Kim Riley in His Capacity as trustee of the KER Trust v Jubilee Mines NL

[2006] WASC 199

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   KIM RILEY IN HIS CAPACITY AS TRUSTEE OF THE KER TRUST -v- JUBILEE MINES NL [2006] WASC 199

CORAM:   MASTER SANDERSON

HEARD:   8­12, 15­19, 22­26 MAY 2006

DELIVERED          :   6 SEPTEMBER 2006

FILE NO/S:   CIV 2261 of 2000

BETWEEN:   KIM RILEY IN HIS CAPACITY AS TRUSTEE OF THE KER TRUST

Plaintiff

AND

JUBILEE MINES NL (ACN 009 219 809)
Defendant

Catchwords:

Corporations law - Damages claim by a former shareholder - Failure to release information to ASX - Allegation of negligence in failure to release information - Claim of breach of ASX Listing Rules

Legislation:

Corporations Law, s 761, s 1001A, s 1001A(1), s 1001A(2), s 1001A(2)(b), s 1001D, s 1005

Evidence Act 1906 (WA), s 21

Result:

Damages awarded to plaintiff

Category:    A

Representation:

Counsel:

Plaintiff:     Mr G R Hancy

Defendant:     Mr M J McCusker QC & Mr P Mendelow

Solicitors:

Plaintiff:     Slater & Gordon

Defendant:     Smyth & Thomas

Case(s) referred to in judgment(s):

Adelaide Petroleum NL v Poseidon Ltd (1990) 98 ALR 431

Boughey v The Queen (1986) 161 CLR 10

David Securities Pty Ltd v Commonwealth Bank of Australia (1990) 93 ALR 271

Flavel v Roget 1 ACSR 595

R v Crabbe (1985) 156 CLR 464

TSC Industries Inc v Northway Inc (1976) 426 US 438

Case(s) also cited:

Australian Securities and Investments Commission v Southcorp Ltd (No 2) [2003] FCA 1369

Australian Telecommunications Commission v Krieg Enterprises Pty Ltd (1976) 14 SASR 303

Banque Commerciale SA en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279

Callaghan v William C Lynch Pty Ltd [1962] NSWR 871

Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1

Goldsmith v Sandilands (2002) 190 ALR 370

Jones v Dunkel (1959) 101 CLR 298

Koufos v C Czarnikow Ltd (The Heron II) [1967] 3 All ER 686

Loxton v Moir (1914) 18 CLR 360

Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305

Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494

Minister for Health v AS (2004) 29 WAR 517

Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388

Poseidon Ltd & Sellars v Adelaide Petroleum NL (1994) 179 CLR 332

Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees' Union (1979) 42 FLR 331

Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514

Western Australia v Watson [1990] WAR 248

MASTER SANDERSON:

Introduction

1. Over the years, there must have been thousands of speculative small cap (capitalisation) mining companies listed on the Australian Stock Exchange ("ASX").  The listing of these companies generally follows a fairly standard procedure.  An individual or group of individuals sometimes called the promoters (or "mining entrepreneurs" until that description became tainted by the events of the 1970's and 1980's) put together a parcel of prospective mining tenements.  Some early exploration work may have been done on these tenements but, generally speaking, they are greenfield sites which are prospective.  The promoters then vend this parcel of tenements into a public company in exchange for a parcel of shares.

2. The next step is to secure an underwriter.  The underwriter is generally a broking house or perhaps a small merchant bank.  In exchange for a fee, the underwriter ensures that all of the shares to be issued to the public are taken up and that there is a sufficient spread of shareholders to comply with the ASX listing requirements.  A prospectus is then prepared and lodged and an initial public offering ("IPO") is made.

3. The reasons why investors take up shares in such companies are many and varied.  Perhaps the astute investor sees the tenements the company has as highly prospective.  Perhaps the directors of the company have a track record of successful mining operations.  Perhaps the commodity which is the focus of the company's activities is one that at the time of the float is attracting market interest.  At present, companies which are focused on uranium are enjoying good support in the market.  But whatever the reason an investor takes up shares in these speculative mining companies, it is not in anticipation of an income stream from dividends.  Any income from mining activities, if it occurs at all, is a long way off.

4. Once funds are raised the company's shares are listed on the ASX.  Then the hard work begins.  The company must develop its tenements.  Quite how it goes about doing that will depend upon the then state of the development of the tenements and the nature of the commodity for which the company is searching.  But eventually, when all the preparatory work has been done, drilling will be undertaken.  The aim of the drilling is to establish whether minerals are present and if they are at what depth and in what geological structure.  When the drilling has been completed, the drill samples are assayed and the results are provided to the company.  That is the moment of truth.

5. Drill results are the lifeblood of speculative mining companies.  If the news is good the share price may well rise, attracting interest from other investors which might drive the share price even higher.  Positive drill results and the market interest they excite might well provide the company with a window of opportunity to raise more cash for its activities.  That is important because a lack of capital is the main inhibiting factor on the activities of junior explorers.  Of course, poor drill results may have the effect of dragging the market down as disillusioned investors look elsewhere for their profits.  Faced with poor drilling results, a company has no option but to re‑focus its activities, husband its resources even more carefully, re‑think its strategy and undertake further exploration work in the hope that next time the results will be positive.

6. In a circumstance where so much depends on what information is available to the public, it is important that market sensitive information is released by publicly listed companies as soon as reasonably practical after it is received.  Of course, that applies to all listed companies not just to junior explorers.  But in the case of junior explorers it is particularly important.  Rumour plays a big part in share price fluctuations at this end of the market – the old saying is "buy on rumour, sell on fact".  In a perfect market all price sensitive information would be released to all investors at the same time.  But, of course, the market is not perfect.  It is important, however, that information which might be price sensitive is released as soon as practical.  The ASX is vigilant in ensuring this is done.

7. Deciding what information is market sensitive and how the information is released, is a matter for each individual company.  As this case well illustrates, information which might be market sensitive to a junior explorer would have no effect at all on the share price of a major mining house.  So the same information can be treated differently by two publicly listed companies.  When in possession of information the company must weigh up whether its release to the market is warranted.  The decision is a judgment call which is part and parcel of the responsibility of those running the company.  Making the wrong call is one of the hazards of involvement with public companies.

8. This case concerns the alleged negligent failure by the defendant to release certain drill results.  The plaintiff says that as a consequence of that failure, he has suffered loss and damage.  As will become apparent, the focus in this case is remarkably narrow.  Most of the facts are agreed.  Before looking at the pleadings and the evidence, I will provide an overview to put the dispute in context.

Overview

1. The KER Trust ("the Trust") was established on 28 February 1985 (see exhibit 55).  As at that date, the trustee was B M Riley Nominees Pty Ltd ("B M Riley Nominees").  From time to time, the trustee of the Trust has changed and at present Mr Kim Edward Riley ("Mr Riley") is the trustee.  Nothing turns on these changes of trustee and that was not an issue in these proceedings.

2. Jubilee Gold Mines NL was listed on the ASX in 1987.  In the late 1990's, the company changed its name by eliminating the word "Gold".  Henceforth, I will refer to the company simply as the defendant, although, at all material times, it was actually known as Jubilee Gold Mines NL.  Around about the same time a company known as Sir Samuel Mines NL ("Sir Samuel Mines") was also listed on the ASX.  The defendant took over Sir Samuel Mines in November 1991.  Sir Samuel Mines played no real part in these proceedings, although it is mentioned from time to time in the documents.  Mr Kerry Harmanis ("Mr Harmanis") was appointed a director of the defendant and of Sir Samuel Mines at the time the two companies were listed.  Mr Riley was appointed company secretary of both companies also at the date of listing.

3. In 1988, Mr Harmanis moved to Canada.  (In his closing, counsel for the plaintiff pointed out that there was no direct evidence of this fact.  Be that as it may, it is not a matter which is controversial or which has any effect on the outcome of this action.  I simply mention it to provide background to what follows.)  Also in 1988, one Mr Brian Saunders ("Mr Saunders") became managing director of both the defendant and Sir Samuel Mines.  As at that date, Mr Saunders and Mr Riley effectively assumed day to day management of both companies.

4. In October 1989, Mr Riley sought an allotment of shares from the defendant as an incentive to his continuing in employment with the company.  On 31 May 1991, the Trust was allotted 1,725,000 shares for no consideration.

5. In 1992, Mr Terry Streeter ("Mr Streeter") was appointed a director of the defendant.  In September 1993, Mr William John Crossley ("Mr Crossley") was appointed as a director of the defendant and general manager in charge of production.  It is clear from the 1992 and 1993 Annual Reports that at this time the defendant's focus was on gold and gold exploration.  In particular, it was concentrating on what were known as its Kathleen Valley tenements.  There is no suggestion that the defendant was prospecting for, or was interested in, nickel deposits.

6. In October 1993, a tenement known as McFarlanes Find was pegged.  It was not pegged by the defendant, but in circumstances not presently relevant, it passed into the defendant's hands soon after the tenement was granted.  It is convenient at this point to refer to a map showing the location of the McFarlanes Find prospect which appears as Annexure "1" to these reasons.  By reference to the map, it can be seen that the McFarlanes Find prospect is actually in two parts.  Running between these two parts is a prospect known as Spinifex Park which, at all material times, was owned by Western Mining Corporation ("WMC").  (The purpose of this map is to do no more than locate the McFarlanes Find tenement and to show where it lies in relation to other nickel deposits which have some significance in this action.)

7. Mr Riley resigned as a director of the defendant on 31 December 1993.  As at the date of his resignation, the Trust owned 797,000 fully paid shares in the defendant.  It also owned a total of 2,625,000 partly paid shares.  Details of the shareholding and the dates upon which the plaintiff disposed of the shares and the price received when they were sold appear as Annexure "2" to these reasons.  The disposal of the shares by the plaintiff receives detailed consideration later in these reasons.  For present purposes, it is enough to note the fact of the shareholding as at the date of Mr Riley's resignation.

8. In April 1994, Mr Harmanis consented to a Federal Court order requiring him to sell 1,923,111 shares in the defendant.  This disposal was to be completed by 2 April 1995.  The reasons why the order was made are not relevant to these proceedings.  It is of some relevance to note, however, that a significant parcel of shares in the defendant had to be traded between April 1994 and April 1995.

9. Mr John Alexander Cooke ("Mr Cooke") joined the defendant in March 1994.  Mr Cooke is a geologist and, along with Mr Crossley, he is a central player in this case.  I will examine the evidence given by both Mr Cooke and Mr Crossley in detail below.  However, it is worth noting that from the date of his appointment in March 1994 until early in 1995, Mr Crossley and Mr Cooke appear to have had the day to day running of the defendant.

10. In May 1994, Mr Crossley commenced negotiations to purchase the Bellevue Gold Mine ("Bellevue").  The problem with this purchase was funding – the defendant did not have sufficient assets in its own right to purchase Bellevue and it required a cash injection if the purchase was to be completed.  In my view, the evidence establishes that throughout 1994 the defendant was preoccupied with the purchase of Bellevue and the challenges the purchase presented.  In a very real sense, that purchase was the focus of the defendant's activities.

