Australia) were amended (by Regulation 7) in May 1971 to provide that Member Firms shall reconcile their accounts with member firms of recognised Stock Exchanges in Australia and New Zealand.

From our own experience and from discussion with others engaged in this field, we know of many cases where the attempt to reconcile the accounts has been casual in the extreme. There have been cases where accounts with interstate brokers have never been reconciled. Moreover it appears that no serious attempt has ever been

made and neither broker has appeared to have been concerned about it. Both have accepted their own account as being correct and included it in their Balance Sheet as such, and apparently the various auditors concerned have approved.

The volume of transactions between Melbourne and other Exchanges is gener­ ally very heavy, and consequently the problems in this particular area can be very heavy. As a dealing with another Exchange is frequently done through a single

301

broker (and always with a very restricted number if more than one) the volume of transactions is much higher than with any local broker, and the problems of recon­ ciliation tend to grow at a greater rate than the volume itself.

It is too early to see whether the new Regulation 7 will be effective. It is a most suitable provision, but in order for it to work, it will require active and consistent enforcement by all Stock Exchanges. It is unfortunate that such a regulation should have been necessary, as it is due to the failure of a number of brokers to carry out a routine accounting procedure and the apparent willingness of their auditors to con­ done this failure. 2. The matter o f‘line switching’ has a twofold aspect. On the one hand it is a rela­ tively simple matter o f record keeping and on the other it is a practice which is fun­ damental to the operations of most brokers.

I personally know of one broker who operates on a ‘straight line’ basis, and another who will do so as soon as the scrip cards are finally straightened after a period of line switching. There may well be a number of others but we believe that they would be in the substantial minority.

For every parcel o f shares a broker buys he must have a seller (or sellers) of the same number, although not necessarily outside parties. In some cases one party will be the ‘House’ or ‘Errors’ Account. The number of shares in any company which have been bought must always equal the number which have been sold. As any share (of a particular class) in a company, has absolutely identical rights to every other share, it is argued that it matters not at all if the shares finally transferred to a

buyer were in fact bought on a day and at a price different from his particular trans­ action.

The major problem which arises is that the cards can become out of balance if the records are not properly maintained. It is imperative that each office institute an efficient and regular policy of card balancing. Scrip cards on which the recording is inadequate are extremely difficult to correct and in some cases it can be, for practi­ cal purposes, impossible.

Another problem is that, in a default, a loss may fall on a buyer who has paid for the shares some time in the past, but has not been insistent in demanding deliv­ ery of his stock. Of course his money should be in the Trust Account, but unfortuna­ tely this is not always the case.

Line switching is usually adopted for help remedy a shortage of liquid funds, which may have arisen from one or more of the following:

(a) The failure of all buyers to pay promptly for purchases. A broker would naturally prefer to allot to a buyer who has paid (and whose money is in Trust) rather than to allow them to go to the actual buyer who has not paid, as he must wait until his buyer pays to be put back in funds. It seems

buyers often cannot afford the purchase in the first place, and are very slow in making payment.

(b) The refusal by at least the majority of institutional buyers to pay for stock until all the scrip covering the whole of the particular line purchased is pre­ sented to them at the one time. As this will normally be a relatively large order there will normally be more than one and often several sellers. For

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an order of 10,000 shares at $6 each, a broker could have paid out for 9,900 but would be unable to collect from the institutional buyer on any of these, until the particular lot of 100 was delivered to him. One alternative is that he could switch another parcel of 100 to make up the total, and so be

able to put himself back in funds. It is quite certain that the elimination of line switching increases the capital requirements of a broker. The advantages of this system lie with the broker and the disadvantages (where applicable) lie with the client.

Line switching does give a firm the opportunity to use clients securities to pro­ vide liquidity for its operations. This can work in the manner set out in the follow­ ing completely hypothetical example:

The broker buys for a client (Jack Smith) from another broker (Potter).

Jack Smith pays for the scrip, the broker pays Potter, and Potter delivers the scrip. The broker then sells to another broker (Were) delivers the scrip immediately and collects payment.

He buys on the same day, probably at the same price from another broker (Noall). In due course when Noall delivers, the scrip will be delivered to Smith. In the meantime, the broker has the use of the funds for the time it takes Noall to deliver the scrip, and naturally he will not be pressed to do so.

3. The accounting records of a broker must be deemed to include scrip records as they are interlocked with the accounts of clients and other brokers. Consequently, they are more complex than most, and certainly more complex than other service

industries. Further to this, the industry has been subject to violent fluctuations in activity over the last three years, and this would make it difficult to maintain a high level efficiency in any business. Despite this, it seems that the general standard of the accounting records of brokers is good in most cases. It is however, certainly true

that it has been poor in some cases, and it seems probable that inadequate account­ ing has contributed to some failures.

In other words, accounting standards are not materially different in the securi­ ties industry from those in the community generally. In some cases the standards are high, but a general improvement throughout the business world would be most desirable.

A broking business differs from many others, in that its accounting appears deceptively simple. It is possible that, simply through ignorance or incapacity, ac­ counting reports which are quite misleading can be presented to the broker. This situation may continue for quite some time.

4. The Articles of Association, and the Rules, both provide that employees of a broking firm must deal only with that firm.

This creates the possibility of some abuses:

(a) Credit control.

It is unlikely that a fellow employee would be subject to as harsh a policy of credit control as would a stranger. It is even less likely when the person responsible for credit control is doing the trading.

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Against these comments, the odd employee wishing to extend both his trading and credit, has shown considerable ingenuity in creating fictitious clients and accounts through which to operate.

(b) Gaining advantages over clients. Particularly in a time of fluctuating prices, an employee could possibly select out of several purchases (or sales) during a days trading the most advantageous for themselves, leaving the remainder for the clients.

An operator could buy for a client, early in the day at $10.00 and the shares then go to $ 12 later that day. He could switch the order to himself, sell at $ 12.00 and buy for the client at the higher price.

As far as housetrading is concerned it seems that in some firms it is virtually non existent (except for errors) and that in others it is very extensive indeed. It is hard to estimate the extent to which it occurs.

Housetrading may possibly be harmful, because: (a) the theoretical possibility of gaining advantages over clients in para. 4 (b ) above; (b) the use of clients scrip as set out in para. 2 above; (c) the danger of financial difficulty caused by unsuccessful trading.

5. It is common for an industry to believe that it has unique features, and that these apply to its accounting as well as to the physical operation of its business. It is certainly true that there is some validity in the claim made by stockbrokers to this effect. The accounts with clients and other brokers appear deceptively simple and are indeed in the same form as any standard debtors or creditors ledger. There are two distinct parts in every transaction— particularly with clients.

The first part is the purchase of the shares. This is, in fact, a cash transaction. It is recorded in monetary terms and itself is concluded upon payment of the money and the crediting of the clients account. It can be traced at all times through accounts which have monetary balances and controls, and ultimately through the bank itself.

The second part is the acquisition of the scrip by the broker, the allocation of this to the clients and its registration by the company in his name. The movement of scrip cannot be controlled by normal accounting methods, it cannot be ‘controlled’ in monetary terms, and consequently quite different procedures have to be introduced. It is not uncommon that these procedures are not fully understood by those working on them. Should we have the combination of an unskilled auditor and a skilled office manager or broker, then the audit will be quite ineffective, although the records may be in perfect order. When we have the combination of a broker, an office manager and an auditor, none of whom really understand the pro­ cedures, then a calamity is almost inevitable.

In my opinion, the standard of auditors in the broking profession is in essence much the same as it is in industiy generally, and this leaves something to be desired. If it is of a lower standard it is because of a misunderstanding of the difficulties involved in the task.

The problem of improving the standard of auditing is not new, particularly in relation to trust accounts where the general public may suffer from incompetence or

304

dishonesty. Various suggestions have been made and some are referred to later, but none can be said to give a completely satisfactory answer.

(a) To retain the present system of auditing, but for the Exchange itself to em­ ploy an ‘inspector’, who would have the power to make unannounced and unexpected visits on a random basis. The main objective of his examin­ ation would be to ascertain whether or not records were up to date and were well kept and appeared to be in good order. This could be ascertained

in the course of a quite short visit. It would be unlikely that he would locate a skilfully executed fraud or manipulation, but fortunately, these have been very much in the minority.

This proposal has many merits, provided a suitable person can be engaged and retained. The first task would be easier than the second, and a man of the required capacity is likely to seek a more varied type of work even if only to prevent his becoming too insular.

If this practical problem can be overcome then this suggestion is probably the best one.

(b) To appoint or to extend the role of the Exchange Accountant such as now exists in Sydney.

Instead of the ‘inspector’ (an employee of the Exchange), the inspections would be carried out in the same way by one of the two firms of Exchange Accountants (at the option of each broking firm).

The advantages over the ‘inspector’ employed by the Exchange are:

(i) removal of problem of finding and retaining suitable staff; (ii) greater flexibility, particularly where it is considered that a closer and more detailed examination be made of the books, or it is de­ cided to terminate or suspend the operation; (iii) having the work done by someone with wider day to day experi­

ence and who therefore should have a broader view, particularly in the long term;

The disadvantages are:

(i) less direct control over the activities of the ‘inspector’. (This in some circumstances could turn out to be an advantage); (ii) it would probably be more expensive.

(c) To require a change of auditors every so often—for example every three years. This suggestion is based on the view that the knowledge that accounting work will be critically examined by a fellow practitioner eager to find errors, will encourage a higher standard of audit work.

There is no doubt that there is truth in this view, particularly in the final year.

This system would increase the cost of audit to the individual broker, due to the necessity for each new auditor to learn his system, procedures and personnel.

It could well be that incompetent auditors would be replaced by others of the same ilk, and I would not recommend this course.

305

(d) To establish a panel of auditors from which each broker must select his auditor. It is certainly true that an accountant who conducts the audit of only one firm has problems in maintaining a high standard due to the rela­ tively limited experience of his staff.

While there would be major initial problems of some magnitude in establishing a competent panel, these would gradually be overcome with the passage of time and in due course, a panel could be maintained with little difficulty. In theory this is the best solution of all, but is probably not practical. The approved list would have to be made public, and pressure by

those not listed could well make the list so large that its control would be­ come ineffective.

(e) To take the converse action o f ‘black listing’ any auditor who has demon­ strated lack o f competence. This is not a separate suggestion but could be applied with any of the first three above. It is of modest use only but can be applied at a practical level as the ‘black listing’ need not be made public. Should this particular auditor be nominated, the member is simply steered away from the appointment.

(f) The requirement of members to supply further information, which could possibly include:

The profit and loss account; A detailed list of balances (identified by code if desired) in the Trust Account, together with a bank reconciliation; Unaudited balance sheet and profit and loss account at an interim date.

In such a volatile business as sharebroking the financial capacity of a firm may change greatly in a few months, and the production of a Balance Sheet at half yearly intervals should reveal an adverse trend at an earlier date.

This would be well worth wile and could of course be used in whole or in part in conjunction with any of the prior suggestions.

6. The role of the manager or the receiver and manager presents a number of problems. The first is quite new and the other is relatively new, so it is not surprising that procedures are not fully established. Both of these appointments are made under the Rules of the Stock Exchange, and neither have any statutory standing. Except to the extent that the appointment makes the manager or receiver/manager

becomes the agent and attorney of the member, he has no legal standing except with other members of the Melbourne Stock Exchange. This contrasts significantly with a receiver of a company or a trustee in bankruptcy, where duties and respon­ sibilities to all (including third parties) are established by law and (relatively) clearly understood.

In practice, where a receiver and manager has been appointed, the member may well be insolvent, and there may well be a strong possibility that creditors will not be paid in full. Even where the member is insolvent, he is posted as a defaulter and loses his seat on the Exchange. The appointment therefore at least calls for the winding up the (ex) members business. It would appear that the position could be adequately filled by a Trustee under Part XII of the Bankruptcy Act or indeed by the member becoming bankrupt. The Stock Exchange recognises this by not ap-

306

pointing a Receiver/Manager where the member takes action to appoint his own trustee. Provided the trustee has an adequate knowledge of a brokers accounting and business it is a better appointment due to his superior legal standing.

The position of manager has been created to enable a situation to be examined without taking the drastic step of posting a member as a defaulter. The only appointment so far made lasted for just one week, so that experience is negligible.

It does appear to be a most worthwhile concept. I believe it to be (or it ought to be) comparable with that of official manager under the Companies Act. This would mean the appointment of an independent outsider who would continue to run the business in the hope that it could be restored to a sound financial basis. At worst it would provide a period of respite during which the financial situation could be

more accurately assessed. Under an official management, existing unsecured credi­ tors are frozen, and assets are available for the conduct of the business and to meet liabilities incurred in the course of this. An administrator who is asked to conduct

the operations of a business which has got into difficulties must have a clear legal position, and must have the use of existing assets to conduct the business. This of course, cannot be achieved under the Rules of the Stock Exchange. The position must have statutory support.

7. Auditors are required to state whether (or not): ‘In our opinion the financial position of the Member Firm during the period under review was such as to enable the Member Firm to conduct its business on sound business lines hav­ ing regard to the nature and volume of business ordinarily transacted by the Member

Firm.’

Unfortunately, different auditors will, with complete honesty, interpret a given situation in different ways. To put it another way, the financial strength of a firm is perfectly clear (one way or the other) to any objective examination. It is only the borderline case where the problem arises, and here different auditors may well

come to different conclusions. The Committee of the Stock Exchange has no idea what criteria has been employed by .each auditor in giving a positive statement as above. The strict use of net worth ratios, total funds or other similar guide lines could produce some inequitable results.

There seems to be a clear case for the institution of guide lines which may well be applied as follows:

If the guidelines are met, and the auditor is of the required opinion, the positive opinion statement can be given.

If the guidelines are not met, but the auditor is of the required (positive) opinion, then the position must be referred to a third party (an Exchange Ac­ countant or the Committee) before the positive opinion can be given.

The holding of indemnity or guarantee bonds from a sound Insurance Com­ pany would of course go a long way to solving the problem of the broker who fails to meet his commitments. It can be forecast that those brokers who have ample assets and in truth no need for a bond will have no difficulty in obtaining

one at reasonable cost. Unfortunately it can also be forecast (and with more certainty) that those who need one will have much greater difficulty and if they do obtain one, it will be greater cost.

24175/ 75-11

307

The answer in the long term is more likely to be in the Indemnity Fund estab­ lished under the Securities Industries Act. This will need time to build up, and the Act itself requires extension and clarification in this regard.

The following is a summary of the evidence given by me to the Senate Select Com­ mittee on Securities and Exchange

1. It would be most desirable to have uniform regulations in regard to audit and accountancy procedures for all Australian Stock Exchanges. This weakness is par­ ticularly evident with regard to reconciliation of accounts with interstate brokers.

2. Auditors are required to confirm whether or not a Balance Sheet reveals a true and fair position. The fact is that the situation may be bad but the auditor is not required to report this.

3. There are no guidelines for the auditor in his judgment as to whether or not the financial situation of the firm is sound.

4. With a wide range of auditors who are given no guidance in determining finan­ cial strength, there are inevitable differences in interpretation of what constitutes an adequate financial position. The position is made more difficult because of the var­ iety of activities other than broking and the extent to which a firm takes part in them.

5. The auditor is entitled to look at the personal assets of members of the firm, but he has no authority to inquire into the position of incorporated companies, even though they are in fact significant to the member.

6. The securities industry is a particularly volatile one and the position of a broker can deteriorate rapidly. If. reports were furnished during the year, the chances of discovering an adverse situation at an early date would be greatly improved.

7. The Balance Sheet and Profit and Loss Account of member firms is not supplied to the Melbourne Exchange.

8. During the course of a year, an auditor may become aware that a firm is in serious trouble or even insolvent, but he has no responsibility or right to report thereon until after the end of the financial year.

20496/73—L (R 73/670)

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LEGAL OPINIONS

Introduction On 29 January 1971, the Committee sought the advice of four eminent Professors of Law—Colin Howard, of the University of Melbourne; P. H. Lane, of the University of Sydney; Geoffrey Sawer and Leslie Zines, both of the Australian National Univer­

sity— as to the constitutional power of the Commonwealth Government to regulate the securities industry in Australia.

On 9 September 1971, the Committee requested advice from the same scholars on the extent to which the decision of the High Court in Strickland v. Rocla Concrete Pipes Limited gave any further indication of the attitude of the Court towards the power of the Commonwealth Government to regulate the securities industry, and as to the extent of the corporations power.

We have set out below in Section A the opinions received in response to the Com­ mittee’s first request and in Section B the opinions received in response to the later request.

A-1 Professor Cohn Howard A-2 Professor P. H. Lane A-3 Professor Geoffrey Sawer A-4 Professor Leslie Zines

B-1 Professor Colin Howard B-2 Professor P. H. Lane B-3 Professor Geoffrey Sawer B-4 Professor Leslie Zines

1. (1971)45 A.L.J.R. 485.

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LEGAL OPINION A - l

The main question which arises is as to the extent of legislative power in the Com­ monwealth to regulate the issue and marketing of shares and similar securities with­ out reference to the States or State legislative power. The answer to this question is not altogether certain because it raises some issues of principle to which the High Court has not yet directed its attention; but on any view the Commonwealth has sufficient legislative power to achieve, by one means or another, effective control of the share market.

The Trade and Commerce Power o f s. 51 (1) o f the Constitution This power extends to legislation with respect to trade and commerce with other countries and among the States, and also, by well-established constitutional doctrine reinforced by the express words of s. 51 (39), to matters incidental thereto. Two ques­ tions present themselves: whether the issue and marketing of shares (in which term I include for brevity’s sake a reference to the numerous other analogous securities in which people customarily deal) is trade or commerce or incidental thereto; and, if so, whether it is capable of being interstate in character. In my opinion there can be no doubt that share dealing is well within the modem concept of trade and commerce and that the issue of shares, whether with a view to trading in the shares themselves or as a step in the formation of a trading company, in incidental thereto. These points seem to me to have been put beyond doubt by the judgments of the majority in the Bank Nationalization Case (1948) 76 C.L.R. 1, upheld by the Privy Council, (1949) 79 C.L.R. 497. The court was concerned in that case with banking, not share market­ ing, but the following passage from the judgment of Dixon J., which expresses the majority view of himself, Rich, Starke and Williams JJ., and was adopted by the Privy Council, 79 C.L.R. 632-3, seems to me to conclude the matter.

Having referred to ‘the modem American view of the commerce power’ Dixon J. continued, 76 C.L.R. 381-2: T am not speaking of the spread of that power over an immense field of activities that are incident to commerce. It is the central conception expressed in the word to which I refer. It covers intangibles as well as the movement of goods and persons. The supply of gas and the transmission of electric current may be considered only an obvious extension of the movement of physical goods. But it covers communication. The telegraph, the telephone, the wireless may be the means employed. It includes broadcasting and, no doubt, it will take in television. In prin­ ciple there is no reason to exclude visual signals. The conception covers, in the United States, the business of press agencies and the transmission of all intelligence, whether for gain or not. Transportation, traffic, movement, transfer, interchange, communi­ cation, are words which perhaps together embrace an idea which is dominant in the conception of what the commerce clause requires. But to confine the subject matter to physical things and persons would be quite out of keeping with all modem develop­ ments. The essential attributes which belong to the conception should determine the field of human activities to which it applies. To place among the essential attributes the requirement that there should be goods for sale or delivery or a man upon a jour­ ney, is to mistake the particular for the general, the concrete example for the abstract

definition, and to yield to habits of thought inherited from a more primitive organiza­ tion of society. ’

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A concept of trade and commerce which is of this character and has the scope envisaged manifestly includes such a characteristically modem commercial activity as dealing in shares.

Whether share dealing is capable of being interstate in character is in my opinion more difficult I do not think the logically parallel question whether share dealing is capable of forming part of trade with other countries is of comparable importance or difficulty. I see no reason to doubt that if a foreign interest wishes to enter Australia

for commercial purposes, the Commonwealth may impose such conditions and res­ trictions as it sees fit under s. 51 (1). The same seems to me to apply if the entry takes the form of buying shares on the Australian market or setting up subsidiary com­ panies in Australia. In such situations there must of necessity at some stage be the

overseas transmission of communications and money at the very least. The Common­ wealth would therefore be able to rely also on its exclusive control of customs under s. 90, the postal power of s. 51 (5) and possibly in appropriate circumstances on the foreign corporations power of s. 51 (20). The real problem is whether dealings which

are wholly domestic are capable of being interstate in character. This bears not only on the scope of legislative power under s. 51 ( 1) but also on the possible application of s. 92, guaranteeing freedom of interstate trade.

It is possible that this question also is in effect concluded by the Bank Nationaliza­ tion Case, for both the High Court and the Privy Council held not only that banking is trade and commerce but also that in present-day Australia it is interstate in character. Whether the same conclusion follows for share marketing depends on the relevance

to share marketing of the reasons advanced for banking. These, again in the words of Dixon J., were as follows, 76 C.L.R. 379-80: ‘Now, the existing system of private banking maintains an Australia-wide business upon which its whole structure rests. It sustains with respect to the transfer of money or bank credit the greater part of the commerce of the country. Branches and agencies of the various private banks are dis­

tributed over the Commonwealth and there are few towns or centres in which one or more of them is not represented. The volume of the banking transactions which cross State lines is, of course, widely different with different banks, and that is said to be true also of the proportion which in number or value inter-State transactions over a period

bear to the whole business done. But the total quantity for all banks is very large, although the proportion in money is said to be but ten per cent of the amount involved in all transactions. If it matters it appears that there are constant changes in the funds made available in the various States, the excess of advances over deposits in one State

being supplied or supported by resources in other States. In the daily course of busi­ ness the private banks (with two minor exceptions) regularly transfer funds among the States, establish credits across State boundaries, and collect cheques, bills of exchange and promissory notes drawn and lodged in one State and payable in

another, and of course they negotiate such instruments. There have been placed be­ fore the Court elaborate descriptions of the many different kinds of the inter-State transactions the private banks carry out, considered both from the banks’ side and from the customers’ side, that is an essential part of his commercial dealings. But it is

enough to say that, as common knowledge might suggest, this material confirms in detail what seem to be the essential conclusions. These are that the business of the pri­ vate banks necessarily includes: (a) the constant inter-State transmission of funds and transfer of credit: (b) constant business communication and intercourse among the

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States; (c) the regular use for the purposes of inter-State transactions of instruments of credit and of title to goods and their inter-State transmission; (d) the integration of inter-State banking transactions with the entire business of the bank to form a system spreading over the Commonwealth without regard to State lines; (e) the furtherance of commercial dealings by inter-State traders in goods by performing an indispensa­ ble part in such transactions. ’

This reasoning also was expressly adopted by the Privy Council, 79 C.L.R. 632-3. Clearly it raises a question of fact: whether conditions (a)-(e) enumerated by Dixon J. apply substantially, with appropriate minor changes of wording, to stock exchanges as much as to banks. I do not have any special knowledge of the working of the securi­ ties market in general and stock exchanges in particular but it seems to me that for the present purpose there is a reasonably close analogy. I believe it to be the case that the securities market operates nowadays in significant measure as an interdependent nationwide phenomenon (as witness the current move for a voluntary national sec­ retariat), that it relies heavily on credit and that much interstate communication and intercourse takes place. If this is correct, it is reasonable to infer from the Bank Nationalization Case that the Commonwealth may legislate with respect to the share market but that in doing so it must keep within restrictions imposed by s. 92.1 return to s. 92 below. There is however another line of thought which has to be taken into account. In the Hospital Provident Fund Case (1963) 87 C. L. R. 1, the High Court considered whether insurance is interstate in character and decided by a majority of five to one (one judge not relying on this point) that it is not. The quickest way of con­ veying the reasoning of the majority is again by quotation. Dixon C. J., 87 C.L.R.

14-15: ‘ The essence of the business from the point of view of the persons engaged in it is the making of contracts involving on the one hand the receipt of money and on the other hand the payment of money on the occurrence of certain contingencies. From the point of view of the statute no doubt it is the character of the contingencies that forms the distinguishing and important feature of the business. But neither the character of the contingencies nor the character of the monetary side of the contract could bring the transaction within the conception of inter-State trade, commerce or intercourse. For a company to contract with a man that, in consideration of the latter making payments to it at any given place, the company will in a specified contingency make a payment to him at some other place is not to engage in inter-State commerce. Neither the making of the contract nor the performance of the contract by either side involves any step or dealing which of itself forms part of inter-State commerce even if

a State line runs between the two places. If it is found necessary or convenient by either party to communicate with the other across a boundary between the two States in the course of making the contract, that is an accidental feature which cannot make it an inter-State contract, although the sending of the communication itself will, of course, form an act of inter-State commerce or intercourse. In the same way, if either party finds it necessary to transmit money across such a boundary so that he may make a payment in pursuance of the obligation of the contract, the transmission of the money will be an act of inter-State commerce, but that will not make the performance of the contract an inter-State transaction.

Neither the contract nor its performance contemplates or of its nature involves the movement from one place to another of things tangible or intangible, and certainly not from a place in one State to a place in another. ’

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As with the reasoning of the Bank Nationalization Case to the opposite effect, there are analogies with share marketing. The basis of the reasoning here is that the contract does not contemplate as an essential the interstate movement of anything and that the absence of this characteristic is not remedied by such incidentals as the interstate transmission of communications or money. It is possible to say the same

thing of share marketing: that the contracts entered into contemplate only a transfer of interest at one place, the stock exchange in question, and that the exchange of in­ formation, funds and documents interstate is an accidental and inessential feature of such a contract. This line of thought produces an apparent conflict in the present con­

text between the Bank Nationalization Case and the Hospital Provident Case. There are however two considerations which suggest that the former is the stronger auth­ ority so far as share marketing is concerned.

The first is that the form of insurance under review in the Hospital Provident Case was insurance against hospital and medical costs. It does not follow that the same analysis applies in relation to insurance against loss in interstate commerce, which may be thought to bear the banking characteristic seized on in Bank Nationalization of being an integral part of such commerce. It has to be admitted however that the judgments of the majority give little or no support for such a line of thought (for the

little cf. Fullagar J. at 87 C.L.R. 37) and indeed tend against it by reliance on American precedents denying to insurance as a business the character of commerce.

Secondly, it has to be remembered that the question in Hospital Provident was whether (State) legislation infringed the freedom of interstate trade and commerce guaranteed by s. 92. It is well established that although s. 92 protects interstate trade and commerce it does not protect matters incidental thereto: it is only the central

activity which is protected. To deny to insurance, and therefore by analogy share mar­ keting, the character of interstate commerce (for lack of the quality of interstateness) is not to deny that it is incidental thereto. If it is incidental thereto, the Commonwealth has power under s. 51 ( 1) to legislate with respect to it and it is not within the protec­

tion of s. 92. There is no close precedent on whether share marketing is capable of being an incident of interstate commerce. What one can say is that the few reported cases on the scope of the trade and commerce power suggest that it is to be given a wide scope, from which it is reasonable to suppose that an institution of such funda­

mental importance to commerce generally as the share market is at least incidental to interstate trade and commerce. [On the scope of the power see further Howard, Australian Federal Constitutional Law, 203-210.]

Lastly on s. 51 (1) it is to be observed that if the true situation in law is that some share marketing is interstate commerce and some is not, the Commonwealth is not thereby debarred from exercising a high degree of control over the whole. Redfern v. Dunlop Rubber (1964) 110 C.L.R. 194, establishes the proposition that if a person is

subject to Commonwealth regulation under s. 51 (1) by virtue of his engaging in interstate trade or commerce, he does not escape that regulation by engaging also in intrastate trade or commerce of the same kind. If he can clearly segregate the two aspects of his business, then of course the intrastate aspect is not subject to Common­

wealth law; but if he cannot or does not segregate them, then the whole is subject to Commonwealth regulation, at all events if the interstate component is a significant part of the whole. The practical effect of this decision is no doubt to reinforce what

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would in any event be the natural tendency of traders to run their business in con­ formity with one uniform set of regulations, those of the Commonwealth, rather than with two or more. No doubt this applies to the share market as much to any other trading activity.

The Communications Power ofs. 51 (5) o f the Constitution The question here is whether the Commonwealth can make it impossible for the share market to operate otherwise than in accordance with Commonwealth regula­ tions by prohibiting the transmission of information by any of the usual means unless its own regulations are complied with. This would be a straight case of the Common­ wealth’s using a legislative power granted to it for one purpose, in this case central control of communications, to achieve a quite different one, in this case central control of the share market. The question thus raised depends for its answer less on specific interpretation of s. 51 (5), of which there has been little, than on inference from general principles of interpretation of the Constitution.

It would be a lengthy business to cite every context in which the High Court has sanctioned the indirect legislative achievement by the Commonwealth of an end which it has no power to accomplish directly. It is perhaps enough at this stage to say that there is only one case, Barger’s Case (1908) 6 C.L.R. 41, in which Common­ wealth legislation has been held invalid for misuse of a power, and that there are many, particularly in taxation, in which it has not although it clearly might have been. A recent example is Fairfax’s Case (1965) 114 C.L.R. 1.

In Barger’s Case a Commonwealth statute was held invalid on the ground that although on the face of it a tax law it was in substance and effect an attempt to use the tax power to control intrastate conditions of labour. Although there are many dicta since which assert the continued existence of the principle upon which Barger’s Case proceeded, there is no other case in which it has been clearly applied to invalidate a Commonwealth Act. [Possible but doubtful exceptions are R. v. Burgess (1936) 55 C.L.R. 608, and the Flour Tax Case (1937) 56 C.L.R. 390.] In truth, at the time when Barger’s Case was decided, over sixty years ago, the High Court was much influenced by doctrines of constitutional interpretation which have long since been discarded. In Fairfax’s Case, by contrast, in which the question of principle involved was expressly discussed, a statutory provision which gave a tax exemption for superannuation funds invested in certain classes of securities was upheld as a law with respect to taxation

although its substance and effect was to compel trustees of such funds to invest a pro­ portion of their funds in the specified classes of securities.

