Research on an Australian case: – Jubilee Mines NL v Riley [2009] WASCA 62.
Under the provisions of section 674(2) of the Corporation Act 2001 (Cth) all organizations which are listed with the Australian Securities Exchange (ASX) are mandated to provide information to the public without any manipulation of incorrectness which any prudent investor wanting to make an investment in the company would rely on to determine the share price or value of securities for tor the company (Kubasek et al 2015). The problem arises when nickel has been discovered by a listed entity in Australia who was carrying out gold exploration activities and does not disclose such findings to the public. A similar kind of issue had been discussed in the case of Jubilee Mines v Riley [2009] WASCA 62. In addition whether the organization would disclose such information to the public or not is totally dependent upon the officers and directors who carry out its functions (Beatty, Samuelson and Abril 2018). In the given situation the directors would also be liable to breach the law related to disclosure obligations and in doing so would breach the duty to act in a diligent and careful way as imposed on the officers and directors via the text of section 180 of the Act (Davidson, Forsythe and Knowles 2015). The breach of this section leads to a civil penalty and directors may also be liable personally for the breach. This paper discusses the case of Jubilee Mines v Riley in the light of disclosure obligations of an organization and duties of directors which they owe to the company.
In this case the shareholder and directors of the company Jubilee was Mr Riley and the purpose of the organization was to carry out gold exploration. MR Riley who was plaintiff for the claim and a respondent for this case decided to resign as a director n 1993 but he remained as a shareholder of the company. In the year 1994 while the company had been drilling on the Jubilee tenement in context it had come across the presence of Nickel. A managing director of the company who was also a geologist decided that the company would not continue the exploration activity as its main focus was on gold and not nickel.
This information was neither shared with the other directors not the ASX him. The results had been discussed some years later to the ASX. As Mr Riley did not have knowledge about the information relation to finding of nickel had sold his shares in the company and thus made a claim in relation to the losses which had been incurred by him as the organization had violated its obligation to make continuous disclosure with respect to the findings of the Nickel. It had been contended by Mr Riley that although the presence of nickel as indentified through then drilling process was not significant commercially, it was evident through the results that there was a potential in relation to the further exploration of the mineral. When the trail of the claim had been made the plaintiff was rendered successful.
It had been identified by the trial court that the finding in relation to the Nickel had to be disclosed by the company under the corporation law and thus the court make Mr Riley entitled to damages. Jubilee being unhappy with the decision of the court stated made an appeal. In this appeal it had been found by the court that the obligation of the organization to make the public disclosure was liable to be assessed in relation to the actual intention of the company rather than supposed intention.
In addition it had been analyzed by the court that the company had no obligation to indulge into disclosing the result of the drilling unless and until there was an alternation in its position and it took a decision to continue the drilling process at the time when in fact the disclosure had been made.
In relation to this case the statutory duties provided under the CA had not been applied as the court applied the Corporation law legislation specifically the provisions of s 995(2), s 1001A, s 1001D, and s 1005. However the breaches which may have been committed by the directors in relation to their duties under the CA are that of section 180, 181, 182 and 674. A civil penalty along with an order for damages may be provided in such situation.
As discussed above the Corporation Act 2001 (Cth) had not been applied by the court in this case rather the court applied the Corporation law legislation specifically the provisions of s 995(2), s 1001A, s 1001D, s 1005. The court had upheld the Appeal made by the company and discarded the ruling which had been made by the trial court. In this case it had been found by the court that the obligation of the organization to make the public disclosure was liable to be assessed in relation to the actual intention of the company rather than supposed intention. In addition it had been analyzed by the court that the company had no obligation to indulge into disclosing the result of the drilling unless and until there was an alternation in its position and it took a decision to continue the drilling process at the time when in fact the disclosure had been made (Brown and Shekhar 2016).
