Jubilee Mines NL V Riley [2009] WASCA 62 - Director Duties And Continuous Disclosure Essay.

Background of Jubilee Mines NL v Riley

Discuss about the Law of Jubilee Mines Nl V Riley [2009] Wasca 62.

The Corporations Act, 2001 (Cth) is the most important legislation for any company in Australia. This legislation covers nearly all the aspects of the companies and sets out basic guidelines on how the companies are to be managed. One of key aspects given under the quoted legislation is the director duties. These duties have been set out under Part 2D.1 of this legislation (Williams, Bingham and Shimeld, 2015). The director duties cover duty of good faith, use of position and use of information, amongst the other duties. Where these duties are not followed by the directors or the officers on whom these duties are levied, both civil and criminal liabilities can be raised for the breaching person, depending upon the particular section being contravened (Latimer, 2016). This legislation not only offers punishments but also puts forth defences where the spirit of quoted legislation is followed, along with the words of the law. This discussion is mainly focused on the application of director duties as had been found in the case of Jubilee Mines NL v Riley [2009] WASCA 62. This was a case which covered the questions being raised on the directors having fulfilled the duties imposed on them through the Corporations Act, along with other matters.

Riley was a shareholder and a director of Jubilee Company, which was basically a small listed gold exploration company (Duffy, 2012). Even though he had resigned from the post of director in 1993, he continued to be a shareholder of the company. During the mid part of 1994, presence of nickel was identified while drilling was being done on a Jubilee tenement. The managing director and geologist of the company made a decision that the company would carry out no further exploration at this particular tenement of company as the focus of the company was on the gold related activities only. This was done without the co-directors of company being informed or the ASX being informed of this decision, despite nickel having being found at this tenement (Lavan, 2009).

The disclosure of drilling results was made after some years to the ASX. By that time, Riley had sold off his shares ignoring the nickel data. He then claimed to have suffered damages as a result of the company being in contravention of the continuous disclosure requirements with regards to this nickel discovery. It was contended by Riley that even though the results of drilling did not highlight or present commercially significant nickel resource. He claimed that only the resulted had been indicated in the results but there was a lack of potential for a further exploration of nickel being stated. This led to his claims in the court, which initially were presented before the trial court and later on were appealed (Lavan, 2009). This involved contentions being raised against directors for breaching their director duties, for not carrying out the proper disclosures (CCH Australia, 2009).

Duties breached and reasons for it

The Corporations Act imposes some duties on the directors of all the companies working or having its operations in Australia. Section 180 of this legislation provides that the directors are required to fulfil the civil obligations of care and diligence in carrying out their duties and powers, as a reasonable person would. Section 181 of this legislation provides that the directors are required to fulfil the civil obligations of good faith, proper purpose and best interest of the company. Section 182 of this legislation provides that the directors are required to fulfil the civil obligations of using the position held by them in the company for proper purpose and in a manner which does not cause any detriment to the company. Section 183 of this legislation provides that the directors are required to fulfil the civil obligations of using the information held by them in the company for proper purpose and in a manner which does not cause any detriment to the company. Section 184 of this legislation provides that the directors are required to fulfil the requirements of previous sections or can be held liable criminally. Section 191 of this legislation provides that the directors are required to disclose all the material personal interest in all the transactions.

Even though all these sections were not directly quoted in this case, the theme of these sections were applied in this case. This is particularly true in context of section 183 of this legislation. For the reasons of listing rules which were applicable in this case, the company got awareness regarding the information, which the executive officer or the director of company reasonably came in possession of, while they were performing the duties laid down under this legislation. Even though Crossley and Cooke were executive officers in this case, they had the same duties, which were provided above, as these duties are also applicable on officers of the company. Based on this applicability, and following the listing rules, the company was aware of the information which reasonably came before Crossley or Cooke while they were fulfilling their duties. A convergence of the listing rules and the director duties shows that there was a need to make the relevant disclosures to ASX as soon as the nickel was identified. So, the directors of ASX were required to inform ASX of not exploring the tenement further even when there was clear presence of nickel, owing to the focus of company on gold related activities (Jade, 2018).

Analysis of decision given by Court

The continuous disclosure requirements, as were covered under the ASX Listing Rule 3.1, coupled with the ones covered under the Corporations Act were required to be properly fulfilled by the directors in this case (Dharmananda, 2018). There duty of care and of good faith required them to act towards the good faith of the company. This was market sensitive information which had to be disclosed, and by not doing so, neither the position held by the directors in company was properly used, nor was the information attained by the co-directors made proper use of. Even though there was nothing to show material personal interest of the directors in this case, the information was sensitive enough to be disclosed before the ASX. Owing to the position held by the directors, if they were uncertain regarding the information being market sensitive information or not, they were required to make reference to ASX Guidance Note 8 (Muscillo and Dawson, 2018). The directors were required to pose two key questions in this case:

• Could this information have an impact on the decision regarding the purchase or sale of securities of the companies at the present market rate?
• Could the director be exposed to any action regarding insider trading in case the purchase or sale of securities of the companies at the present market rate as a result of this information not having been disclosed in the market?

Where any of the questions resulted in a yes, there was a need to take the cautionary approach and adequate steps should have been made to disclose this information before the relevant authority. There were two broad categories in the company by not fulfilling the continuous disclosure obligations, in terms of timely disclosure and accurate disclosure. The lack of this disclosure was what allowed Riley to raise this claim (Muscillo and Dawson, 2018). Even though the matter of director duty was not directly addressed in this case, this is the basis for claiming a breach of director duties in this matter.