Another recent case of some relevance, in that it was on the communications power of s. 51 (5) itself, is Herald & Weekly Times v. Commonwealth (1969) 115 C.L.R. 418, in which it was not only confirmed that the control of television is within the power but held also that far-reaching and detailed restrictions on the holders of commercial television licences are within the power. The court denied that the case was to be characterised as one of ulterior purpose but was clearly of opinion that the power should be given a very wide scope. The restrictions in question were designed to preserve a degree of independence from each other of the holders of such licences but extended even to prohibiting the holding of shares or debentures in which the holder had no beneficial interest and which gave him no effective voice in the affairs of the other company or licensee.

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It is a reasonable inference from such precedents as these that so far as s. 51 (5) is concerned the Commonwealth can prohibit the transmission of any information it wishes, the reason for the prohibition being irrelevant. If it can do this it can also pre­ scribe such relaxations as it wishes. Two reservations must be made. First, it is always

possible that if the indirect extension of Commonwealth power in this way strikes the High Court as too flagrant or too great, the principle of Barger’s Case will be unexpectedly revived. As I have indicated, I see no sign of this at present. Secondly, since the dictum quoted above from Bank Nationalization clearly contemplates that the transmission of information is within the concept of trade and commerce, s. 92 has to be taken into consideration.

The Corporations Power o f s. 51 (20) o f the Constitution At the time of writing this power seems to add nothing in the present context to the trade and commerce power of s. 51 (1). The obstacle to effective use of s. 51 (20) by the Commonwealth is the decision of the High Court in Huddart Parker v. Moorehead (1909) 8 C.L.R. 330, (the Corporations Case), which, so far as it said anything cer­ tain, gave s. 51 (20) a very restricted scope but revealed much judicial disagreement

on what specific matters are actually within it. The effect of that case is conveniently summarised in the Report o f the Joint Committee on Constitutional Review, 1959, pp. 108-109, to which I can add nothing significant. The antiquity of the decision in terms of changed constitutional doctrine generally suggests that the question should

be regarded as entirely at large, awaiting consideration by the High Court.

The Banking Power o f s. 51 (13) o f the Constitution The banking power in itself would not support direct legislative control of share marketing. Its significance lies in its being the source of power to control credit. There can be no question that in so far as banks are direct sources of credit for share market­

ing, or for any other activity, the Commonwealth can act under s. 51 (13) to control the supply of credit, and therefore the dependent activity, by its control of the central banking structure. Equally it is obvious that this is what the Commonwealth in fact does whenever it sees fit as one of the normal processes of government. I do not have

sufficient knowledge of the ways in which credit is made available to the share market to be able to say whether present banking control alone would enable the Common­ wealth to exert enough pressure to compel acceptance of its own regulatory standards. On the assumption that it would not, because there are other sources of direct credit,

the question arises whether these other sources themselves come within the banking power by virtue of their credit activities.

The obvious example is a finance house of some description not falling within present banking legislation. The extent to which the banking power includes fiscal activities on the fringe of, or out of the context of, currently orthodox banking, is uncertain. Of course, ultimately all credit is dependent on the central banking struc­

ture, and therefore within Commonwealth reach, but in many specific instances the control exerciseable indirectly through the banks seems to me likely to be too remote and blunt an instrument for the present purpose of detailed regulation of the share market. As to the legal uncertainty which surrounds regulation under s. 51 (13) of

fringe credit activities, one can say only that the banking power has proved generally to be a strong and extensive one and that there is no reason to suppose that the High

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Court will now turn a restrictive eye upon it. It may be of political significance to re­ member that s. 51 (13) does not extend to Commonwealth control of banks run by the States themselves in so far as they conduct intrastate business.

The Insurance Power o f s. 51 (14) o f the Constitution The significance of this power in the present context appears to lie in its relation to insurance companies as the largest single group of dealers on the share market: as in­ stitutional investors, with consequential significance to the whole phenomenon. It is within the scope of this power for the Commonwealth, as a means of assisting towards the financial stability of the insurance market, to exercise direct legislative control over the classes of securities in which insurers may invest their funds. This would in­ clude the prescription of standards of disclosure and so on accompanying the issue of the securities in question and the amount of credit permissible in dealings. By analogy with the banking power, this power does not extend to Commonwealth legislative control of intrastate insurance business undertaken by the States themselves as insurers.

The Tax Power o f s. 51 (2) The foregoing concludes the list of specific Commonwealth legislative powers as to which comment has been invited. It is possible however that the significance of the tax power has been overlooked. A reference has already been made above, in connec­ tion with the communications power of s. 51 (5), to the line of cases establishing that if a law is in form a law with respect to taxation it is valid under s. 51 (2) notwith­

standing that its effect and purpose may be to accomplish some object otherwise unconnected with taxation. It seems to me to be quite open to the Commonwealth by the selective application of tax rebates or higher rates of tax to inhibit the issue of or trading in shares and securities which do not conform with whatever standards the Commonwealth cares to prescribe.

The Effect o f s. 92 o f the Constitution Section 92 says that trade, commerce, and intercourse among the States shall be absolutely free. The expression ‘absolutely free’ does not in practice mean absolutely free but nevertheless in appropriate contexts constitutes a formidable barrier to legis­ lative restriction or control of activities across State borders. It is relevant to a number of observations made above. One point already made must be borne constantly in mind when considering the effect of s. 92 in relation to a legislative power: that the protection of s. 92 extends only to the interstate activity itself and not to matters

merely incidental to it, whereas the scope of a legislative power extends always to matters incidental to the subject matter of the power. This means that s. 92 can never operate to the complete exclusion of or in total contradiction to a legislative power.

Two propositions have been advanced above which bring s. 92 in question. The first is that whilst share marketing undoubtedly is commerce, it may not be capable of being interstate in character. If this is the case, s. 92 does not come in question, and whether the Commonwealth can regulate the share market depends on whether share marketing is incidental to interstate trade. If on the contrary share marketing can and to a significant extent does have the characteristic of interstateness in this country, it does not necessarily follow that the Commonwealth has no power of effective regula­ tion by reason of s. 92. In the present state of the law it appears to be possible for any

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legislature to prohibit what it considers to be undesirable business practices without infringing s. 92 in so far as the prohibition affects interstate trade. The principal case leading to this conclusion is Reader's Digest (1967) 43 A. L. J. R. 116, in which the High Court, with only the Chief Justice dissenting, held valid South Australian legis­ lation prohibiting the use of trading stamps in its application to a company sending records for sale to South Australia from New South Wales. The majority of the court held that since the South Australian Act left the company free to trade in records, it was not an infringement of this freedom to prohibit an incidental business practice,

the offer of trading stamps to encourage the purchase of records, which South Australia regarded as undesirable.

It is a reasonable extension of this line of thought to conclude that if the Common­ wealth wishes to prohibit certain business practices as undersirable adjuncts to inter­ state share marketing, it can do so without infringing s. 92. Moreover it is fundamen­ tal to reasoning under s. 92 that regulation of interstate activity is permissible to the

extent that the effect of the regulation is to preserve the freedom guaranteed by the section. The familiar example is road traffic regulations. As applied to share market­ ing s. 92 would have nothing to say against regulations having the basic effect of ordering the share market on a national scale. It seems to me that these two principles

reduce the nuisance value of s. 92 to the Commonwealth in the present context to minor proportions so far as the trade and commerce power is concerned.

The second proposition advanced above which brings s. 92 in question is that the Commonwealth may be able to make use of the communications power of s. 51 (5) to regulate the share market. The basic s. 92 proposition here is that it would not be open to the Commonwealth, or any other legislature, simply to prohibit interstate com­

munication in so far as it is a form of interstate trade or commerce. That would prima facie be a straightforward infringement of s. 92. The old argument that communi­ cation in itself can never be interstate trade but only a means whereby interstate trade is carried on, and therefore only incidental to it, is, by analogy with the situation in re­

spect of interstate transportation, no longer tenable. The point arises however that as a matter of fact the Commonwealth has an unchallenged monopoly over the usual means of communication. Whatever the theoretical constitutional position with re­ spect to this monopoly and s. 92, for practical purposes it seems unlikely to be effec­

tively challenged. In any event s. 92 does not affect Commonwealth control under s. 51 (5) of purely intrastate communications, which category comprises the vast ma­ jority of transmitted messages, including those to do with share marketing. Here again, therefore, and with one reservation, s. 92 does not seem to be a significant

obstacle to effective Commonwealth action.

The reservation is that s. 92 protects not only trade and commerce but also ‘inter­ course ’ among the States. There is almost nothing by way of judicial construction of this word but it is reasonable to suppose that it includes communication between people in different States by artificial means. If this is so, the Commonwealth cannot

arbitrarily prohibit people from sending messages and information interstate, or indeed impede them at all beyond the requirements of reasonable regulation in the interests of the means of communication itself. But in the present context it is hard to see that this need significantly affect the Commonwealth in view of its potentially ab­

solute and unchallengeable control of intrastate communication.

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The question is asked whether s. 92 may have some different operation in relation to disclosure and investigation than to merely prohibitory legislation. The answer appears to be in principle no, for any requirement of disclosure or submission to in­ vestigation must ultimately depend for enforcement on the threat of penalties. This is turn means that disclosure or investigation measures must fall within the concept of reasonable regulation of the industry in so far as they directly affect interstate activi­ ties protected by s. 92. It is of course clear that s. 92 has nothing to say against such measures otherwise. In Kerry. Pelly (1957) 97 C.L.R. 310, the question arose whether the driver of a truck on an interstate journey could be required to diverge to the near­ est weighbridge for the weight of his load to be checked. The High Court had no hesi­ tation in holding that he could. Section 92 would be infringed only if he were harassed by constant and unnecessary demands to diverge for this purpose.

Inconsistency o f Legislation under s. 109 o f the Constitution Under s. 109, State laws which are inconsistent in their operation with valid Com­ monwealth laws became inoperative to the extent of the inconsistency during the cur­ rency of the Commonwealth laws. Such a rule does not necessarily prevent the incon­ venience of complying with parallel sets of regulations, for if they operate to the same effect, or if some regulations are stricter than others and therefore merely cumulative in their effect, it can be argued that there is no inconsistency in the sense of con­

tradiction. This problem however has been eliminated in principle by doctrine in the High Court generally known as the ‘covering the field’criterion of inconsistency.

According to this doctrine the question in any given case is whether the Common­ wealth legislation, operating either directly or through regulations which it authorises, is intended to cover the whole subject matter to which it relates to the exclusion of all State legislation upon the same subject matter. If it is, and provided of course that it

does not exceed Commonwealth legislative power in so doing, all State legislation upon that subject matter is displaced, whether contradictory or cumulative or not.

There should be no difficulty in including in Commonwealth legislation an indica­ tion that it is intended to cover the field to which it relates to the extent of Common­ wealth power therein. There is no rule against an express statement to this effect in the Act. In this way the problem of multiple Commonwealth-State regulations becomes co-extensive with the question of Commonwealth legislative power itself, ceasing to have any separate existence.

The Inter-State Commission o f s. 101 o f the Constitution Section 101 contemplates the establishment of an interstate commission to execute constitutional provisions and laws made thereunder relating to trade and commerce. There was such a commission between 1912 and 1920 but the experiment was not a success. The difficulty was, and remains, that the High Court will not countenance the

mingling in one Commonwealth tribunal (except in the Territories) of both judicial and administrative powers. Since this doctrine applies as much to the Inter-State Commission as to any other federal judicial or administrative body, there is no case for re-establishing the Inter-State Commission in the context of share marketing instead of setting up some new administrative body altogether. [See further on the

Inter-State Commission Howard, Australian Federal Constitutional Law, 108-110; Sawer, Australian Federal Politics and Law, 1901-1929, 193, n. 81,204.]

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A Commonwealth Securities and Exchange Commission Whatever the scope of Commonwealth legislative power in relation to share mar­ keting may ultimately prove to be, there is no reason why a national commission should not be brought into existence to administer the legislation. The doctrine that Commonwealth judicial and administrative powers may not be intermingled would have to be observed and its effect circumvented, in the same way no doubt as in the industrial sphere. The practical problem is that effective enforcement of determina­ tions of the administrative body has to be entrusted to a purely judicial tribunal. A

familiar example is that determinations of the Commonwealth Conciliation and Arbi­ tration Commission, a non-judicial body, have to be enforced, if it becomes necessary to enforce them, by the Commonwealth Industrial Court, a strictly judicial body. An

advantage of setting up a wholly new Securities and Exchange Commission (by what­ ever name called: this name of course is suggested by the American body) would be the avoidance of possible jurisdictional limitations on the Inter-State Commission arising out of the wording of s. 101.

Commonwealth-State Co-operation Commonwealth-State co-operation at the legislative level could take one of three forms: uniform legislation to establish the same standards throughout the country, the legislation being administered by parallel bodies in the various States and Territories;

the establishment of a national administrative body staffed and legislatively validated by both Commonwealth and States; or the reference by the States to the Common­ wealth of legislative power under s. 51 (37) of the Constitution. Neither of the first two courses of action has, from the constitutional point of view, much to commend it.

As to the first, the difficulties of first achieving and then maintaining uniformity of uniform legislation are notorious. For effective administration it is a course to be avoided if there is any reasonable alternative. Moreover even if uniformity is achieved, its administration by different bodies in different States is almost certain to

lead to varying interpretations which can be brought into line only by some national supervisory body. Lastly this alternative is wasteful of resources.

The second alternative, a joint national tribunal, seems to be at least equally cum­ bersome and suffers from the additional defect of vagueness. The basic fault is the lack of a single government or legislature to which it is responsible. If its policies and determinations are potentially subject to seven different governing bodies, which

seems to be unavoidable, the danger is that it will be at best inefficient and at worst ineffective.

If these are the only possibilities of State co-operation available, it seems far pref­ erable for the Commonwealth to use its own legislative powers to the full to set up a national commission responsible only to itself. Only if, which is highly unlikely, this proves to be altogether beyond effective Commonwealth constitutional power, should

co-operative legislative action with the States be contemplated. Political co-operation is of course another matter and would no doubt be wise.

There remains however the third possibility, that the States refer express power to the Commonwealth to legislate with respect to the share market. Legislation by the States to this effect would enable the Commonwealth in turn to legislate, within the terms of the reference, under s. 51 (37), a section which expressly contemplates this

procedure. This device has been little used and is correspondingly uncertain in its

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scope and effect. A major theoretical problem of obvious practical importance is whether a matter once referred can be withdrawn again, and if so under what circum­ stances. For example, whether such a withdrawal by the State concerned, if possible in the first place, invalidates existing Commonwealth legislation in relation to that State or only prevents the Commonwealth from enacting such legislation in the future. Moreover to be properly effective in the present context the grant of power would have to be made by all of the States and not only some of them. The chances of this happening may well be regarded as remote. Nevertheless it represents the most useful way in which the Commonwealth and the States might co-operate and there­ fore should be borne in mind in a survey of the constitutional position.

Other Matters The other matters with which the Select Committee is concerned are technical problems in the control of a share market upon which I do not feel qualified to comment.

Colin Howard

LEGAL OPINION A-2

1. It is all but futile to express an opinion on the scope of s. 51 (xx) until the present High Court decides what it will do with Huddart Parker below and—at least dur­ ing argument— gives some hint of its understanding of the power in s. 51 (xx).

This material may well become a major contribution to the Committee’s inquiry.

2. Even so (and I can say this much), there is a severe limitation in the Common­ wealth’s use of its corporation power to establish a Securities and Exchange Commission. For, acting under s. 51 (xx) the Commonwealth can only supervise the three kinds of companies specifically named in s. 5 l(xx)—foreign corpor­

ations and trading or financial corporations formed within the limits of the Commonwealth.

3. (1) A trading corporation does not include a manufacturing, mining or explora­ tory corporation. See Isaacs, J., in Huddart Parker & Co. Pty Ltd v. Moorehead (1909) 8 C.L.R. 330, at pp. 392, 393; compare Menzies, J., in Beal v. Marrickville Margarine Pty Ltd (1966) 114 C.L.R. 283, at p. 306

(‘. . . to manufacture is not, of itself, to trade’).

But a manufacturing company qua distributor or a mining company qua dis­ tributor would be under this aspect a trading company; Isaacs merely al­ ludes to ‘a purely manufacturing company’. Share dealings, say, in Marrick­ ville Margarine would be share dealings in a manufacturing-distributing

company. The latter element of distributing would attract s. 51 (xx). Com­ pare Redfern v. Dunlop Rubber Australia Ltd (1964) 110 C.L.R. 194, at pp. 202 arguendo, 213, 220-221, 228-229, 230-231, permitting s. 51 (i) to extend to an agreement even if it had an intra-State element as well as an

inter-State element.

(2) A trading company certainly includes wholesale or retail distributors.

(3) Transport companies can now be included, too: compare Australian National Airways Pty Ltd v. The Commonwealth (1945) 71 C.L.R. 29, at pp. 56, 83, 106-107, a case strictly on ‘commerce’ in s. 51 (i) of the Consti­ tution; but I do not think the Court would subtilize a distinction between

‘ trade ’ and ‘ commerce ’.

4. (1) A financial corporation within s. 51 (xx) semble does not include a banking company—the latter is expressly catered for by s. 51 (xiii), Bank o f New South Wales v. The Commonwealth (1948) 76 C.L.R. 1, at pp. 203-204 (and seep. 184), 256; and seep. 304 (‘it may well be’).

But all that this means is that the Commonwealth in its share-regulation of banking corporations can rely on s. 51 (xiii) instead of s. 51 (xx). For that matter, the Commonwealth in acting under s. 51 (xiii) is in a better position, for s. 51 (xiii) allows the Commonwealth to make a law with respect to ‘the

incorporation of banks’, whereas under s. 51 (xx) the Commonwealth must not make a law trespassing on the incorporation of financial corporations. On this contrast between s. 51 (xiii) and s. 51 (xx), see Isaacs J., in Huddart Parker above, at p. 393; on the limitation in s. 51 (xx), see ibid., at pp. 349,

362-363, 371, 393-395, 412; Insurance Commissioner v. Associated Do­ minions Insurance Society Pty Ltd (1953) 89 C.L.R. 78, at p. 86 (s. 51 (xx)

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confers no ‘general power to make laws with respect to the creation of cor­ porations, or the powers and capacities of corporations, or the liquidation and dissolution of corporations ’); Bank o f New South Wales v. The Com­ monwealth above, at pp. 202,255-256,304.

(2) A building society, if incorporated, and an investment company are finan­ cial corporations—examples suggested by Quick and Garran, Annotated Constitution o f the Australian Commonwealth, p. 607 (1901).

(3) Hire purchase companies and other lending agencies, say, pastoral finance companies, are financial corporations.

(4) An insurance company under one aspect seems to be an investment com­ pany, and so a financial corporation within s. 51 (xx) of the Constitution. But query whether the Court might not read ‘financial corporations’ in s. 51 (xx) as financial corporations in their own right, not as some other cor­ porations which can only be described as financial corporations in their inci­ dental activities.

The insurance power itself in s. 51 (xiv) of the Constitution is not a power concerned with corporations, much less financial or investment corpor­ ations. It is a power concerned with the relations between the insurer and the insured and those relations vis a vis third parties, Insurance Commissioner v. Associated Dominions Insurance Society Pty Ltd (1953) 89 C.L.R. 78, at pp. 87-88; compare Carter Bros. v. Renouf (1962) 111 C.L.R. 140, at pp. 147-148, 159-160.

Still, under the insurance power the Commonwealth can, for example, insist on fidelity funds and general measures to safeguard the insured and to pre­ serve the soundness of the insurance company, Insurance Commissioner above, at pp. 87-88. Then, from this point of view the Commonwealth could supervise investment adventurism of insurance companies.

The Trade and Commerce Power 5. What one must do in this area is to isolate the precise transaction, dealing or ac­ tivity which Federal Parliament—through a Securities and Exchange Com­ mission or otherwise— intends to regulate. For there is a distinction in trade and

commerce law between an inter-State transaction or a transaction in direct rela­ tion to inter-State trade, on the one hand, and an intra-State transaction with inter-State incidentals, on the other hand.

6. An inter-State transaction is exemplified in an inter-State contract, that is, an agreement the veiy terms of which expressly or impliedly require the movement of goods across State lines. Such a transaction is within s. 92 of the Constitution, Williams v. Metropolitan and Export Abattoirs Board (1953)89 C.L.R. 66, at pp. 69, 74-75; W. & A. McArthur Ltd v. State o f Queensland (1920) 28 C.L.R. 530, at pp. 559, 560. A fortiori such a transaction is within the trade and commerce power in s. 51 (i) of the Constitution.

7. A transaction in direct relation to inter-State trade is exemplified in an agreement which is in fact carried out by dealings across State lines, say, the selling and delivering of goods across State lines. Such a transaction is within the trade and commerce power, Redfern v. Dunlop Rubber Australia Ltd (1964) 110 C.L.R.

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194. The agreement (transaction, dealing or activity) need not itself stipulate movement across State lines. It is enough that the agreement is in fact fulfilled by such movement. And it does not matter if the agreement is partly carried out by the movement of goods across State lines, partly carried out by the movement of goods within State limits, ibid., at pp. 202 arguendo, 213, 220-221, 228-229, 230-231.

8. An intra-State transaction with inter-State incidentals is exemplified in an in­ surance business with a head office in Victoria, a branch in New South Wales. The precise business of insurance consists in effecting insurance agreements (policies) either in Victoria or in New South Wales—an intra-State, localised transaction. True, there will be inter-State comings and goings between the Vic­ torian head office and the New South Wales branch. But these are incidentals to the essential business of insurance. Certainly, such a business, despite its inter­ state incidentals, is not within s. 91, Hospital Provident Fund Pty Ltd v. State of

Victoria (1953) 87 C.L.R. 1, for example, at pp. 17-18, 36-37. Equally Federal Parliament could not regulate this (intra-State) business under s. 51 (1).

9. In its shareholder protection the Commonwealth may seek to regulate the form and contents of prospectuses, advertisements or solicitations to take up shares when these prospectuses etc. intend to induce the buying of shares by a person in one State from the issuing company in another State. Such prospectuses etc. are

within s. 92, Re Readers Digest Association Pty Ltd (1969) 43 A.L.J.R. 116; Con­ solidated Press Ltd v. Lewis (1956) 95 C.L.R. 550, at p. 603; W. & A. McArthur Ltd v. State o f Queensland (1920) 28 C.L.R. 530, at pp. 559, 563. Equally such prospectuses etc. are within s. 51 (i), the trade and commerce power. Besides, the

prospectuses etc. are ‘directly related’ to inter-State selling, see Redfern in para­ graph 7 above.

Then the Commonwealth could regulate the form and content of these prospec­ tuses, advertisements or solicitations to take up shares by relying on its trade and commerce power.

10. In its shareholder protection the Commonwealth may seek to regulate share registrations and share transfers. Even if such registrations and transfers are ac­ companied by inter-State incidentals (such as communications across State lines and the transmission of funds across State lines), the registrations and transfers in themselves are intra-State, localised transactions. Compare Hospital Provident

Fund in paragraph 8 above.

Then the Commonwealth could not regulate the share registrations and share transfers by relying on its (inter-State) trade and commerce power.

The Postal Power 11. There has not been much law on the Commonwealth’s postal power in s. 51 (v) of the Constitution, and what law there has been does not assist the particular problem before us. Thus, it has been held that the power with respect to ‘postal,

telegraphic, telephonic and other like services’ extends beyond sheer inter­ personal communications to mass broadcasting by radio, R. v. Brislan; ex parte Williams (1935) 54 C.L.R. 262. The power also extends to, not merely the pro­ vision of television services, but also the programming or preparation of material

for television, Jones v. The Commonwealth (No. 2) (1965) 112 C.L.R. 206.

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12. (1) The Privy Council in James v. The Commonwealth (1936) 55 C.L.R. 1, at p. 54, strongly argued that the freedom of inter-State trade assured by s. 92 (see below) was a qualified freedom. The Privy Council then made much of the Commonwealth’s Post and Telegraph Act 1901-1923 which dealt with posting, delivery etc. of letters, matters within s. 51 (i) and s. 51 (v)—the trade and commerce power and the postal power.

Particularly the Privy Council singled out s. 98 of the Post and Telegraph Act which forbad or penalized the sending or carrying of letters for reward otherwise than by post. Not only did the Privy Council assume this drastic power to be valid, it asserted that the provision did not offend s. 92 of the Constitution. Finally, the Privy Council concluded that much the same was true of the Commonwealth’s Wireless Telegraph Act 1905.

If the Commonwealth can altogether prohibit the handling of letters for re­ ward by carriers other than the Postmaster-General’s Department, then presumably the Commonwealth can prohibit the use of its own letter­ carrying service to particular forms of trading, say, misleading prospectuses. Presumably, the Privy Council would say that the latter prohibition—as it did say of the former prohibition—was ‘a limitation notoriously existing in ordinary usage in all modern civilized communities’, that the use of the Commonwealth’s mail services was limited ‘just as “ free speech” is limited by well known rules of law ’.

In the result the Commonwealth could make regulations supervising the use of mail services by share dealers.

(2) Compare the use o f ‘the television power’ in s. 51 (v) of the Constitution considered in Herald and Weekly Times Ltd v. The Commonwealth (1966) 115 C.L.R. 418. There the Postmaster-General issued licences to companies for commercial television stations. The legislation then went on to prevent monopolising— either by legal control or business influence—of these tele­ vision licences. That is, the Broadcasting and Television Act 1965 (Cth.),

s. 92, prohibited a person from holding ‘a prescribed interest’ in more than two, or in some cases three, television licences. A person held such a prescribed interest if, for example, he held a stipulated shareholding interest in a licensed company; s. 91 of the Act.

These shareholding provisions, to dissociate television companies, were up­ held although their relation to television services may seem tenuous.

Freedom o f Inter-State Trade 13. Section 92 cases on freedom of inter-State trade, raise two issues. First, the kind of activity for which freedom is asserted. Second, the kind of burden from which the trade is to be free.

14. A shareholder protection law—whether enacted by Commonwealth or State- may not be within s. 92 because it (even) prohibits an activity which is an intra­ state transaction.

(1) The prohibited intra-State transaction may have inter-State incidentals. Yet the prohibition would not come within s. 92. See Hospital Provident Fund in paragraph 8 above. Thus, the State could prohibit the share registrations

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and the share transfers instanced in paragraph 10 above without hinderance from s. 92. Whether the Commonwealth could prohibit such registrations and transfers depends upon the Commonwealth first finding a power in its catalogue to do so—and this may be difficult to find.

(2) The prohibited intra-State transaction may be preparatory to, or incidental to, inter-State movement. But if the transaction is not ‘inseverably con­ nected ’ with inter-State movement, it does not come within the protection of s. 92. See Harperv. State o f Victoria (1966) 114 C.L.R. 361, at pp. 377, 382

(sale of goods brought in from another Sate); R. v. Anderson; ex parte Ipec- Air Pty Ltd (1965) 113 C.L.R. 177, at pp. 193, 196 (importation of inter­ state planes); Grannall Marrickville Margarine Pty Ltd (1955) 93 C.L.R. 55,atpp. 71-72,79 (manufacture of inter-State goods).

15. A shareholder protection law—again, whether enacted by Commonwealth or State—may not be within s. 92 because it does not impose an acknowledged bur­ den on inter-State movement.

(1) A law may not impose an acknowledged burden within s. 92 because it merely prohibits a ‘particular method’ or a ‘particular practice’ in inter­ state trade, Re Readers Digest Association Pty Ltd (1969) 43 A.L.J.R. 116, at pp. 124, 128 (allowing South Australia’s prohibition of inducing inter­

state sales of record albums by the method of offering the ‘bribe’ of prizes); Hughes and Vale Pty Ltd v. State o f New South Wales (No. 2) (1955) 93 C.L.R. 127, at p. 218 (‘directions as to the manner of participation in a form of inter-State trade’); The Commonwealth v. Bank o f New South Wales

(1949) 79 C.L.R. 497, at p. 640.

So, a law on share dealings, even if these share dealings consisted in inter­ state transactions, may not be struck down by s. 92, if the law can be charac­ terised as a law merely regulating a method, a practice or a manner of doing inter-State trade.

(2) A law may not impose an acknowledged burden within s. 92 in the follow­ ing instances:— A law requires the filing of returns by inter-State share dealers: compare Wilcox Mofflin Ltd v. State of New South Wales (1952) 85 C.L.R. 488, at

p. 534.

A law stipulates the keeping of records by inter-State share dealers, Hughes and Vale Pty Ltdv. State o f New South Wales (No. 2) (1955) 93 C.L.R. 127, atpp. 163,205-206.

A law provides for the registration of inter-State share dealers: compare McCarter v. Brodie (1950) 80 C.L.R. 432, at p. 495 (dissent, but now ac­ cepted by Hughes and Vale Pty Ltd v. State o f New South Wales (No. 1) (1954)93 C.L.R. l,atpp. 24, 32).

Inter-State share dealers are required to supply information about their share dealings, Rogers v. Jordan (1965) 112 C.L.R. 580, at pp. 585, 591-592,594.

16. The use of the Commonwealth’s postal power and its comparative freedom from a s. 92 attack have been discussed in paragraph 12 above.

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The Prevalence o f Commonwealth Law 17. If State regulation of share dealings is not desired by the Commonwealth, Fed­ eral Parliament can enact an exclusionaty provision. This provision expressly ex­ cludes the operation of any State law in the area covered by Commonwealth

legislation.

Examples of such exclusionaty provisions already appear in the Conciliation and Arbitration Act 1904-1970, s. 65; the Life Insurance Act 1945-1965, s. 8; the Matrimonial Causes Act 1959-1966, s. 8; and see the Trade Practices Act 1965-1968,s. 8(5).

18. However, the effect of the exclusionary provision is merely to indicate Parlia­ ment’s intention to cover a particular field, R. v. Members o f the Railways Appeals Board; ex parte Davis {1957) 96 C.L.R. 429, at p. 439; Collins v. Charles Marshall Pty Ltd ( 1955) 92 C.L.R. 529, at pp. 548-549; and see Wenn v. Attorney-General( Viet.) (1948) 77 C.L.R. 84, at p. 120.