11. Early in August 1994, the defendant received a letter from WMC notifying that WMC had inadvertently drilled on the eastern portion of the defendant's McFarlanes Find tenement (exhibit 6).  This letter lies at the heart of these proceedings and I will quote it in full:

    "1 August 1994

    Mr J. Cooke
    Manager Geology
    Jubilee Gold Mines NL
    1st Floor, Sir Samuel House
    33 Ord Street

    WEST PERTH   WA   6005

    Dear John,

    Thank you for making the time and effort to come into Western Mining Corporation's office to discuss your interest within P36/3989.  As discussed, a limited exploration programme is in progress which will allow WMC to progress the discussions once the results are available.

    Regarding another matter, as a result of WMC instigating a licensed survey of the eastern boundary of E53/24, which has a common boundary with Jubilee's E36/251, it has become apparent the boundary differs to that as marked on the plans held with the Department of Mines and Energy.  The boundary discrepancy has originated from ACM lodging (as required under Section 65 of the Act) incompatible plans and descriptions of the areas being retained and relinquished.  We have notified DOME of the current position and hopefully they have corrected their plans accordingly.  As a result of the lease boundary moving some 200m to the west, WMC has inadvertantly [sic] completed some exploration activities within E36/251.  A list of activities and details have been appended for your information.  There are analytical results for five drill holes which are not available at the time of writing and will be forwarded to yourself as they become available.

    All drill samples are held with WMC on site at Mt Keith but would be made available at the request of Jubilee Gold Mines.

    We apologise for this error, however I am sure you will appreciate the issue, realising we do not routinely survey EL boundaries necessitating some reliance on the accuracy of DOME information.

    If you would like to discuss any of the above in more detail please give me a ring.  I will be back in the office on 17 August.

    As per our discussions last week, I will contact you late in August regarding P36/3989.

    Yours sincerely,

    [Signed]

    D.R. Miller

    Exploration Manager – Western Region

    Attachment"

12. The first paragraph of this letter suggests that discussions had taken place between the defendant and WMC prior to the letter being sent.  If such discussions had taken place, it was about other matters and not about the drilling WMC had done on the defendant's tenement.  This letter was the first that Mr Cooke or the defendant had heard about that drilling.

13. Accompanying the letter was a number of documents.  The first of these documents provided a list of six holes which had been drilled by WMC and the coordinates for each of the holes.  There then followed information under a sub‑heading "LOGS OF HOLES".  Under that sub‑heading, there was reference to the six holes that had been drilled and what had been found.  Again, because of the importance of this information, I will quote it in full:

"LOGS OF HOLES

MKTD‑89 (RC percussion precollar)	0‑16m 16‑110m 100‑118m	Transported soils and gravels. Variably weathered, strongly foliated felsic volcanics. Fresh, strongly foliated felsic volcanics.
*MKTC‑100	0‑18m	Transported soils and gravels.
MKTD‑101 (RC percussion precollar to 126m) (126‑245m NQ core)	0‑20m 20‑114m 114‑177.1m 177.1‑186.7m 186.7‑187.15m 187.15‑245m	Transported soils and gravels. Variably weathered strongly foliated felsic volcanics.  Possible intrusive 76‑102m. Strongly foliated fresh felsic volcanics. Strongly foliated talc‑carbonate‑chlorite altered olivine peridotite. As above interval with ~10% stringer sulphides. Serpentine‑rich mesocumulate textured olivine peridotite/dunite with variable carbonate alteration.  2‑5% interstitial ± blebby sulphides disseminated throughout.
*MKTC‑103	0‑16m 16‑42m 42‑82m 82‑121m	Transported soils and gravels. Variably weathered strongly foliated felsic volcanics. Moderately weathered intermediate intrusive. Low MgO weakly weathered ultramafics.  Minor (<10%) massive sulphide stringers @ 98‑100m.
*MKTC‑104	0‑20m 20‑56m	Transported soils and gravels. Variably weathered felsic volcanics.
*MKTC‑109	125‑168m 168‑170m	Fresh moderately foliated low MgO ultramafics. Fresh intermediate intrusive.

*RC percussion holes"

1. Thereafter certain further information was provided with the letter.  Assay results were provided for hole MKTD‑89 and a "sample data sheet" was provided for MKTC‑103.  A "diamond drill core log" was provided for hole MKTD‑101.  There then followed a bundle of documents under the rubric "downhole electromagnetic survey data".  The bulk of this data comprised figures which, it was common ground, would be meaningless to anyone but a geophysicist.  No interpretation of this data was provided.

2. The letter was addressed to Mr Cooke and the evidence is that it was received by him in early August 1994.  After the receipt of the letter, Mr Cooke phoned Mr David Miller ("Mr Miller"), the author of the letter.  He asked for further information but nothing was forthcoming.  On 8 September 1994, WMC wrote again to the defendant, this time enclosing assay data for five of the holes drilled on the defendant's tenement.  These holes were MKTD‑100, MKTD‑101, MKTC‑103, MKTC‑104 and MKTC‑109.  The letter made reference to discussions already commencing between WMC and the defendant, but these discussions were in relation to a tenement at Kathleen Valley.  After receiving the second letter, Mr Cooke directed Mr Crossley's attention to the information which had been disclosed.  What followed from that discussion is a matter of some dispute and I will examine these events later in these reasons.

3. However, it is clear that after the receipt of the two letters, representatives of WMC met with Mr Cooke and Mr Crossley and the prospect of a tenement swap was discussed.  What WMC proposed was that in exchange for the defendant giving them the McFarlanes Find tenement, a grab bag of tenements would be provided to the defendant.  Mr Cooke and Mr Crossley found such a swap of little interest and took the proposal no further.  That was the last discussion the defendant had with WMC concerning the McFarlanes Find tenement until June 1996.

4. These two letters from WMC to the defendant are central to this case.  The plaintiff says that the letters contained information of a market sensitive nature which the defendant was obliged to release to the ASX.  Further, the plaintiff says that in not releasing the information, the defendant was negligent.  As a consequence of that negligence, the plaintiff alleges it has suffered loss and damage.  Essentially, what is said by the plaintiff is that if the information contained in the letters had been released, he would not have sold his shares in the defendant when he did but would have retained them.  He would then have sold them at a later date at a higher price.  The damages claimed by the plaintiff are the difference between the price for which he actually sold the shares and the price he says he would have received had he kept them and sold them at a later date.

1. Clearly, it is necessary to look carefully at the contents of the letters.  I will do that below.  But first, the narrative should be completed.  It is, however, worthy of note that the evidence discloses that at no stage did Mr Cooke or Mr Crossley discuss the WMC letters with other directors of the defendant.  It was not until 1996 that the other directors of the defendant became aware of the existence of this correspondence.

2. On 31 October 1994, the defendant issued a prospectus seeking to raise money to allow it to purchase Bellevue (exhibit 48).  The issue was underwritten by the broking house, Porter Western Capital Markets Pty Ltd ("Porter Western").  The underwriting agreement allowed Porter Western to withdraw the underwriting if the gold index fell below the 1900 level.  By 22 November 1994, the gold index had fallen below 1900 and Porter Western advised the defendant of what it described as a "termination event".  The brokers reserved the right to withdraw from the underwriting agreement.  In fact, on 5 December 1994, Porter Western did terminate the agreement.  An announcement was made by the defendant to the ASX immediately (exhibit 62).  The result was the necessary funds to allow for purchase of Bellevue were not secured and the purchase did not proceed.  There is no doubt that the failure of the capital raising and the defendant's consequent inability to purchase Bellevue was a significant blow to its prospects.  The principal focus of its activities over the previous eight months was cut away.

3. By early 1995, the defendant was in dire straits.  Its share price had slumped, it was running short of cash and it had no prospects of becoming a gold producer in the near future.  In February 1995, a further prospectus was issued (exhibit 50).  Mr Harmanis and Mr Streeter agreed to partially underwrite the February 1995 prospectus and to subscribe for $800,000 worth of shares.  There seems little doubt that had the two directors not effectively put their own funds into the company, it would have been in a very difficult position indeed.  As it was, it faced an uncertain future.

4. On 25 August 1995, the defendant entered into a joint venture agreement with Anaconda Nickel NL ("Anaconda").  This agreement allowed Anaconda to develop the lateritic nickel potential on one of the defendant's tenements, Yundamindra.  The defendant retained the right to the gold and silver on that tenement.  As part of this deal, 3,074,000 fully paid ordinary shares at 20 cents each were issued to Anaconda.  The funds received by the defendant were used for exploration.

5. On 9 October 1995, Mr Crossley resigned as managing director of the defendant.  Mr Harmanis was thereafter appointed managing director and had day to day control of the company's affairs.

6. On 7 February 1996, the defendant entered into an agreement with Forrestania Gold NL ("Forrestania") (exhibit 138).  This agreement involved Forrestania taking a significant parcel of shares (11,700,000), all of which were issued at a discount.  Further, Forrestania agreed to lend the defendant $1,000,000 for three years.  This loan was unsecured, interest free and was convertible into ordinary fully paid shares in the defendant.  Mr Kim Robinson ("Mr Robinson") and Mr Barry Eldridge ("Mr Eldridge") of Forrestania joined the board of the defendant.  Both Mr Robinson and Mr Eldridge had significant experience in nickel exploration.

7. On 15 April 1996, the ASX wrote to the defendant noting a fluctuation in the defendant's share price and asking if there was any reason for such a fluctuation (exhibit 140).  The defendant responded on the same day saying it had no idea why the share price might be fluctuating (exhibit 139).

8. In May 1996, discussions took place between WMC and the defendant.  These discussions were between Mr Cooke and Dr Allan Trench ("Dr Trench"), an employee of WMC.  WMC expressed an interest in the McFarlanes Find tenement and wanted equity in the tenement and/or a joint venture.  On 4 June 1996, WMC wrote to the defendant providing its interpretation of the 1994 drill hole results and undertaking to provide cross sections of those results.

9. On 7 June 1996, a meeting took place between WMC and the defendant.  Dr Trench and others from WMC were present and the defendant was represented by Mr Harmanis and Mr Cooke.  At the meeting, WMC provided the promised cross sections.  This was the first time they had been seen by Mr Harmanis and Mr Cooke.  What took place at this meeting will be discussed further when considering the evidence.  However, subsequent to the meeting, the defendant made an announcement to the ASX (exhibit 2).  The meeting took place on 7 June and the announcement was made on 11 June.  (Monday, 10 June was a holiday and the ASX was closed.)

10. This announcement was an important feature of this case and I will quote it in full:

    "ANNOUNCEMENT

    Significant sulphide nickel mineralisation has been located on Jubilee's McFarlanes Find Project, 8 kms north of the Company's Kathleen Valley Project.

    The McFarlanes Find Project, covering 17km² sits adjacent to WMC's Mt Keith tenements and to the north of Dominion's Yakabindie Project (see map).

    Following a boundary survey by the Department of Minerals and Energy it has been discovered that four diamond holes drilled by Western Mining in 1994 were collared inadvertently on Jubilee ground and that they intersected the southern extension of the Mt Keith sequence.  Significant disseminated nickel mineralisation was encountered on Jubilee's ground including 14.75m @ 0.72% Ni and 15m @ 0.65% Ni within a broad envelope of 42.75m @ 0.55% Ni from 195m depth.  The Mt Keith sequence dips eastward on to Jubilee ground and it is considered that significant potential exists for both massive and disseminated nickel sulphides over a five kilometre strike length in the Jubilee tenement.  The Company plans to drill test this sequence in June/July.

    The host sequence also continues south through Dominions Yakabindie property and subsequently outcrops on Jubilee's Kathleen Valley Project ground for a distance of 3 – 5 km strike length.

