Disclosure suit serves as a warning
September 07, 2006
A COURT-ORDERED payout to a former shareholder of explorer Jubilee NL has put Australian companies on notice that failing to disclose sensitive information to the market on time can cost them dearly, and may yet trigger a wave of investor class actions.
Former Jubilee managing director Kim Riley was yesterday awarded $1.856 million in damages plus interest from the company for its failure to disclose information to the market on time.
Mr Riley had sued Jubilee in the Supreme Court of Western Australia after selling his 3.4 million shares in Jubilee in 1994 and 1995 - before the explorer announced that high-grade nickel had been found on its tenement in 1994.
Mr Riley sold his shares for about 9c each after leaving the company, but claimed he would have sold at about $1.40, or $1.50, if he had known of the find.
"If there is any doubt about whether the information is material, then the company ought to err on the side of caution and make the release," Master Craig Sanderson said in his judgment.
Mr Riley, who now runs a cafe in Brisbane, said he was relieved. "This has cost me and my wife, Helen, and the kids a lot in terms of stress," he said.
His lawyer, Tim Hammond of Slater & Gordon, said the decision for the first time applied well-established law to the stock exchange's listing rules.
"This reinforces corporate Australia's disclosure obligations and the protection that these afford investors," he said.
Australian Shareholders Association chairman Stephen Matthews said he doubted the decision - perhaps the first civil court ruling for an individual claiming non-disclosure - would have implications for small shareholders acting alone.
The cost of litigation would be a deterrent, he said.
But Mr Matthews said the court ruling could spawn class actions.
"It seems to me that the decision will provide further comfort for plaintiff lawyers and the shareholder class-action industry, which is still in its infancy in Australia, " he said.
"It is yet again another reminder of the importance of continuous disclosure by companies for the information of their shareholders, who, after all, are the owners of their business and deserve to be fully informed and, what is more, they are required to be by law."
The civil trial in May heard that WMC Resources, now part of BHP Billiton, had accidentally drilled a Jubilee project and had passed the results on to Jubilee in September 1994. Jubilee did not disclose the information until 1996, when the news pushed shares higher.
Jubilee executive chairman Kerry Harmanis told The Australian his company would vigorously pursue appeal avenues.
"This decision clearly has no material bearing on our company's operations or activities and relates to one-off circumstances over 12 years ago," he said.
Melbourne University director for the centre of corporate law Ian Ramsay said the decision was an important precedent because there was very little case law in the area of continuous disclosure.
"I think there are a few lessons here - companies always need to be on top of the continuous disclosure obligations."