If the Court, aided by the exclusionary provision and otherwise—for example, the comprehensive scope of the law, its ‘national’ subject matter— reads the whole Commonwealth law as intending ‘completely, exhaustively, or exclus­ ively’ to cover share dealings, then s. 109 of the Constitution gives prevalency to the Commonwealth law over the State regulation in the same field, Ex parte McLean (1930) 43 C.L.R. 472, atp. 483.

That is to say,the exclusionary provision is only one factor in the ousting of State regulation. Whether or not the State regulation will in fact be excluded will de­ pend upon the operation of s. 109, Davis and Collins above. And the operation of s. 109 will depend in turn on the Court’s finding of a ‘complete, exhaustive or ex­ clusive ’ intention by the Commonwealth legislation to cover the particular field.

19. But the Commonwealth through its exclusionary provision cannot fabricate inconsistency. It cannot eject State regulation of share dealings in areas in which the Commonwealth has no powers by concocting or affecting an inconsistency. See Insurance Commissioner v. Associated Dominions Insurance Society Pty Ltd (1953) 89 C.L.R. 78, at p. 85; West v. Commissioner o f Taxation (N.S.W.) (1937) 56 C.L.R. 657, at p. 707; Stock Motor Ploughs Ltd v. Forsyth (1932) 48 C.L.R. 128, atpp. 147-148.

Then, before the Commonwealth legislation attempts to monopolise a given area of share dealings, the Commonwealth must first ensure that it has some power in its catalogue to deal with matters in this particular area.

For instance, it seems to me that a Commonwealth exclusionary provision would not oust State regulation of share dealings by mining exploration companies. Such share dealings may be trade, but they are not necessarily inter-State trade. And so, the Commonwealth’s trade and commerce power in s. 51 (i) of the

Constitution is not available. Such mining exploration companies do not seem to be trading corporations; see paragraph 3 above. And so, the Commonwealth’s corporations power in s. 51 (xx) does not seem to be reliable, either. Lacking power in the area, the Commonwealth cannot exclude from ‘its’ field State regulation.

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Revival of the Inter-State Commission 20. The first thing to notice about this Commission, regulated by ss.101-104 of the Constitution, is that its role is severely limited. Reading these sections, especially s.101, one discovers that the Commission can only act in matters ‘relating to

trade and commerce’, that is, the kind of trade and commerce found in ‘the pro­ visions of this Constitution’—viz., ‘trade and commerce with other countries, and among the States’: see s. 51 (i) of the Constitution. Thus, Morgan v. The Com­ monwealth (1947) 74 C.L.R. 421, at p. 454; Riverina Transport Pty Ltd v. State

of Victoria (1937) 57 C.L.R. 327, atpp. 351-352.

In other words, what has been said about the limits of the Commonwealth’s trade and commerce power in paragraphs 5-10 above will apply to the role of the Inter-State Commission when it comes to supervise share dealings.

21. There is, indeed, a further limit imposed on the Inter-State Commission a limit which is not imposed on the trade and commerce power in s. 51 (i). For the Com­ mission is authorized by its terms of reference in s. 101 to execute and maintain s. 51 (i) laws ‘within the Commonwealth’. Then, ‘the commission cannot deal with foreign trade outside the Commonwealth’, ibid., at p. 351. The Commission could not supervise the overseas element in share dealings between Australia

and other countries.

But the Commonwealth, merely acting through s. 51 (i) legislation, could regu­ late that overseas element. See Crowe v. The Commonwealth (1935) 54 C.L.R. 69, at pp. 83, 85-86, 90, 93-94, where the Commonwealth controlled an exporter of dried fruits from Australia but in regard to his first sale of fruit in United

Kingdom and elsewhere.

22. Apart from the substantive limits just given, the Inter-State Commission is further circumscribed. It is not a court with such judicial powers as the granting of an injunction, the awarding of damages, the imposition of penalties, the con­ clusive settling of controversies, State o f New South Wales v. The Commonwealth

(1915) 20 C.L.R. 54, for example, atpp. 61-65, 83,89-90,94-95,108-110.

23. Since the Commission is expressly given powers of ‘adjudication and administra­ tion’, it probably could not act as a rule-making body. It probably could not issue regulations to govern overseas and inter-State share dealings. ‘The Inter-State Commission is not a legislative body. It cannot make laws’, Riverina Transport

above, atp. 351.

24. (1) To speak positively, the Inter-State Commission’s ‘powers of adjudication’, assigned to it by s. 101 of the Constitution, comprise ‘such powers of deter­ mining questions of fact as may be necessary for the performance of its executive or administrative functions’ (viz. in relation to trade and com­

merce laws), New South Wales v. The Commonwealth above, atp. 64.

(2) These factual findings, it seems, could be made binding on the parties be­ fore the Commission, Rola Co. (Australia) Pty Ltd v. The Commonwealth (1944) 69 C.L.R. 185, at pp. 200-201, 211, 212, 213; and see British Im­ perial Oil Co. Ltd v. Federal Commissioner o f Taxation (1925) 35 C.L.R.

422, at p. 442.

(3) Moreover, proceedings could be constituted before the ordinary courts on the basis of these conclusive fact-findings, Rola above, at pp. 200,217-218.

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Federal Statutory Body 25. In the area of shareholder protection a federal statutory body or commission has two advantages over direct legislative action by Parliament itself. First, a statu­ tory body can make rules expeditiously and tailor rules with some detail. Second,

a statutory body can act the surveillant over share dealings by a case-by-case method.

26. Certainly a federal statutory body can be given rule-making powers. ‘(T)he Fed­ eral Parliament has, within its ambit, full power to frame its laws in any fashion, using any agent, any agency, any machinery that in its wisdom it thinks fit’, Baxter v. Ah Way (1909) 8 C.L.R. 626, at p. 646.

Parliament can empower its statutory body to lay down terms and conditions, see Deputy Commissioner o f Taxation (N.S. W.) v. W. R. Moran Pty Ltd (1939) 61 C.L.R. 735, at p.763, as Parliament has empowered its Taxation Commissioner to go to the length of choosing under which section a taxpayer is to be assessed, Giris Pty Ltd v. Commissioner o f Taxation (1969)43 A.L.J.R. 99.

Parliament can authorize its statutory body to make rules ‘over a large and by no means unimportant subject . . . to determine the ends to be achieved and the policy to be pursued as well as the means to be adopted ’, and a wide discretion can be conferred, Victorian Stevedoring and General Contracting Co. Pty Ltd and Meakes v. Dignan (1931) 46 C.L.R. 73, at p. 100.

27. The limits to a statutory body’s rule-making powers are, of course, those im­ mediately laid down by its enabling statute (which is Parliament’s creature).

Ultimately the limits are those laid down by constitutional law on delegated powers, namely, the terms of reference prescribed by Federal Parliament must not be vague or uncertain and they must not be too wide, Dignan above, at pp. 101, Π9-120, 121; Wishart v. Fraser (1941)64 C.L.R. 470, at pp. 484,488.

As for vagueness or uncertainty, this can be overcome by precise drafting.

As for width, so long as the rule-making power deals with matters within the Commonwealth catalogue of powers, the rule-making power is allowed much scope and much discretion. See paragraph 26 above. .

28. A federal statutory body can be given adjudicative powers, as the Income Tax Board of Review has been given decision-making powers, Mobil Oil Australia Pty Ltd v. Commissioner o f Taxation (1963) 113 C.L.R. 475, at pp. 488, 491, 502; Shell Co. o f Australia v. Federal Commissioner of Taxation (1930) 44 C.L.R. 530, at p. 544.

(1) In the exercise of its decision-making powers a federal statutory body can decide questions of fact. See Rola and British Imperial Oil in paragraph 24 (2) above. And these fact-findings can form a conclusive basis in pro­ ceedings before ordinary courts, say, State courts exercising federal jurisdic­ tion. See Rola in paragraph 24 (3) above.

(2) In the exercise of its decision-making powers a federal statutory body can interpret and apply the law, as the Income Tax Board of Review does, Sutton v. Commissioner o f Taxation (1959) 100 C.L.R. 518, at p. 523. But the statutory body cannot decide the law conclusively. That is, review of the

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law must be left with the courts, if the parties so wish, Shell Co. of Australia v. Federal Commissioner o f Taxation (1930) 44 C.L.R. 530, at pp. 543, 544.

29. A federal statutory body cannot exercise the judicial power of the Common­ wealth by exercising punitive or enforcement powers, such as imposing penalties for breach of its orders, enjoining the parties against disobeying its orders or ordering compliance with its orders, Boilermakers Case (1957) 95 C.L.R. 529

and (1956) 94 C.L.R. 254; Waterside Workers’ Federation o f Australia v. J. W. Alexander Ltd (1918) 25 C.L.R. 434.

But there could be administrative-judicial co-operation between a federal statu­ tory body and the ordinary courts. The orders of the statutory body could be enforced by the Courts. See Rola in paragraph 24 (3) above. Compare the co­ operation between the Arbitration Commission and the Commonwealth Indus­

trial Court: the Commission makes the awards, the Court enforces the awards—a co-operation assumed to be valid, Seamen’s Union o f Australia v. Matthews (1956) 96 C.L.R. 529, at p.534.

30. A federal statutory body can require the attendance of parties to give evidence on oath, Shell Co. o f Australia v. Federal Commissioner of Taxation (1930) 44 C.L.R. 530, at p. 544, as the Trade Practices Tribunal does under the Trade Prac­ tices Act 1965-1968, ss. 72, 82, 83. Under the former Australian Industries

Preservaton Act 1906-1950, s. 15B, the Comptroller-General of Customs could require information and the production of documents; and his requirements were backed up by statutory penalties. These powers were permitted to an ad­ ministrative officer, Huddart Parker & Co. Pty Ltd v. Moorehead (1909) 8 C.L.R.

330, at pp. 354-357, 366, 376-381, 383-384, 418. Such powers are now found in the Commissioner for Trade Practices under the Trade Practices Act, ss. 103, 104, and could be given a federal statutory body.

31. A federal statutory body could combine two powers, a rule-making power and a decision-making power. The doctrine in Boilermakers Case (1957) 95 C.L.R. 529 and (1956) 94 C.L.R. 254 prevents the mixing of the judicial power of the Commonwealth with a non judicial power, such as an executive power or a legis­ lative power. But a federal statutory body, while it acts in a judicial manner, does

not exercise the judicial power of the Commonwealth, Rola Co. (Australia) Pty Ltd v. The Commonwealth (1944) 69 C.L.R. 185, at pp. 203-204. And so, the doctrine in Boilermakers Case insisting on a separation of powers does not touch a federal statutory body, such as the one described in these paragraphs.

Federal-State Body 32. The fact is one cannot say that the Commonwealth has control of securities and exchange in Australia. It has no specific and wholesale power over that matter in its catalogue of powers. At best the Commonwealth must warily exert its control

in a piecemeal fashion, acting in the interstices of its existing powers. On the other hand, the States have altogether general powers to make laws at large for the peace, welfare and good government of the States.

Then a complete control of securities and exchange must come from Common­ wealth-State co-operation.

33. There have been from time to time instances of such gap-filling by the States to complement Commonwealth powers.

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(1) For instance, ‘all air navigation within Australia (was) subjected to the one code by a combination of Commonwealth and State legislative power’, the Commonwealth regulating overseas and inter-State air navigation, the State intra-State air navigation, Airlines o f New South Wales Pty Ltd v. State o f New South Wales (1964) 113 C.L.R. 1, at p. 48; and see p. 40. (Common­ wealth and State legislation ‘complementary to one another’), pp. 51-52.

So, the one federal authority, a Securities and Exchange Commission, could draw its powers also from the Commonwealth (to control overseas and inter-State share sales) and from the States (to control intra-State share sales). And there could be ‘one code ’ of shareholder protection throughout Australia.

(2) The Australian Hide and Leather Industry Board, established by the Com­ monwealth, drew its powers from the Commonwealth and States to acquire and dispose of hides.

The hides were acquired in the territories by the Commonwealth, in the States by the States. The hides were marketed not only in overseas and inter­ state trade (see s. 51 (i) of the Constitution) but also in intra-State trade. The enterprise was struck down in a s. 92 challenge, for it prohibited the sales of hides unless appraised; and these sales might include inter-State

sales, Wilcox Mofflin Ltd v. State o f New South Wales (1952) 85 C.L.R. 488. The co-operative plan is described by the Court on pp. 508-511, 526-528; but the Court did not, apart from the s. 92 attack, pass on the validity of the plan.

To take a particular example of the plan, dealers in hides were required to be licensed. The Federal Act authorized the Board to licence dealers for the territories. The State Acts authorized the Board to licence dealers. Under the State Acts a person licensed under the State Acts was deemed to be licensed under the Federal Act. ‘So that means in effect that the board’s licence runs throughout Australia ’, Wilcox Mofflin above, at p. 510. So, a similar parallelism between Commonwealth and State legislation on the registra­ tion of share dealers could in effect make the registration ‘run throughout Australia ’.

(3) The Australian Wheat Board is established by the Wheat Industry Stabilization Act (Cth). State Acts authorize the Board to acquire wheat within the States, but not wheat destined inter-State. The wheat is then marketed overseas, inter-State and intra-State. Again, there are two sets of parallel and complementary legislation, Commonwealth and State.

(4) The Coal Industry Tribunal and its local coal authorities is yet another joint Commonwealth-State administrative body. Once more its powers derive from almost identical Commonwealth and State Acts, in this instance Com­ monwealth and New South Wales Acts. It has appeared frequently in High Court reports, but its validity has not been passed on. See, for example, R. v.

Gallagher ( Constituting the Coal Industry Tribunal)·, ex parte Australian Coal and Shale Employees’ Federation (1966) 40 A.L.J.R. 202; R. v. Gallagher, ex parte Aberdare Collieries Pty Ltd (1963) 37 A.L.J.R. 40; R. v. Lydon; exparte Cessnock Collieries L td (1960) 103 C.L.R. 15; cf. Australian

330

Iron ά Steel Ltd v. Dobb (1958) 98 C.L.R. 586, at pp. 596, 602. Neverthe­ less, the Court has acknowledged ‘this ingenious legislative device’, Lydon above, at p. 20.

The Coal Industry Tribunal seeks to maintain adequate supplies of coal throughout Australia—so far as this means supplies within New South Wales, New South Wales power must be relied on (contrast s. 51 (i), the trade and commerce power). The Tribunal also seeks to regulate and im­

prove the coal industry in New South Wales—so far as this means labour re­ lations not extending beyond New South Wales, New South Wales power must be relied on (contrast s. 51 (xxxv), the arbitration power).

34. It seems to me that a federal statutory body, an administrative body, can exercise such joint Commonwealth-State powers. If both Governments agree to direct their powers to the one body, then at least neither Government can speak of con­ straint or compulsion by the other party to the Federation.

Generally, the impression I gain from the cases given in paragraph 33 above is that the High Court accepts these Commonwealth-State attempts ‘to give powers expressed almost in identical terms and conferred by the . . . respective Par­ liaments a combined operation so that they will operate according to the consti­

tutional validity which each respective Parliament was able to give them’, Lydon above, at p. 20.

35. One may query whether a State can give its State powers to a s. 71 court, for example, the Commonwealth Industrial Court which might be introduced into the Commonwealth-State joint plan. See paragraph 29 above.

But there is a distinction between the foisting of State powers of a federal court and the concession of State powers to a federal court at the invitation of the Com­ monwealth. The latter concession and invitation cannot offend any principle of arms-length in a Federation. Moreover, the State powers given to the federal

court need not be non judicial powers; and so the separation of powers doctrine, with which the federal court is saddled, need not be breached. Finally, Boiler­ makers Case was strictly concerned with the Commonwealth and Ch. Ill courts, and with the exhaustive specifications in Ch. I l l of Ch. Ill courts. It did not say

whether or not a State, at the invitation of the Commonwealth, could offer further judicial power to a federal court.

National Commission 36. The essence of the federal-State body described in paragraphs 32-35 above lies in invitation and agreement between Commonwealth and State. There is no im­ position put upon the States. A national commission created by Federal Par­

liament must rely on the same cement— invitation and agreement, not obligation.

37. It may be trite but it is true; ours is a Federation with a central government and independently co-existing member States.

‘The Australian union is one of dual federalism, and until Parliament and the people see fit to change it, a true Federation it must remain’, Airlines o f New South Wales Pty Ltd v State o f New South Wales (1965) 113 C.L.R. 54, at p. 115. There is to remain‘a number of State governments separately organised.

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The Constitution predicates their continued existence as independent entities’, Melbourne Corporations. The Commonwealth (1947) 74 C.L.R. 31, atp. 82.

38. There are few constitutional bridges whereby the Commonwealth can dictate to the States or, to put it another way, whereby the States are responsible to the Commonwealth. State courts must apply federal law, covering clause V. State Supreme courts even on State law are appealable to the Federal Supreme Court, the High Court, s. 73 (ii). State courts can be burdened by federal jurisdiction, s. 77 (iii). But there are not many of these provisions subjecting or obligating the States.

Even the judge of a State court when exercising federal jurisdiction remains a State officer answerable to the State. He does not become pro hac vice an officer of the Commonwealth, R. v. Murray and Cormie\ ex parte The Commonwealth (1916)22 C.L.R. 437, atpp. 452,464,471.

39. Parliament has itself recently acknowledged the independence of the States in Commonwealth concerns. While Federal Parliament could apply federal law in Commonwealth places in a State, it was for the States acting on their own motion to administer this federal law through their State officers— whence the Common­ wealth Place (Administration of Laws) Acts of the various States to bolster the Commonwealth Places (Application of Laws) Act of the Commonwealth.

40. Then, if there is to be a national commission on shareholder protection, State officers in the Commission are not answerable to a Federal Minister or Federal Parliament. They may, of course, agree to take on that responsibility.

I can summarize my submissions as follows:

The corporations power is the main power on which the Commonwealth must rely in its shareholder protection. This power is restricted to foreign corporations and trading or financial corporations formed within the limits of the Com­ monwealth. If this power extends to the control of activities characteristic of cor­ porations, being foreign and trading or financial corporations formed within the limits of the Commonwealth, then under this power the Commonwealth can regulate share dealings by the corporations named in s. 51 (xx) of the Constitution.

The banking power is also available. Indeed, because this power includes a power with respect to the incorporation of banks it gives the Commonwealth control of the internal management of banking corporations, a closer control of corporations lacking in s.5 l(xx), the corporations power.

The insurance power may be invoked—but only to act the surveillant of invest­ ment by insurance companies in the interests of the insured.

The trade and commerce power permits the regulation of inter-State dealings in shares.

The postal power may be called in aid to deny the use of mail services to certain forms of share transactions.

Freedom of inter-State trade need not be offended by laws on shareholder pro­ tection, either because the laws attach to intra-State transactions or because the laws merely prohibit particular forms of (mal-) practices.

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If the Commonwealth wishes to pre-empt State legislation from this area of shareholder protection the Commonwealth can do so. But, of course, the pre­ empted area must be itself within the Commonwealth’s own competence, viz., within its corporations power, and the rest.

A revived Inter-State Commission would have a limited use in shareholder pro­ tection. It could only supervise inter-State dealings in shares.

A federal statutory body could exercise wide rule-making powers. It could also exercise decision-making powers. But the latter powers would need to be backed up by enforcement powers contributed by the ordinary courts.

A federal-State body in securities and exchange could draw concomitant powers from the Commonwealth offering its limited pockets of power and from the States offering their general powers. In the result comprehensive surveillance of share dealings would be secured throughout Australia.

A national commission on securities and exchange would be answerable to a Federal Minister or Federal Parliament—at least, so far as the federal members of the commission are concerned. State officers serving on the commission would be answerable to the national commission through the grace of the States.

P. H. Lane

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LEGAL OPINION A-3

1. The Committee is bound to be influenced by the course which has been taken in relation to securities regulation in the USA: in that country an elaborate federal system of supervision of dealings and dealers in company securities has been es­ tablished, beginning in 1933, and its validity so far as the distribution of power be­ tween Congress and States is concerned appears to rest mainly on the interstate commerce and the postal powers. The control system has developed through

stages which seem likely enough to be recapitulated in Australia—first mainly publicity, then direct controls of company activities, then controls over dealers in securities and stock exchanges, and finally a tendency for all the controls to move from objective external regulation to the creation of considerable quasi-judicial discretions vested in regulatory agencies, mainly the Securities and Exchange Commission. The history is well summarised in the first volume of Loss, Securities Regulation, 2nd ed.

2. (a) Unfortunately, so far as the constitutional problem is concerned, this US his­ tory is almost irrelevant for Australian purposes, and that in two ways. Firstly, the constitutional power under which the US legislatures and Courts have mainly proceeded—the federal interstate commerce power, Art 1 (8) (3)—has been given a completely different kind of interpretation in that coun­ try from the interpretation applied in Australia to the verbally similar federal interstate trade power, s. 51 (i). Secondly, so far as securities control is con­

cerned, the very few cases in which the Supreme Court of the USA has con­ sidered basic constitutional questions (as distinct from questions of statutory interpretation) in relation to the securities control legislation give only the faintest inkling of the way in which such legislation is related to the head of constitutional power. The result can be seen in Loss; his enormous work con­ tains only one, extremely cursory, reference to the constitutional question— in footnote 1 at p. 178 of the second edition, vol. 1. It is indeed unchanged from the first single-volume edition of the work, p. 120 n. 35, and Mr Harding has checked for me that the supplements to the second edition give no further ref­ erence on this point.

(b) Two moderately informative decisions on the US constitutional question are Electric Bond & Share (1937)303 US 419 and Jones v. SEC (1935)298 US 1; note the very early dates. Even the authorities settling the general interpre­ tation of the commerce power are very early— Jones and Laughlin Steel ( 1937) 301 US 1, Kirschbaum v. Walling ( 1942) 316 US 517 Wickard v. Filburn (1942) 317 US 111. As a result of the judicial revolution of 1936-42 on the Supreme Court of the USA, it has now become almost impossible for a federal statute concerned with trade and commerce to be held invalid by the Court, at least on a ground going to power; the Court is concerned, practically speaking, only with constitutional questions arising under the Bill of Rights— due process, equal protection of the laws, ex post facto laws etc— which have no counterpart in the Australian constitutions. However, so far as one can dis­ entangle a legal principle from the above and other US constitutional de­ cisions on the scope of the commerce power, it is that although the core of interstate commerce is a crossing of State boundaries, the Congress can regu­ late any activity, which affects interstate commerce—whether the ‘ affecting ’ is

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legal in a direct sense (changing legal rights, duties etc) or is ‘merely econ­ omic’. Translated into the securities case, this means that not only the sending of stocks and bonds, and payments for them, across State boundaries may be regulated, but also the whole of the business transactions having an economic

or commercial or organizational connection with such dealings. Thus if a dealer in securities has some interstate business in the narrow sense—and it is almost impossible for him not to have such—then the whole of his business organization as such is amenable to federal control, because it cannot be said

that any feature of his business organization is incapable of affecting the part of his business which is in the narrowest sense interstate. Sometimes called the doctrine o f‘commingling’, this mode of thought has caused references in the American judgments to the actual interstate movements involved to be of

the most perfunctory character. It is also my opinion that the postal power, while sometimes referred to in the US legislation and the judgments, is per­ functorily treated; before the expansion of the interstate commerce power from 1937 onwards, the ability to deny the posts to particular kinds of busi­

ness was of some importance, but such use of the postal power always caused difficult enforcement problems and was most useful in relation to business which wished to obtain concession postal rates. So far as economic regulation is concerned, the interstate commerce power has pretty well swallowed up the

rest of the Constitution in the USA.

3. (a) The course of interpretation of the corresponding Australian interstate trad­ ing power has been completely different from that described in paragraph 2. It is arguable that the wide interpretation there mentioned was adumbrated very early in US judicial history— perhaps as early as Gibbons v. Ogden

(1824) 9 Wheat. 1. This is disputable, and in any event it is certainly not how the first Australian High Court understood the US situation as at 1900, nor in my view has the High Court moved very far from the assumptions of its earlier Justices. It is not possible to make such confident statements about the

Australian position as about the US because the number of Australian de­ cisions bearing directly on the scope of s. 51 (i) is small, a state of affairs partly reflecting the circumstance that the Commonwealth has legislated relatively little under that power. Much Commonwealth legislation which in

the USA would require a footing in the interstate commerce power has been enacted in Australia under the banking and insurance powers— s. 51 (xiii) and (xiv)—having no US equivalent and not requiring an interstate com­ ponent. In one important case—aviation— the Commonwealth has a good

deal on the external affairs power—s. 51 (xxix)—to achieve results which in the USA are achieved under the commerce power. By far the largest number of Australian judicial discussions of the scope of trade and commerce have occurred not under s. 51 (i), but under the express guarantee of freedom of

interstate trade, s. 92, which has no US express counterpart, and whose US equivalent (judge-made) doctrine does not restrict the competence of the Congress at all, whereas our section is now held to bind both Commonwealth and States. But in any event the Courts have always recognised that the scope

of interstate trade and commerce protected under s. 92 is narrower than the area of power over trade and commerce given by s. 51 (i), and it is dangerous to treat dicta in s. 92 cases as being even persuasive on the scope of the former

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s. 51 (i). At most, that which is protected by s. 92 must come within Com­ monwealth power under 51 (i)—though of course with the immediate peril that it will be protected against Commonwealth as well as State legislative or legislatively-based interference by s. 92. However, ignoring for the minute the s. 92 complication and the hundred odd decisions under that section, it can be said that there have been about 21 decisions (all of the High Court) directly bearing on s. 51 (i) or having important discussions of its scope. They are listed in the appendix. Of these the first (Railway Servants 4 C.L.R. 88) was overruled. Of the remainder, the most important for the purposes of this opinion were Turner (39 C.L.R. 411) Huddart Parker v. Commonwealth (44 C.L.R. 492) Dignan (46 C.L.R. 73) Burgess (55 C.L.R. 608) Nagrint (61 C.L.R. 688) Noarlunga (92 C.L.R. 565) Redfem (110 C.L.R. 194) and Sec­ ond Airlines (113 C.L.R. 54). Taken together, these decisions decisively reject the US Supreme Court’s ‘affecting’ and ‘commingling’ doctrines, and tie the Commonwealth’s power very directly to the core ‘interstate’ activity— the actual crossing of State boundaries. Thus in Turner and Nagrint, commingling was explicitly rejected as a reason for federal control of sea lanes adjacent to routes used by interstate and overseas shipping, contrary to

US doctrine. In Burgess, commingling was rejected as a reason for federal control of all airways, though as we shall see this has been qualified in Second Airlines. Huddart Parker v. Commonwealth and Dignan provided (with dis­ sents) what may look like a more generous doctrine—namely that the inter­ state trade power authorises Commonwealth licensing and regulation of stevedoring activities affecting interstate and overseas shipping; however, it should be noted that this was tied to the actual loading and unloading of ves­ sels plying between States or overseas, and it was never suggested that the power extended to all aspects of the business of stevedores, merely because some of their activities fell within power. The efficacy of Commonwealth waterside control has depended in large measure on the practical cir­ cumstance that except in WA, intrastate coastal shipping has been a small

and dwindling proportion of all shipping, and it has not been worth the while of stevedores to seek separate regulation for the tiny part of their business solely concerned with such intrastate shipping. In Noarlunga, the Court held —surprisingly—that treatment of carcasses for export came within the foreign trade power; however this was again tied to the circumstance that the works in question produced solely for export and were designed accordingly. It was not suggested that the Commonwealth could deal with anything more than the actual processing of meat intended for export— for example, that it could as incidental to that operation regulate the corporate structure of the meat processing company. Redfem has also been suggested as a possible basis for a wider construction; restrictive pricing agreements concerning the sale of tyres were held to come within the interstate commerce power, although on the facts stated for the purpose of the decision (which concerned only the val­ idity of the pleadings) the agreement under attack included local sales within

a State as well as sales across a State border. However, the critical point of the decision was that on the pleading there was a single agreement affecting all types of sales, including interstate sales, and the Court was concerned only to decide whether insofar as interstate sales might subsequently be proved to

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have been carried out in accordance with that agreement, the Common­ wealth Australian Industries Preservation Act (predecessor of the Trade Practices Act) had been infringed. There was no suggestion that either the intrastate sales or the general corporate structure of the defendant companies

also fell within Commonwealth control because of the presence of the inter­ state element in the transactions.

(b) In Second Airlines the High Court held (modifying to this extent the ap­ proach in Burgess, and perhaps Turner and Nagrint) that the interstate trade power enabled the Commonwealth to lay down safety regulations for aircraft which bound intrastate as well as interstate operators, because of the physical

and technological impossibility of having separate safety rules for the two classes of operation, as they both had to use the one continuous air space. But it was also in Second Airlines that the Court specifically rejected the US ap­ proach to interstate commerce. The consequence can be seen in the aspect of

thd decision which concerned the power to regulate air traffic not from a safety but from an economic point of view— rationing the number of oper­ ators, protecting train and road traffic against air competition and such fac­ tors. The Court held that as to what it considered a purely intrastate air route

(Sydney-Dubbo) this competence belonged exclusively to the State. Hence two licences were needed and there was a deadlock— the Commonwealth choosing one operator and the State another, and neither being able to oper­ ate. If a similar case had arisen in the USA, the Supreme Court would have

examined the extent to which the ‘intrastate’ route involved the carriage of interstate and foreign traffic, goods, mails etc, the corporate relationship be­ tween the rival claimants and interstate and foreign operators, the servicing etc agreements between the claimants and the last named operators, and the

extent to which the ‘intrastate ’ and interstate-foreign operators relied on the same terminals and flying aids. It would undoubtedly have concluded that the service in question not merely ‘ affected ’ interstate and foreign commerce, but was a part of it—a channel of such commerce, and so fully subject to fed­ eral law. This is the contrast in concepts between the two Courts which must

be kept steadily in mind when speculating on the application of the interstate trade power to a subject such as securities control.