    At Kathleen Valley the current drilling programme has been suspended due to heavy rain.  To date 2800 metres of RC and 3000 metres of RAB have been completed.  Assaying results on samples to date have also been delayed due to problems at the assay laboratory although some results have been received and are being assessed.  However at Mossbecker West and Ilias South the rig was unable to reach target depth and a diamond rig has been engaged for late June to continue the holes to target.

    At Nabberu extensive soil sampling is continuing with mapping to commence shortly in anticipation of commencement of RC/Diamond drilling in late June/early July as planned.

    [Signed]

    K K Harmanis

    MANAGING DIRECTOR"

11. On 14 June 1996, the ASX commenced an investigation looking at why it was that the 1994 drill results had not been announced to the market (exhibit 116).  On 17 June 1996, the defendant responded to the ASX enquiry.  It would seem that the ASX was satisfied with the response because they took the matter no further.

12. In June and July 1996, the defendant undertook drilling on the McFarlanes Find prospect specifically looking for nickel.  On 25 July 1996, after receiving the results from the drilling on the tenement, the defendant made a further announcement to the ASX (exhibit 155).  Again, I will quote it in full:

    "ANNOUNCEMENT

    McFARLANES FIND

    The Company advises completion of a stratigraphic diamond drillhole targeted at the nickel‑bearing ultramafics at McFarlanes Find, 8km north of Kathleen Valley.

    MFD 01 collar was located 105m east of the WMC diamond hole, MKTD 101, at the same initial angle.  The hole penetrated ultramafics between 315m and 588m where it was terminated and returned the following intercepts:

    5m @ 0.63% Ni from 502m
    5m @ 0.56% Ni from 516m

    and19m @ 0.49% Ni from 550m

    Results of the WMC hole MKTD101 have previously been announced and comprised 14m @ 0.72% Ni from 195m and 15m @ 0.65% Ni from 230m within a 42.7m envelope of 0.55% Ni.

    The Jubilee drillhole establishes that the Mt Keith nickel sequence dips eastward on to the Jubilee tenement and has enhanced the prospectivity of the Jubilee tenement.  The results are being assessed.  Further exploration will be targeted at locating higher grade sulphides to the south of MFD 01 where mineralisation is likely to be closer to the surface.

    Jubilee is currently completing its rain interrupted drilling programme at Kathleen Valley and will commence drilling at Nabberu in August.

    The Company's June quarterly report is due to be released on Monday 29 July 1996.

    [Signed]

    K K Harmanis

    MANAGING DIRECTOR"

13. On 1 September 1997, the defendant announced to the ASX that it had received spectacular results from the drilling of its wholly owned Cosmos deposit (exhibit 32).  The market reacted immediately with a dramatic rise in the company's share price.  In fact, as it turned out, the Cosmos deposit lived up to its early promise and the defendant is now a significant nickel producer.  Its present share price is reflective of that fact.

14. This, then, is an outline of the relevant events.  It is appropriate at this point to consider the case as pleaded.

The pleadings

1. The plaintiff's amended statement of claim is dated 26 October 2000.  Paragraphs 1 and 2 identify the parties and pleads that at all material times, the defendant was the owner of the McFarlanes Find tenement (exploration licence E36/251).  By par 3, the plaintiff pleads that the defendant was subject to ASX listing rule 3A.  It is said that the requirements of listing rule 3A(1) were imposed for the purpose of ensuring that market sensitive information was notified to the ASX.

2. In par 4 and par 5, reference is made to the two WMC letters of August and September 1994.  Paragraph 6 pleads that at all material times from 5 September 1994 the defendant, through its directors, was aware that the McFarlanes Find tenement was located 12 kilometres to the south of WMC's Mt Keith nickel mine and approximately 2 kilometres from Dominion Mining Co Ltd's Yakabindie nickel project.  It is said that both the mine and the project were based on low grade disseminated nickel mineralisation.  It is further pleaded that WMC's Mt Keith nickel mine was "a substantial and profitable mine" and was either the largest or one of the largest low grade nickel sulphide ore deposits in the world.

3. Paragraph 7 pleads matters which it says were "included" in the August and September 1994 letters.  Because of their importance, I will quote in full the matters referred to in par 7:

   "(a)WMC had, while conducting a drilling program on its tenement E53/24, inadvertently drilled a number of holes on JBG's E36/251;

   (b)the two tenements share a common boundary;

   (c)one of the drillholes (MKTC‑101) was drilled to a downhole final depth of 245 metres and a vertical depth of about 229 metres;

   (d)the bottom 68.2 metres of that hole assayed 0.47 per cent nickel, with nickel sulphide mineralisation disseminated throughout the final 57.85m;

   (e)within the 68 metre length were intercepts of 16.85 metres at 0.61 per cent and 19.0 metres at 0.60 per cent nickel, the latter of which was at the bottom of the drillhole, with the final 12.7 metres averaging 0.67 per cent nickel;

   (f)the final 42.7 metres of the drillhole averaged 0.55 per cent nickel;

   (g)none of the other drillholes reached or approached the 187 metre downhole depth and 170 metre vertical depth at which the disseminated sulphides were located in drillhole MKTC‑101."

4. By par 8, it is pleaded that the defendant was aware of the matters pleaded in par 6 and par 7.  Paragraph 9 then defines the "information" in par 7 as "the Information".  By par 9(a), it is pleaded that a reasonable person would have expected the Information to have a material effect on the price or value of ordinary shares in the defendant.  The reasons for that are set out in three further sub‑paragraphs of par 9.  They read as follows:

   "(b)was evidence that the Mt Keith mineralised nickel sequence, which was the host of all the then known substantial nickel sulphide deposits in the Agnew‑Wiluna belt, including those pleaded in paragraph 6(a) above, extended onto JBG's tenement E36/251;

   (c)suggested potential for further extensions or repetitions of the Mt Keith mineralised nickel sequence further to the south on tenement E36/251;

   (d)suggested that there was potentially commercially viable nickel mineralisation, warranting further exploratory drilling, on tenement E36/251."

5. By par 10, it is said that the defendant failed to notify the ASX of the Information until 10 June 1996.  By par 11, it is said that this failure to notify the ASX was a contravention of listing rule 3A(1).  By par 12, it is said that as between September 1994 and June 1996, the Information was not generally available and had it been so available it would have influenced persons who commonly invest in securities.  It is said that the Information would have had a material effect on the price of the defendant's shares.

6. Paragraph 13 is the plea of negligence. It is said that "a reasonable company" would have known that the Information had the qualities and consequences pleaded in pars 9(b), 9(c) and 9(d) and would also have known that it would have affected the value of shares (as pleaded in par 9(a)) and therefore should have been notified to the ASX. Paragraph 14 is a plea that the defendant contravened the provisions of s 1001A(2) of the Corporations Law.

7. By par 15, it is pleaded that between 22 September 1994 and July 1995 Mrs Helen Christine Riley ("Mrs Riley") (the then trustee of the Trust) sold 3,172,000 shares for a gross consideration of $290,270.00.  By par 16, the plaintiff pleads what he says would have happened had the Information been released to the ASX.  It is worth quoting par 16 in full:

"16.Had JBG notified the information to ASX:

(a)the price of JBG Shares would thereupon have increased substantially;

(b)Mrs Riley would not have sold the shares in JBG as pleaded in paragraph 15 above;

(c)Mrs Riley would have:

(i)sold a parcel of 547,000 JBG Shares in or about September 1994 to February 1995 and would, thereby, have obtained a greater price for those shares than was in fact obtained;

(ii)retained the balance of the shares in JBG then owned by her until at least after follow up exploration had been done and the results notified to the ASX; and

(iii)sold those shares in early September 1997, when JBG shares traded at a price between $1.40 and $1.50 per share, and thereby received a total consideration of at least $3,571,425.00 nett [sic] of brokerage and stamp duty."

1. Paragraph 17 particularises the plaintiff's alleged loss.  By par 17(a)(i), the plaintiff alleges a loss of $3,281,155.00 being the difference between the price actually received for the shares and the price the plaintiff says would have been received had the shares been sold in line with what is pleaded in par 16(c)(iii).  By par 17(a)(ii), an amount is claimed which it is said represents "the extra sum which would have been obtained upon the sale of the shares referred to in para 16(c)(i)" had the Information been released to the ASX.  In the pleading it is said that particulars of that amount would be given prior to trial.  It would seem no particulars were given.

2. There is an alternative claim pleaded in par 17(b). That is a claim based on an increased share price for all of the shares held by the plaintiff. That too was to be particularised prior to trial, but again it would appear that no particulars were delivered. In any event, this alternative claim was not pursued. Damages were claimed under s 1005 of the Corporations Law.

3. By its amended defence, the defendant admits par 1 of the statement of claim (the identity of the plaintiff) and effectively admits par 2 – that is, its ownership of the McFarlanes Find tenement (despite the plea that is found in par 2(e) of the defence).  By par 2(d), the defendant says that on 22 February 1996, the Department of Minerals and Energy approved the survey by WMC which resulted in the common boundary between the defendant's McFarlanes Find tenement and WMC's Spinifex Park tenement moving some 200 metres to the west of the previously recorded position.  Doubtless that pleaded fact is true (although irrelevant).  However, it is undeniable by virtue of the letter of 1 August 1996 from WMC to the defendant that the defendant became aware of the boundary shift in August 1994.

4. By par 3, the defendant admits the existence of the listing rule but points out that there are circumstances in which information is not to be released.  Further consideration of this plea can await discussion of the terms of the listing rule.

5. Paragraph 4 of the amended defence deals with what are defined in the paragraph as the "WMC Letters".  It is pleaded that the 1 August 1994 letter informed the defendant that the boundary between the parties' tenements was some 200 metres to the west of the location shown on the plans held by the Department of Minerals and Energy.  It further said that the letter advised that six holes had been drilled on the defendant's tenement.  As to the later letter, it is said by par 4(b) of the defence that certain data was provided.  As to the electromagnetic survey data, it is said in par 4(b)(iii) that the data was "raw, unprocessed readings" with no interpretation.

6. By pars 5, 6 and 7 of its amended defence, the defendant sets out what it says is to be made of the information contained in the two WMC letters.  Because of the importance of these paragraphs, I will quote them in full:

   "5With respect to the information ('1994 WMC Information') conveyed by WMC in WMC's letters and the enclosures with them:

   (a)only one of the 6 holes drilled, being MKTD101, revealed anomalous nickel sulphide mineralisation on what WMC contended to be part of E36/251;

   (b)hole MKTD101 passed through the area which WMC contended was part of E36/251 and into the area which WMC's survey indicated was covered by E53/24;

   (c)the distance along the hole MKTD101 from the surface to the point at which it intersected the boundary line of E53/24 as indicated by WMC according to its survey (the down hole depth) was 245 metres and the vertical depth from the surface to that point was between 225 and 237m;

   (d)the remaining 5 holes intersected a barren felsic volcanic sequence to the east of the Mt Keith ultramafic rock sequence;

   (e)it did not contain or include any information with respect to the area which WMC's survey indicated was covered by E53/24;

   (f)it did not contain or include cross sections or other interpretative material.