In relation to sections 1001A and 1001B of the Act a reasonable person would expect any particular information to have a effect materially on the value or price of the shares of the company in case such information will or is likely to induce a person who generally makes investments in shares with respect to make a decision to subscribe, not subscribe, sell or buy the securities in context. The court in this case stated that it does not reasonably expects under the listing rules that the appellant had the obligation of making the disclosure. When the nickel had been discovered by the company they were not sure that what steps they are going to take in the further in relation to the matter and whether they should carry out the drilling obligations or not (Riaz et al. 2015). The announcement would have been required to be made where the board of the defendant company would have decided that what would be the next step. No announcement was required to be made which contained negative sentiments. This section reflects the provisions of section 674 of the CA.
In addition it had been provided through the provisions of section 1001A(2) that the provisions of the section would only be breached where it can be provided that the defendant was negligent in relation to a failure to notify the ASX about the information which was in this case the WMC information. The court held that negligence in the given situation was something which is not merely carelessness or inadvertence. The grounds on which the appeal includes the assertion that which relevance is given to extra material which could have been disclosed by the company along with the WMC drilling data was not as a whole an information which has the potential to have induced a person generally investing in shares to decide to subscribe, not subscribe, sell or buy the securities in context. The court in this case upheld this ground of appeal in the favour of the appellant by taking into consideration the evidence provided in relation to the intention of the company to carry out the drilling work. This was clear to the court upon a lengthy cross examination of a director of the company Mr Crossley that the information which had been obtained by the company was sufficiently significant for the purpose of justifying any further exploration activity. It had been found by the court that where the director had provided adequate and proper consideration to the information given by WMC such view had been formed by the director. The court in this case stated that this conclusion has the effect of upholding the appeal entirely. The court in this case also upheld ground 4 and 2 of the appeal. In addition the court upheld in part grounds of appeal 1 and 5. Thus it can be concluded that the decision of the court was in fair observance of the laws of the commonwealth and the state at that time.
The decision made by the court in this case signified that any shareholder who seeks to recover losses which rise out of the obligation to make continuous disclosures have to show before the court that the importance of the information which has not been disclosed to the company in context which has been determined by taking into consideration the directors intension along with importance of the information to be provided with respect to the shareholder. Although this is a surmising result the decision is a reflection of the current corporation law in Australia. The decision provides great comfort to the listed organizations along with its managers and officers. This means that where the officers of directors of the company within their knowledge feel that the information would not be of material significance to the operation of the company their decision would be provided with significant weight.
Conclusion
In the contemporary economic climate, the test which is deployed for the purpose of assessing the kind of information which can materially impact the share price and thereby invoke the disclosure obligations of the CA would be subjected to judicial scrutiny. The clarification in relation to the disclosure obligation of an organization has still not provided even in the light of section 674 of the Act and the ASX rules. Thus it can be concluded that the decision of the court was in fair observance of the laws of the commonwealth and the state at that time
References
Beatty, J.F., Samuelson, S.S. and Abril, P.S., 2018. Business law and the legal environment. Cengage Learning.
Brown, S. and Shekhar, C., 2016. Continuous Disclosure in Australia and the United States: A Comparative Analysis.
Davidson, D.V., Forsythe, L.M. and Knowles, B.E., 2015. Business law: Principles and cases in the legal environment. Wolters Kluwer Law & Business.
Hempel, S., 2015. Is my company listed on Chi-X? Technically no, but. Governance Directions, 67(5), p.267.
Jones, L., 2017. Introduction to business law. Oxford University Press.
Jubilee Mines v Riley [2009] WASCA 62
Kubasek, N., Browne, M.N., Dhooge, L.J., Herron, D.J., Williamson, C. and Barkacs, L.L., 2015. Dynamic business law. McGraw-Hill Education.
MacIntyre, E., 2018. Business law. Pearson UK.
McAdams, T., Neslund, N., Zucker, K.D. and Neslund, K., 2015. Law, business, and society. McGraw-Hill Education.
Riaz, Z., Ray, S., Ray, P.K. and Kumar, V., 2015. Disclosure practices of foreign and domestic firms in Australia. Journal of World Business, 50(4), pp.781-792.
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