4. (a) There can be no question that the Australian interstate trade power—51 (i)— authorises the Commonwealth to regulate (subject to s. 92) the transmission of buying and selling orders for securities across State frontiers, and many features of the contractual arrangements connected with such transmissions. This is one of the features of the discussion of‘interstateness’ in the s. 92 cases

which is fully applicable to the extent of the power under s. 51 (i). The point comes out particularly in the ‘borderhopping’ cases, where the Court denied the protection of s. 92 to some aspect of a complex transaction including a border-crossing, but insisted that however ‘artificial’ or designed to attract

the protection of s. 92 the whole transaction might be, the actual crossing of a border is necessarily protected because this is the core of ‘interstateness’; see, for example, the opinion of Fullagar J. in Harris v. Wagner (1959) 103 C.L.R. 452 at 463-4. In the same passage, Fullagar J. quotes a famous pass­

age from another s. 92 case, McArthur (1920) 28 C.L.R. 530 at 549, which

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has sometimes been thought to express a relatively wide approach to ‘inter­ stateness’, though the passage also insists on border-crossing as a necessary part of the concept; the key words are: ‘all the commercial dealings and all

the accessory methods in fact adopted by Australians to initiate, continue and effectuate the movement of persons and things from State to State are also parts of the concept, because they are essential for accomplishing the ac­ knowledged end’. McArthur also illustrates the fallacy of using s. 92 cases in order to discover the outer limits of the power under s. 51 (i). The question was whether Queensland could fix prices in relation to certain interstate sales of goods; on the interpretation of s. 92 then applied by the Court (possibly not today applicable in similar circumstances) it was held that Queensland could not fix prices in relation to one of four classes of transaction—namely interstate contracts which by their terms required the delivery of goods and payment of purchase price across State borders. Another three classes of con­ tracts which had interstate elements in fact but could be fulfilled without a border crossing of the goods to be delivered were held not protected by s. 92. In my opinion, however, all four of the kinds of transactions carried on by the plaintiff company in New South Wales through travellers collecting orders in

Queensland would come under the scope of the Commonwealth’s interstate trade power, because all four involved border crossings of orders, accept­ ances, instructions to the travellers etc. The Commonwealth’s ability to pur­ sue such transactions down a line of sub-transactions within a State would certainly be curtailed by our Courts much short of the point now reached by the US interstate commerce power, but where this point is has never yet been authoritatively determined by our Courts, because appropriate cases have not yet arisen in which the problem arises from 51 (i) and not from 92.

(b) It follows that the Commonwealth could, for example, prohibit the trans­ mission from State to State of buying instructions and acceptances in relation to securities unless those securities were ‘approved’ in some manner defined by the legislation— e.g. they had been issued after advertisements in a particu­ lar form, or by companies with a specified proportion of paid up capital, or other such conditions designed to protect investors. All this, however, subject

to s. 92.

5. There can be equally little question that the Commonwealth could use the postal power—s. 51 (v)— in somewhat similar fashion to that outlined in 4 (b). Such use of the postal power has not come directly before the Australian courts, but I agree with Wynes (Legislative etc. Powers in Australia, 4th ed., p. 13 In 67) that

US decisions would be followed, and the use of the power to prevent passage of specified articles or communications upheld even though the policy behind the prohibition had nothing to do with the running of a post office. The view is strongly supported by Herald and Weekly Times v. Commonwealth dealt with post paragraph 6. This power would extend to intrastate as well as interstate communications, a matter of some importance in view of the size of our Statqs. In so far as the communications were interstate, the control might be subject to the requirements of s. 92. However, it should be appreciated that the US decisions on the postal power have never gone to the lengths manifested in the decisions on the interstate commerce power. That is, it has never been suggested that because

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a business uses the mails, therefore all its business affairs ‘affect’the mails and so come under federal control. Federal control on the postal basis applies only to the actual mail, telephone etc. transmission; the sanctions are denial of facilities for the prohibited material, and making it an offence to use those facilities in de­ fiance of such prohibition (by stealth, accommodation addresses etc.). However, the potential reach of these powers, at least in legal theory, could be very great.

For example, I can conceive of no constitutional objection to a Post Office regula­ tion which ensured the cutting off of telephone services to any person or corpor­ ate body which, in the opinion of the PMG, was carrying on a business inconsis­ tently with the views of the Senate Committee on Securities; nor would it be easy to apply s. 92 to prevent such drastic action. The difficulties are political and practical rather than legal.

6. Yet another approach to transaction-regulation is provided by the taxation power—s. 51 (i). In Barger, (1908) 6 C.L.R. 41, the High Court by majority held that taxation remission could not be used as a sanction for regulation, when the area of regulation was otherwise beyond federal competence, but the force of the

decision has been much weakened by the decisions and dicta in Fairfax (1965) 114 C.L.R. 1 and Herald and Weekly Times (1966) 115 C.L.R. 418. Fairfax dealt directly with taxation remission; the use of this device to induce a particular investment policy by superannuation funds was upheld. Herald and Weekly

Times dealt not with taxation, but with the television extrapolation of the postal power; it was held that television licensing could include conditions aimed at preventing concentration of ownership of such licences, although the policy so enforced had only a remote connection with the efficiency of the television ser­

vices as such. Hence it is probable that the Commonwealth could reach a topic such as securities regulation through differential taxation. For example, a tax could be imposed on the profits of stock and sharebroking firms, with provision for reduction in the rates of such tax for firms which adopted to the satisfaction of

a Commonwealth Securities Commission such practices as to advice, reserves, bonding of employees against frauds, dealing on margin, prevention of insider trading etc. as the Commission lays down. It might be in practice very difficult to apply such measures to company flotations, though possibly worth considering in relation to particular kinds of companies; for example, differential rates of

land tax could be used as an incentive to mining companies to adopt specified standards. One advantage of tax-oriented control schemes would be their likely immunity from attack under s. 92.

7. In much of the above discussion s. 92 is mentioned as a limiting factor for poss­ ible Commonwealth controls of security trading. Even today, there are many unsolved problems in relation to s. 92 and there has recently begun to emerge on the High Court bench some fairly fundamental differences in approach to that

section.. There is a convenient summary of the established interpretation in Howard, Australian Federal Constitutional Law, chap. 5 .1 think a good enough summary of the effect of the section as now interpreted, for the purpose of this discussion is as follows. S. 92 guarantees the continued existence of private

enterprise in interstate trade and commerce, and protects such enterprise against legislative and legislatively authorised interference by Commonwealth or States

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24175/ 75-12

unless such interference satisfies three tests; firstly, it is directed to objective pur­ poses of public utility such as prevention of fraud, disease, accident etc. and maintenance of quality standards; secondly, it is ‘reasonable’; thirdly, it does not depend on the use of wide discretions vested in administrative officers. I should think that the general public purpose of regulating securities trading so as to pre­ vent intentional, negligent or even unintended injury to investors would be regarded by the present High Court as well within the first requirement, provided

the means adopted came within the second. The main practical difficulty might come from the third requirement, because it may be more convenient and work­ able, at least in the early stages of a control system, to vest fairly wide discretions in a Securities Exchange Commission. This leads to the dilemma emphasised in chap. 11 of my Australian Federalism in the Courts (especially pp. 206-8); in so far as Commonwealth authority is extended further in economic and commercial matters on the ground of their ‘interstateness ’, it will be difficult to prevent the power so gained from coming automatically within the restrictions created by

s. 92. So far as activities are classified as ‘intrastate’, they will be unprotected by s. 92, but effective regulation may require State legislative action.

8. The desirability and possible effectiveness of Commonwealth controls under one or all or some of the above powers is almost entirely one of practical convenience and politics. Thus under the interstate trade power, questions requiring answer would include: how much trading in securities in fact goes on across State borders? How readily could affected dealers rearrange their methods of doing business so as to avoid the elements o f‘interstateness’ attracting Commonwealth power? Under the postal power, relevant questions would be: is it politically practicable to deny all telephone etc. facilities to non-cooperating brokers? To in­

terfere with the privacy of first class mails and ‘bug’ telephone calls so as to police regulatory systems? Under taxation powers, what are the administrative implications of differential tax systems? Would it be practicable to use them for controls over business generally, or only over share dealers, and would such in­ direct controls over the latter be worth the effort? Generally speaking, it can be said that Commonwealth attempts to use the peripheries of granted powers, or to seek constitutional toeholds in a collection of powers not directly bearing on the subject of regulation are apt to invite extensive litigation, cause extremes of adminstrative complexity and may not quite hit the specific conduct which it is sought to prevent or regulate. Hence it is a problem of weighing the undoubtedly greater directness and efficiency, legally and administratively, of State controls,

against their local nature and the difficulties in getting and keeping them sufficiently tough and uniform, and on the other hand of weighing the advan­ tages of resolute Commonwealth policy on a uniform national scale against the possible legal and administrative weaknesses of action to give effect to such pol­ icy through Commonwealth power alone, and finally weighing the result of the

first calculation against the result of the second. I doubt whether any computer ever made or to be made could solve these equations.

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APPENDIX

Chronological Table of Cases bearing on s. 51 (i) Federated Amalgamated Government and Railway etc. Association v. N SW Railway etc. Association (Railway Servants) (1906) 4 C.L.R. 88 Owners of'Kalibia’v. Wilson (1910) 11 C.L.R. 689 Australian Steamships Ltd v. Malcolm (1914) 19 C.L.R. 298

Newcastle & Hunter River etc. Co. Ltd v. AG Commonwealth (1921)29 C.L.R. 357 Walsh and Johnson, exp. (1925) 37 C.L.R. 36 Commonwealth v. Australian Commonwealth Shipping Board(1926) 39 C.L.R. 1 R. V. Turner, ex p. Marine Board of Hobart ( Turner) (1927) 39 C.L.R. 411 R. V. Gates (1928) 41 C.L.R. 519 Huddart Parker v. Commonwealth (1931)44 C.L.R. 492

Vic Stevedoring etc. Co. v. Dignan (Dignan) (1931)46 C.L.R. 73 R. v. Burgess (Burgess) (1936) 55 C.L.R. 608 Radio Corporation v.Commonwealth (1938) 59 C.L.R. 170 Nagrint v. Ship Regis (Nagrint) (1939)61 C.L.R. 688 Joyces. Australasian UN Steam Navigation Co. (1939) 62 C.L.R. 160

Australian National Airways v. Commonwealth (1945) 71 C.L.R. 29 Wagner v. Gall(1949) 79 C.L.R. 43 Burton v. Honan (1952) 86 C.L.R. 169 O’Sullivan v. NoarlungaMeat (Noarlunga) (1954) 92 C.L.R. 565

R. v. Commonwealth Court of Conciliation etc. ex p Waterside Workers’ Federation (1955)93 C.L.R. 528 ,

Australian Coastal Shipping Commsv. O’Reilly (1962) 107 C.L.R. 46 Redfern v. Dunlop Rubber Aust. (1964) 110 C.L.R. 194 Logan Downsv. Commissioner Taxation (1965) 112 C.L.R. 177 Airlines ofN SW v. N SW (Second Airlines) ( 1965) 113 C.L.R. 54

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The Corporations Power (s. 51 (xx) ) and Securities Control 1. This power has been considered in detail only twice, in Huddart Parker v. Moorehead (herein Moorehead) (1909) 8 C.L.R. 330 and Bank of N.S.W. v. Commonwealth (herein Bank Nationalization) (1948) 76 C.L.R. 1, both decisions

of the High Court. (Bank Nationalization was appealed to the Privy Council, but solely on an issue not relevant to the corporations power). However, in Bank Nationalization the discussion was strictly obiter, because of the four Justices who referred to the question, Latham C. J., Rich and Williams JJ. held expressly that

51 (xx) was irrelevant to that case since they regarded banks as being dealt with exclusively by 51 (xiii) and hence not included within ‘financial corporations’ under (xx), and Starke J. was inclined to the same view though not so definite.

Dixon and McTieman JJ. did not deal with (xx). Moreover, the four Justices men­ tioned undertook no independent examination of (xx), but purported to rely on what was decided in Moorehead, and did not even undertake any detailed exam­ ination of that case. Fullagar J. made some comments on (xx) in a single-judge de­

cision, Associated Dominions Assce. v. Balmford (1953) 89 C.L.R. at 86-7, but these also were very cautious and unnecessary to the decision. Hence we are in substance, so far as authority is concerned, cast back on Moorehead.

2. The construction of 51 (xx) should be reconsidered by the High Court in the forth­ coming restrictive trade practices case, Concrete Pipes, on appeal from the Indus­ trial Court. The latter court, following Moorehead, held that (xx) does not enable the Commonwealth to regulate the external conduct of the named corporations,

such as entering into restrictive trade agreements with other traders. If the Com­ monwealth is to succeed on the appeal, it will have to induce the High Court to overrule Moorehead, and this could not be done without modifying considerably the construction of (xx) which a strong majority of the Court (Griffith C. J.,

Barton, O’Connor and Higgins JJ.) then adopted. It would obviously be con­ venient if we could wait until that case is argued and decided, but I gather that the Committee is anxious to explore the corporations power to some extent before then, and of course there is always the possibility that the case will not proceed. It

may also help towards the understanding of that case, if decided and whatever the decision, if some analysis of Moorehead and of the alternative possible interpreta­ tions of (xx) is undertaken now.

3. No interpretation of (xx) adopted in Moorehead would serve the purposes of the Commonwealth in relation to restrictive trade practices, and also the purposes of the Committee. The majority opinions differed somewhat between themselves (though I think the extent of that difference has been exaggerated), but they all

agree on one point which is decisive for the restrictive trade practices case; (xx) does not enable the Commonwealth to regulate directly the external relations of the named corporations with the general community. Whatever power it does give is in some way related to the corporate capacity and structure of the named

corporations; in so far as it extends to capacity, relations with the outside world will be affected because transactions beyond capacity may become void or void­ able, but the Trade Practices Act does not try to exploit that possibility. On the other hand, the dissent of Isaacs J. in Moorehead rested on the view that (xx)

empowers only the regulation of the external conduct of corporations, and does

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not extend at all to matters of capacity and internal organization; if that were now adopted, the Commonwealth would succeed in Concrete Pipes, but the corpor­ ations power would become almost useless for the purposes of the Committee. It is far from certain that the High Court as at present constituted will depart from a version of the Moorehead construction of the corporations power. However, I should think that in any event the least probable course for it to take would be to adopt the Isaacs dissent in that case, because it is such an eccentric view of the power. One must ask why the Founders should have put this power in at all, and for the reasons given by Higgins J. in Moorehead (pp. 409-10), it seems so ex­ tremely unlikely that they wanted to give the Commonwealth power to create a special law of contract, torts, property, crime etc. for activities in which foreign,

financial or trading corporations happened to be engaged. Clearly they must have thought it important that there could be a national law in relation to these bodies for reasons connected with their being corporations, and because they were foreign, trading or financial. Thinking along these lines will probably be congenial

to the present High Court, since it accords with the way in which (following the pioneer work of Sir Owen Dixon) they have treated another puzzling section, namely 92. Such thinking leads naturally to a view that the placitum is intended to give some control over the internal structure of the corporations mentioned, and over the aspects of their relations with the general community especially con­ nected with their being foreign, trading or financial in their activities. The latter

aspect of the matter could result in the High Court overruling Moorehead on the question of monopolies control legislation, because against the background of later 19th century experience, especially in the U.S.A., it would be reasonable to treat monopolisation and trade restriction as special vices of trading and financial corporations and therefore within the scope of the power, but this line of reason­ ing (unlike that of Isaacs J.) would also leave ample room for a construction of the power helpful to the Committee in the handling of its problems. Hence I am in­ clined to think that the Concrete Pipes case will produce a result no worse, from the point of view of the Committee, than Moorehead, and possibly a little better.

4. It would be particularly helpful to the Committee if the High Court could be per­ suaded now to overrule the unanimous view of the Court in Moorehead that the corporations power does not permit the Commonwealth to provide for the incor­ poration of trading and financial concerns. Such a power would be by far the most convenient starting point for a uniform Commonwealth law concerning the

aspects of corporate activity with which the Committee is concerned. I have always thought myself that the Moorehead decision on this point was at best ques­ tionable, and probably wrong. I think the Court put far too much weight on the expression ‘formed within the Com m onw ealthit seems to me intended only to contrast certain ‘Australian’ corporations with «//‘foreign’ corporations, and to be quite consistent with the view (which Griffith C. J. admitted at p. 348 was other­ wise tenable) that power to create such corporations would be a natural concomi­ tant of a general power with respect to them. Similarly they over-emphasized the mere fact of life that foreign corporations must initially have been ‘formed ’ under some other law. However, it may be too much to hope that the present High Court would overrule the one thing on which all agreed in Moorehead, especially since it was accepted as correct by the four Justices abovementioned who dealt with (xx)

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in Bank Nationalization, and by Fullagar J. in the insurance case. Hence though I hope that the argument will be put in Concrete Pipes, I would expect at the most two of the present Justices to be prepared for such a heroic degree of overruling.

5. However, even if the present High Court adheres in substance to the Moorehead majority interpretation of (xx) this could still leave that power of some importance for the purposes of the Committee. The main difficulty in following the majority opinions lies in the circumstance that Barton J. hardly bothered to express any positive opinion on the actual scope of (xx), though he did express a general

agreement with the opinion of Griffith C.J., while Griffith C. J., although speaking a little plainer than Barton J., was also very cautious. The only certain things one can say about their two opinions is that they held (xx) did not authorise laws governing the formation of trading and financial corporations, nor laws governing their external conduct. On the other hand, O’Connor and Higgins JJ. adopted a reasonably clear positive construction of (xx) and although there are differences of emphasis as between them, there is a core of agreement. It is expressed by O’Connor J. as follows (8 C.L.R. at 373-4):

In the light of the circumstances it may fairly be taken that the framers of the Constitution intended by the sub-section under consideration to confer on the Parliament of the Commonwealth just that power which was wanting in the legislative bodies then existing in Australia— the power of making a uniform

law for regulating the conditions under which foreign corporations, and trad­ ing or financial corporations created under the laws of any State, would be recognized as legal entities throughout Australia. As part of that power there would be necessarily implied the authority to impose on those corporations all

such conditions on admission to recognition as would be appropriate or plainly adapted to the object of the subsection and not forbidden by the Constitution. (See the judgments of this Court in the Jumbunna Case (1)). Recognition of a corporation as a legal entity involves a recognition of its right to exercise throughout Australia its corporate functions in accordance with the law of its

being, that is, the law by which the foreign or State law gave it existence as a legal body. Recognition may be absolute or on conditions. It is unnecessary here, even if it were possible, to make a comprehensive statement of the mat­ ters which might be the subject of such conditions, but it may be stated gener­

ally that Parliament is empowered to enact any law it deems necessary for regulating the recognition throughout Australia o f the corporations described in the section, and may, as part o f such law, impose any conditions it thinks fit, so long as those laws and the conditions embodied in them have relation only to the

circumstances under which the corporation will be granted recognition as a legal entity in Australia. It may, for instance, prohibit altogether the recognition o f corporations whose constitutions do not provide certain safeguards and securi­ ties for payment o f their creditors. It may impose conditions on recognition to

attain the same ends. As a preliminary to recognition it may insist upon com­ pliance with any conditions it deems expedient for safeguarding those dealing with the corporation. In the effecting of objects within these limits it must have the right to encroach on State powers to such an extent as it may deem necess­

ary.

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Higgins J. says (at pp. 412-3):

But there is ample scope provided for the Federal Parliament by this sub­ section. It can regulate such companies as to their status, and as to the powers which they may exercise within Australia, and as to the conditions under which they shall be permitted to carry on business. It is well established that each country has a right to prevent a foreign corporation from carrying on business within its limits, either absolutely, or except upon certain conditions: Hooper v. California (1); and this principle seems to be at the basis of sub­

sec. (xx). The Federal Parliament can, in my opinion, prescribe what capital must be paid up, probably even how it must have been paid up (in cash or for value, and how the value is to be ascertained), what returns must be made, what publicity must be given, what auditing must be done, what securities must be

deposited.

The Federal Parliament controls as it were the entrance gates, the tickets of admission, the right to do business and to continue to do business in Australia; the State Parliaments dictate what acts may be done, or may not be done, within the enclosure, prescribe laws with respect to the contracts and business within the scope of the permitted powers.

It should be added that O ’Connor J. expressly recognises (at p. 373) that the fed­ eral power must extend to the State in which one of the affected corporations is formed.

6. It is self-evident that such a power (noting particularly the underlined passages) would enable the Commonwealth to go some distance towards the objectives of the Committee. There would be some technical awkwardness in having to express the desired regulations in the form of conditions of a licence to cany on business, and in the construction of appropriate sanctions, but I have no doubt that these problems (largely drafting in nature) could be overcome. Hence the next question is—whether the opinions of Griffith C. J. and Barton J. can be regarded as giving

any support to the O’Connor-Higgins theory. In my view they can. Griffith C. J. says at p. 354:

I think that pi. xx. empowers the Commonwealth to prohibit a trading or financial corporation formed within the Commonwealth from entering into any field of operation, but does not empower the Commonwealth to control the operations of a corporation which lawfully enters upon a field of operation, the control of which is exclusively reserved to the States.

A preceding passage suggests that the ‘prohibition’ must be expressed in terms of denial of capacity. As to Barton J., we have to make an inference from something he says in the course of discussing the argument that the impugned legislation is at

least valid under the incidental power (xxxix), which is a very contingent sort of proposition; however, for what it is worth, he says at p. 355: ‘The primary object of the legislation’—(sc., for it to be valid)—‘must be, not the interference with the forbidden subject of State trade, but the control of the corporations the subject of the grant’. Assuming that these two Justices were in substance agreed, the result is not far removed from the more carefully stated view of O ’Connor and Higgins J. J. If the corporations in question can be prohibited from engaging in specified areas

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of trade then it is likely that the legislature can at least lay down conditions of trad­ ing which concern not their external trading activities but their internal structure, including the matters referred to by the last-named Justices. Hence my conclusion on this part of the matter is that the Commonwealth could as authority now stands

require the named types of corporation to adopt procedures designed to protect share and debenture holders and creditors, as a condition of being allowed to carry on business at all. (It is suggested by Rich and Williams JJ. in Bank Nationalization at p. 255 that the corporations in question cannot be directly regulated by Commonwealth law in the sense mentioned, but can only be required to adopt the specified procedures under the terms of their incorporating

foreign or state law. There is no support for this view in any other judgments, and no logical basis for it).

7. However, even if so construed (xx) allows the Commonwealth to act only in respect of foreign, trading and financial companies. There is no difficulty in iden­ tifying a foreign company, but the precise limits of the expressions ‘trading’ and ‘financial’ are disputable. We have from Bank Nationalization that ‘financial’

does not include banks, but this is unimportant in view of the very wide scope given the banking power (xiii) in State Banking (74 C.L.R. 31) and Bank Nationalization. Otherwise we have only a short passage in the opinion of Isaacs J. in Moorhead at p. 393. He said that a ‘purely manufacturing’ company was not included. Later he went further and excluded ‘domestic corporations’ constituted

for ‘municipal, mining, manufacturing, religious, scholastic, charitable, scientific and literary purposes’, and ‘possibly others more nearly approximating a character of trading’. This still leaves in doubt manufacturing corporations which also trade, and it is difficult to imagine a manufacturer who does not at least sell

his own products; and it says nothing specific about financial corporations. Nor is it certain that the Concrete Pipes case will deal fully with this problem, though it was briefly mentioned in the Industrial Court. My tentative view is as follows.

(a) The present High Court is unlikely to give the relevant expressions so wide a meaning as to include all the corporations which the Committee would like to see covered, that is all that are non-governmental and non-‘charitable’ (in the widest sense). The Court is pretty sure to say that some significant nar­

rowing of the field o f‘economic’ corporations must have been intended. The dicta of Isaacs J. are likely to be persuasive.

(b) ‘Trading corporation’ is therefore likely to be confined to corporations whose main business is trading as distinct from extracting, making, processing etc. The pure type of trading corporation would be one which buys goods and then sells them, and the borderline cases would be corporations which carry

out a limited degree of processing before selling, such as a car concern which buys knocked down whole vehicles, assembles and then sells. Probably most mining companies would be excluded. This is a pessimistic view, and a Court which favoured expansive or contemporary interpretation of a Constitution

would certainly reject it on the ground that today trading is in the forefront of all economic enterprise. However, it accords with the evident determination of the present Court, as shown in Second Airlines (113 C.L.R. 54) and Second Margarine (114 C.L.R. 283), to maintain a rigid distinction between pro­

duction and trading.

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(c) ‘Financial’ gives less trouble. It would certainly include unit and mutual trusts, fringe banking (‘merchant banking’), and in general companies which take money from the public in order to lend it to others or buy securities in other companies.

8. Finally, it has to be noted that under the present interpretation of s. 92, that sec­ tion could be an obstacle to the exercise by the Commonwealth of whatever powers it gets under (xx), and the difficulty could be greater if the power takes the shape adumbrated in para. 6 above. This is because the assumption of that sort of

approach is that the Commonwealth would have to prohibit the conduct of busi­ ness throughout Australia by the designated corporations unless they complied with specified requirements as to the raising of capital, and issue of shares, deben­ tures, floating charges, mortgages etc. in order to be valid for businesses of an interstate character, the requirements would have to be prima facie regulatory and objective in character; they would have to exclude the exercise of discretionaiy powers by administrative officers, and be such as not to cast an undue burden on the interstate trade in question. An unexplored problem under s. 92 is that created by Commonwealth regulatory laws tending to make trading conditions more onerous for interstate business than are State laws applicable to comparable busi­ ness of a purely intrastate character. On the other hand, in so far as the corpor­ ations regulated by the Commonwealth under s. 92 are purely intrastate, s. 92 would not apply—though I would expect a rush to make business interstate, a sort of border-hopping, in order to attract whatever protection s. 92 might give. The relation of s. 92 to (xx) has never been considered. The present construction of

s. 92 is cogently dealt with in Howard, Australian Federal Constitutional Law p. 203 if.

Cooperative Regulation by Commonwealth and States 1. In my opinions on the possibility of direct Commonwealth control in this matter under the Corporations, Interstate Trade, Postal and Tax powers of the Common­ wealth, I have drawn attention to a number of difficulties and doubts concerning

the application of those powers, and the unlikelihood that the High Court would permit a direct attack on the problem in the way made possible in the USA by the interpretation of the interstate commerce power of that country. There is always a strong initial objection to the Commonwealth trying to deal with what socially

and economically are fairly large and distinct commercial operations by the use of powers which only peripherally or indirectly affect such operations; there is the constant danger of successful judicial challenge to particular controls, the inhibi­ tions to firm administrative action which such dangers create, the administrative complexities made necessary by the form of the constitutional power in question, and the strong incentive to the persons and corporations threatened by the control to seek changes in their form of organization which will take them beyond the scope of the Commonwealth powers. For example, it is pointed out that the cor­ porations power may not be available to control the securities activities of mining companies, even if the scope of the power in other respects becomes wider be­ cause of the forthcoming High Court decision in Concrete Pipes. Some concerns which in a corporate form might be caught under the corporations power might find it worth their while to abandon the corporate form and instead use partner­ ship forms; there are other incentives to such a course. The postal power can be

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evaded by using other forms of communication, which may be quite sufficient for a good many purposes of a locally based securities trade in State capital cities, and a fully effective use of this power may require a degree of interference with first

class mails which would be very offensive to generally accepted political and popular ideas on that subject. Similar difficulties could well attend an attempt to use the interstate trade power in its Australian interpretation, since its scope might well extend only to control of actual transmission of buying and selling orders etc.

2. Action by the States is obviously free of many, though not all, of the difficulties which face the Commonwealth. Generally speaking, the States under their gen­ eral residue of powers—s. 107— can deal directly with every phase of a securities trading operation within the State, and also with all the aspects of interstate

trading (however conceived) in the same field in so far as it involves activities within the borders of the State concerned. It must never be forgotten that the States have concurrent power over interstate trade, and their legislation affecting that field can be invalidated, generally speaking, only for three reasons: firstly,

Commonwealth law operating in the same field and overriding State law under s. 109; secondly, State law attempting to operate extraterritorially; thirdly, be­ cause of the application of s. 92. Neglecting these difficulties for the minute, it

would be open to the States to institute the full range of controls over securities trading and traders made familiar by North American example, and all the further kinds of control which I have heard suggested, and even if some particular kinds of control ran into legal difficulties, it is probable that the greater part of the control system would remain unaffected. Returning to the three main possible

difficulties mentioned, the first two (inconsistency with Commonwealth law and extraterritoriality) could both be dealt with by an appropriate Commonwealth policy and consequent legislation. The third, s. 92, applies equally to State and Commonwealth action and hence constitutes no reason in itself for preferring one

to the other.

3. Assuming no constitutional change and no references under s. 51 (xxxvii) in these matters, the above situation obviously calls for Commonwealth-State cooperation in the field. In addition to the usual reason for Commonwealth participation- financial aid—it may be found at least convenient and perhaps necessary to sup­

plement State laws with Commonwealth laws dealing with interstate and foreign transactions and having the effect of invalidating for all Australian purposes attempts at evading the State controls by overseas domiciling of companies and similar methods. There may also need to be a central administrative body to

coordinate the State operations, and Canberra may be the most convenient loca­ tion for this.

4. In evidence to the Senate Committee on the off-shore oil and gas legislation, I suggested that cooperative federalism is not necessarily a good thing, and can lead to unsatisfactory legal and political consequences. Attached hereto is a copy of a supplementary paper which I prepared for that Committee which gives a very

brief account of some particular cases of cooperation. At the time that paper was written, no details of the Commonwealth-State agreement on literary censorship had become available, but the agreement has since been published, and it turned out to be as objectionable as I had feared. The general topic is further discussed,

and the literary censorship agreement examined in more detail, in my Deakin

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Memorial Lecture for 1970, a copy of which is attached. Generally speaking, the dangers in such arrangements are: dispersion of responsibility for government action among so many officials, Ministries and Parliaments that in no place can there be a satisfactory survey of and accounting for the operation as a whole, even at the level of getting comprehensive answers to parliamentary questions; danger that the need for facing and solving specific problems of legal uniformity will be avoided and an attempt made to achieve needed uniformity by administrative policies which ignore or even flout the legal requirements of the various jurisdic­ tions concerned. These dangers can be ameliorated, although probably not com­ pletely eliminated, by careful attention to the demarking of areas of Common­ wealth and State responsibility and arrangements for all the administrative authorities concerned to supply full information to all the governments and parlia­ ments concerned, and by seeing to it that substantial uniformity of the relevant laws is in fact achieved before cooperative administration is embarked on at all.