   6As to paragraph 6 of the amended statement of claim, the defendant:

   (a)says that the area the subject of WMC's letters was approximately 12 kilometres south southeast of the centre of WMC's Mt Keith nickel mine;

   (b)says that the said area was some 10 to 15 kilometres north northwest of Dominion Co Ltd's Yakabindie nickel project;

   (c)says that WMC did not commence production at Mt Keith until September 1994 and that WMC's Mt Keith nickel deposit comprised large reserves of disseminated nickel sulphide ore;

   (d)says that the Yakabindie nickel project was not in September 1994 (and still is not) a mine;

   (e)otherwise denies the allegations in the said paragraph.

   7As to paragraph 7 of the amended statement of claim, the defendant:

   7.1repeats the matters pleaded in paragraphs 4 and 5 above;

   7.2says, with respect to sub paragraph 7(c), that in the 1994 WMC Information the drill hole was named 'MKTD101', not 'MKTC101' and that information did not disclose either the final vertical depth or final down hole depth of that hole and those depths could not be determined from that information although it disclosed that the down hole depth was well in excess of 245 metres;

   7.3says, with respect to sub paragraphs 7(d), (e) and (f) and the 1994 WMC Information in relation to drill hole MKTD 101:

   (a)assay information was only provided in respect of material derived to a down hole depth of 245 metres and that assay information did not disclose what the 68.2 metre interval from and above the point being 245 metres down hole depth assayed;

   (b)information as to the mineralogy of the final 57.85m of material derived from the hole was not provided but it could be discerned from the 1994 WMC Information that the 60 metre (not just 57.85m) interval from and above the point being 245 metres down hole depth contained disseminated nickel sulphides;

   (c)it could be derived from the 1994 WMC Information that the 67.9 metres from 177.1 metres down hole depth to the end of the assay information provided by WMC at 245 metres down hole depth assayed 0.445 per cent nickel;

   (d)it was not disclosed and it could not be derived from that the 1994 WMC Information what percentage of nickel was contained in the 68.2 metres from 177.1 metres down hole depth to the end of the assay information provided by WMC at 245 metres;".

1. By par 9 of the amended defence, the defendant denies that the information in par 7 of the amended statement of claim ought have led a reasonable person to expect its release would have a material effect on the defendant's share price.  As an alternative to that plea, it is said that there was no breach of listing rule 3A because disclosure of such "indefinite and incomplete information" could damage the defendant's credibility in the market and adversely affect the share price.  It is also said that the information did not suggest that there was "potential for commercially viable nickel operation".

2. By pars 10, 11 and 12 of the amended defence, the defendant admits it did not notify the ASX of the matters referred to in the WMC letters and joins issue with allegations in the amended statement of claim that it should have done so.  By par 13 of the amended defence, the defendant denies any negligence in its failure to notify the ASX of the Information.  Particulars of why it was not negligent are provided in pars 14, 15, 16 and 17.  These again are important paragraphs and I will quote them in full:

   "14Upon receipt by the defendant of WMC's Letters and accompanying documents, they were read by Mr. John Cooke, the defendant's manager of exploration and an experienced geologist in the minerals exploration industry.

   15Mr. Cooke promptly brought both letters and accompanying documents to the attention of Mr. William Crossley, the defendant's managing director and a qualified mining engineer.

   16Soon thereafter Mr. Cooke and Mr. Crossley conferred about the significance of the information conveyed by WMC's Letters and accompanying documents and both reasonably took the view that although the 1994 WMC Information showed anomalous nickel values in respect of one of the holes drilled by WMC (MKTD101), it was not of any interest or significance to the defendant as the mineralisation indicated was too deep and of too low grade to suggest potential for a commercially viable nickel operation and there was no evidence as to whether its width was true or exaggerated.

   17Mr. Crossley, as managing director of the defendant, therefore did not regard the information as being of sufficient significance to warrant it being referred to the Board of the defendant or reported to the ASX."

3. The defendant concludes by denying that the plaintiff has suffered any loss and damage.  Nothing specific is pleaded about share price fluctuations and no direct response is given to the allegation that the plaintiff would have held on to the shares and sold at a later date had the information been given to the market.  Clearly, the defendant joined issue with the plaintiff on that question and, not surprisingly, quantification of the plaintiff's alleged loss was a substantial issue in the proceedings.

Listing rules and statutory framework

1. The ASX listing rules are a set of rules which govern the relationship between companies listed on the ASX and the ASX itself. At the relevant time, the ASX had adopted listing rules within the meaning of the then prevailing s 761 of the Corporations Law.  For the purposes of this case, it is listing rule 3A which is relevant.  That rule appears under the heading "NOTICES" and is in the following terms:

   "A listed company shall immediately notify the Exchange of –

   (1)any information concerning the company of which it is or becomes aware and which a reasonable person would expect to have a material effect on the price or value of securities of the company.  This requirement does not apply if each of the following conditions is and remains satisfied:

   (i)a reasonable person would not expect the information to be disclosed; and

   (ii)the information is confidential; and

   (iii)one or more of the following conditions apply:

   a.it would be a breach of a law to disclose the information;

   b.the information is, or is part of, an incomplete proposal or negotiation;

   c.the information comprises matters of supposition or is insufficiently definite to warrant disclosure;

   d.the information is generated for the internal management purposes of the company; or

   e.the information is a trade secret.

   For the purpose of this Listing Rule the company becomes aware of information where a director or executive officer has, or ought reasonably to have, come into possession of the information in the course of the performance of duties as a director or executive officer."

2. At the relevant time, disclosure by listed entities was controlled by s 1001A of the Corporations Law.  That section is in the following terms:

   "(1)This section applies to a listed disclosing entity if the provisions of the listing rules of a securities exchange:

   (a)       apply to the entity; and

   (b)require the entity to notify the securities exchange of information about specified events or matters as they arise for the purpose of the securities exchange making that information available to a stock market conducted by the securities exchange.

   (2)The disclosing entity must not contravene those provisions by intentionally, recklessly or negligently failing to notify the securities exchange of information:

   (a)       that is not generally available; and

   (b)that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of ED securities of the entity.

   (3)A contravention of subsection (2) is only an offence if the failure concerned is intentional or reckless.

   (4)…"

3. Some guide is provided to the interpretation of s 1001A by s 1001D. It is in the following terms:

   "For the purposes of sections 1001A and 1001B, a reasonable person would be taken to expect information to have a material effect on the price or value of securities if the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether or not to subscribe for, or buy or sell, the first‑mentioned securities."

4. It is worth pausing at this point to consider the statutory provisions in some detail and how those provisions, taken together with the pleadings, define the issues to be determined in this case.  The place to begin is with listing rule 3A.  The rule requires information to be disclosed to the ASX if a reasonable person would expect the information to have a material effect on the price or value or securities.  There are two concepts present in that requirement.  The first is that it is from the point of view of a "reasonable person" that it is to be determined whether the information would have an effect on the price.  It is not from the point of view of a stockbroker or a geologist or a seasoned trader, but of a reasonable person.  Second, the information is only to be released if there is an expectation that it would have a "material effect" on the price or value of securities.  So information that might be thought to cause a stock trading at $20 to jump by 1 cent would probably not be "material", whereas information that might cause a stock trading at 10 cents to jump by 1 cent, would be "material".  This introduces the concept of relative values of the stock to which I referred earlier when contrasting the defendant with WMC.

5. Rule 3A(1)(i) is a rather strange exception.  The primary requirement of the rule is that information should be released if a reasonable person would expect the information to materially affect the stock price.  But if that same reasonable person would not expect the information to be disclosed, even if it would have a material effect on the stock price, then the rule will not operate.  Whatever might be the proper interpretation of this exclusion, it is not relevant to this action.

6. The pleadings suggest that the defendant would rely on rule 3A(1)(iii)(c).  In other words, it was said that the WMC information was "insufficiently definite".  As it turned out, that argument was not really pressed.  If anything, it was subsumed in the wider claim that the information was not of such significance that it should have been released.

7. Section 1001A(2)(b) of the Corporations Law picks up almost word for word what is found in rule 3A.  But its operation is dependant on the listing rule being contravened "intentionally, recklessly or negligently".  The use of the word "intentionally" is somewhat confusing.  The defendant's pleaded case is to the effect that the defendant, by its officers, considered the WMC information and decided not to release it to the ASX – in other words, they formed an intention not to so release the information.  Both counsel agreed that whatever is meant by "intentionally", it did not apply to this case.  The case was run by the plaintiff and defended by the defendant on the basis that it was alleged the defendant was negligent in failing to release the information.

8. Section 1001D deals with when information should be seen as having a material effect on the price of securities. The information must influence persons "who commonly invest in securities" in deciding whether to buy or sell. So it is not relevant to ask what a member of the general public might make of the information. Nor is it relevant to consider the information from the point of view of a stockbroker or a geologist or a mining entrepreneur. What is to be considered is the perspective of the person who "commonly", as opposed to occasionally or rarely, invests in securities. There are, of course, persons who commonly invest in securities but would not dream of investing in speculative mining stocks. Presumably such persons would never be in a position of deciding whether to buy or sell such shares. They simply do not trade in that area. So the notional person to be considered in this case is a person who commonly invests in small speculative miners.

The issues

1. Against that background, it is possible to define the issues.  They are:

   (1)Would a reasonable person expect the material found in the WMC letters to have had a material effect on the defendant's share price as at September or perhaps October 1994?

   (2)If the answer to the above question is yes, was the failure of the defendant to notify the ASX negligent?

   (3)If the answer to that question is yes, has the plaintiff suffered any loss or damage and, if so, how much?

2. Of course, each of these three issues has bound up in it a number of sub‑issues.  But, for present purposes, it is enough to state in broad terms what is to be determined in this action.

The WMC letters

1. Before dealing with the evidence, I should return again to the WMC letters.  They need to be put in context.  WMC was at the time one of the largest nickel miners in the world.  It was well known as such.  It was certainly well known as such by both Mr Cooke and Mr Crossley.  WMC had proved up a huge resource of low grade nickel at Mt Keith.  As at September 1994, the ore reserve was measured at some 500,000,000 tonnes.  It was anticipated that the Mt Keith mine would cost some $450,000,000 to develop and would have a life of anywhere between 20 and 50 years.  By any measure, Mt Keith was a substantial undertaking.

2. To the south of McFarlanes Find lay the Yakabindie deposit of Dominion Mining.  This too was a substantial deposit of low grade nickel which, as at 1994, was and even today, remains undeveloped.  So anyone reasonably familiar with the area around the McFarlanes Find tenement – and certainly Mr Cooke and Mr Crossley – were aware that the tenement was in a nickel province and lay between two substantial and proven nickel resources.

3. The letters themselves indicated that WMC were drilling the Spinifex Park tenement which was a narrow section of land between the two parts of the McFarlanes Find tenement.  WMC was not, as at September 1994, exclusively a nickel miner.  But it is reasonable to suppose that they were drilling Spinifex Park to see whether it contained nickel.  In other words, they were looking to see whether the reserves at Mt Keith extended south through Spinifex Park.

4. It is reasonable to ask why WMC wrote to the defendant at all bringing the fact of the drill holes to their attention.  In part, it may be a reflection of WMC as a good corporate citizen.  However, WMC had in the past run into difficulties by not disclosing to an adjoining tenement holder, information obtained about that tenement.  This is referred to as the Ernest Henry case in mining circles.  The facts of that case as set out by counsel for the plaintiff (page 911 of the transcript) are as follows:

   "In 1987 WMC geophysicists in northwest Queensland walked over what appeared to be a significant electromagnetic anomaly with 50 per cent of the anomaly lying on an adjacent tenement.  WMC approached the owners of the neighbouring tenement Savage Resources, and formed a joint venture for exploration and development.