As a result of the continuous disclosure obligations, the plaintiff in the case of Riley v Jubliee Mines NL (2006) 59 ACSR 252 was awarded 1.8 million as damages for the losses which resulted from the failure in complying with the continuous disclosure requirements (Coffey, 2010; Blakiston and Chandler, 2006). Though, with the present case, 2009 saw the ruling of the previous decision being overruled by the court. Martin CJ, in the appeal case, held that the announcement made by the company in context of all the pertinent information relating to nickel data was not something which had the probability of influencing the individuals who would invest in the securities in common manner, while they were making the decision regarding the purchase or sale of the shares of company. To put it more simply, the court did not consider that this information was such which could fulfil the criteria or requirements of materiality (North, 2010).

When the case was at trial, Riley was successful and the court stated that the nickel results had to be disclosed, which resulted in the aforementioned stated damages being awarded to Riley. On this, Jubilee appealed, and this appeal was successful. The court held the view that the obligation of the company in context of disclosure had to be evaluated with regards to the actual intentions and not that of the supposed intentions of the company. Apart from this, the court held that the company was not under the obligation of making the disclosures after the drilling results were attained at the very least. Further, till the time such drilling results resulted in the position of the company or any other party being altered, or where the company did decide to undertake the exploratory drilling work, there was no need of making the drilling results disclosures. Only when these presumed conditions turned into actual intentions, was the company required to disclose the drilling results (Lavan, 2009).

This is an important case as this case provides that the shareholders who seek to recover the losses which are raised as a result of the continuous disclosure obligations being breached, they have to show or establish the importance of undisclosed information to the company. Further, this has to be assessed in context of the intents of the directors of such company and have to be significant information for a prudent shareholder of the company. Even though this can be treated as a surprising result, yet it does reflect upon the present state of law. Particularly in context of officers and directors of the companies, this decision provides comfort. Where the officers or directors of the company do not consider the information presented before them as major or significant towards the operations of the company, their decision would be given proper due consideration (Lavan, 2009).

The criteria which was employed for assessing the kind of information having a major impact over the share prices of the company, particularly in light of the present economic climate and which trigger the continuous disclosure obligations, this case certainly attracts more judicial scrutiny (Lavan, 2009). In terms of providing guidance on what aspects have to be considered in considering any material as material enough to be disclosed under the listing requirements and under the Corporations Act, this case is again substantial.

Conclusion

Thus, on the basis of the analysis of case of Jubilee Mines NL v Riley, it can be concluded that continuous disclosure requirements are a crucial part of director duties. This case predominately revolved around the directors not making disclosure regarding the nickel which was found during exploration activities, as they wanted to focus on the key business of the company, which was of gold exploration. This resulted in the shareholder of the company raising a case against the company for breaching the continuous disclosure requirements. Despite the case not deciding on directors having breached their director duties or not, the present analysis highlighted the manner in which such breach could have been established, in case the lawsuit made before the court covered these aspects. However, the decision given by the court in this matter, particularly the one during the appeal from the trial court decision, proves that the breach of director duties, as explained above, would not have been established before the court. This is due to the fact that the supposed intentions of the company were not to be given as per this case, resulting in the non-disclosure not resulting in the director duties being breached in this case.

References

Blakiston, M., and Chandler, D. (2006) Damages Awarded to Former Shareholder for Negligent, Delayed Disclosure. Australian Resources & Energy LJ, 25, 344.

CCH Australia. (2009) JUBILEE MINES NL v RILEY, Supreme Court of Western Australia, Court of Appeal, 18 March 2009. [online] Available from: https://iknow.cch.com.au/document/atagUio1506654sl216007758/jubilee-mines-nl-v-riley-supreme-court-of-western-australia-court-of-appeal-18-march-2009 [Accessed 11/05/18]

Coffey, J. (2010) Regulatory Challenges In Enforcing Securities Law: The Fyffes And Fortescue Cases. Journal of the Australasian Law Teachers Association, 3.

Corporations Act, 2001 (Cth)

Dharmananda, B. (2018) Market Disclosure Obligations And Directors’ Duties. [online] Available from: https://www.wabar.asn.au/images/Market%20Disclosure%20Obligations%20and%20Directors'%20Duties%20(Brahma%20Dharmananda).pdf [Accessed 11/05/18]

Duffy, M. (2012) Testing Good Securities Disclosure: Tales of the Reasonable Investor. Monash University Law Review, 38(2).

Jade. (2018) JUBILEE MINES NL -v- RILEY [2009] WASCA 62. [online] Available from: https://jade.io/article/91142 [Accessed 11/05/18]

Jubilee Mines NL v Riley [2009] WASCA 62

Latimer, P. (2016) Australian Business Law 2016. 35^th ed. Oxford: Oxford University Press.

Lavan. (2009) Continuous disclosure obligations - what is 'material' depends on the disclosing entity's intentions. [online] Available from: https://www.lavan.com.au/advice/corporate_services/continuous_disclosure_obligations_what_is_material_depends_on_the_disclosin [Accessed 11/05/18]

Muscillo, M., and Dawson, L. (2018) Continuous disclosure - lessons from Forge Group Limited. [online] Available from: https://www.findlaw.com.au/articles/5412/continuous-disclosure---lessons-from-forge-group-l.aspx [Accessed 11/05/18]

North, G. (2010) A call for a bold and effective corporate disclosure regulatory framework. Company and Securities Law Journal, 28, 340.

Riley v Jubliee Mines NL (2006) 59 ACSR 252

Williams, B. R., Bingham, S., and Shimeld, S. (2015) Corporate governance, the GFC and independent directors. Managerial Auditing Journal, 30(4/5), pp. 324-346.