5. In the area with which we are concerned, there has already been a reasonably suc­ cessful exercise in procuring substantial uniformity of State and Commonwealth law, with the result that the relevant administrative authorities have become accustomed to a common set of principles and procedures; however, there has

been a regrettable tendency for the time lag between changes (usually originated by Victoria, and in one important recent case by NSW) in the various States to be­ come longer. Given this history, it should not be too difficult to make satisfactory arrangements on the matters mentioned above a condition of the operation of any co-operative scheme.

6. In the attached papers, one point is mentioned which is particularly relevant to the present subject. It is pointed out that where a particular social control is in any event best insulated from rather than made subject to the control of parliaments and central executive governments, then the ‘responsible government’ objections to co-operative federalism become much less relevant. In the present case, one would contemplate that given a completely uniform set of Commonwealth and State laws designed to impose a considerable degree of control over securities dealers and dealings, the day to day administration of the system would be vested in a specialised Commission structure exercising fairly wide quasijudicial powers,

and jointly empowered by State and Commonwealth Acts, with some form of appeal to the Courts on those of its decisions which are governed by what the High Court would regard as justifiable standards. It would probably be highly undesir­

able to have the Commission’s regular activities subject to either Ministerial or parliamentary interference or discussion. The governments and parliaments would be concerned only with hearing periodical reports from the Commission, with such amendments to relevant law as it might suggest, and would consider suggestions for changed or new general principles which might emanate from Members or from the executive governments. The need for continued Common­ wealth-State agreement on specific amendments to the system would be a limiting

factor in the working of the system and one would hope that after some experience the States might be prepared to make references under s. 51 (xxxvii) so that the supervision and amendment function of the legislatures could be exercised from the one place, namely the Commonwealth Parliament. However, in my view ex­ perience has not shown that periodic bursts of unilateral State activity in these

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matters, caused by some immediate commercial scandal, produce particularly sat­ isfactory results. Hence I would support a co-operative arrangement in this field, notwithstanding the responsible government objections to all such schemes, as

being a lesser evil than continued absence of comprehensive, uniform national policy and action.

Geoffrey Sawer

LEGAL OPINION A-4

I should emphasise that I am no expert on either the law or practice relating to se­ curities, stock exchanges, company affairs or the activities of stock brokers. I have assumed, however, that many practices which caused concern in the United States and gave rise to the legislation governing the creation of the Securities and Exchange Commission are evident in Australia and that your Committee may wish to recom­ mend that the Commonwealth take action either alone or jointly with the States along lines which are broadly similar, though perhaps not identical, to that taken by the American Congress.

I shall first deal with the relevant powers of the Commonwealth on the basis that the Commonwealth Parliament may wish to be the sole authority controlling this matter. Despite your invitation to advise on the corporations power contained in sec­ tion 51 (xx) of the Constitution, I think that little is to be gained by this, having regard to the present general uncertainty in this area and the hope that we will soon receive an authoritative exposition by the High Court in the Concrete Pipes case.

As the Committee is no doubt aware, the Commonwealth Parliament can make laws only in respect of such subjects as are expressly or by necessary implication referred to in the Constitution as being within Commonwealth legislative power. The relevant powers for present purposes are those in respect to trade and commerce with other countries and among the States (s. 51 ( i ) ), taxation but not so as to discriminate between States or parts of States (s. 51 (ii) ), postal, telegraphic, telephonic and other like services (s. 51 (v) ), banking other than State banking, also State banking, extending beyond limits of the State concerned . . . (s. 51 (xiii) ), insurance, other than State insurance, also State insurance extending beyond the limits of the State concerned (s. 51 (xiv)), and foreign corporations, and trading or financial cor­ porations formed within the limits of the Commonwealth (s. 51 (x x )). The limi­ tations on Commonwealth power which are relevant are those contained in s. 51 (ii) itself, the requirement in s. 99 that the Commonwealth shall not, by any law or regu­ lation of trade, commerce or revenue, give preference to one State or any part thereof over another State or any part thereof, the provision in s. 92 that trade, commerce and intercourse among the States . . . shall be absolutely free, the doctrine of the separation of powers under which no body other than a court may exercise the ju­ dicial power of the Commonwealth and under which there may be limits on the power of the Commonwealth Parliament to delegate legislative power.

For present purposes, I do not propose to consider the Territories power in s. 122. So far as the Committee is concerned, Commonwealth legislative power is plenary in the Territories although limited by some specific restrictions such as s. 116 of the Con­ stitution. There should be little difficulty in enacting for each of the Territories any scheme the Parliament desires to deal with the matters which the Committee is con­

sidering. While a law for the government of a Territory under s. 122 may have oper­ ation within the area of the States, it would not be possible to use s. 122 as a lever for enforcing any comprehensive form of national control in the securities field.

Before dealing with each of the relevant powers, it might be useful to set out gen­ erally some of the principles of interpretation that have been applied by the High Court.

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The process of determining whether a law is one ‘with respect to’ a subject of Commonwealth power is known in constitutional legal jargon as ‘characterisation The method of the High Court over the years has been first to interpret the meaning of the subject-matter and secondly to determine whether the law can be described as one with respect to that subject. In most cases involving interpretation, the second

step has been the most difficult and has given rise to the most dispute. Nevertheless in recent years certain relatively clear lines of approach have emerged.

Except where the defence power is involved, the Court has emphasised that if a law operates directly within the subject-matter of the power, the motive or policy of Parliament is irrelevant. In the State Banking case (1947) 74 C.L.R. 31 at 79, Sir Owen Dixon said—

Speaking generally, once it appears that a federal law has an actual and immedi­ ate operation within a field assigned to the Commonwealth as a subject of legislat­ ive power, that is enough. It will be held to fall within the power unless some further reason appears for excluding it. That it discloses another purpose and that

the purpose lies outside the area of federal power are considerations which will not in such a case suffice to invalidate the law.

If Parliament has legislative authority to make laws with respect to an activity (such as commerce with other countries or banking), a law will be regarded as operat­ ing upon the subject-matter and directly within the field of the power if it prohibits anyone engaging in the activity. The difficulties that have arisen have been in cases

where the Commonwealth has forbidden a person to engage in the activity except on certain conditions or has limited the right to engage in the activity to persons with prescribed qualifications. The problem arises because the conditions or qualifications may reflect a legislative policy which has little to do with the subject-matter of the

power.

In 1931, it was held that under the commerce power the Commonwealth could provide for preference in employment to members of a trade union in the loading and unloading of ships engaged in inter-State and overseas trade. The Court held that the law was a law with respect to trade and commerce with other countries and among

the States, because it regulated the choice of persons who could engage in work form­ ing part of that trade and commerce, even though the criterion adopted reflected a policy of the legislature that was concerned with industrial relations, which, prima facie, was not regarded as relevant to commerce. (Huddart Parker v. The Common­

wealth (1931) 44 C.L.R. 492; Victorian Stevedoring Company Pty Ltd v. Dignan (1931)46 C.L.R. 73.)

These cases were relied on by members of the Court in 1966 in The Herald and Weekly Times Limited v. The Commonwealth (1966) 115 C.L.R. 418. In that case, the challenge was made to section 81 of the Broadcasting and Television Act 1942-1965 which empowered the Minister to grant to a company a licence for a commercial tele­ vision station upon such conditions as he determined. It was argued that the validity

of this section must depend upon the nature of the conditions and whether they were relevant to the conduct of television services. The Court unanimously held the section to be valid. Kitto J. said (at p. 434):

A law which qualifies an existing statutory power to relax a prohibition is necess­ arily a law with respect to the subject of the prohibition. Even if the qualification

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gives it the additional character of a law upon some other topic— even, indeed, if that other topic be not a subject of federal legislative power— it is still a law with respect to the subject of the prohibition, and is valid if that subject be within fed­ eral power.

Four other judges agreed with this statement.

If, however, the law purports to regulate activities which do not themselves form part of the subject-matter of the power, then the only way the Act could be charac­ terised as a law with respect to that subject-matter is by showing that it is somehow relevant to the subject-matter or provides an appropriate means for achieving some end or object contained within the power. This distinction can be illustrated by refer­ ence to Commonwealth control of air navigation. A law prohibiting overseas air navi­ gation, licensing it on conditions or setting out qualifications for those who may engage in such navigation would be a law with respect to overseas trade and com­ merce. It would seem from the cases quoted above that the fact that the conditions or qualifications were in pursuance of a policy which was not particularly relevant to trade would not affect the validity of the law. The position is different, however, where the Commonwealth purports to regulate or license intra-State air navigation. Here the law does not operate directly on the subject-matter. For it to be regarded as a law within section 51 (i) of the Constitution, it must be shown that the regulation of intra­ State air navigation has a close connection or relevance to inter-State or overseas trade or that it is an appropriate means for furthering inter-State or overseas trade. Provisions of the Air Navigation Regulations have been upheld which enable the Director-General of Civil Aviation to license aircraft and operators in intra-State air navigation. The regulations provide that the Director-General, in determining whether a licence should be issued, shall have regard only to matters relating to safety, regularity and efficiency of air navigation. The regulations were upheld as valid because it could be readily seen that the safety of aircraft flying overseas and inter-State was directly affected by aircraft flying intra-State. If, however, the Com­ monwealth purported to impose conditions or qualifications which involved other policies (for example, that pilots should be members of trade unions), the Court

would hold that there was no sufficient relevance to the subject-matter in section 51 (i) to enable the law to be characterised as a law with respect to that subject- matter. This matter could be summed up by saying that, where the law directly oper­ ates on persons who do not engage in, or activities that do not form part of, say, inter­ state trade, the evident purposes and objectives of the Parliament are relevant to characterisation, but this is not so where the law directly controls persons or activities within the power.

In my view, it follows from the above authorities that it is possible for the Com­ monwealth to exercise some control over policies which are normally the concern of the States by indirect means. The Commonwealth Palriament has on some occasions done this. For example, section 122 of the Broadcasting and Television Act prohibits a person from broadcasting or televising a talk on a medical subject unless it has been approved by the Director-General of Health or on appeal by the Minister. Section

103 of the Act provides that a licensee shall broadcast or televise matters of a religious nature during such periods as the Board determines and, if the Board so directs, with­ out charge. Section 115 prohibits a television station from televising any sporting

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event or entertainment in a place to which a charge is made for admission if the im­ ages of the event or entertainment originate from the use of equipment outside that place. All these provisions are aimed at preventing services over which the Common­ wealth has control from being used for the purposes which the Parliament finds ob­ jectionable or to further the purposes which it favours. There are provisions in the

Post and Telegraph Act making it an offence for a person to send by post indecent, obscene, blasphemous, libellous or grossly offensive articles (section 107); similarly, section 118 of the Broadcasting and Television Act prohibits the broadcasting and televising of blasphemous, indecent or obscene matter.

This is, of course, the technique which was used by the drafters of the securities legislation in the United States. In effect, brokers, exchanges and others were forbid­ den to engage in inter-State trade or use the postal service unless various conditions were complied with, such as registration. I propose, therefore, to examine among other things whether a similar technique would be successful in Australia in an

attempt to regulate the securities market.

A short summary of my conclusions regarding the various powers of the Com­ monwealth insofar as they may assist in the regulation of the securities business is as follows:— (1) The commerce power in section 51 (i) would have only limited operation.

(2) Section 92 would prevent the conferring of administrative discretions on a tribunal to control inter-State commerce in securities.

(3) Indirect control of stock exchanges, brokers and companies could be achieved by use of the power in respect of postal, telegraphic, telephonic and other like services.

(4) Insofar as this form of indirect control was used, section 92 would not affect the regulation of intra-State commerce, which would constitute most of the business of which regulation was desired.

(5) Some indirect control could also be achieved by the taxation of exchanges, brokers and companies coupled with an exemption from taxation on com­ pliance with prescribed rules.

(6) I am doubtful whether the banking power could be used to control merchant bankers.

(7) I do not think that the under-writing of a share issue would be regarded as ‘insurance’ within the meaning of the insurance power. In any case, control based on this power could be avoided.

(8) If the indirect form of control suggested in (3) and (5) above was used, sec­ tion 109 of the Constitution would not enable a Commonwealth law to ex­ clude the operation of State laws directly regulating the activities concerned.

The Commerce Power Much of the buying and selling of securities in Australia no doubt take place in the course of intra-State trade and the Commonwealth has, therefore, no general power directly to proscribe or regulate those transactions. A transaction which takes place

within, say, the Sydney Stock Exchange is probably an intra-State transaction even though the company whose securities are involved has its principal office in Victoria, or a party to the transaction is resident in Victoria. So,prima facie, a Commonwealth

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law requiring registration of the broker, the security or the exchange could not validly operate to prohibit or regulate that transaction on the grounds that registration or other requirements have not been complied with. It is clear, however, that the actual transport of securities, and the communication between brokers or between principals and brokers across State lines are acts of inter-State commerce which may, for the purposes of section 51 (i), be prohibited or regulated by the Commonwealth Parlia­ ment. A law under which transactions in inter-State commerce are prohibited unless the broker or security is licensed would, in my view, be a law with respect to trade and commerce among the States. The conditions of registration or of continued regis­ tration could relate to disclosure of information or abstaining from engaging in vari­ ous forms of conduct. Having regard to the principles dealt with above, there seems no reason why the conditions of registration could not relate to a broker’s entire

business whether intra-State or inter-State. The person or the company which is the object of the legislation could, however, avoid the Commonwealth law by restricting all his or its operations to purely intra-State trade. This may not be practical; I do not know. A bigger hurdle perhaps from the Commonwealth’s point of view is section 92 of the Constitution.

Section 92

This section binds both the Commonwealth and the States (James v. The Com­ monwealth (1936) 55 C.L.R. 1). The Privy Council held in the Bank Nationalization case ( (1949) 79 C.L.R. 497) that the Commonwealth may ‘regulate’ but not ‘pro­ hibit’ an individual from engaging in inter-State trade. For the purpose of explaining what ‘regulate’ means in this context, the Courts have resorted to the notion of the ‘orderly community’. The individual can be controlled to the extent necessary in an orderly community.

The freedom which is postulated by s. 92 for inter-State trade commerce and in­ tercourse is freedom enjoyed in an ordered society where the relations between man and man and government and man are determined by law. (Hughes and Vale Pty Ltdv. New South Wales [No. 2] (1955) 93 C.L.R. 127 at 159.)

This is a vague concept which gives rise to much subjective judgment. Some things, however, are reasonably clear—

(a) A law which prohibits all persons or all persons save a Commonwealth auth­ ority from engaging in inter-State trade is inconsistent with section 92 (the Bank Nationalization case).

(b) A law prohibiting inter-State trade subject to obtaining a licence from an authority who has an uncontrolled discretion to grant or refuse the licence is not ‘regulatory’ (Hughes and Vale Pty Ltd v. New South Wales [No. 1] (1954) 93 C.L.R. 1).

(c) A law prohibiting inter-State trade unless a licence is obtained from an auth­ ority is invalid unless the issue of the licence is mandatory upon the perform­ ance of conditions that can be described as ‘regulatory’. The conditions must be ‘defined with sufficient particularity, precision or intelligibility’ and ‘an attempt to maintain any wide area of discretionary control could not be expected to succeed ’. (Hughes and Vale Pty Ltd v. New South Wales [No. 2] at 165, 166.)

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(d) Generally speaking, a law prescribing how trade is to be carried on (for example, the rules of the road) is consistent with section 92 provided that the rules are reasonable and not a disguise or device for bank prohibiting trade (for example, a ridiculously low speed limit).

(e) Section 92 applies to all laws of the Commonwealth no matter what head of power is involved, for example, banking {Bank Nationalization case) or de­ fence (Gratwickv. Johnson (1945) 70 C.L.R. 1).

(f) As section 92 applies equally to the States, this is not an area in which a lack of Commonwealth power to deal with a problem can be supplemented by a State reference under section 51 (xxxvii) of the Constitution, or by the pass­ ing of complementary legislation by the States.

It follows that any attempt to confer discretionary power on an authority is likely to conflict with section 92 where inter-State trade is involved. If the registration of prospectuses, brokers, securities, underwriters or exchanges is desired, the registration must be mandatory upon compliance with objective rules and deregistration can only

occur for breach of such rules.

The question of what rules are permissible is more difficult to deal with in the ab­ stract. If an offence which is created either directly or as a breach of condition relates to the traditional notion of honest dealing, it would, in my view, be regarded as regulating trade. Clearly the Commonwealth or a State may prevent fraudulent deal­ ings in inter-State trade. I am also of the view that a Commonwealth law could con­

sistently with section 92 require such disclosure of information as is necessary for a purchaser to know what he is buying. {O’Sullivan v. Miracle Foods (S.A.) Pty Ltd (1966) 115 C.L.R. 185).

It may be, however, that some of the regulations and controls which it is desired to impose in relation to companies, brokers or stock exchanges may go beyond both tra­ ditional conceptions of fraud or dishonest dealing, and beyond mere disclosure of in­ formation. The position here in relation to section 92 is more doubtful. The present

Chief Justice has taken a rather narrow view of what the legislatures may do in this field. His Honour’s position is summed up in the following statement from Harper v. Victoria { 1966) 114 C.L.R. 361 at 375:

But limitations on the activities of inter-State traders are not compatible with that freedom upon which the Constitution insists merely because they appear reason­ able in the interests of the public as a whole or of the public regarded as con­ sumers of goods, or as reasonable administrative expedients to ensure compliance

with laws which might in their general provisions be thought to be no more than regulatory.

Nevertheless it seems to me that the rest of the Court has not followed this rather strict view and some judges have been prepared to allow the legislatures of the States and the Commonwealth to proscribe certain practices as unfair trading practices even though they might not be fraudulent or deceptive in the strict legal sense. In Re

Readers Digest Association Pty Ltd (1969) A.L.J.R. 417, both Taylor J. and Menzies J. emphasised that the legislatures had authority to proscribe certain practices con­ sidered as objectionable or undesirable; in that case, it was the practice of giving rebates. It is difficult to give any general opinion on the scope of section 92 in the ab­

sence of some concrete proposal.

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One difficulty the Commonwealth would face which a State would not, if it relied on the commerce power, is that the legislation would of necessity discriminate be­ tween inter-State and intra-State trade. It might be argued that this discrimination takes place only because of the limits of Commonwealth power under section 51 (i)

and not because of any motive or purpose of the legislature to act to the detriment of inter-State trade. Nevertheless, there is considerable emphasis in some of the cases upholding the validity of State legislation on the fact that the legislation was non- discriminatory. In the Airlines Nationalisation case (1946) 71 C.L.R. 29, Dixon J. gave as one of the reasons for his decision that the nationalisation of inter-State air­ lines was invalid the fact that the prohibition on the airline business was imposed only in relation to inter-State trade and therefore differed from the Post Office which undertook an exclusive function independently of State boundaries. I have always

found this argument difficult to understand in the light of the limitations on Common­ wealth power in section 51 (i) and I doubt whether judges today would rely merely on discrimination to hold a Commonwealth law controlling the securities market invalid under section 92.

My conclusion on this aspect is that the Commonwealth could do a great deal to regulate the securities market, so far as inter-State trade is concerned, consistently with section 92, but controls involving administrative discretion would infringe that section. It is therefore desirable from the Commonwealth’s point of view to be able to rely, if possible, on other heads of power which would enable the Parliament to regu­ late intra-State trade, which presumably forms the bulk of business and which does not come within the protection afforded by section 92.

The Postal Power Section 51 (v) of the Constitution confers power on the Commonwealth Parlia­ ment to make laws with respect to postal, telegraphic, telephonic, and other like ser­ vices. It has been held that the ‘like services ’ includes radio broadcasting (The King v. Brislan; Ex parte Williams (1935) 54 C.L.R. 262) and television (Jones v. The Com­ monwealth (1965) 112 C.L.R. 206). In Brislan’s case, it was held that the essential common feature which broadcasting had with telephony and telegraphy was that they both involved an apparatus for transmitting messages to a distance. The power, therefore, would extend to telex services provided, say, between stock brokers ’ offices . and the stock exchange.

Section 51 (v) is not limited to inter-State and overseas communications as is sec­ tion 51 (i); however, section 92 would still be applicable to any law made under that power, but only insofar as the law affected inter-State communication.

It will be recalled that in The Herald and Weekly Times Limited v. The Common­ wealth {supra) it was held that the Commonwealth Parliament had plenary power to determine who may conduct these services and on what conditions. The fact that the conditions may give the law an additional character upon some other topic which is outside federal legislative power is irrelevant. From the Committee’s point of view, however, the lever for securing regulation of securities business would, in many cases, need to be control not over the person who conducts the service (which is the Com­ monwealth) but rather over the users of the service. That is, of course, apart from special services which may in fact be conducted by private persons between, say, stock exchanges and brokers’ offices.

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Part of the constitutional basis for the American legislation has been the denial of the mail service to various persons unless they conform to the federal Act. In my view, the principles enunciated above would also apply to enable the Commonwealth to determine who may use these services and on what conditions. For example, I see no reason why a Commonwealth law would not be within section 51 (v) if it provided that prospectuses or company securities should not be sent through the mails unless registered and approved by a Commonwealth authority. Similarly, it would seem to me consistent with the principles laid down by the High Court to deny use of a tele­ phone service to a broker who was not registered and approved by such an authority. In principle, there is, in my view, no relevant difference between such provisions and those provisions of the Post and Telegraph Act and the Broadcasting and Television Act that I have referred to earlier in this opinion. These provisions would, of course,

be subject to express limitations in the Constitution, such as section 92. However, sec­ tion 92 would only be concerned with inter-State communications and I presume that it would be impossible for any business to be conducted purely on the basis of inter­ state transactions and communications.

The main distinction between the provisions of the Post and Telegraph Act and the Broadcasting and Television Act to which I have referred and the type of controls which might be envisaged by your Committee would be that it would require the cre­ ation of a Commonwealth authority similar to the Securities and Exchange Com­

mission in the United States. I am assuming that such a Commission would act both as a receiver of information and would exercise discretion in the registering of, say, exchanges, brokers, underwriters and securities. Despite some doubts as to whether the creation of such a body could be valid in a law which depended for its consti­

tutional basis on section 51 (v), I am of the opinion that it would be valid. In Huddart Parker v. The Commonwealth, for example, the criterion for performing the work was being a member of the Waterside Workers ’ Federation. The criterion for conducting a television service under section 81 is the approval of the Minister. I do not see why a

specially created Commonwealth body could not be substituted in the place of a trade union or a Commonwealth Minister.

The Taxation Power Another means by which the Commonwealth Parliament may be able to achieve indirectly what it could not achieve directly is through the taxation power. It is obvi­ ous that many provisions in taxation legislation have as their purpose not the collec­

tion of revenue— or at any rate not that alone—but rather influencing human conduct. Thus, a protective tariff may have the aim of enhancing the Australian manufacturing industry, even though manufacture does not come directly within any Common­ wealth power. In the early days of federation, Commonwealth attempts to control in­

dustrial relations by means of the taxation power failed. In The King v. Barger (1908) 6 C.L.R. 41, the Commonwealth imposed an excise tax upon various manufactured goods and granted an exemption from that tax where the goods were manufactured by a person who provided specified conditions of employment and remuneration of his employees. This Act was held (by Griffith C. J., Barton and O’Connor JJ.; Isaacs

and Higgins JJ. dissenting) to be not a law with respect to taxation but a law regulat­ ing industrial conditions. Although this case has not been directly overruled, much of

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the reasoning of the majority depended upon rules of construction which were over­ thrown in the Engineers’ case ((1920) 28 C.L.R. 129) and have not been followed since.

In Fairfax v. The Commissioner o f Taxation ( (1965) 114 C.L.R. 1), the Income Tax Assessment Act was amended to deny to superannuation funds their previous general exemption from income tax unless the Commissioner was satisfied that the assets of the funds included a prescribed percentage of public securities. The securities involved included Commonwealth securities, State securities or securities issued in re­

spect of a loan to a water, gas or electricity company. It was argued, on the basis of Barger’s case, that this was not a law with respect to taxation but a law to compel superannuation funds to invest in these securities. The Act, however, was held valid by a unanimous High Court. The reasoning of the judges differs somewhat. Of the five judges, two (Kitto and Taylor JJ.) clearly considered Barger’s case to be wrong and

Barwick C.J. said that, while it was possible that a law increasing or decreasing the extent of an existing exemption from liability to pay a tax might be held not to be a law with respect to taxation, he could not readily envisage such a case.

This case seems rather analogous to the Herald and Weekly Times case. In the lat­ ter case, it was said that if a prohibition is within power, then the conditions on lifting the prohibition are prima facie irrelevant to validity. Similarly, it could be argued that if a tax is within power then the conditions of exemption from that tax do not take it outside the taxation power. Difficulties, however, might arise if the conditions of exemption involve elements more suitable to the creation of an offence such as ‘know­ ingly’ or ‘wilfully’ doing something, and these states of mind might be important in any scheme of regulation that the Committee or the Parliament had in mind. How­ ever, in Fairfax’s case, similar elements were involved. For example, the Act pro­ vided that the Commissioner should disregard any failure of the assets to include the prescribed securities if either the trustee had made a genuine and bona fide attempt to satisfy the provision, that the failure was by reason of temporary delay and that, in all the circumstances, it would be reasonable to disregard the failure, or where the Com­ missioner was satisfied that the inclusion in the assets of the prescribed securities would be likely to endanger the financial stability of the fund. Nevertheless, the val­ idity of the provisions was upheld. All the judges emphasised that the motive or pur-. pose of Parliament was irrelevant in determining whether the law was one with re­ spect to taxation.

Although the matter is not free from doubt, in my opinion, the Parliament could achieve a considerable regulation of the securities market by means of imposing tax­ ation upon brokers, exchanges, companies, promoters and others, subject to an exemption being granted where registration or other conditions are complied with. To some extent, of course, the controls desired will be continuing ones and in those cir­ cumstances it would be necessaiy to have some sort of periodical taxation. As a practi­ cal matter, it may not be possible to achieve all that the Parliament may desire by means of a tax subject to an exemption upon compliance with rules. However, I see little difficulty in, for example, a tax upon stock exchanges coupled with an exemption for stock exchanges that have particular rules. Similarly, if it is possible as a practical matter, I would think that constitutionally a special tax could be levied upon stock brokers who allowed their customers a marginal credit above a prescribed amount. It

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would be prudent not to include any element in an exemption clause that resembled the notion of mens rea in criminal law.

The Banking Power It is possible that the Commonwealth could be assisted in the regulation of some aspects of the securities business by the banking power in section 51 (xiii) of the Con­ stitution. Your letter in particular asks whether the banking power could be used in relation to trading in securities on ‘ margin ’ or credit.

It is quite clear that the mere creation of credit does not amount to ‘banking’ within the meaning of the Constitution (Bank Nationalization case (1948) 76 C.L.R. 1 at 194 per Latham C. J.). In the same case, Dixon J. (atp. 335) said that:

Whatever may be the indispensible characteristics of banking, it seems probable that, for the purpose of par. (xiii), they should be sought rather in the relations be­ tween banks and those who use them than in a more abstract consideration of the true economic nature of the contribution made by banking to the monetary system

and public finance of a country by banks.

Nevertheless, it may be that the activities of what are called ‘merchant bankers’ might come within the banking power. The term ‘merchant banking’ does not seem to have any precise connotation either in law or in commercial circles. At times the activities of such bankers seem similar to those conducted by underwriters and what

are sometimes called issue houses. They are mainly distinguished from other banks by the fact that they do not open accounts for any member of the public who chooses to apply and do not issue cheque books.

The question of the meaning o f‘banking’ for purposes of the Constitution has not received very much judicial pronouncement. There have however been a number of decisions in England and Australia as to what is a banking business for the purposes of other legislation. ,

In Paget’s Law o f Banking, it is stated that:

It is therefore a fair deduction that no one and no body, corporate or otherwise, can be a ‘banker’ who does not:

1. take current accounts; 2. pay cheques drawn on himself; 3. collect cheques for his customers.

It is perhaps fair to say that the acceptance of deposits not withdrawable by cheque will not by itself constitute the recipient a banker.

(6th Edition, page 8.)

The latest English authorities seem to have emphasised a similar view, namely the im­ portance of the keeping of cheque accounts in the concept of a banking business. In the United Dominions’ Trust Limited v. Kirkwood ((1966) 1 All E.R. 968), the Court of Appeal said that old cases, including an Australian case which I refer to below,

must be approached with caution because they were decided before cheques became the common method of payment.

In the Commissioners of the State Savings Bank o f Victoria v. Permewan Wright and Company Limited((1915) 19 C.L.R. 457), it was held that the Commissioners of the State Savings Bank of Victoria were ‘bankers’ within the meaning of the Bills of

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Exchange Act. The issue was whether a person’s business, to constitute ‘banking’ must include the honouring of cheques drawn upon him by his customers. The majority of the High Court held that the essential characteristics of the business of banking were the collection of money by receiving deposits upon loan repayable when and as expressly or impliedly agreed upon and the utilisation of the money so collected by lending it again in such sums as are required. On this test the Com­ missioners of the Savings Bank were ‘bankers’.

This decision was applied quite recently by the High Court in Australian Indepen­ dent Distributors Limited v. Winter{ (1965) 112 C.L.R. 443) where it was held that a co-operative society was not carrying on ‘the business of banking’ in contravention of either a South Australian Act or the Banking Act of the Commonwealth. The three judges who constituted the Court unanimously accepted the view expressed in the

Permewan case and decided that the society was not engaged in the business of bank­ ing because, although it received money on deposit capable of being drawn against by the depositor, it did not engage in the business of lending the money.

In the United Dominions’ Trust case, the Court of Appeal felt that cases such as Permewan and other cases of similar vintage were not reliable authority for deter­ mining the meaning of the concept of banking today. But this case has been followed in Australia, and in any case, it has been said on many occasions that the meaning of

the terms in the Constitution must be taken as at 1900.