   Savage Resources consisted of three Sydney accountants who invested their time into these exploration tenements in Queensland.  Savage were not made aware of the electromagnetic anomaly at the joint venture meetings.

   At the signing of the joint venture agreement WMC quickly drilled the anomaly and discovered a $400,000,000 copper and gold deposit now known as Ernest Henry.  Despite their junior role in the relationship, Savage quickly became suspicious of WMC's instant success at the boundary of the tenements and took WMC to Court.

   The courts for whatever reason leaned in favour of Savage Resources and they were awarded 100 per cent of the whole deposit.  WMC had failed to provide an honest and accurate assessment of work completed over the boundary of another company's tenements."

   Clearly, WMC did not want a repeat of the events surrounding Ernest Henry.

5. The Ernest Henry case has passed into mining folklore.  Perhaps it touches a chord with those involved in mining as the actions of WMC had about them an element of "claim jumping", always an emotive issue in the mining industry.  But whatever the reason, in 1994, anyone involved in the mining industry would have at least had some knowledge of the Ernest Henry case and its ramifications.  Certainly, the decision was known to both Mr Cooke and Mr Crossley.

6. I mention these matters because they provide the background to the receipt by the defendant of the WMC letters.  One might expect that Mr Cooke, on receiving the letters, would have been put on his guard.  From the most basic reading of the material accompanying the letter of 1 August 1994, it was apparent that the drill holes had intersected ultramafic rock, a known host for nickel.  Further, there was some evidence of nickel sulphides.  That is referred to in the logs of holes for MKTD‑101 and MKTC‑103.  The assay results for MKTD‑89 which accompanied the first letter did show some heightened nickel, although it may have been necessary to have some expertise in order to interpret the significance of the assay results.

7. The fact that the results of electromagnetic surveys were provided, without more, indicated that electromagnetic field work had been undertaken.  That would hardly be surprising, as all the witnesses agreed it was nothing more or less than was to be expected when WMC were undertaking an exploration programme.  But one might have thought that it would be worth obtaining some assessment of the electromagnetic data from a consultant geophysicist.  In all, one might have expected the first letter to have heightened the awareness of Mr Cooke and the defendant to the possibility that WMC had discovered something of significance on the defendant's ground.

8. It is convenient to deal at this point with an argument over pleadings which erupted during the course of the trial.  Counsel for the defendant made the point that there was nothing in the plaintiff's statement of claim which referred to the electromagnetic data.  Counsel for the plaintiff insisted that the way the action was pleaded meant that the presence of the electromagnetic data was one factor which should have alerted the defendant to the significance of the WMC information.  Counsel for the plaintiff then proposed that he file a reply.  A document entitled "Minute of Proposed Reply" was tendered.  It was in the following form:

   "1As to paragraphs 4(b)(iii) and 5(f) of the defence the plaintiff says that if, for the purpose of determining whether the Information pleaded in paragraph 7 of the statement of claim was required to be notified to the ASX, the defendant needed to know whether there was an electromagnetic feature or to prepare and draw conclusions from cross sections and the electromagnetic feature then:

   1.1The WMC letters included electromagnetic survey data for the holes drilled on the defendant's tenement and for drill hole MKTD 96 drilled solely on the WMC tenement;

   1.2The electromagnetic survey data contained information that showed for the drill holes drilled on the defendant's tenement and a hole drilled solely on WMC's adjoining tenement hole locations, hole depths, survey instructions to the geophysical staff concerning areas of high anomaly gradient and survey results for the drill holes in areas of high anomaly gradient.

   1.3The information in the electromagnetic survey data enabled the defendant to determine whether an electromagnetic feature was present on the WMC tenement;

   1.4The information to draw cross sections was contained in the WMC letters;

   1.5The defendant was able to determine that the Information pleaded in paragraph 7 of the statement of claim was required to be notified to the ASX notwithstanding that it had not been provided with an interpretation of the electromagnetic data, cross sections or other interpretative material.

   2The plaintiff otherwise joins issue with the defendant upon its defence."

9. Counsel for the defendant took strong objection to the terms of the reply.  He made the point that it raised a separate issue upon which none of the defendant's experts had been asked to comment.  It was his submission that it was too late in the day to raise what was, in effect, a fresh issue.

10. I refused to allow the plaintiff to amend in terms of the minute.  In my view, it does raise a fresh issue about which expert evidence would be necessary.  Expert evidence orders had been made back in 2002 and no expert had analysed the electromagnetic data.  It was now too late to raise something altogether new.

11. But that is not to say the electromagnetic data is to be ignored.  It is the fact that it accompanied the first letter.  As I have said, without making any attempt to understand the data or have it analysed, Mr Cooke and the defendant surely should have had some heightened awareness of its significance.

12. The second letter had attached to it the assay results.  Some of the results for MKTD‑101 leap off the page.  For instance, there is a 2 metre intersection which runs at 1.33 per cent nickel and another 2 metre intersection which runs at 1.153 per cent nickel.  The Mt Keith deposit was at a grade of 0.5 per cent.  These figures are not difficult to spot and, even to the untrained eye, they look significant.  Quite how significant is the question at the heart of this case.

13. However, what must be borne in mind is all of the background facts known to Mr Cooke and Mr Crossley and the fact of the two WMC letters and what, even to the uninitiated, they contain.  All of the evidence of all of the witnesses needs to be set against that background.

The evidence

Kim Edward Riley (witness statement exhibit 53)

1. Mr Riley was born in Perth and graduated from the University of Western Australia with a bachelor of commerce degree in 1975.  He became a member of the Australian Society of Accountants in 1976 but relinquished his membership in 2000.  He became an associate member of the Securities Institute of Australia in 1991 and relinquished that membership in 2000.  After graduating from university, he worked in a number of different jobs focusing mainly on financial and administration work.  This work included company secretarial and accountancy work.  He is married to Mrs Riley, who also gave evidence in these proceedings.  For a time, Mrs Riley was the trustee of the Trust.

1. On 25 January 1987, Mr Riley was appointed on an interim basis company secretary of Sir Samuel Mines.  At the time, the defendant was not listed on the ASX.  Mr Riley commenced full‑time employment as company secretary of Sir Samuel Mines on 6 July 1987.  He was appointed company secretary of the defendant on 5 November 1987.  On 13 January 1988, he was appointed a director of both the defendant and Sir Samuel Mines as an alternative to Mr Harmanis.  Mr Harmanis was, at the time, a substantial shareholder in both companies.  On 4 July 1989, Mr Riley was appointed managing director of Sir Samuel Mines.  Somewhere between 1 November 1990 and 4 July 1991, Mr Riley was appointed the managing director of the defendant.  On 17 November 1991, the defendant took over Sir Samuel Mines and that company became a wholly owned subsidiary of the defendant.  After the takeover, Mr Riley became company secretary and managing director of both the defendant and Sir Samuel Mines.

2. From about March 1993, Mr Riley's relationship with Mr Harmanis began to deteriorate.  By September 1993, Mr Riley felt that he could no longer work for the defendant.  On 1 December 1993, Mr Riley gave written notice of his resignation as a director of both the defendant and Sir Samuel Mines.  This resignation took effect on 31 December 1993.  The circumstances in which Mr Riley departed company with the defendant were not relevant to this action.

3. In the period from about 11 June 1987 to 21 September 1993, the Trust acquired fully paid shares in the defendant.  Between about 23 June 1988 and 6 December 1989, Mr Riley also acquired a number of shares in both the defendant and Sir Samuel Mines in his own name.  Between 1 September 1988 and 4 January 1990, Mr Riley transferred 1,800,000 partly paid shares in Sir Samuel Mines to the Trust.  Between about 16 October 1989 and 4 January 1990, Mr Riley transferred 1,725,000 partly paid shares in the defendant to the Trust.  As a result of the takeover of Sir Samuel Mines by the defendant on 17 November 1991, Sir Samuel Mines shares were exchanged for shares in the defendant.  The Sir Samuel Mines shareholders received three of the defendant's shares for every four Sir Samuel Mines shares they held.  As at the date of Mr Riley's resignation from the defendant, the Trust owned 797,000 fully paid shares.  It also owned 1,500,000 partly paid shares with 4 cents unpaid on each share and 1,125,000 partly paid shares with 6 cents unpaid on each share.

4. The Trust was established in 1985.  The main purpose of the Trust was to hold property and investments on behalf of Mr Riley, his wife and their two children.  These four individuals are the beneficiaries of the Trust.  From the commencement of the Trust until 28 June 1999, Mr Riley was the appointor under the trust deed.  From the commencement of the Trust until 18 August 1985, B M Riley Nominees was the trustee.  B M Riley Nominees was controlled by Mr Riley's brother, Bruce Maxwell Riley.  By deed of appointment dated 18 August 1985, B M Riley Nominees retired as trustee, and Harnay Pty Ltd ("Harnay") was appointed as trustee.  Harnay was controlled by Mr Riley.  By deed of appointment dated 28 June 1994, Harnay retired as trustee and Mrs Riley was appointed as trustee.  By deed of appointment dated 28 June 1999, Mr Riley retired as appointor and appointed Mr Craig Derel Sproule ("Mr Sproule") as the new appointor of the Trust.  By deed of variation dated 15 April 2006, the office of the appointor was abolished.  By deed of appointment dated 29 June 1999, Mrs Riley retired as trustee and Mr Sproule appointed Mr Riley as the trustee.  He remained as trustee as at the date of trial.

5. Mr Riley said in his evidence that irrespective of the identity of the trustee, it was he who monitored the trust share portfolio.  Most days he checked the trading price of the Trust's shares.  Occasionally, he would speak with stockbrokers seeking their advice as to which shares the Trust should acquire.  Whenever possible he attended functions that gave him the opportunity to speak with different people who worked for or with the companies in which the Trust held shares or in which the Trust was considering investing.  Mr Riley also kept abreast of press reports about shares in which the Trust invested.  Occasionally, Mr Riley would visit the ASX.

6. The decisions of the trustee to hold, buy or sell shares were made on the basis of, and in accordance with, Mr Riley's advice and recommendations.  His strategy for the Trust was to invest in companies primarily in the resource sector that had the potential to return significant capital gains in the longer term, being ever mindful of opportunities to profit through short term trading.

7. After he resigned from the defendant in December 1993, Mr Riley said he decided to take a break from paid employment.  Between December 1993 and July 1995, he undertook significant renovations to his family home.  In addition, he evaluated a number of business opportunities.  However, throughout this period, he was not in any paid employment.  In July 1995 Mr Riley took up a position as manager with Polymetals Pty Ltd.

8. During the 18 months when Mr Riley was not in paid employment, he used the proceeds of the sale of shares in the defendant to fund his living expenses.  That became apparent from cross‑examination: transcript, pages 383 – 384.  Mr Riley indicated that while as at the date he left the defendant's employment he intended to take some time off, he did not originally intend to take 18 months.  He maintained, and I accept, that had he wished to do so he would have been able to find paid employment.  He confirmed that position in re‑examination: transcript, page 394.