It should be emphasised that the High Court in Permewan and the Australian Independent Distributors case was not concerned with the meaning of the term in the Constitution. On one interpretation of the definition of banking given in Permewan, the Commonwealth Parliament would have wide powers over many financial institu­ tions. It may be also, on that interpretation, that many of these financial concerns have been operating in breach of the Banking Act since its enactment in 1945. A further problem would arise as to how to determine the distinction between a bank within paragraph (xiii) of section 51 of the Constitution and ‘financial corporations’ in paragraph (xx).

Nevertheless I do not believe that the High Court would hold that the provision of cheque books and cheque accounts was an essential quality of banking. Paragraph (xiii), for example, excludes State banking from the Commonwealth power except insofar as it extends beyond the limits of a S tate. In 1900 it would appear that the only State banks then operating were in fact savings banks.

A High Court minded to give the banking power a somewhat limited meaning might accept the definition in the Permewan case and apply a restricted interpretation to the word ‘ deposit ’. In the United Dominions ’ Trust Limited v. Kirkwood, Diplock L. J. regarded the distinguishing feature of banking business as the acceptance from cus­

tomers of loans of money on ‘deposit’, that is to say, ‘loans for an indefinaite period upon running account, repayable as to the whole or any part thereof upon demand by the customer either without notice or upon an agreed period of notice’. ([1966] 2 W.L.R. at 1107). If the High Court accepted this view, it could regard it as consistent with the principles laid down in the Permewan case. I assume that much of the bor­ rowing of merchant banks would not come within this concept.

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What the High Court would do in these circumstances is difficult to say. The ques­ tion of the meaning o f ‘banking’ for the purposes of the Constitution has an impor­ tance which transcends the matters being considered by your Committee. It raises, for example, the issue of the extent to which the Commonwealth may control credit created outside the normal banking system by means of hire-purchase transactions and other forms of consumer credit. I am disposed to think that the High Court would not hold that a business which borrows money for the purpose of lending it is for that reason alone engaged in banking. The notion o f‘deposit’ referred to by Devlin L. J., in my view, is more consistent with common usage in relation to banking.

The Insurance Power I have considered the relevance of the insurance power in paragraph (xiv) of sec­ tion 51 in relation to the control of underwriters of securities. I doubt whether in a practical sense much help could be obtained by your Committee from this power.

Historically, underwriting was a term synonymous with insurance which primarily connotes the act of providing against loss or damage which may be caused by a con­ tingent event. The meaning of the term ‘insurance’ has not been examined in any great detail by the High Court. The main distinction between the traditional form of underwriting of a share issue and other forms of insurance is that in the former case the underwriter’s obligation is to make a purchase. The term ‘underwriting’ is still

used in relation to marine insurance, but is of course basically different from underwriting in relation to share issues.

I am inclined to think that the Court would take the view that insurance in the strict sense differs from a case where a person agrees to purchase something at a stated price if others do not buy it. This is the essential nature of underwriting in relation to a share issue.

In any case, even if underwriting of shares in the normal sense came within the power, Commonwealth control could be evaded. It seems that ‘underwriting’ as understood in company affairs today goes beyond the traditional form of underwrit­ ing that is, agreeing to take shares if the public does not. Much so-called underwriting

in England and America today consists, I understand, in a corporation or a group of investors making initially an outright purchase of the share issue and not merely a conditional one. This form of ‘underwriting’ has no relation to the concept of in­ surance as the High Court would interpret that expression in the Constitution. No

doubt if Commonwealth control depended upon there being a conditional purchase, this would influence commercial activity and the trend could be away from traditional underwriting.

Inconsistency Section 109 of the Constitution provides:

When the law of a State is inconsistent with a law of the Commonwealth, the latter shall prevail and the former shall, to the extent of the inconsistency, be invalid.

Section 109 operates to render unenforceable State laws which (a) cannot be obeyed consistently with obeying a Commonwealth law; (b) modify any right or privilege granted by a Commonwealth law; or (c) are in an area where the Common­ wealth law evinces an intention to ‘cover the field’. Under this latter doctrine, the

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intention to ‘cover the field ’ is an intention that the Commonwealth law shall be the only and exclusive law in the particular field.

If a Commonwealth law, therefore, regulates a particular subject-matter, it is gen­ erally speaking open to the Commonwealth to exclude, from the area so regulated, State laws. This has been done for example in the fields of bankruptcy and matrimonial causes.

Some difficulties, however, could arise where the Commonwealth does not di­ rectly regulate an activity but does so indirectly using the methods suggested above in relation to the postal, telegraphic and telephonic power and the taxation power. I do not think that a law which prevented a person using the telephone service unless he

complied with a condition would be inconsistent with a State law which prevented him from complying with that condition or which required him to comply with further rules. For example, if a Commonwealth law provided that a stockbroker could not use the telephone service unless he registered with a federal body, such a law would not, in my opinion, be inconsistent with a State law which made it an offence for brokers to carry on business unless registered by a State body. A Commonwealth law which tried to exclude the State law would not, in my opinion, be a law with respect to telephonic services.

Similarly, a tax placed upon brokers who traded on margin or credit beyond that laid down in the taxing Act would not, I think, be inconsistent with the State law which had different rules relating to margin or credit. A Commonwealth law which attempted to exclude such State laws would not be laws with respect to taxation. On the other hand, a federal law which, for example, dealt with investments by banks or insurance companies could exclude State laws dealing generally with investment insofar as they applied to banks or insurance companies.

Joint Commonwealth-State Control Your letter states that the Committee would like to have examples of State co­ operation in establishing national bodies. Statutory corporations and other bodies have been set up from time to time as vehicles of joint Commonwealth-State control. Such bodies have included the Australian Aluminium Production Commission, the Hide and Leather Industries Board, the River Murray Commission and the Joint Coal Board.

The Hide and Leather Industries Board was a good example of joint Commonwealth-State control in a commercial sphere. The Board was established under the Hide and Leather Industries Act 1948 of the Commonwealth and that Act vested in the Board hides in the Territories and also controlled the export of hides and leather. Section 32 of the Act provided that it was the declared intention of the Parlia­

ment that ‘the operation of any provision of a law of a State which confers any power, right or function, or imposed any obligation, liability or duty which is also conferred or imposed by this Act or which can operate without prejudice to the operation of this Act shall not be prevented or limited by reason of the provisions made by this Ac). ’ Each of the States enacted a Hide and Leather Industries Act which vested hides in their States in the Commonwealth Board. An exception was made in the case of hides, the subject of inter-State commerce. In Wilcox Mofflin Ltd v. New South Wales ( (1952) 85 C.L.R. 489), the legislative scheme was held not to infringe section 92 of the Constitution.

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In this and other cases, the Commonwealth has assumed that it can authorise a State to confer powers and impose duties within the State constitutional area upon Commonwealth officials or bodies created by Commonwealth law. This aspect was not dealt with in the Wilcox Mofflin case; however, there have been no judicial pro­ nouncements against such provisions. My own view is that the High Court would up­ hold the validity of these arrangements.

In the case of the Hide and Leather Industries Board, the Commonwealth Minis­ ter appointed the members but, in the case of some of them, the appropriate Minister of each State was given power to nominate for appointment to the Board. Similarly, in the case of the Australian Aluminium Production Commission, the members of the Commission were appointed by the Governor-General, but those representative of the State were nominated by the Governor of the State. In the case of the Joint Coal Board and the River Murray Waters Commission, appointments are made directly by the Governments concerned. As you state in your letter, arrangements such as these have been criticised on the ground that they make the operation of responsible government more difficult. The problem with this form o f‘co-operative federalism ’ is that the political controls of the body may be weaker than where the existence and

functions of the body are entirely the creation of one Government and Parliament. I am not aware, however, whether, as a practical matter, any specific problems have arisen in relation to any of these joint bodies.

The Trade Practices Act probably provides the best model for a Security and Exchange Commission which would receive powers under State law. Section 8 of the Act makes provision for complementary State legislation to confer functions and powers on the Tribunal. All the members of the Tribunal, however, are appointed by

the Governor-General. So far as I am aware, no State has yet passed any complemen­ tary legislation under this section. However, Tasmania has, by legislation, referred power to the Commonwealth to deal with restrictive trade practices within that State. Such references of power are provided for in section 51 (xxxvii) of the Constitution.

This reference of power is specifically dealt with in section 7A of the Trade Practices Act.

Separation of Powers It is not possible to deal shortly in the abstract with the limitations on Common­ wealth legislative power arising from the doctrine of the separation of legislative, executive and judicial powers. Some of the relevant principles are, however, as

follows:

(a) Any function coming within the notion of the j udicial power of the Common - wealth can be conferred only upon a State court or a Federal court consisting of a judge or judges appointed by the Governor-General for life, subject to removal only in accordance with the provisions of section 72 of the Consti­

tution. ( Waterside Workers’ Federation v. J. W. Alexander Limited (1918)25 C.L.R. 434.)

(b) A court may not be given non-judicial functions except insofar as they may be incidental to the exercise of its judicial power (the Boilermakers’ case (1957)95 C.L.R. 529).

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(c) A final and conclusive determination of law made in the course of settling a controversy as to existing rights is part of the notion of the judicial power of the Commonwealth.

(d) The enforcement of a judicial order in the form, for example, of granting an injunction is part of the judicial power of the Commonwealth.

(e) It follows that the functions referred to in (c) and (d) can only be exercised by courts.

(f) The creation of rights and duties in accordance with broad industrial or econ­ omic standards is a non-judicial matter and can only be conferred upon ad­ ministrative tribunals. Thus it has been held that the Trade Practices Tri­ bunal may determine whether various agreements or practices are contrary to the ‘public interest’in accordance with the broad criteria set out in section 50 of the Act. ( The Queen v. The Trade Practices Tribunal; Ex parte Tasmanian Breweries Pty Ltd (1970) 44 A.L.J.R. 126.)

(g) The extent to which an administrative tribunal may make conclusive deter­ minations of fact as distinct from law in the course of settling a controversy about existing rights and duties is doubtful.

(h) An administrative tribunal could not be given power to make conclusive determinations of fact or law regarding any issue which goes to constitutional power, for example, whether a particular transaction occurred in the course of inter-State trade.

The Security and Exchange Commission could, therefore, be given broad powers of discretion as to whether a person or body may be registered or licensed under fed­ eral law, but it could not be given powers to determine conclusively whether there had been a breach of law or to punish for such a breach. The enforcement of any adminis­ trative orders made by such a Commission would have to be done through judicial tribunals. If the Administrative Law Committee proposes the setting up of a special administrative law court and if such a court is created, it would be a very suitable tribunal to deal with judicial matters relating to any proposed regulation of the securities business.

If regulation of the securities business takes place in a context of joint Commonwealth-State legislation, there are considerable constitutional difficulties in a State conferring jurisdiction on a federal court. It has been said that federal courts can only exercise the judicial power of the Commonwealth. This, however, is a matter on which there is some disagreement. In any case, the Commonwealth has assumed that it can authorise the States to confer jurisdiction on a federal court by providing in sec­ tion 8 (5) of the Trade Practices Act that the Act shall not exclude the operation of a complementary State law which confers jurisdiction on the Commonwealth Industrial Court.

So far as delegation of legislative power is concerned, the courts have declared that the Commonwealth has very broad powers in this area and I do not think that any possible limitations would be a serious hindrance to bringing into effect any scheme that the Committee desired.

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Conclusion In my opinion, the Commonwealth can go a long way in regulating the issue of, and trading in, securities by the indirect means mentioned above. Unless the corpor­ ations power is given a broad interpretation in the Concrete Pipes case, I do not think that the Commonwealth power to directly control the business outside the Territories would be sufficient for any purposes the Committee might have in mind. The most serious restriction, therefore, on a Commonwealth control of securities exchange would be the difficulty of excluding State law from the area. There would be little

difficulty in a joint Commonwealth-State scheme which operated under both Commonwealth and State legislation.

Leslie Zines

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LEGAL OPINION B - l

I am asked to comment generally on the implications of the Concrete Pipes Case (1971) in relation to the corporations power of s. 51 (20) of the Constitution and Commonwealth regulation of the securities industry, and also to answer certain specific questions. The following opinion is based on a copy of transcripts of the judgements. These may be subject to minor correction before publication but it is un­

likely that any alteration of substance will be made. Since the page numbering starts anew with each judgement I refer to the pages of particular judgements when I make a citation, abbreviating transcript to T/S. Thus Barwick C.J. T/S 5 means page 5 of the transcript of the judgement of Barwick C.J.

General Observations The general approach of the court to S. 51 (20) is cautiously encouraging for the Commonwealth. It is encouraging in that the Corporations Case, Huddart, Parker & Co. Pty Ltd v. Moorehead(1909) 8 C.L.R. 330, which has kept s. 51 (20) in a state of restrictive obscurity for over sixty years, has been unanimously overruled as depend­ ing on reasoning which has been untenable since the Engineers’ Case (1920) 28 C.L.R. 129. The ground has therefore been cleared for a reinterpretation of s. 51 (20) in accordance with the well-known principle of the Engineers’ Case that Common­ wealth legislative powers are to be given their widest, as opposed to their narrowest, reasonable interpretation. The judgements in Concrete Pipes however, on this aspect of the case, do little more than clear the ground. The court has deliberately given very few indications of what the new approach means in particular contexts. I deal with such indications as are given in my answers to the particular questions formulated by the Committee.

The uncertainty to which this absence of guidelines gives rise should not in my opinion be overrated. The position in effect is that the present law extends an invita­ tion to the Commonwealth to make a reasonably optimistic exploration of its powers under s. 51 (20). The need for technical caution arises not from this aspect of Con­

crete Pipes but from the attitude revealed by the majority of the court to the drafting of statutes. I deal with this matter in detail below. Suffice it to say here that the court divided 5:2 on the validity of the Trade Practices Act as drafted although the whole court agreed that the general substance of the Act was within power. The majority held it invalid for reasons which seem to me to require the draftsman in future to exer­ cise almost pedantic care if legislation is not to shuttle to and fro between Parliament and the High Court on issues of self-expression.

I turn to the particular questions posed by the committee. It will be observed that for the views of the majority I place chief reliance on the judgements of Barwick C.J. and Menzies J. This is because on the substantive issues the rest of the court for the most part expressed agreement with them, especially with the Chief Justice, and were content to leave it at that. On the drafting point the views of the dissenters, McTieman

and Gibbs JJ., are set out in the judgement of Gibbs J.

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1. Will the power now support Commonwealth laws with respect to the incorporation or liquidation o f companies?

In the Corporations Case Isaacs J., in dissent, was prepared to give s. 51 (20) a wider scope than any other member of the court but even he did not extend it to incor­ poration or liquidation: 8 C.L.R. 393,394,396. This reading of s. 51 (20) is supported both by the words of the section, which seem to assume the anterior creation of cor­ porations, under some other power or law, upon which the power operates, and by

dicta in the Bank Nationalization Case (1948) 76 C.L.R. 202,255, 304. There is noth­ ing in the Concrete Pipes Case to disturb this position. The only necessary modifica­ tion of what Isaacs J. said is that whereas, with characteristic over-statement, he asserted that th e ‘creation of corporations . . . was left entirely to the States’ 8

C.L.R. 394, it is clear that the Commonwealth can create and legislate for corpor­ ations ancillary to powers other than s. 51 (20): Concrete Pipes, Barwick C.J. T/S 13, citing the Territories power, s. 122, the trade and commerce power, s. 51 (1), and Australian National Airways Pty Ltd v. Commonwealth (1945) 71 C.L.R. 29. The

Chief Justice actually cites a later stage of that litigation at 71 C.L.R. 115, but this is a slip. Menzies J. makes the same point at T/S 20.

Strictly in terms of s. 51 (20) the answer to the question appears therefore to be no, but the reference to liquidation raises a point which may be of interest to the com­ mittee. Section 51(17) gives the Commonwealth legislative power over ‘Bankruptcy and insolvency’. In the classic initial commentary on the Constitution, Quick and

Garran, The Annotated Constitution o f the Australian Commonwealth (1901), p. 587, it is said: ‘The winding up of corporations unable to pay their debts is an important branch of insolvency jurisdiction. An insolvency law would also include all ancillary provisions necessary to prevent it from being defeated.’ Prima facie this is right,

which raises the possibility that the Commonwealth might under s. 51 (17) remove the States from the field of winding up of insolvent companies, which are the ones which matter. Present Commonwealth legislation under s. 51 (17), the Bankruptcy Act, 1966,ins. 7 (2) (a) expressly excludes corporations from its operation. In s. 7 (2)

(b) it excludes also partnerships, associations and companies ‘registered under a law of the Commonwealth or of a State or Territory which provides for the winding-up of’ such partnerships, associations and companies.In the case of companies the relation between these two subsections is not as clear as it might be because the definition sec­

tion of the Act s. 5 (1) defines corporation to include company, which leaves uncer­ tain the application of the Act to companies incorporated under a law which does not provide for their winding up, but as this reference is tangential to the committee’s main inquiry I will not pursue it unless the committee wants me to. 2

2. Can the Commonwealth provide for the recognition throughout the Commonwealth o f companies incorporated in a State or a Territory?

There are references to recognition in this context in both the Corporations Case [8 C.L.R. 371, 400] and the Concrete Pipes Case [Menzies J. T/S 20]. Each of them assumes that what is meant is self-evident, but it is not. Three meanings suggest them­ selves. The first, by analogy with the power of s. 51 (25) to legislate for the recogni­

tion of the laws etc., of the States, is evidentiary. The question here is whether the Commonwealth can legislate to ensure that the status of incorporation conferred on a company by one jurisdiction is accepted as a valid act of that jurisdiction with a mini­ mum of proof in all the other relevant jurisdictions. A law of this description has no

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substantive effect outside the incorporating jurisdiction. There is no reason to doubt that such a law is within s. 51 (2 0 ), but this is of minimal importance because it is probably within the scope of s. 51 (25) also. Even without legislation under either of

those heads the same result is achieved by the full faith and credit clause of s. 118 as interpreted in Permanent Trustee Co. (Canberra) Ltd. v. Finlayson (1968) 43 A.L.J.R. 42,44.

The second possible meaning is that a company incorporated under the laws of one jurisdiction can operate in the other relevant jurisdictions to the full extent of the powers conferred upon it by its law of incorporation without being either incor­ porated or registered as a foreign company under the laws of those other jurisdictions.

In substance this amounts to incorporation in the other jurisdictions otherwise than under their own laws. The conclusion reached in the answer to question (1) above was that under s. 51 (20) the Commonwealth has no power to make laws with respect to incorporation. It follows that the Commonwealth cannot under s. 51 (20) enact a law imposing recognition of this description on the States. Such a law could be enacted under s. 122 with respect to the Territories but this would still not affect the States because it would not be necessary for its full effectuation that it should do so.

The rule that a Territorial law may have extra-territorial operation to the extent that its full effectuation requires it to be found in Lamshed v. Lake (1958) 99 C.L.R. 132. Finally, it is highly improbable that the full faith and credit clause of s. 118 would in the present High Court be given an interpretation supporting the imposition of sub­ stantive recognition of companies on States.

The third possible meaning is recognition for a particular purpose other than the two already discussed. Legislation to this effect is in principle within the power of the Commonwealth if the purpose in question is incidental to one or more of the legislat­ ive powers of the Commonwealth other than s. 51 (20) itself. For example, pursuant

to company taxation it would be incidental to the tax power of s. 51 (20) to provide for some form of substantive recognition of companies in jurisdictions other than the jurisdiction of incorporation. By definition this basis of extra-territorial recognition does not involve the interpretation of s. 51 (2 0 ).

3. What types o f corporations can be regarded as covered by the words ‘trading or financial corporations’?

This is still very much at large. The only judicial attention which has been paid to the question is a passage in the judgement of Isaacs J. in the Corporations Case at 8 C.L.R. 393 in which he was arguing that the very words of s. 51 (20) sufficiently lim­ ited its scope in the interests of the States without need for the additional implied limi­ tation adopted by the majority. Since on all other aspects of s. 51 (20) Isaacs J. took a wider view than the rest of the court it may be safely assumed that his brethren agreed with him on the meaning o f‘trading or financial corporations’. It should be home in mind also that although the Corporations Case was overruled in Concrete Pipes this was only as to the decision on ss. 5 and 8 of the Australian Industries Preservation Act, and reasoning based on the theory of State reserved powers. It does not follow

that the present High Court disagrees with the 1909 court on every other point of in­ terpretation of s. 51 (20). The passage in question is as follows.

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Next, it is clear that the power is to operate only on corporations of a certain kind, namely, foreign, trading, and financial corporations. For instance, a purely manu­ facturing company is not a trading corporation; and it is always a preliminary question whether a given company is a trading or financial corporation or a foreign corporation. This leaves entirely outside the range of federal power, as being in themselves objects of the power, all those domestic corporations, for in­ stance, which are constituted for municipal, mining, manufacturing, religious, scholastic, charitable, scientific, and literary purposes, and possibly others more nearly approximating a character of trading; a strong circumstance to show how

and to what extent the autonomy of the States was intended to be safeguarded.

There can be no doubt that this statement of the law remains correct in its appli­ cation to municipal corporations and the several categories which fall within the gen­ eral equitable concept of charity, at all events so long as they confine themselves to non-trading activities. The references to mining and manufacturing companies are dubious because neither mining nor manufacturing is normally, if ever, carried on as

an end in itself. Both are done as a preliminary to trade. It is hard to believe that the present High Court would go out of its way to draw an artificial distinction between a company which mined or manufactured with a view to trade, presumably by another

company to which it handed over the product of its activities, and a company which mined or manufactured and traded in its products itself. Although the whole court in Concrete Pipes declined to make any detailed comment on the ambit of s. 51 (20), and said nothing at all on the present point, there at least three reasons for expecting

the present court to be flexible on the meaning of trading or financial corporations.

First, there is the decision in Concrete Pipes itself. However hedged about the judgements may be with cautions for the future, the fact is that the court unanimously overruled the Corporations Case and indicated a general intention of applying to s. 51 (20), as to all other Commonwealth legislative powers, the principle of the En­

gineers’ Case (1920) 28 C.L.R. 129 that it should receive its widest, as opposed to its narrowest, reasonable interpretation. Barwick CJ. in particular specifically makes this point at T/S 13 and at T/S 16, where he remarks that the power should not, not­ withstanding his cautions in general terms, ‘be approached in any narrow or pedantic

manner’. See also Menzies J. at T/S 20. Secondly, it is well-established that, as I have put it elsewhere, ‘the words of the Constitution are not to be read as if they bore for ever the precise meanings they had in 1901 [or 1909, the date of the Corporations Case], but on the contrary are to be adapted to new conditions and concepts’. [(1970)

4 Federal Law Review 32, and see footnotes 4 and 99 for authority.] The multiplicity and complexity of commercial corporate activities has vastly increased since 1909. There is no reason to doubt that this development will be reflected in the High Court’s interpretation o f‘trading or financial corporations ’. Thirdly, on the particular point of

trading corporations, I referred the committee in my previous opinion to the extended meaning now given to trade and commerce for the purposes of s. 51 (1). This too is likely to be reflected in the interpretation of s. 51 (20). There is indeed an express ref­ erence to the Bank Nationalization Case (1948) 76 C.L.R. 1 by the Chief Justice at

T/S 14 [although here again he gives an incorrect citation] to make the point that trade is not limited to dealing in goods.

The meaning of financial corporation is equally open to interpretation in accord­ ance with current usage. Quick and Garran, op. cit. p. 607, took it in the obvious sense

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of a corporate financial institution not amounting to a bank. They cited as examples ‘companies which receive deposits of money for investment and make advances on the security of land, such as land-mortgage companies and building societies In other words, probably anything colloquially referred to nowadays as a finance or investment company.

In this question the committee also makes specific reference to the following:

A non-profit-making stock exchange To fall within s. 51 (20) any stock exchange in question would have to be in some corporate form. Assuming that it is, the question is whether its character as non-profit­ making removes it from the category of trading or financial. No confident answer can be given. There is no compelling reason for reading the profit motive into the concept of financial or trading operations. It can be argued that a trading company is none the less a trading company because it operates in effect as a co-operative, distributing any

annual surplus of income over expenditure among its customers for that year in pro­ portion to their purchases. By analogy the non-profit-making provision of services, which is, I take it, the function of a stock exchange, might make a corporate stock exchange a trading corporation. Since the Bank Nationalization Case there can be no question that the provision of services is capable of amounting to trade. The argument might well be strengthened by the consideration that, as with banks, the stock exchanges are essential to modem trading and financial activities. Nevertheless it would be unsafe to assume that this line of thought will appeal to the High Court. The general considerations mentioned above which give ground for anticipating a reason­ ably wide reading of s. 51 (20) do not necessarily help on the present point. It can be argued instead that although the activities of a non-profit-making corporation may be incidental to trade and finance, which in the case of a stock exchange they undoubt­

edly are, this does not make the corporation itself a trading or financial corporation; in other words, that although its activities would be within the reach of s. 51 (20) if the corporation were within the section, its activities do not of themselves bring the corporation within the power. But on the present law regulation of this kind would be worth trying.

A mining company carrying on exploration mining and sale o f the results For the reasons given above it is my opinion that this class of company is a trading corporation.

Investment companies such as mutualfunds For the reasons given above it is my opinion that this class of company is a financial corporation.

Merchant banks My understanding of the term merchant bank is such that these institutions would be within the banking power of s. 51 (13)in any event. If some of them are not, there seems to be no reason to doubt the correctness of Quick and Garran’s view that the inclusion of financial corporations in s. 51 (20) complements s. 51 (13) in this respect, especially since it was held by some members of the court in the Bank Nationalization

Case ( 1948) 76 C.L.R. 204, 256 [cf. 304] that s. 51 (13) and (2) are mutually exclusive.

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4. Laws with respect to the activities o f corporations The High Court in the Concrete Pipes Case has been quite remarkably reticent about what amounts to a law with respect to the corporations specified in s. 51 (20). There is general agreement that it is not enough merely to make a law on any subject

matter and address it to such corporations. Some limitations of subject matter are therefore to be anticipated, but what they may be is not clear. The nearest approach to an explicit statement of the range of this aspect of s. 51 (2 0 ) is the following pass­ age in the judgment of the Chief Justice at T/S 15-16:— ‘No doubt, laws which may be validly made under s. 51 (xx) will cover a wide range of the activities of foreign corporations and trading and financial corporations: perhaps in the case of foreign corporations even a wider range than that in the case of other corporations: but in any case, not necessarily limited to trading activities’. The last six words of this dictum are particularly significant in the present context because as I understand the matter the committee is less interested in the direct regulation of the trading activities of corpor­

ations, which was the subject matter of both the Corporations Case and Concrete Pipes, than in controlling the manipulation of information which affects the value of securities issued by corporations. Nevertheless dicta concerned primarily with the former enable some inferences to be drawn about the latter.

The terms in which the Corporations Case has been overruled seem to make it clear that the Commonwealth now has a very wide power to impose conditions and restrictions on the manner in which a corporation may conduct its trading activities. Every member of the present High Court seems to agree with the Chief Justice when he says at T/S 14 that the reason why laws dealing with restraint of trade by corpor­

ations are within s. 51 (20) is that they deal with ‘the very heart of the purpose for which the corporation was formed, for whether a trading or financial corporation, by assumption, its purpose is to trade’. If this is the reason, it follows that any correctly drafted law regulating the manner in which a corporation trades, including flat pro­

hibition of undesired practices, is within power; or at all events, any law which the Commonwealth is at all likely to consider enacting. This means for a start that any corporation whose actual trading purpose is or includes investment is potentially sub­ ject to very close regulation of the manner in which it attracts funds and employs

them.

From this one proceeds to the manipulation of information by companies whose trading purpose is not investment. Perhaps, in view of the wide range of powers nor­ mally specified in memoranda of association, one should say manipulation of infor­ mation in respect of trading purposes other than investment. The significant point

about Concrete Pipes here is that in the process of refuting the reasoning of the majority in the Corporations Case the court laid emphasis on confining its reading of s. 51 (2 0 ) to the actual words of the section and not reading in words which are not there as a means of limiting its operation. As an instance, the Chief Justice at T/S 17

said: — ‘The Constitution itself provides the criterion of validity: the law must be with respect to a topic of granted power. For my part the formula [i.e. s. 51 (20)] requires no explanation: in any case, it is the text and no commentary upon it however helpful may displace it. The constitutional formula requires a substantial connection between

the topic and the law’. A reluctance to read words in appears clearly also in the judge­ ment of Menzies J. at T/S 16-20. If this approach is taken at its face value, a law on the subject of information by a corporation on its own activities or state of business

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health seems to be squarely within the concept of a law with respect to a corporation. This may well be what Barwick C. J. had in mind in the comment ‘not necessarily lim­ ited to trading activities’ quoted above. The only obvious restriction on power is that the Commonwealth could not under s. 51 (20) directly alter a coporation’s consti­ tution because this would enter the field of incorporation (see question 1 above). [Cf. Bank Nationalization Case( 1948) 76 C.L.R. 255-6.]

These considerations suggest some of the answers to the specific points raised under question 4:— (i) Clearance o f a prospectus before issue o f securities For the reasons given above it is my opinion that such laws are within

s. 51 (20).

(ii) Filing o f accounts, statements o f material events and disclosure o f business in­ formation relevant to value o f securities already issued All these matters seem to me to have the requisite substantial connection with the subject of corporations and therefore to be within s. 51 (20). If the con­

dition of substantial connection with corporations is fulfilled, it is clearly not relevant since Concrete Pipes that the law has also a substantial connection with something else, in this case the securities market. [Barwick C. J. at T/S 14, 17: ‘amongst other things’; Menzies J. at T/S 18; Walsh J. at T/S 4;

Gibbs J. at T/S 3.] This is in accord with current general principles of consti­ tutional interpretation although it remains uncertain when the court will and when it will not allow the use of one power in s. 51 to overcome an express limitation on another. [Cf. Menzies J. at T/S 13-14.] The present question is not affected by this consideration.

(iii) Trading on inside information I do not feel confident of the answer to this one. The difficulty is that the activity sought to be regulated is the investment actions of individuals with a view to private profit, not the actions of a corporation with respect to its own trading or its business procedures. It would not be difficult for the High Court to decide that the situation was nevertheless sufficiently closely related to cor­ porate affairs to be at least incidental to s. 51 (20), but there is no certainty

that the court will take this view. Something might depend on the form of the legislation. If the use of inside information for private profit were made a breach of duty to any corporation employing the relevant individual, the con­ nection with corporations would be strengthened. Along these lines I cer­ tainly think that regulation would be worth trying. The present law is at least no more clearly against it than for it. The emphatic rejection by the whole

court in Concrete Pipes of the relevance of any intrusive effect of Common­ wealth laws on State legislative power tends in its favour.

(iv) Creating a false market Similar considerations apply here as under (iii) above. If the person creating the false market had no connection with any corporation, other than trading in its securities, reliance could be placed only on the High Court’s regarding

the false market phenomenon as substantially connected with the corpor­ ation whose securities were affected. My guess is that the chances are against this.

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5. Unofficial inter-company market I am not sure of the full meaning of this term. On the specific question asked, whether disclosure can be required to a government body of details of borrowings and lendings by a company, my opinion is that such a law is within s. 51 (20). I arrive

at it by reference to the general observations I make in answer to question 4. A law of this description seems to me to have a substantial connection with corporations. Any law which regulates, even by mere disclosure, the commercial activities of companies within s. 51 (20) appears now to be within the section. If this answer requires more

detailed elaboration I request the committee to explain more fully the connotation of unofficial inter-company market.

6. Indirect regulation o f unincorporatedpersons and institutions

I refer again to the general considerations mentioned in the answer to question 4. In my opinion a law directing s. 51 (20) corporations not to employ unsatisfactorily qualified specialists is within s. 51 (20), as having a substantial connection with those corporations, provided that it is limited to employment of such people for the pur­

poses of the corporations’ trading activities or internal regulation. This seems to meet the case in mind. The situation with respect to seeking or maintaining listing on un­ licensed stock markets or exchanges, or markets or exchanges which do not comply with regulations, is of a different factual order but I think equally within s. 51 (20).

The purpose of an original issue of securities is normally either to raise capital for trading operations or, if bonus issues are in question, to effect a rearrangement of the capital structure of a company. It seems to me that this is a process so integral to the modem trading or financial corporation as to bring the circumstances under which its

securities are offered for sale, including the market or exchanges on which the corpor­ ation seeks or permits its securities to be offered for sale, within s. 51 (20). Trading in securities after original issue is a step further removed but it seems to me that the fate of its securities continues to be a matter with which a corporation has a substantial

connection.

Sanctions such as fines could be imposed on s. 51 (20) corporations for failure to comply with laws on the foregoing subjects and on unsatisfactorily qualified special­ ists for aiding and abetting the commission of such offences by corporations. In my opinion it is very doubtful that sanctions could be imposed directly on individuals for

failure to be licensed. The licensing requirement being indirect, sanction for its breach has to be indirect, although in practical terms prosecution for aiding and abetting is pretty direct and the ambit of liability is almost as wide as if the individual had committed the offence himself.

Drafting Much space in the majority judgements in Concrete Pipes is taken up with explain­ ing why the relevant sections of the Trade Practices Act were invalid although their subject matter was capable of being a law within inter alia s. 51 (20). To my mind it

all amounts to very little. The drafting faults found are easily cured, so easily indeed that I am entirely persuaded by the dissenting judgement (on this point) of Gibbs J. that the sections should not have been invalidated in the first place. It is not possible to follow a drafting point without some reference to the details of the Act involved, but I

will put it as briefly as I can.

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The Committee will be aware that one of the main purposes of the Trade Practises Act was the control of what in the Act were called examinable agreements. These were commercial agreements embodying certain practices regarded as undesirably restrictive of trade. The detailed specification of such agreements was in s. 35 of the Act. For the present purpose the important point about s.35 is that it was drafted in general terms apart from the characteristics which made the agreements examinable. If there were a head of power under which the Commonwealth could legislate with respect to ‘restrictive trade practices’, s. 35 would have been valid as it stood, assum­ ing that the characteristics of the agreements specified did not take them outside the constitutional meaning of restrictive trade practice. Since there is no such head of Commonwealth legislative power, it followed that s. 35 was invalid unless the agree­ ments were required to have some further characteristic or characteristics which brought them within a power which the Commonwealth does have; for example, that they be pursuant to interstate trade, s. 51( 1), or be made by a corporation within the meaning of s. 51 (2 0 ).

The draftsman anticipated this need and tried to meet it in s. 7 of the Act. He failed because he attempted to preserve the last ounce of generality in the application of the Act whilst at the same time keeping it within power. From the Common­ wealth’s point of view this is unfortunate because it discourages efforts to find for­ mulae for the use of legislative power to its fullest extent. If the fate of the Trade Prac­ tices Act is any guide, the majority of the present court takes a restrictively technical view of the drafting of statutes, which puts a premium on the draftsman’s erring on the safe side. This must inevitably affect his advice to Parliament, which in turn has political effects. This point is of all the more significance in that there was no room in

Concrete Pipes for arguing that Parliament had failed to make its intention clear. As Gibbs J. demonstrates at T/S 6-7, the intention of Parliament as expressed in s. 7 was perfectly clear. It was to achieve the widest possible range of valid application of the Act.

In s. 7 the draftsman’s primary purpose was to cut down the generality of s. 35 by referring the agreements therein specified to one or more heads of legislative power. These he specified in separate subsections. If he had stopped there, covering the heads of power with some such general expression as that the restrictions of s. 35 were

restrictions of any of the following kinds but no others, the Act would have been valid. In particular he drafted s. 7 to read that the restrictions of s. 35 '‘included ’ restrictions with the ensuing additional characteristics specified in s. 7, or any of them, as opposed to being limited to them, and further underlined the attempt to achieve all possible generality by adding in s. 7 (4) that none of the foregoing should be construed as limiting the operation of the Act. This last provision in particular left it open to a literal-minded court to decide that the draftsman had expressly defeated his own object, which the majority of the court duly did.

My conclusion is that if the committee wishes to recommend legislation relating to any of the substantive matters referred to in this opinion, or other matters, it would do well ( 1) not to attempt to give the legislation an outer penumbra of vagueness of ap­ plication in the hope that the High Court will complete the process of precise

definition, and (2 ) to rely as little as possible on the use of particular formulae in one section of an Act to cut down general words in another section which in itself is expressed in terms which go beyond power. These precautions may add to the bulk of

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legislation. Within one Act they may result in particular applications being spelt out in numerous separate sections, so that if any one goes beyond power the court will have the least difficulty in severing that one from the rest. Beyond this it would be advisable to resort to a series of separate Acts in some instances, particularly where there is real

doubt as to the scope of s. 51 (20). The intellectual vulnerability of an unduly literal approach to statutory interpretation, of which advantage can be taken by the drafts­ man, is that the court will not take note of the relation of one statute to another if the two are separated with reasonable care. The outstanding instance is the income tax legislation upheld in South Australia v. Commonwealth (1942) 65 G.L.R. 373.

There are two other points of relevance in Concrete Pipes. The first is that little aid can be expected by the Commonwealth from s. 15A of the Acts Interpretation Act by way of reading a statute down to its constitutional limits. Secondly there are passages in the judgement of Walsh J. at T/S 5, 9-12, which may suggest that the difficulties of combining a law to be obeyed by corporations with a law as to a given subject matter

are greater than I have concluded above. I have decided that they may be disregarded, first because it is not clear that he actually did intend to say any more than the Chief Justice and Menzies J. on the point [cf. at T/S 13], and secondly, because if he did his wider doubts are not reflected in the other judgements.

Colin Howard

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LEGAL OPINION B-2

1. At the outset it is well to appreciate the precise and limited opinion of Strickland v. Rocla Concrete Pipes Ltd (1971) 45 A.L.J.R. (putting aside what might be called the decision in Rocla, viz., that the form of the Trade Practices Act did not measure up to the High Court’s understanding of a law with respect to Consti­ tutions. 51 (xx) corporations).

2. (1) Rocla declared that the following law would be a 51 (xx) law: ‘Any foreign corporation, or trading or financial corporation formed within the Com­ monwealth, which, either as principal or agent, makes or enters into any contract, or engages or continues in any combination—(a) with intent to restrain trade or commerce within the Commonwealth to the detriment of the public. . .is guilty of an offence’.

(2) That is to say, a law that is expressly and directly directed to 51 (xx) corpor­ ations and commands them not to enter into agreements in restraint of trade is a 51 (xx) law.

(3) The law thus does not merely regulate the sheer trading of the 51 (xx) cor­ porations. It goes further. The law regulates the making of restrictive agree­ ments in connection with that trading; the law regulates something which is incidental to the sheer making and selling of concrete pipes, sc., agreements in restraint of trade.

3. (1) Besides the particular example of a 51 (xx) law suggested by Rocla, various Justices also indicated a criterion of a valid 51 (xx) law, even if only tenta­ tive at this stage.

(2) Barwick C.J., referred to ‘laws regulating and controlling amongst other things the trading activities of foreign corporations and trading and finan­ cial corporations formed within the limits of the Commonwealth . . . (these laws are) laws with respect to such corporations. They (deal) with the very heart of the purpose for which the corporation was formed ’.

(3) Menzies J., spoke o f ‘a law relating to the trading of trading corporations formed within Australia. Prima facie such a law is within power . . .’ a law ‘governing the conduct of its business by a trading corporation formed within the limits of the Commonwealth is within the power’ in s. 51 (xx) of

the Constitution.

(4) Gibbs J., (a dissenter, but only on the form of the Act, not on the power in 51 (xx)), said that s. 51 (xx) extends ‘to empower the Parliament to govern and regulate the trading activities of corporations . . .for the purpose of preserving competition in trade ’.

4. Then, the criterion of a 51 (xx) law looks for a law which turns to 51 (xx) cor­ porations—and proceeds to regulate ‘the trading activities’, the ‘trade’, or the ‘business’ of these corporations.

5. (1) In the particular context of Rocla and in the particular context of Huddart Parker & Co. Pty Ltd v. Moorehead (1909) 8 C.L.R. 330, the criterion of a 51 (xx) law given in para. 4 above meant that a law which penalized agree­ ments in restraint of trade made by 51 (xx) corporations was a law which

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regulated the trading activities, the trade or the business of these corporations.

(2) That is to say, the making of a restrictive trade agreement (associated with the manufacturing-distributing of concrete pipes in Rocla or with the selling of coal in Huddart Parker) was a ‘trading activity’.

(3) Barwick C. J., in Rocla suggested why the making of restrictive trade agree­ ments were considered to be ‘trading activities’ or the ‘business’ of 51 (xx) corporations: they are ‘activities in trade with which the law has been fam­ iliar for centuries’.

Applications o f Rocla 6. (1) On the incorporation or liquidation of companies at large Rocla has nothing to say: see paras. 1-5 above.

(2) On the incorporation ( and presumably liquidation) of companies in specific areas Barwick C.J., in Rocla reminds us that Federal Parliament can incor­ porate government enterprises in overseas or inter-State trade; that Parlia­ ment can incorporate federal industrial organizations; and that Parliament

can incorporate generally in its territories. See s. 51 (i), s. 51 (xxxv) and s. 122 of the Constitution.

7. Earlier cases have persistently denied that s. 51 (xx) authorizes Federal Parlia­ ment to incorporate or liquidate the three kinds of corporations enumerated in that grant.

See Insurance Commissioner v. Associated Dominions Assurance Society Pty Ltd (1953) 89 C.L.R. 78, at pp. 86, 89; Bank o f New South Wales v. The Common­ wealth (1948) 76 C.L.R. 1, at pp. 202, 255, 304; Isaacs, J., in Huddart Parker above, at pp. 393, 394 (Isaacs was not one of the Justices in Huddart Parker who were criticized by Rocla).

8. I do not think that s. 51 (xx) will extend in time to permit incorporation or, what is related, liquidation. Foreign corporations, one of the classes in 51 (xx), must be incorporated abroad. The other two corporations in 51 (xx) are bodies ‘formed’ within the limits of the Commonwealth.

9. (1) Internal management of the prescribed corporations was not considered by Rocla.

(2) But the authorities in para. 7 above leave the internal management of these corporations to the States.

(3) Now that the Court has conceded a large corporate power to the Common­ wealth by resuscitating 51 (xx), the Court may well leave with the other par­ ties to the Federation, the States, the creation and internal management of 51 (xx) corporations.

Thus, the Court may (if only subconsciously) preserve in this area a ‘dual federalism’, per Kitto J., in Airlines o f New South Wales Pty Ltd v. State of New South Wales {No. 2) (1965) 113 C.L.R. 54, atp. 115. Even State of Vic­ toria v. The Commonwealth (Pay-roll Tax) (1971) 122 C.L.R. 353 insisted

on the essential federal nature of the Constitution.

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10. (1) The ‘statutory recognition of corporations falling within the terms of the paragraph (viz., s. 51 (xx)) and the fixing of the conditions upon which they might enter trade’ . . . this restriction of the power in s. 51 (xx) by Huddart Parker was stigmatized by Barwick C.J., in Rocla as an ‘emasculation’of the power—not as a distortion or as something beyond the power.

(2) McTieman J., during argument in Rocla thought that O ’Connor J., in Hud­ dart Parker gave a satisfactory explanation of the origin of s. 51 (xx)— namely, to authorize the central legislature to make laws allowing recogni­ tion of, and imposing conditions of recognition on, 51 (xx) corporations.

(3) Owen J., during argument in Rocla thought that O ’Connor’s view of s. 51 (xx)—see sub-para. (2 ) above—was a narrow construction of 51 (xx).

(4) Remember the criterion in Rocla looks to a law that governs and regulates the trading activities of 51 (xx) corporations: see para. 4 above. The imposi­ tion of rules of recognition so that 51 (xx) corporations can carry on then- trade or their business in Australia seems to meet the criterion.

11. Federal surveillance of share-dealings is not mentioned by Rocla, either in argu­ ment or in judgement.

12. So far as a concrete pipes manufacturing company (as in Rocla) or a coal mer­ chant company (as in Huddart Parker) has share-dealings with its own share­ holders, these would be matters of internal management. As such the dealings would remain under State control. See para. 9 above.

13. So far as a concrete pipes manufacturing company or a coal merchant company has (projected) share-dealings with outsiders—say, by way of invitations or prospectuses—the following law is available.

(1) Rocla validated, not a law on the bare trade of selling concrete pipes or the bare trade of selling coal, but Rocla validated a law on something incidental to that trade of selling. See para. 2 (3) above. Rocla validated a federal law which regulated something associated with trade, something ‘in trade (accu­ rately, something merely connected with trade) with which the law has been

familiar for centuries’. See para. 5 (3) above.

Then, Parliament could make a 51 (xx) law on something incidental to the trading of 51 (xx) corporations, something in trade with which the law is well familiar—dealing in shares by 51 (xx) corporations with prospective shareholders.

(2) Generally, Rocla promised a liberal understanding of the corporations power. Barwick C.J., warned that ‘this power should (not) be approached in any narrow or pedantic manner’. Menzies J., insisted that ‘grants of power (to the Federal Parliament) should be construed broadly not narrowly’.

(3) In the result, it seems that Federal Parliament could act the surveillant of proposed share-dealings between 51 (xx) corporations and outsiders.

14. (1) Trading corporations within s. 51 (xx) certainly include manufacturing companies qua distributors, as in Rocla itself.

(2) ‘Trade’ in s. 51 (i) and in s. 92 of the Constitution is an indication o f‘trad­ ing’ corporations in s. 51 (xx) of the same document.

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Trade in s. 51 (i) and/or in s. 92 extends to buying and selling of tangibles or intangibles, transport, news media enterprises, broadcasting, television, public utilities (gas or electricity), the transmission of intelligence . . . See The Commonwealth v. Bank o f New South Wales (1949) 79

C.L.R. 497, at pp. 632-633; Bank o f New South Wales v. The Common­ wealth (1948) 76 C.L.R. 1, at pp. 284, 306, 381-382; Australian National Airways Pty Ltd v. The Commonwealth (1945) 71 C.L.R. 29, at pp. 56-57, 71,76, 82-83, 106-107; W. & A. McArthur L td\. State o f Queensland{ 1920)

28 C.L.R. 530, at pp. 546-548.

Particularly notice the wide view taken of the meaning of trade in the Bank­ ing Case above, 79 C.L.R. at p. 632 and 76 C.L.R. at pp. 381-382, and in A.N.A. above, at p. 82.

(3) There is even a suggestion by Latham C.J., and Dixon J., in A.N.A. above, at pp. 56 and 83, that a profit element need not be shown.

15. (1) From the examples just given and because of the amplitude of the notion of trade, a trading corporation within s. 51 (xx) would include a mining explo­ ration company or a merchant bank which sells, or does trade in, its ‘intelli­ gence’ (see para. 14 (2) above).

(2) A non profit corporation, otherwise within s. 51 (xx), might be argued to be within the corporations power. See para. 14(3) above. However, the dicta are slight, and I would not lean too heavily on them.

Of course, a non profit association which is unincorporated, a mere associ­ ation, is not within s. 51 (xx).

16. (1) Non corporate persons are not within the literal terms of s. 51 (xx), any more than non aliens are within the literal term of s. 51 (xix)— these two powers on persons were yoked together by some of the Justices in Rocla.

(2) During argument in Rocla Menzies J., certainly indicated that he would oppose the inclusion in a power on persons parties who were not among the prescribed persons.

During argument in Rocla Barwick C.J., almost as clearly indicated that he would allow the corporations power to extend to non corporate persons. Barwick instanced a law on receiving as a law making effective legislation on larceny.

(3) Under its powers not specifically directed at persons—and aided by its inci­ dental powers—Federal Parliament can reach into matters literally not within the main grant. Thus, assisted by its power incidental to the taxation grant Parliament has required the registration of tax agents, Stuckey v. Iliff

(1960) 105 C.L.R. 164. Or, assisted by its power incidental to the industrial arbitration power Parliament has incorporated organizations, Jumbunna Coal( 1908) 6 C.L.R. 309.

The incidental power makes effective the main legislation, Re Dymond (1959) 101 C.L.R. 11, at p. 21; Grannallv. Marrickville Margarine Pty Ltd (1955)93 C.L.R. 55, at p. 77.

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(4) Then it is quite arguable that legislation based on 51 (xx) with its incidental power can extend to brokers or accountants in order to make effective Parliament’s acknowledged regulation of 51 (xx) corporations.

17. A federal law which relies on multiple heads of power (1) must itself disclose a standard or criterion which the Court can seize to characterize the law as a law, for example, with respect to (a) inter-State dealings in shares, (b) territorial dealings in shares, (c) dealings in shares by

51 (xx) corporations, and so on, Pidoto v. State o f Victoria (1943) 68 C.L.R. 87, atpp. 109-111; and (2 ) the law must itself declare that the several subsections (a) (b) (c) and so on shall be construed distributively as between themselves to the intent that as

each case (transaction, dealing) arises, otherwise within the law, that sub­ section shall be applied that is relevant to the case; compare Gibbs J., in Rocla.

P. H. Lane

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LEGAL OPINION B-3

The following opinion is divided into three parts: Part I, General Comments on Concrete Pipes; Part II, Specific Questions; Part III, Severability.

Parti: General Comments on Concrete Pipes 1. The most obvious feature of the seven opinions in the Concrete Pipes Case,1 2 was the determination of all the Justices to confine their authoritative decision to the validity of the Trade Practices Act 1965-9, in relation to restrictive trade agree­

ments made by foreign corporation or trading or financial corporation formed within the Commonwealth. It is open to argument that the decision is authoritat­ ive only as to agreements made between two or more of the corporations just men­

tioned, since the appellants were in fact corporate, and does not decide anything as to the validity of such an Act in its relation to agreements made between cor­ porations and individuals. However, Barwick C.J., McTiernan J., Windeyer J. and Owen J. and probably Gibbs J., could be taken as holding that the Commonwealth can at least require the relevant corporations to register restrictive agreements, and can prohibit such corporations under penalty from entering into such agree­

ments, whether other parties to such agreements are corporate or not, even though the decision tells nothing as to the possible consequences for the non-corporate parties or as to the competence of the Commonwealth Parliament to deal with such consequences; see especially Menzies J. at p. 12 and Walsh J. at p. 14. This,

however, is the full extent of the authoritative decision, and the whole court agreed that it should not attempt to establish the outer limits of s. 51 (xx), nor even give much in the way of constructive guidance as to the way in which the court now proposes to handle this section.

2. I have attached to this opinion excerpts from the judgements from which some wider implications may be drawn; they may not be exhaustive, but I think that they are the principal passages of possible relevance to the questions put to me on behalf of the Committee. The general conclusions which I draw from these pass­

ages is that the court has been particularly careful to avoid giving the slightest clue to the key question underlying the Committee’s questions (1), (2), part of (3), (4) and (5). That question is whether s. 51 (xx) would now authorise Commonwealth laws concerning what for convenience I call the ‘interior’ affairs of the relevant

corporations, such as the matters dealt with in the State Companies Acts.

3. The question whether s. 51 (xx) allows the Commonwealth to provide for the incorporation of such companies may be isolated as a special problem both of in­ terpretation and of history, because in Moorehead2 the court was unaminous that s. 51 (xx) did not authorise incorporation of financial or trading companies. In

Concrete Pipes all the opinions carefully avoid dealing with the question, and the circumstance that Barwick C.J. (at p. 13) enumerates sources of Commonwealth power to incorporate without including s. 51 (xx) provides a fairly strong basis for assuming that the Chief Justice (and consequently McTiernan J.) accepts this part

of the Moorehead finding; perhaps Menzies J. does too (see p. 20). It has always

1. Not reported. Page references are to the separately numbered pages of each judgement in the typescript copy. 2. 8 C.L.R. 330.

383

been my view that the reasoning on this point in Moorehead was fallacious, but it was the sort of reasoning likely to find favour with the present High Court, and as a matter of judicial psychology I should think it quite likely that the present Court would unanimously follow Moorehead on the point; perhaps McTiernan and

Gibbs JJ. could be persuaded in the other direction.

4. However, it by no means follows necessarily that the Commonwealth could not pick up corporations once incorporated under State laws or other Commonwealth powers and superimpose extensive regulations as to their corporate structure and ‘internal’ behaviour, including the relations between shareholders, directors, de­

benture holders, etc. One of the fallacious assumptions of all the judgements in Moorehead was that lack of power to incorporate necessarily implied lack of power to control ‘interior ’ organisation after incorporation.

5. The following factors support the view that even if stopping short at incorporation the power in s. 51 (xx) extends to ‘interior ’ organisations.

(a ) The whole Court agrees in disregarding the history of the provision (which, if examined, undoubtedly leads to a very narrow interpretation) and also in disregarding the doctrine of implied prohibitions applied in Moorehead; they require simply that the challenged law should be a law ‘with respect to’ the named corporations. It cannot be denied that a law regulating ‘interior’ or­ ganisation comes within this description or classification.

(b) Although only McTiernan J. specifically agrees with the formulation of Barwick C.J. as to the positive content of s. 51 (xx), none of the others specifically disagree3. The Barwick statement (pp. 15-16) ‘no doubt laws which may be validly made under s. 51 (xx) will cover a wide range of the activities of foreign corporations and trading and financial corporations: per­ haps in the case of foreign corporations even a wider range than that in the case of other corporations: but in any case not necessarily limited to trading activities’ is consistent with ‘interior’ regulation; note also his immediately following reference to avoiding narrow or pedantic constructions.

(c) At least in the case of foreign corporations, the foregoing passage from Barwick C.J. supports the view that there is no semantic basis for restricting the range of the power to ‘exterior’ activities, as there might be with the other two classes of corporation.

(d) At least in the case o f ‘financial’ corporations, such semantic basis as the phrase itself provides for a restricted meaning leads to a wider inference than the expression ‘trading’; it is surely ‘the very heart’ (Barwick C.J. at p. 14) of financial corporation activity that the ‘internal’ structure of the corporation

should be such as to provide satisfactory assurances of solvency and honest dealing in the ‘external’ activities of the corporation. This may not cover the whole range o f‘interior ’ questions but would go a considerable distance.

6. The factors telling against an interpretation covering ‘interior’ organisation are as follows:

3. M en zies and W indeyer make no reference to B arw ick C.J. ’s opinion; Owen J. agrees only on severability, and Walsh J. on not following M oorehead.

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(a) The frequent references in all the judgments to the trading relations of the relevant corporations with the community as the chief element attracting validity.

(b) The favourable references by Barwick C.J. (p. 12) to the opinion of Isaacs J. in Moorehead; Isaacs regarded s. 51 (xx) as solely applicable to ‘external re­ lation’ questions. Similarly, Gibbs J. (p. 4) quotes without disapproval the Isaacs view. (On the other hand, notice the specific refusal of Menzies J. to

consider such aspects of the judgement—p. 19).

(c) The explicit warning by Barwick C.J. (p. 15) that there are limits to the oper­ ation of s. 51 (xx) and that in particular it does not follow that ‘any law which is addressed specifically to such corporations or some of them ’ is valid.

7. The conclusion I have come to is that the future course of High Court decision on these questions is unpredictable. The judgements in Concrete Pipes give, so far as measurable, an equal degree of discouragement and encouragement from the point of view of extension of Commonwealth power in the directions indicated by

the questions put to me. My own view is that the logic of Concrete Pipes requires extension of Commonwealth competence over the whole range o f‘interior’ mat­ ters. I would advise a Commonwealth Parliamentary draftsman instructed to pre­ pare a Commonwealth Companies Act to arrange the drafting so as to leave open

the possibility of severing any provisions of the Act dealing with the incorporation of companies, so that the remainder can operate on relevant corporations on the assumption that they have been incorporated under other laws. Otherwise, it can only be said that the Commonwealth now has a basis for successfully arguing the

validity of a Commonwealth Companies Act, but no guarantee that this argument will prevail.

Part II: Specific Questions 1. Will the power now support Commonwealth laws with respect to the incorporation or liquidation o f companies?

Probably not as to incorporation; as to liquidation see (4).

2. Can the Commonwealth provide for the recognition throughout the Commonwealth o f Companies incorporated in a State or Territory?

Doubtful, since it cannot be assumed that any of the views in Moorehead have been accepted; Menzies J. appears to reject it specifically (p. 20).

3. What types o f corporations can be regarded as covered by the words ‘trading or financial corporations’?

Concrete Pipes gives little guidance. The judgments do not even hint at either ac­ ceptance or rejection of the restrictive views expressed on the point by Isaacs J. in Moorehead. The course of the argument in Concrete Pipes suggested some willing­ ness to include all corporations which have a purpose of making profits from deal­

ings with goods, or with money and credits, as either trading or financial. Follow­ ing this hint and the generally expansive mood of the decision, I would say that profit-making purpose is the chief criterion. Hence a non-profit making stock exchange would not be covered, because the corporation is in itself neither finan­

cial nor trading and the brokers are not incorporated. The postulated mining and investment companies would be covered. The ‘merchant bank’ is in my view a

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bank within s. 51 (xiii) and hence (under Bank Nationalisation*) not covered by s. 51 (xx), but certainly in so far as not covered by s. 51 (xiii) it would be covered bys. 51 (xx).

4. Laws with respect to the activities o f corporations These questions all depend on the key question of the power to regulate the ‘inter­ nal’ affairs of corporations, or of some classes of corporations, dealt with in Part I of this opinion. As there explained, I think the questions at present unanswerable

and would recommend that any Commonwealth authority should assume answers in favour of Commonwealth power, pending clarifying litigation.

5. Will the power support laws with respect to the unofficial inter-company market re­ quiring, fo r example, the disclosure to a government body o f details of borrowings and lendings by a company ?

The question as phrased is obscure. If it means to refer to dealings between dis­ tinct and separate corporations—foreign, financial or trading—then the answer is yes. For the purpose of this opinion, such dealings are ‘external ’ to the corporation and quite clearly come within the direct scope of the decision in Concrete Pipes·, they are forms of trading between corporations of the relevant type, and the case does not even involve the difficulties, mentioned by Menzies J. as to transactions where individuals are party principals.

6. Control o f the company’s servants and agents

See the answer to (4). Leaving aside the individual persons mentioned, laws for this purpose addressed to the corporations and referring only to their ‘external’ activities—e.g. seeking to buy shares, etc., in other corporations— would be valid under Concrete Pipes', query where the laws deal with ‘internal’ shareholder- debenture holder-director relations. If the law is valid as to the corporation, then the difficulties mentioned by Menzies J. in Concrete Pipes (p. 12) would arise if an attempt was made to impose a sanction on the individual or non-corporate body mentioned. The incidental criminal power as established by Kidmans may extend only to individual etc. acts which could be treated as incitement, conspiracy etc., but the Commonwealth could at least attempt to reach the individuals etc. by making knowing participation in an activity forbidden to the corporation itself an offence.

Part III: Severability 1. In my view the dissenting opinion of Gibbs J. on this point in Concrete Pipes is preferable to the majority view, but I do not think that the majority view creates any major problems for the draftsmen. The Trade Practices Act presented a

severability problem somewhere between the severability provisions of Bank Nationalisation on the one hand and Pidoto on the other, and it has to be remem­ bered that this had to be dealt with before the trends of interpretation demon­ strated in Payroll Tax4 5 6 and the present case had become at all prominent, and when accordingly the draughtsmen had to clutch at constitutional straws. It was

for that reason that the Act attempted to combine (by the joint effect of s. 15A of

4. 76C.L.R. 1. 5. 20 C.L.R. 425. 6. 45 A.L.J.R. 251.

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the Acts Interpretation Act and s. 7 of the Trade Practices Act) the effect of some five separate Acts. If the draftsmen and the Government had dished up to Parlia­ ment instead five or six separate Acts, in the manner of the long succession of Sales Tax and Sales Tax Assessment Acts, it is likely enough that they would have ex­ perienced a party and House revolt against them. Moreover, it was only after the High Court decision to overrule Moorehead that the Trade Practices Act could be seen to involve such subtle problems of severance.