9. Mr Riley says that when he resigned from the defendant it was his intention that the Trust should sell the 797,000 fully paid shares in the defendant in parcels as and when they were needed to provide income for his family.  He said that it was his intention that the 2,625,000 partly paid shares should be retained by the Trust as a long term investment.  He said that the accounts for the Trust showed the partly paid shares being treated as capital and the fully paid shares being treated as trading stock.  The accounts of the Trust were not in evidence.

10. In June 1994, Mr Riley became aware that on 24 June 1994 the defendant announced to the ASX that it had reached agreement to acquire 100 per cent of the Bellevue Gold Project.  The acquisition was to take place on 15 August 1994.  The funding for the acquisition was to be a combination of project financing and placement of shares.  On or shortly after 15 August 1994, Mr Riley became aware of the defendant's announcement to the ASX that the Bellevue No. 1 deal would not be completed on 15 August 1994.  The announcement said that alternative arrangements were being negotiated.  Mr Riley became aware on or about 30 September 1994 of the defendant's announcement to the ASX of an amended deal to acquire the Bellevue Gold Project.  On or about 5 December 1994, Mr Riley became aware from the defendant's ASX announcement that the Bellevue No. 2 deal had fallen over and the acquisition would not be completed.

11. By February 1995, Mr Riley had formed the view that the defendant's share price would continue to fall (it had been falling since the announcement of the failure of the Bellevue deals) and would stay low for an indefinite period.  Mr Riley says that there were five factors which led him to form this view.  First, the Bellevue deals had failed in two manifestations, suggesting an inability on the part of the defendant to excite the market sufficiently to raise the necessary capital to complete the deal.  Second, the defendant had failed to get its major gold resource project at Kathleen Valley into production.  Thirdly, the defendant did not have any other mineral exploration potential including nickel.  Fourthly, the defendant had a cash shortage and did not have any disclosed future revenue earning prospects.  Finally, and perhaps most importantly, the defendant's share price was moving downwards.

12. Having put all these factors together and formed an adverse view of the defendant's prospects, Mr Riley decided in February 1995 that the Trust should forthwith sell all its shares.  That is what was done.  Annexure "2" shows the sales.  As a number of the shares held by the plaintiff were partly paid, it was necessary to make payment of the money outstanding on the shares before the fully paid shares could be sold on the market.  Annexure "2" shows payments made to obtain the fully paid shares.

13. Mr Riley said that he has since become aware that in August and September 1994, the defendant received the WMC information.  He first became aware of that information when the defendant made its announcement to the ASX in June 1996.  (I should say at this point that the defendant disputed that the information available in 1994 was the same as the information available in 1996.  This is an issue I will canvass below.  However, it is the plaintiff's position – and it was certainly Mr Riley's position – that the information available to the defendant in 1994 was precisely the same as the information available in 1996.)

14. Mr Riley then goes on to say what would have been the effect of his being made aware of the WMC information in September 1994.  Because of the importance of this point, I will quote par 84 of Mr Riley's witness statement in full:

    "If Jubilee had released the WMC Information to the ASX in or around September 1994 then I would not have advised the Trust to dispose of its Jubilee shares in the way that it did."

15. Mr Riley says that as he read the financial press most days, it was likely that he would have become aware of any announcement to the ASX by the defendant within 24 hours of the announcement being made.  As at late 1994, he knew that the defendant's McFarlanes Find project adjoined WMC's Mt Keith tenement and that Mt Keith contained one of the largest low grade nickel sulphide ore reserves in the world.  He says that he would have concluded that the WMC information was evidence that the Mt Keith mineralised nickel sequence extended on to the defendant's McFarlanes Find tenement and that the McFarlanes Find tenement might contain commercially viable nickel mineralisation or, at the very least, the tenement required further exploratory drilling to establish whether the tenement contained commercially viable nickel mineralisation.

16. Having said that he would have retained the shares sold in 1995, the question then was when he would have sold.  Mr Riley says that in September 1997, he learned that the defendant's share price was approaching $1.50.  This was after the June 1996 announcement and before any announcement related to the Cosmos discovery.  Mr Riley says that he regarded something around $1.50 as being "a very good price for the defendant's shares" and that he would have sold: see pars 100, 101 and 102 of Mr Riley's witness statement.  He also says that he advised others who he knew had shares in the defendant to sell.

17. Two things emerged from the cross‑examination of Mr Riley.  First, he was well aware that the defendant was in 1994 focused on exploring for gold.  The defendant had not mentioned looking for nickel and there was no indication it would reassess its priorities: transcript, pages 361 – 362.  Second, Mr Riley clearly regarded the WMC information as significant.  Watching him give his evidence, he seemed to me to be a well informed investor with perhaps slightly more knowledge of the mining industry than most.  But none of his responses to questions under cross‑examination led me to the conclusion that in any circumstances he would have regarded the WMC information as anything other than positive: transcript, pages 366 – 369; 385 – 388.

18. I accept Mr Riley as an honest witness.  He gave his evidence in a straightforward manner.  He responded directly and, in my view, honestly, to all questions put to him in cross‑examination.  This can, perhaps, be highlighted by an exchange which took place during the course of cross‑examination.  As I have mentioned above, it was the defendant's position that had it made an announcement to the ASX in 1994 subsequent to the receipt of the WMC information, it would have had to advise the ASX that it would not be undertaking any more drilling.  Watching Mr Riley (and other witnesses to whom this proposition was put), it was clear that they were nonplussed by the idea that the defendant would announce what they regarded as positive results and then by the terms of the announcement undermine the prospect of a favourable market response.  The exchange went as follows (transcript, pages 376 – 378):

    "Yes, that's what I'm putting to you.  If in September 94 they said simply, 'There's the information.  It might be significant but we're not doing anything about it.  We're sticking with gold.  We're not going to do further exploration.  We're not going to do further drilling,' surely would you – as a prudent investment adviser you would then say to the trust or the trustee, 'Sell those shares'? --- Yes.  I would have had to strongly consider that; yes.

    You would more than strongly consider it; you would give that advice, wouldn't you? --- I would have to strongly consider it.

    Can you answer the question?  Would you have advised the trustee to sell the shares?  I appreciate it's an answer against your interest, but that is the reality? --- I am trying to put it into context, please, sir, in the 1994‑95 market as well.  It has got the WMC information.

    The market has got that but it has also ---?--- That's the same information that is in 1996 ---

    It has got the WMC information of 1994, which is not the same? --- No, but the relevant aspects of it, sir, in 1996 are disclosed, such as the ---

    In 1996, Mr Riley, as you I think more or less pointed out, the company said it was going to do drilling and exploration, which it did? --- Yes.

    But I'm putting to you: suppose in 1994, September 94, the company said, 'That's what we've got from WMC.  We don't think there is anything in it but there it is and we're not going to do exploration, we're not going to do drilling, we are sticking with gold and we've got limited funds for that.'  Would you agree that faced with that, standing back as an independent adviser to the trust, you would be negligent if you didn't say to the trust, 'Sell the Jubilee shares'? --- Yes, I likely would have recommended that if there was going to be no exploration on the nickel and there was no further nickel information available, then yes."

19. What that section of transcript does not show is the care Mr Riley gave to answering the question.  He paused, clearly considering what he regarded as an unlikely possibility and then answered the question in an honest and straightforward fashion.  That was typical of his evidence and it, among other things, convinced me that he was a witness of truth.

Helen Christine Riley (witness statement exhibit 53)

1. Mrs Riley was called to give evidence essentially to confirm the dates on which the defendant's shares were sold by the Trust.  She was the trustee during relevant periods.  Mrs Riley was not cross‑examined and her evidence was uncontroversial.

Allan Trench

1. Dr Trench is presently an employee of Woodside Petroleum.  He is also a non‑executive director of three listed companies – Herron Resources NL, Pioneer Nickel NL and Navigator Resources NL.  In 1996, Dr Trench was working for WMC.  In May or June 1996, he was working at the Leinster nickel operation as senior exploration geophysicist.  Dr Trench has a doctorate in geophysics, an honours degree in geology, a masters of business administration and a masters degree in mineral economics.

2. In mid‑1996, Dr Trench came into possession of the WMC information forwarded to the defendant in 1994.  In fact, the information was provided to Dr Trench by the defendant.  Dr Trench then wrote to the defendant on 4 June 1996.  The letter is in the following terms (exhibit 97):

   "4 June 1996

   Mr. J. Cooke,
   Chief Geologist;
   Jubilee Gold Mines NL
   1st Floor, Sir Samuel House,
   33 Ord Street,

   WEST PERTH   WA   6005

   Dear John,

   Thank you for forwarding the WMC exploration data from E36/251 as sent to you by Dave Miller in August/September 1994.

   I have taken the time to view the dataset and offer the following observations.  I also enclose two cross‑sections (19300N & 19500N, WMC local grid) depicting the drillhole information and lease boundary.  I hope that these serve to clarify the geology – geophysics for you prior to discussions between WMC and Jubilee regarding E36/251.

   Drillhole Data: Having viewed all the assay data, the only anomalous nickel values lie within the ultramafic of MKTD 101.  These assays are summarised below:

HOLE NO	FROM DEPTH	TO DEPTH	GRADE WIDTH	AVERAGE GRADE (%N)
185.0	186.7	1.7	0.55
195.0	199.1	4.1	0.54
202.25	217.0	14.75	0.62
230.0	245.0	15.0	0.65

In the light of the assay data from the remaining holes, the suggested 'low MgO ultramafics' referred to within MKTC 103 (82 – 121 m) and MKTC 109 (125 – 168m) most likely represent either sheared felsic volcanic rocks or intermediate intrusive rocks.  There are therefore no ultramafic rocks within at least 150 metres of the surface within lease E36/251 on section 19500 mN.

Geophysical Data: Having worked through the geophysical appendix to Dave Miller's letter, I ascertained that WMC have sent you the drillhole electromagnetic data for holes collared within E36/251 and data for holes collared in WMC lease E53/24 (in cases where a transmitter loop for the downhole survey was sited in E36/251).  Having looked through these data, the only anomalous response is positioned around MKTD 96 (as shown on the enclosed drill section).

I hope this information assists the discussion between WMC and Jubilee regarding E36/251.  I look forward to meeting you on Friday.

Regards,

[Signed]

Allan Trench

Exploration Manager, Leinster – Mt. Keith"

1. Accompanying this letter were two maps which are cross sections.  They appear as Annexure "3" to these reasons.  Both maps show holes drilled on the defendant's ground.  On the first map, there also appears a hole drilled on the WMC Spinifex Park tenement.  That is hole MKTD‑96.  The reason why that hole is shown is that the electromagnetic data which was provided with the letter of 1 August 1994 was derived from that drill hole.  This was the first time that a cross section of the drill holes was available to the defendant.

2. There is mention in Dr Trench's letter of a meeting which was to take place with representatives of the defendant on Friday, 7 June.  In fact, that meeting did take place.  WMC was represented by Mr Jim Reeve ("Mr Reeve") who was, to quote Dr Trench, "the head technical geological person for nickel within the whole of WMC", Mr Peter Langworthy ("Mr Langworthy"), who was the chief geologist at Leinster, and Dr Trench: transcript, page 436.  Mr Harmanis was present representing the defendant.  Dr Trench was unsure whether Mr Cooke was present.  During the course of the discussion, mention was made of the possibility of an announcement to the ASX involving the WMC information.  According to Dr Trench, it was agreed between Mr Reeve and Mr Harmanis that any announcement would be jointly vetted by the defendant and WMC.  Dr Trench says he specifically remembers that because a few days later an announcement was made by the defendant without any reference to WMC.  Dr Trench was then asked about the 1996 announcement.  The exchange went as follows:

   "Question:What kind of information was revealed in the announcement that you were talking about?

   Answer:The only thing they could possibly have put in the announcement was the data from 1994 because there wasn't any new assay data or anything provided in 96."

3. Nothing further of relevance appears to have been discussed at the meeting.  Dr Trench did take a note of the meeting and that document appears as exhibit 98.

Noel Ripley Sheppy (MFI 121, exhibits 202 & 205)

1. Mr Sheppy was, in fact, called by the plaintiff.  The circumstances in which he came to give evidence were slightly unusual.  During the course of presenting his client's case, counsel for the plaintiff indicated he would call Mr Sheppy.  A statement of Mr Sheppy had been prepared and provided to the defendant's solicitors.  Counsel for the defendant objected to Mr Sheppy giving evidence.  He maintained that the evidence was irrelevant.  Without going into detail, Mr Sheppy had undertaken certain work for the defendant on some of its tenements, including McFarlanes Find, in 1995.  He had prepared two reports.  As I have mentioned above, it was common ground between the parties that when Mr Sheppy undertook this work he had not been told about the boundary shift.  But, apart from that, his evidence seemed to me to be irrelevant.

2. The plaintiff's case is, as I have explained, that an announcement should have been made in September / October 1994.  That being so, what exploration work was done in 1995 is of no real interest.  It may have been, if it was said that the work done in 1995 provided to the defendant more information which then led to the June 1996 announcement.  If that had been the case, doubtless the defendant would have called Mr Sheppy.  But there was no suggestion that the reports of Mr Sheppy were relevant to this issue.  In my view, then, his evidence was irrelevant and I refused the plaintiff leave to call him as a witness.

3. I did take the precaution of marking for identification Mr Sheppy's statements, reports and other material (also some exhibits).  I did that for this reason.  Were it to become an issue in an appeal as to whether or not leave should have been given to Mr Sheppy and were the Court of Appeal to decide that leave should have been given, then it might be possible to take into account Mr Sheppy's evidence without the need for a re‑trial.  Whatever the merits of such a course, I thought it appropriate to at least identify the statement and the reports.

4. At the conclusion of Mr Cooke's evidence, counsel for the plaintiff indicated he intended to call Mr Sheppy under the provisions of s 21 of the Evidence Act 1906 (WA). That section is in the following terms:

   "Every witness under cross‑examination in any proceeding, civil or criminal, may be asked whether he has made any former statement relative to the subject‑matter of the proceeding, and inconsistent with his present testimony, the circumstances of the supposed statement being referred to sufficiently to designate the particular occasion, and if he does not distinctly admit that he made such statement, proof may be given that he did in fact make it.

   The same course may be taken with a witness upon his examination in chief or re‑examination, if the judge is of opinion that the witness is hostile to the party by whom he was called and permits the question."

5. The evidence of Mr Sheppy had to do with whether Mr Cooke was aware of the boundary shift of the McFarlanes Find tenement and whether he had understood the significance of the assay results in the WMC information.  From the witness statement tendered by counsel for the plaintiff (exhibit 202), it was clear that Mr Sheppy was in a position to establish, through his evidence, that Mr Cooke had made a prior inconsistent statement.  After hearing argument, I concluded that I was obliged by the terms of the statute to give leave to the plaintiff to call Mr Sheppy for the limited purpose of establishing the prior inconsistent statement.

6. Mr Sheppy is an experienced geologist.  He graduated with a geology degree from the University of Cape Town in 1969.  He has been a member of the Australian Institute of Mining and Metallurgy for 34 years.  He is currently employed by CSA Australia Pty Ltd as a consulting geologist.

7. In his evidence, he says that on 29 August 1996 he received a telephone call from Mr Harmanis, then managing director of the defendant.  That conversation dealt in part with a trip Mr Sheppy had made to the McFarlanes Find tenement in August 1995 with Mr Cooke.  Mr Sheppy had provided a report dated 26 August 1995 after that trip.

8. As a result of his conversation with Mr Harmanis, Mr Sheppy phoned Mr Cooke later the same afternoon.  Mr Sheppy told Mr Cooke that he was now aware that WMC had given the defendant the drilling information in 1994 which showed that the western boundary of the eastern portion of the McFarlanes Find tenement had shifted some 200 metres westwards in 1994.  Mr Sheppy asked Mr Cooke why he had not been told about the boundary shift when the two visited the McFarlanes Find tenement in 1995.  Mr Sheppy says Mr Cooke told him that at the time of the trip in 1995, he was not aware of the boundary shift.  He also said that in 1994 he had not understood the significance of the WMC drill results.

9. Mr Sheppy says Mr Cooke told him that the assay data came to him (Mr Cooke) from WMC as a loose‑leaf bundle and he had found it difficult to understand and did not realise the importance of the information.  Mr Sheppy said that Mr Cooke further advised him that WMC had recently supplied the defendant with cross sections of the drill holes that had been drilled in 1994 and that the cross sections had provided an explanation of the electromagnetic data.  Mr Cooke said that the cross sections had led him to appreciate for the first time the significance of the nickel intercepts.  Mr Sheppy made a note of this conversation.  That note appears as exhibit 205.

10. Mr Sheppy was cross‑examined by counsel for the defendant.  But he did not resile from anything he said.  Mr Sheppy impressed me as an entirely honest and straightforward individual.  There can be no suggestion that the note he made of his conversation with Mr Cooke was not a contemporaneous note.  There is no reason at all why he should have been mistaken in his evidence.  He appeared to have a very clear recollection independent of the notes he made of what occurred.  In my view, there is no reason whatsoever to doubt what he says.

John Alexander Cooke (recalled exhibit 206)

1. It was only reasonable that Mr Cooke should be given the opportunity to comment upon Mr Sheppy's evidence.  In an ideal world, Mr Cooke would have been given the opportunity to hear what Mr Sheppy said and then give evidence in response.  In fact, Mr Cooke had to be called before Mr Sheppy because of other commitments.  In the end, this made no real difference to the flow of the evidence.

2. Mr Cooke said that he did not recall any discussion with Mr Sheppy in August 1996.  He confirmed that he was aware of the boundary shift because of what was contained in the first letter from WMC.  He maintained that he was not technically equipped to appreciate the significance of low grade nickel sulphides and he did not believe that he would have said anything to Mr Sheppy to the opposite effect.  Mr Cooke did concede that he may not have appreciated the significance of the electromagnetic data enclosed with the first WMC letter.

3. Mr Cooke, too, was cross‑examined about his recollection.  He simply did not recall a discussion in August 1996 with Mr Sheppy.  On that basis, he could do no more than maintain that he would not have made the statements as alleged by Mr Sheppy.

Defendant's treatment of WMC information in September / October 1994

1. In one sense, at least, it is not necessary to determine precisely what happened as between Mr Cooke and Mr Crossley when the WMC information was received by them on behalf of the defendant in August and September 1994.  But it is worth highlighting some aspects of the evidence.  First, it is clear that Mr Cooke never showed to Mr Crossley the two letters and their annexures in their entirety.  At the most, he showed Mr Crossley some assay results or some parts of the annexures to one of the letters.

2. Second, at no time did Mr Crossley, in his capacity as managing director, read the letters in their entirety or call for a report from Mr Cooke or someone else (perhaps a consultant) as to the significance of the information.  Rather, for some unexplained reason, he was left with the impression that the WMC information highlighted only very low grade nickel sulphides at depth.  In this he was wrong and even the most cursory reading of the WMC information would have shown that he was wrong.

3. Thirdly, no steps were taken by the defendant to follow up the WMC information.  If, as Mr Crossley says, he instructed Mr Cooke to arrange for a survey of the McFarlanes Find tenement to establish precisely where the boundary was, that survey was not carried out.  Mr Cooke may have told Mr Crossley that the survey had been carried out, but Mr Crossley did not take any steps to establish what the survey showed and what significance it might have for the defendant.

4. Fourthly, both Mr Cooke and Mr Crossley must have known that WMC had an interest in the McFarlanes Find tenement.  That was disclosed by the fact of the meeting with WMC in October 1994.  There is a danger about reading too much into this meeting.  But it is significant that WMC thought enough of the McFarlanes Find tenement to offer as part of a deal a tenement which they had earlier refused to part with.

5. As I have indicated above, I accept entirely the evidence of Mr Sheppy in relation to his discussions with Mr Cooke.  That being so, I am satisfied that Mr Cooke did not appreciate the significance of the assay results contained in the WMC information.  I also accept that Mr Cooke told Mr Sheppy that he did not appreciate that there had been a boundary shift in the McFarlanes Find tenement.  Why Mr Cooke should have said that is difficult to explain.  The first letter from WMC is essentially all about that boundary shift.  No one who read that letter, let alone an experienced geologist, could fail to appreciate that the boundary had shifted.  Perhaps Mr Cooke had a reason for saying to Mr Sheppy that he did not appreciate the boundary shift and he has now forgotten why he made such a statement.  Or perhaps he did not read the WMC letter.  In the end, it may not make any difference.  In my view, the evidence clearly establishes that Mr Cooke did not appreciate the significance of the WMC information and nor did Mr Crossley.

Conclusions

Would a reasonable person expect if the WMC information were generally available, that it would have a material effect on the price of the defendant's shares?

1. In answering this question, reference must be made back to s 1001D. The information, then, would be expected to have a material effect on the price or value of the securities "if the information would, or would be likely to, influence persons who commonly invest in securities". The place to start then is to decide who would invest in securities.

2. The answer to that question is straightforward.  It was provided by Mr Allen.  It is traders, people who are investing to make a capital gain in the short term.  They are dealing in stocks where trading volumes are limited and where no value can be ascribed to the stock based upon underlying net assets.  In such a market rumour is important and announcements, which for a large corporation would be so insignificant as not to influence the share price, can make a difference.

3. I am satisfied that the WMC information was likely to influence persons who commonly invest in shares such as the defendant's.  I have referred above to the background facts, the canvass against which the WMC information was to be considered.  I will not repeat what I have already said.  It is the assay results and their significance that is, to my mind, important.  Dr Trench really said it all in the passage that I have quoted.  These were significant results.  Of course, they did not establish that there was an economic deposit on the McFarlanes Find tenement.  They did no more than provide a basis for further exploration work.  But they certainly did that and, on that basis alone, they were results which should have been released to the market.

4. That view is confirmed by the fact of the 11 June 1996 announcement.  Mr Harmanis who is not a trained geologist, although he is an experienced mining executive, quickly realised the significance of the WMC information.  Doubtless that is why the release of 11 June 1996 was made.  It may have been the case the announcement was too "bullish".  But that is not the point.  The fact is that the defendant saw fit to release the information.

5. I do not accept that the situation in June 1996 was materially different to the situation the defendant found itself in, in 1994.  It was true that there was a meeting on 7 June 1996 at which cross sections were provided which showed the existence of an EM conductor on WMC's ground.  But as Mr Cooke pointed out, that really said nothing about mineralisation on the defendant's tenements.  Otherwise, although the cross sections provided a pictorial representation of the information, there was nothing provided by WMC which went further or enhanced the WMC information.