2. The two main difficulties are as follows. Firstly, the catch-all provision of s. 7 (4) was interpreted by the majority as creating a situation, like that of Pidoto, where the Court is left without any objective guide to the basis for distributive severance. (The Court should instead have applied s. 15 A to s. 7 and struck out the catch-all phrase.) Secondly, the majority thought, with more justification, that the various operative phrases of ss. 35, 36, 37 and 43 might have to be given different mean­ ings in accordance with the head of power in relation to which they were to be ap­ plied; this would be an unusual type of distributive severance, though I can see no

theoretical objection to it and in all probability no such variation in meaning need necessarily have arisen. However, accepting that the majority was worried by these features of the legislation, it will be easy enough to overcome them. The first difficulty will be sufficiently dealt with by restricting the possible constitutional

bases of operation to the cases of obvious importance—behaviour of corporations, interstate and foreign trade, state-territory and territory-territory trade. The sec­ ond difficulty will require either several Acts, which will still look pretty cumbrous, or at least separate Parts in the one Act. Owing to the nature of the difficulty, it will

not be sufficient to have one Part containing the substantive machinery and then a number of separate parts setting out the three areas of application and incorporat­ ing the substantive Part into each of them, since the majority may still object that they cannot vary the meaning of the operational phrases in the substantive Part if

this is needed to ensure the valid application of that Part to different areas of application. Hence on the contrary it will be necessary to repeat the substantive provisions three times and furthermore to add an internal interpretation clause to the effect that the meaning of the substantive provisions is to accord with consti­ tutional requirements in relation to each area of application, and that the three

sets of substantive provisions are to be read accordingly and if necessary with varying meanings notwithstanding that they are verbally identical.

3. A special difficulty arises in relation to the corporations power basis, because of the difficulty about corporation-individual transactions raised by Menzies J. (p. 20) and mentioned by Walsh J. (p. 14). In view of the statistics as to the parties to restrictive trade agreements, I would be inclined to play safe for the present by

confining the s. 51 (xx) basis to agreements between corporations. Time enough later to attempt reaching individuals and firms if there is a rush to de-incorporate. 4

4. An attempt at applying s. 51 (xx) to ‘internal’ organisation, as in a Companies Act, will not raise comparable difficulties, since the major provisions will rest solely on s. 51 (xx) and there would be little point in relying on ss. 51 (i) and 122 as well until s. 51 (xx) has been tested, when the appropriate severability problem

will also be clearer. The incidental applications to individuals of some proposed laws under this head as under question ( 6 ) above can easily be set out in separate

387

sections which can be ‘blue-pencilled’ in their entirety if invalid, so that distribu­ tive severability will not arise.

Geoffrey Sawer

APPENDIX

Excerpts from the Concrete Pipes Case Barwick C.J.

Mr Justice Isaacs dissented and adopted an approach to the construction of the Constitution conformable to the subsequent decision of the Court in the Engineers Case. He thought ss. 5 (1) and 8 (1) to be valid because he construed the power of the Parliament as large enough to include the regulation of the conduct of foreign and trading or financial corporations formed within the limits of the Commonwealth in their transactions with or as affecting the Australian public.!

The Court in the course of its judgment, decided that the expression in paragraph (xx) ‘formed within the Commonwealth’ was apt to include only corporations formed according to the laws of the States. But in this it seems to me their Honours were clearly wrong. There are powers granted to the Commonwealth as well as those left in residue to the States to which the formation within the Commonwealth of trading cor­ porations might be referable. There is s. 122 granting legislative power with respect to

the Territories. Section 51 (1) for instance has been found a source of power to create a trading corporation. See Australian National Airways Pty Ltd v. The Common­ wealth and Others 71 C.L.R. 115. Corporations formed under any power by the Com­ monwealth or under Commonwealth legislation are clearly corporations formed within the limits of the Commonwealth. Had their Honours of the majority in

Huddart Parker v. Moorehead {supra) included these corporations in, rather than excluded them from, the ambit of paragraph (xx) some of the difficulties which arise from their interpretation of paragraph (xx) might have become apparent.1 2

I have set out s. 5 (1) and s. 8 (1) of the Australian Industries Preservation Act. They were clearly laws regulating and controlling amongst other things the trading activities of foreign corporations and trading and financial corporations formed within the limits of the Commonwealth. In my opinion such laws were laws with re­

spect to such corporations. They dealt with the very heart of the purpose for which the corporation was formed, for whether a trading or financial corporation, by assump­ tion, its purpose is to trade, trade for constitutional purposes not being limited to deal­ ings in goods, cf. Bank o f New South Wales v.The Commonwealth and Others 79

C.L.R. 1. If the corporation is exercising its powers it will be carrying out trading oper­ ations and in that pursuit making agreements with others in matters of trade. Agree­ ments to restrict trade or endeavouring to monopolise it are activities in trade with which the law has been familiar for centuries. Sections 5(1) and 8 (1) in controlling

such activities are in my opinion clearly laws with respect to the topic of s. 51 (xx). I would conclude therefore that s. 5 (1) and s. 8 (1) were valid and that the Court’s de­ cision to the contrary in Huddart Parker v. Moorehead (supra) should be overruled.3

It does not follow either as a logical proposition, or if in this instance there be a difference, as a legal proposition, from the validity of those sections, that any law which in the range of its command or prohibition includes foreign corporations or trading or financial corporations formed within the limits of the Commonwealth is

1. P. 12. 2. P. 13. 3. Pp. 14-15.

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necessarily a law with respect to the subject matter of s. 51 (xx). Nor does it follow that any law which is addressed specifically to such corporations or some of them is such a law. Sections 5(1) and 8 ( 1), in my opinion, were valid because they were regulating and controlling the trading activities of trading corporations and thus within the scope of s. 51 (xx). But the decision as to the validity of particular laws yet to be enacted must remain for the Court when called upon to pass upon them. No doubt, laws which may be validly made under s. 51 (xx) will cover a wide range of the activities of foreign corporations and trading and financial corporations: perhaps in the case of foreign corporations even a wider range than that in the case of other corporations: but in any case, not necessarily limited to trading activities. I must not

be taken as suggesting that the question whether a particular law is a law within the scope of this power should be approached in any narrow or pedantic manner.4

The constitutional formula requires a substantial connection between the topic and the law. What will suffice in any particular instance to require an affirmative answer to the question whether it is a law with respect to the subject matter necess­ arily involves a matter of degree co-related to the nature of the power and to the pro­ visions of the Act as they would operate in the area in which it is held they were intended to operate. As I have indicated, I have myself no difficulty whatever in say­ ing that ss. 5 (1) and 8(1) were laws with respect to amongst other things trading corporations formed within the limits of the Commonwealth.5

A law requiring the registration of trading agreements restrictive of trade to which a foreign corporation or a trading or financial corporation formed within the limits of the Commonwealth is a party, and requiring the corporation to give particulars of such an agreement under penalty of a fine for failing to do so, appears to me clearly to

be a law with respect to corporations of the kind described. As I have said, the making of such an agreement in the course of the trade is truly a trading activity. Such a law is a law regulating and controlling the trading activities of such corporations. It would in my opinion clearly be within the legislative power of the Parliament granted by s. 51 (xx): as also would be the other substantive provisions of the Act if enacted with respect to foreign corporations and trading and financial corporations formed within the limits of the Commonwealth.6

McTiernan J.

I agree in the judgment of the Chief Justice, so far as it relates to the decision in Huddart, Parker & Co. Proprietary Limited v. Moorehead 8 C.L.R. 330 and to the scope of s. 51 (xx) of the Constitution.7

Menzies J.

It was virtually conceded that s. 43 could impose no obligation arising out of an agreement between individuals relating solely to intrastate trade. What power, it may be asked, would support the application of s. 43 to an individual so contracting with a

4. Pp. 15-16. 5. P. 17. 6. Pp. 17-18. 7. P. 1.

390

company? Does s. 15A enable the provisions of the Act to apply to agreements so far as one party is concerned but not another? Difficulties of this sort cannot be conclusive but the host of difficulties that would arise, were s. 15A to be applied in accordance

with the submission of the Attorney-General, lends support to a conclusion, formed on the more fundamental grounds that I have already stated, that the Attorney- General is claiming too wide an operation for s. 15 A.8

Is any law commencing ‘ Every alien shall . . .’a valid law? I do not think it is necessary here to determine whether the Attorney-General’s affirmative submission is correct because all we are here concerned with is a law relating to the trading of trad­ ing corporations formed within Australia. Prima facie such a law is within power.9 1 0

Legislation with respect to corporations may also be legislation with respect to trade. A law with respect to corporations is within the power of Parliament notwith­ standing that it is also a law with respect to trade, notwithstanding the limited power in relation to trade conferred upon Parliament by s. 51 (i).‘°

I am not prepared to attempt to define the limits of the power conferred by s. 51 (xx). I content myself with saying that a law such as s. 5 of the Australian Indus­ tries Preservation Act governing the conduct of its business by a trading corporation formed within the limits of the Commonwealth is within the power of the Parliament

by virtue of s. 51 (xx).11

Further, it is hardly to be thought that a recognition of a corporation formed under the law of a State as a legal entity should be a matter for Commonwealth law. For instance, could Parliament by a law under s. 51 (xx) forbid the recognition in a State of a company incorporated in that State?12

Owen J.

I agree that the decision in Huddart Parker & Co. Pty Ltd v. Moorehead (1909) 8 C.L.R. 330 should be overruled and that laws such as were contained in ss. 5 (1) and ( 8 ) of the Australian Industries Preservation Act may be made by the Parliament under the powers conferred by s. 51 (xx) of the Constitution.13

Walsh J.

I agree also with the opinion expressed by the Chief Justice that we should not attempt to decide in these appeals the full ambit of the power conferred by s. 51 (xx)

8. P. 12. 9. P. 14. 10. Pp. 18-19. 11. P. 19.

12. P.20. 13. P. 1.

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or to state definitive tests or criteria by which in every case the question may be deter­ mined whether a law is or is not a law with respect to the topic described in that paragraph.'4

Gibbs J.

In my opinion a law may be a law with respect to a foreign corporation or a trad­ ing or financial corporation formed within the limits of the Commonwealth notwith­ standing that it affects the corporation in the conduct of its intra-State trade.1 4 15 Isaacs J., on the other hand, considered that the words of the paragraph should be given their ordinary and natural meaning, and that so read s. 51 (xx) ‘entrusts to the Commonwealth Parliament the regulation of the conduct of the corporations in their transactions with or as affecting the public’ (see p. 395).16 1 7

We need not consider whether the exercise of the power could lead to the results which in Huddart, Parker & Co. Pty Ltd v. Moorehead Higgins J. regarded as extra­ ordinary and ‘big with confusion’ (see pp. 409-410). However, it seems to me that it would be placing a quite unwarranted restriction on the words of the paragraph to read it as not extending to empower the Parliament to govern and regulate the trading

activities of corporations of the kind mentioned in the paragraph, for the purpose of preserving competition in trade. In my opinion, therefore, a law of the kind suggested would be within the power of the Parliament."

14. P. 3. 15. P. 3. 16. P. 4. 17. P. 5.

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LEGAL OPINION B-4 \

Section 51 (xx^^fthe^onstitution confers power on the Commonwealth Parlia­ ment to make laws with respect to ‘Foreign corporations, and trading or financial cor­ porations foriped within the limits of the Commonwealth By the Australian Indus­ tries Preservation Act 1906, the Commonwealth Parliament endeavoured to use this power in order to prohibit the corporations mentioned from entering into any contract

or engaging in any combination with intent to restrain any trade or commerce within the Commonwealth or with intent to destroy or injure any Australian industry. A further provision purported to prohibit the corporations from monopolising any trade or commerce within the Commonwealth. The validity of these provisions could not rest upon the commerce power because they covered all trade and commerce within Australia and not merely inter-State or overseas trade. The High Court in Huddart Parker v. Moorehead (1909) 8 C.L.R. 330 held by a majority (Griffith C. J., Barton, O’Connor and Higgins JJ.; Isaacs J. dissenting) that the provisions were not author­ ised by the corporations power. Although the reasoning of the majority judges varied

somewhat, the underlying view seemed to be that paragraph (xx) was confined to the statutory recognition of corporations and the fixing of conditions upon which they might enter trade in Australia. Isaacs J. disagreed with this view. In his Honour’s dis­ senting judgment, he maintained that the power entrusted to the Commonwealth Parliament was the regulation of the conduct of the corporations in their transactions with or affecting the public.

As a result of this case, the corporations power was not used or relied upon to any great extent by the Commonwealth until the passing of the Trade Practices Act 1965. Under the provisions of the latter Act, certain types of agreements entered into by the corporations of the type mentioned in paragraph (xx) of section 51 of the Constitution were required to be registered with the Trade Practices Commissioner. The High

Court, by a majority (Barwick C. J., Menzies, Windeyer and Owen JJ.; McTieman and Gibbs JJ. dissenting), held the Act invalid mainly on technical and drafting grounds. All the judges of the Court held that the reasoning in Huddart Parker v. Moorehead was wrong and that the provisions of the Australian Industries Preser­ vation Act considered in that case had been valid. It was, therefore, made clear by a

unanimous Court that the corporations power was sufficiently wide to enable the Commonwealth to govern and to regulate the trading activities of corporations of the kind mentioned in the corporations power for the purpose of preserving competition in trade. The importance of the case is that no regard need be had to the distinction

between inter-State and overseas trade on the one hand and intra-State trade on the other—a distinction which section 51 (i) of the Constitution requires.

None of the judges gave an inclusive and exclusive definition of this power, but Barwick C. J., in particular, threw some light on its scope.

In the course of his judgment, the Chief Justice said at p. 490:

I have set out s. 5 (1) and s. 8 (1) of the Australian Industries Preservation Act. They were clearly laws regulating and controlling amongst other things the trad­ ing activities of foreign corporations and trading and financial corporations for­ med within the limits of the Commonwealth. In my opinion such laws were laws

with respect to such corporations. They dealt with the very heart of the purpose for which the corporation was formed, for whether a trading or financial corporation,

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by assumption, its purpose is to trade, trade for constitutional purposes not being limited to dealings in goods, cf. Bank o f New South Wales v. The Commonwealth (1948), 79 C.L.R. 1. If the corporation is exercising its powers it will be carrying out trading operations and in that pursuit making agreements with others in mat­

ters of trade. Agreements to restrict trade or endeavouring to monopolize it are activities in trade with which the law has been familiar for centuries. Sections 5(1) and 8 ( 1) in controlling such activities are in my opinion clearly laws with respect to the topic of s. 51 (xx).

I would conclude therefore that s. 5. (1) and s. 8 (1) were valid and that the Court’s decision to the contraty in Huddart Parker v. Moorehead & Co. Pty Ltd (supra) should be overruled.

However, having regard to Sir Samuel Griffith’s remark in Huddart Parker v. Moorehead & Co Pty Ltd (see p. 345 of the report) and what was said in argument in these appeals I ought to observe that it does not follow either as a logical prop­ osition, or if in this instance there be a difference, as a legal proposition, from the validity of those sections, that any law which in the range of its command or pro­ hibition includes foreign corporations or trading or financial corporations formed within the limits of the Commonwealth is necessarily a law with respect to the sub­ ject matter of s. 51 (xx). Nor does it follow that any law which is addressed

specifically to such corporations or some of them is such a law. Sections 5(1) and 8 ( 1), in my opinion, were valid because they were regulating and controlling the trading activities of trading corporations and thus within the scope of s. 51 (xx). But the decision as to the validity of particular laws yet to be enacted must remain for the Court when called upon to pass upon them. No doubt, laws which may be validly made under s. 51 (xx) will cover a wide range of the activities of foreign corporations and trading and financial corporations: perhaps in the case of foreign corporations even a wider range than that in the case of other corporations: but in

any case, not necessarily limited to trading activities. I must not be taken as sug­ gesting that the question whether a particular law is a law within the scope of this power should be approached in any narrow or pedantic manner.

His Honour went on to say that the limits of the power could only be ascertained authoritatively by a course of decision. It would seem to me from this judgment that the Commonwealth now has power to control and regulate the central activities of the corporations. This approach places emphasis, so far as Australian companies are con­ cerned, on the adjectives— ‘trading’ and ‘financial’—used to describe the domestic corporations, and differs from that of some of the judges in Huddart Parker who tended to emphasise the corporateness of the entities. On the earlier line of reasoning, the only controls or regulations which could be imposed were those which had regard to the peculiar nature of corporations as distinct from natural persons. Barwick C. J., in Strickland, however, concentrated on the outward activities and purposes of the corporations as did Isaacs J.

I propose now to consider some of the specific questions that you have raised.

Incorporation or liquidation o f companies All the judges in Huddart Parker v. Moorehead agreed that section 51 (xx) did not empower the Parliament to incorporate companies. This reasoning was based upon the fact that the power speaks of trading or financial corporations formed within the

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limits of the Commonwealth. They all, therefore, assumed that the power could not operate until the body had already been incorporated. Except in the case of foreign corporations, the judges assumed that the corporations would be created under State law. It is now clear that the Commonwealth may create corporations as incidental to its other heads of power {Australian National Airways Pty Ltd v. The Commonwealth (1946) 71 C.L.R. 29). The Commonwealth has, under the banking power, created banking corporations and, under the commerce and territories powers, has created an airline and a shipping corporation to engage in inter-State and territorial trade. It can be argued that the wording of paragraph (xx) does not require one to conclude that the Commonwealth cannot create corporations under that power. It has been suggested, for example, that the words ‘formed within the limits of the Common­ wealth’ could be treated merely as contrasting with ‘foreign’ and that a Companies Act would clearly be a law with respect to corporations. Nevertheless, there is nothing in the Strickland case which departs from the views expressed on this matter in Huddart Parker and all argument proceeded on the basis that that aspect of the earlier case was correctly decided. I would advise, therefore, that it is unlikely that the power would support Commonwealth laws with respect to incorporation or liqui­ dation of companies. (I might mention that a different view has been taken by Mr John L. Taylor in an article published in 46 A.L. J. 5.)

The types o f corporations covered by the power There have over the years been a lot of pronouncements on the meaning of the words ‘trade’ and ‘commerce’ for the purposes of section 51 (i) and section 92. The two words have been regarded as synonymous. The most authoritative exposition is

that by Dixon J. (as he then was in the Bank Nationalisation case (1948) 76 C.L.R. 1 at 379-381. In that case, it was held that the inter-State transmission of credit by banks constituted inter-State trade and commerce. In the course of his judgment, his Honour said ‘transportation, traffic, movement, transfer, interchange, communi­ cation, are words which perhaps together embrace an idea which is dominant in the

conception of what the commerce clause requires. ’ It was also pointed out that the conception covers in the United States the business of press agencies and the trans­ mission of all intelligence. This broad notion of what constitutes trade has blurred the distinction in the corporations power between trading and financial corporations. As

the transmission of money or credit is an act of trade, it is hard to see that there would today be said to be any relevant distinction between the two types of corporation. This point was brought out by Barwick C.J. in Strickland when he said ‘whether a trading or financial corporation, by assumption, its purpose is to trade, trade for constitutional

purposes not being limited to dealings in goods’. However, it has also been made clear, particularly in cases involving section 92, that manufacturing, mining and agriculture do not come within the concept of trade. (Grannall v. Marrickville Mar­ garine Pty Ltd (1955) 93 C.L.R. 55). In Huddart Parker, Isaacs J. stated that a purely

manufacturing company was not a trading company. He listed among the companies that were outside the range of federal power all mining and manufacturing com­ panies. In Strickland, none of the judges expounded on the meaning o f ‘trading or financial corporations’. In the course of argument, however, some of the judges did

have difficulty in understanding this distinction made by Isaacs J. because it is clear that in probably all cases a company which has the object of manufacturing or mining would also have the object of selling what it produces or extracts and, insofar as it has

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that object, it would appear to be a trading corporation. In Strickland, this matter was not in issue because it was conceded that the defendants were trading corporations. In my view, the Court would hold that a company which had as one of its chief objects the sale of goods or services would be regarded as a trading company whether or not it had other objects related to mining or manufacturing.

There is some doubt, however, whether a non-profit organisation could be said to be a trading corporation even though the activities in which it engages may be regarded as ‘trade’ for the purposes of section 51 (i) and section 92. In the course of argument, it was pointed out that in the nineteenth century one meaning of a ‘trading company ’ was one which was engaged in the making of commercial profit.

In answer to some of your specific questions, therefore, it follows that a mining company carrying on exploration and mining and selling the results would be a trad­ ing company because the sale of its results would come within the concept of trade. Similarly, the business of making investments or providing of financial advice and services would, in my view, constitute acts of trade and, therefore, a company which had these as its chief objects would be a trading company. Insofar as the investments were made from moneys deposited by the public as in the case of building society cor­ porations, the body would also be a ‘ financial ’ corporation.

The specific meaning o f‘financial corporation ’ is a difficult question. The Conven­ tion debates seem to indicate that the draftsmen had in mind land mortgage com­ panies and building society companies rather than investment companies. However, I have not pursued the matter because, in my view, if, for example, an investment com­ pany is not a financial corporation, it is clearly a trading corporation.

Companies dealing in securities and investments Insofar as a corporation has as one of its central purposes the dealing in invest­ ments or securities, the reasoning in Strickland will, I think, enable the Common­ wealth to prescribe the sort of securities in which it may deal. Similarly, if its main purpose is the borrowing and investment of money, the Commonwealth could, in my view, regulate the conditions on which the money may be borrowed or securities given in respect of the loans. These activities would constitute the central objects of such companies. If one thing is clear from Strickland, it is that controls which deal with ‘the veiy heart of the purpose for which the corporation was formed ’ are within the power. Any control of these central purposes designed to protect the public or to ensure that it had relevant information would, in my opinion, be valid. Control over investment companies and financial institutions in this way would, of course, have an indirect control over other companies because a Commonwealth law could, I think, provide that an investment company shall not deal in shares of another company

which did not, for example, have its prospectus registered on a federal registry or which did not file accounts or statements of material matters with a federal registrar. This type of control, however, would not extend to make it an offence for that com­ pany in whose shares the investment corporation was dealing to fail to register the prospectus, file the accounts, etc.

Direct control o f the securities o f trading companies The question then arises whether the corporations power will enable the Com­ monwealth to deal directly with the issue of securities or the trading in securities on the basis that the securities are those of a trading or financial corporation. This issue

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differs from that involved in Strickland because, there, the Court was concerned with the exercise by the corporation of its main object and purpose. Here we are concerned with matters which are preparatory to the object, which is that of trade. While the borrowing of money by, for example, a manufacturing corporation is itself an act of trade, it is not an exercise of the prime purpose for which the corporation was formed. Similarly, while the issue of shares by a company to the public may be an act of trade, it is a prelude to the company exercising its main purposes. The matters you raise, therefore, in, for example, question (4) are not precisely analogous to the issues in

Strickland and, no confident answer can be given to the questions raised. However, the Chief Justice did state that the corporations power will cover a wide range of activities ‘ but in any case not necessarily limited to trading activities ’.

It is possible to argue that laws controlling the issue of prospectuses, shares and debentures are directed to matters that are preparatory to, and therefore incidental to, the principal activities of the company; that is to say, they are within the power be­ cause they concern matters that directly affect the activities of the company and are an

appropriate means of achieving the purpose of the power, namely the control of the corporation’s trading or financial operations.

In a sense this was true of the laws in Huddart Parker. The provisions of the Aus­ tralian Industries Preservation Act dealt with in that case did not directly prohibit or control the trading itself but rather contracts, combinations and monopolies that affected such trade. A restrictive agreement between two competitive trading

enterprises is not an act of that trade which lies within ‘the heart of the purpose’ for which the companies were formed. The agreement is about such trade and has the object of affecting it. It might be argued therefore that an invitation to the public to take up shares or lend money to the company so that it may carry out its purposes of

trading is also valid on analogous reasoning. A similar argument would apply to loans and borrowing in the inter-company money market. In one respect, however, laws of the nature proposed in paragraphs (i) and (ii) of your question (4) differ from those in the Australian Industries Preservation Act. The object of your proposed controls

would not be the regulation of the company’s trade but rather the securities market. As I indicated in my earlier opinion, where it is necessary to rely upon the incidental area of a constitutional power in order to uphold the validity of a law, the policy or purpose of the law is relevant. The connection between laws controlling the issue of

prospectuses and securities by companies and the central activities of the company might, therefore, be regarded as ‘remote’, ‘indirect’ or ‘consequential’ and therefore not ancillary to the main purpose of the power.

The matter, however, might be approached another way. The emphasis in Strickland was naturally upon the adjectives qualifying the corporations mentioned in paragraph (xx). Isaacs J. in Huddart Parker similarly regarded the appropriate test of whether a law came within the power as involving the distinction between the types

of corporations mentioned in paragraph (xx) and corporations generally.

Just as their incorporation distinguishes them from natural individuals, so their trading or financial capacities distinguished them from other corporations, and it is as necessary to give effect to the words ‘trading’ and ‘financial’ as to the word ‘corporations’. A power to alter their internal management would not give that

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effect, but would cross the line of demarcation between these and other corpor­ ations as plainly as a general criminal law would obliterate the distinction be­ tween corporate bodies and ordinary individuals. ((1908) 8 C.L.R. 330 at 397-8.)

On this view, it would not be possible for the Commonwealth under the corpor­ ations power to control the issue of prospectuses, shares and debentures solely on the ground that such a law would be a law with respect to corporations and, therefore, if confined to trading and financial corporations, would come within paragraph (xx).

It is, however, possible that the present Court will not make the same distinctions as Isaacs J. made, even though they agreed with his actual decision in Huddart Parker. Some comfort may be obtained from the Chief Justice’s statement in Strickland that the corporations power will cover a wide range of activities ‘but in any case not necessarily limited to trading activities ’. There seems to me to be no reason in principle why a law that had as its basis the peculiar characteristics of a corporation as distinct from a natural person would not be within power.

Some of the majority judges in Huddart Parker were of the view that the Com­ monwealth could impose conditions on corporations that related to such matters as ‘safeguards and securities for payment of their creditors’ (O ’Connor J. at 373), ‘con­ ditions for safeguarding those dealing with the corporations’ (O ’Connor J. at 374), ‘what capital must be paid up’, ‘what returns must be made, what publicity must be given, what auditing must be done, what securities must be deposited’ (Higgins J. at 412-413). In my view, there is a strong case for saying that these matters and similar subjects are matters which the Commonwealth may still control except that it may do it directly rather than as ‘ conditions ’ of carrying on business.

My reasons for this view are as follows:—

(a) The judges in Strickland for the most part considered that the decision in Huddart Parker was too restrictive—not that it went too far. In my view, laws of the nature you propose relating to such matters as prospectuses, the issue of securities and the filing of accounts, etc. would have been held valid by the majority of the judges in Huddart Parker at any rate if they were expressed as conditions of carrying on business. Strickland makes it clear that the power is not confined to the prescribing of conditions.

(b) Barwick C. J. (with whom McTieman J. agreed on this aspect) said that the power in paragraph (xx) was not necessarily confined to trading activities. Menzies J. expressly reserved the question whether Isaacs J. was correct in finding a limitation in paragraph (xx). In my opinion, his Honour was refer­ ring to the dichotomy Isaacs J. made between laws based on the corporate

aspects of the company’s affairs and those based on its trading or financial aspects.

(c) A criticism made of Huddart Parker is that the judges put words into the power which were not there, so as to confine it to the status or recognition of corporations or imposing conditions on their entry into trade. The power does not refer to status, recognition or conditions (see Gibb J. at 504). Neither, however, does it speak of the trading or financial operations of trading or financial corporations. To read these words into the power would be to commit the same error.

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(d) The criticism made of Higgins J. in Huddart Parker is that he assumed that a law must be either a law with respect to corporations or trade but could not be both. ‘A law with respect to corporations is within the power of Parliament notwithstanding that it is also a law with respect to trade . . . ’

(Menzies J. at 498). It certainly does not follow from this that all laws con­ trolling trading corporations under paragraph (xx) must be laws with respect to trade. Such a conclusion would be to miss the point of the criticism and to commit a reverse error.

(e) In the course of argument in Stricklandone gets the impression from some of the judges that there would be many laws not concerned with the trading or financial activities of the corporation but dealing with the special problem of controlling corporations, which the judges would be prepared to uphold.

Some of the matters mentioned in argument were the keeping of an office in Canberra, having an address for service, or the age qualifications for directors.

In my opinion, there is a good chance that the Court would not confine the corpor­ ations power to the control of the trading or financial operations of corporations but would regard the power as extending to control of matters peculiarly related to the activities of corporations generally. The issuing of prospectuses, shares and deben­

tures comes within this description. I would therefore answer the questions raised in paragraphs (i) and (ii) of your question (4) in the affirmative. I also think, though with more hesitation, that your question (5) should be answered the same way.

Control o f the company’s employment o f servants and agents None of the judges in Strickland accepted the proposition that any law addressed to a corporation described in paragraph (xx) was necessarily a law with respect to those corporations. I do not think that a law generally controlling who a corporation

may employ or on what conditions it may employ him would come within the power. I have suggested above, however, that a law controlling the issue of prospectuses and securities by a company comes within paragraph (xx). If I am correct in that view, it seems to me that a law controlling the employment of the persons of the sort you

describe in question (6) could be valid if it were made clear that the regulations and standards laid down were directed to the control of prospectuses, securities, accounts, etc. Such a law would clearly be incidental to the prime controls and would be shown to be for the purpose of making them more effective. It follows that provision could be

made for fines or penalties for breaches of the regulations.

The direct control o f servants and agents o f a corporation and other persons This general matter is raised in paragraphs (iii) and (iv) of your question (4) and concerns the imposition of obligations directly on persons who are not corporations. In the course of argument in Strickland, some of the judges seemed divided on whether, or the extent to which, this could be done. In his judgment, Menzies J. (at

497) expressed doubt whether, under paragraph (xx), it would be possible to impose an obligation upon a non-corporate individual to register an agreement between that individual and a corporation. On the other hand, Barwick C.J. in argument (transcript 505) seemed inclined to the view that if it were within power to require the agreement

to be registered, you could require that the other party to the agreement should also register it in order to make the law more effective.