6. It is true that the situation of the defendant had changed somewhat by June 1996 to what it was in September / October 1994.  The company had shifted its focus and expressed an intention to look for nickel.  Forrestania had taken an interest in the defendant and provided expertise and working capital.  Market sentiment may have been more favourable for a junior explorer looking for nickel in June 1996 than it was in September / October 1994.

7. But even when all of these matters are taken into account as they must be (see Flavel v Roget 1 ACSR 595), I am not satisfied that the conditions were so different as to warrant disclosure in 1996 but not in 1994. The fact is that as at both dates the defendant was a junior explorer with limited cash resources struggling to establish a worthwhile prospect. I am simply not satisfied that the situation had changed so much in 1996 as to make an announcement then appropriate but not in 1994.

8. It is then to be determined whether the WMC information would be "likely" to influence persons who invest in securities.  In his written closing submissions, counsel for the defendant submitted that "likely" means "probable" not merely "possible": see R v Crabbe (1985) 156 CLR 464; Boughey v The Queen (1986) 161 CLR 10 at 14. That seems to me to be a proper view to adopt when interpreting this section of the Corporations Law.

9. On balance, I am satisfied that release of the WMC information would have been likely to have influenced persons who invested in shares such as the defendant's and consequently the price of the defendant's stock.  By far the most important factor in that conclusion is the fact that when the announcement was made in June 1996, the defendant's shares were affected.  They rose in value.  The announcement and the announcement alone, is the only explanation for the rise in the value of the shares.  Of course, there may have been other factors at play including market sentiment and the state of the stock market generally.  But it simply cannot be a coincidence that the 1996 announcement led to a considerable jump in the value of the defendant's shares.  In one sense, it might be said that release of the information was not "likely" to influence persons who commonly invest in shares but was demonstrated to have done so.

10. Apart from all of that, I place reliance on the opinions of the experts.  I have analysed what each of the experts had to say in some detail and I have given careful weight to all of their evidence.  As I have indicated, on balance, I prefer the evidence of the plaintiff's experts.  It must be acknowledged that when dealing with a hypothetical situation such as this, honest men can reasonably differ in their opinion.  But, on balance, I found the evidence of Mr Le Page and Dr Rudenno more convincing than the evidence of Dr Barnes and Mr Allen.  In particular, Mr Allen, I think, conceded – and conceded quite properly – in his evidence that there was a prospect that an announcement of the information would affect the share price.  That then leads back to an analysis of what happened to the share price after the release on 11 June 1996.  That seems to me to confirm that release of the WMC information was likely to influence persons who invest in securities.

11. The further requirement of s 1001D is that the information should have a "material" effect on the share price. Referring again to the defendant's written submissions, counsel referred to the US Supreme Court decision TSC Industries Inc v Northway Inc (1976) 426 US 438, a case which deals with "materiality". The Court said:

    "There must be a substantial likelihood that the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information available."

12. With respect, I would adopt that formulation.  Applying that test, I am satisfied that a reasonable person would expect the information to have a material effect.  This was good news.  It provided a junior explorer with information about a tenement that was sufficient to interest a major mining house.  Certainly, the defendant was focused on gold exploration but that was not to the exclusion of everything else.  Again, by reference to the effect on the share price of the 11 June 1996 announcement, it can be seen that the expectations of the reasonable person were proved right.

13. This leads on to the issue raised by the defendant as to the nature of the announcement that would have been made by the defendant.  Based upon the evidence of Mr Crossley, it was submitted that if an announcement was made in 1994, it would have had to include a statement that the defendant did not intend to follow up these results with further exploration or evaluation work.  I do not accept that evidence.

14. First, it is clear that in 1994 Mr Crossley did not appreciate the significance of the WMC information.  In fact, he did not even know to any extent what the WMC information contained.  Even as at the date of trial, he seemed uncertain as to the significance of the data.  If he had become aware of its significance, then he may or may not have determined that no further drilling was warranted.  But I am not satisfied that he is in a position now or that he was in a position in 1994, to say that no further exploration work would have been undertaken.  Apart from anything else, if an announcement was made, presumably the board of the defendant would have had to consider what the next step might be.  It is impossible to know what they might have decided.  But I am not satisfied that they would have made an announcement containing negative sentiment.

15. I also do not accept that under the listing rules they would have been obliged to make such a statement.  This was covered by Mr Le Page in his evidence.  It would have been open to the defendant to make a statement in precisely the terms of the 1996 announcement leaving out the last sentence of the third paragraph.  In other words, they could have announced the results in those terms and simply not have given any indication of what the next step might be.  That would have been an appropriate course to adopt (assuming always that the bullish statement in 1996 was appropriate).

16. Thirdly, it is simply not the practice of junior explorers to include negative sentiments when announcing positive results.  As I have indicated, when the suggestion was made to Mr Riley, Mr Le Page and Dr Rudenno that negative statements about future activity by the defendant would have been included in an announcement made in 1994, they were nonplussed.  That is just not the way that junior explorers operate.  They make the sort of announcement that the defendant made in 1996.

17. For all of these reasons, I am satisfied that the defendant was required to disclose the WMC information under the provisions of listing rule 3A and s 1001A(1) of the Corporations Law.

Was the contravention of the disclosure rules negligent?

1. Under s 1001A(2), the section is only contravened (in the circumstances of this case) if the defendant was negligent in failing to notify the ASX of the WMC information. Clearly, negligence in this context means something more than inadvertence or carelessness. In their written submissions, the defendant (at par 43) assumed that the civil standard applied. That is to say the defendant was obliged to take reasonable care to avoid foreseeable risk of injury to persons within the class prescribed by s 1001D. The crucial question, then, is what constitutes reasonable care in all the circumstances.

1. In this case, the circumstances again include all the background facts.  They certainly require proper consideration of the WMC information.  It is then not necessary to go any further.  The fact is that the WMC information did not receive proper consideration.  The person who had direct responsibility for announcements to the ASX was Mr Crossley.  It was he who had to determine whether the WMC information should have formed the basis for an announcement.  In making that decision, he had to bring to bear all of the background knowledge and his own experience.  If he did not understand the WMC information, then he could have called for a detailed report from Mr Cooke or he could have engaged the services of an independent consultant.

2. The simple fact is that he did nothing.  He did not even bother to read the two letters.  In my view, there can be no doubt that he simply did not take sufficient care.  It was always foreseeable that if the WMC information was such as to have an effect on the market, then it could lead to investors suffering loss.  In my view, Mr Crossley and through him the defendant, were clearly negligent.

Damages

1. The claim for damages made is, as indicated above, in two parts.  First, there are the fully paid shares.  In my view, if an announcement had of been made in September / October 1994, then the shares would have been sold for a price 3 cents higher than the actual sale price.  The reason why I have settled on an amount of 3 cents requires some explanation.  Mr Le Page, in his evidence, analysed the fluctuation in the defendant's share price after the June 1996 announcement.  Applying a 10 day moving average, he found an increase of 9 per cent.  As at early October 1994, the defendant's share price was hovering around 30 cents.  (It was, in fact, between 33 cents and 35 cents in the first week of October, but it is reasonable to assume that an announcement would not have been made until the end of that week.  Thereafter, for the rest of October, the share price was near enough to 30 cents.)  Nine per cent then, is near enough to 3 cents.

2. Of a total number of 797,000 fully paid shares 521,000 were sold after September 1994.  That means, then, in my view, that the plaintiff would have received an amount of $15,630 more for its shares than it actually did receive.  There is the prospect that the plaintiff might not have sold all the shares at the height of the market or that the addition of another 521,000 shares might have had an adverse effect on the overall sale price.  However, neither of these two contingencies seem to me to be of great significance.  I would, however, apply a discount of 10 per cent to allow for these contingencies and round out this aspect of the claim at $14,000.

3. That then leaves the question of the partly paid shares.  The prime question is this – would the plaintiff have retained these shares until September 1997?  On this point, I accept the evidence of Mr Riley.  As I have indicated, I found him a witness of truth.  I acknowledge that Mr Riley did take an extended period of time to effect improvements upon his house suggesting a lifestyle choice which may have led him to dispose of his shares even if the WMC information had been released.  But, on balance, I am satisfied that the plaintiff would have retained the shares as alleged.

4. The method of assessing damages when dealing with hypothetical events has been the subject of a number of cases, in particular, David Securities Pty Ltd v Commonwealth Bank of Australia (1990) 93 ALR 271 and Adelaide Petroleum NL v Poseidon Ltd (1990) 98 ALR 431. (The Adelaide Petroleum decision (supra) to which I have referred is the decision of French J at first instance.  His Honour's approach was approved both in the Full Federal Court and in the High Court.)  In David Securities (supra), the Full Court of the Federal Court said (at 295):

   "… as senior counsel for the third respondents emphasised in his submissions on the present appeal, it was for the appellants to establish at the trial that on the balance of probabilities there was a real chance that if the third respondents had performed their duties to the appellants and had not been guilty of the breach of contract and breach of duty in tort, as was found against them, the appellants would have taken steps to avoid the loss allegedly sustained by them."

5. Applying that reasoning to this case, I am satisfied that on the balance of probabilities, there was a real chance that had the defendant released the WMC information and had they not been guilty of negligence in failing to release that information, then the plaintiff would have held on to the partly paid shares and would have sold them in September 1997.

6. It is then a matter of assessing the contingencies to be taken into account in relation to the loss of benefit that would have accrued to the plaintiff if the shares had been retained.  It was after all asking a lot of the plaintiff to retain these shares for a period of three years after the making of the initial announcement.  There is no way of knowing just what the defendant would have done if the announcement had been made.  As I have indicated, I am not satisfied that it can be said that it would have done nothing – no follow up drilling or no further work attempting to establish whether or not nickel deposits with a commercial value existed on the McFarlanes Find tenement.

7. In opening, counsel for the plaintiff maintained that it could be assumed that further work would have been done.  I can see no basis on which that assumption can be made.  In my view, it is a matter of looking at the evidence and conducting a discounting exercise that, as French J said in the Adelaide Petroleum case (supra) (at 532), "is fundamentally of a qualitative nature".  Taking into account the fact that there was three years between the date I have found the WMC information should have been released and the jump in the share price to $1.40, I would apply a discount of 20 per cent.

8. Before applying that discount, it is necessary to decide on a figure at which the shares might have been sold.  I am satisfied that an amount of $1 per share is a reasonable figure to adopt.  I have settled on that figure for a number of reasons.  First, as Mr Allen said, the plaintiff would have had to have been extremely fortunate to have sold its entire shareholding at $1.40 – around the peak of the market.  In fact, that closing price was only achieved on one day, that being 5 September 1997.  During that day, the market fluctuated between $1.30 and $1.52.  The next day (8 September) it fluctuated between $1.52 and 79 cents.  In fact, from 4 September to the end of that month, the closing price was closer to $1 than it was to $1.40.  Moreover, the plaintiff was selling 2,625,000 shares, a not inconsiderable number even allowing for the turnover at the relevant time.

9. That would mean, then, that the value of the shares sold I would put at $2,625,000.

10. From this amount certain deductions must be made.  It cost the plaintiff $60,000 to convert 1,500,000 partly paid shares into fully paid shares.  It would have cost $67,500 to convert 1,125,000 partly paid shares into fully paid shares.  (These shares were not actually converted.  They were sold by agreement with the defendant without conversion: see par 40 of the witness statement of Mrs Riley and the Deed of Settlement trial bundle page 1361.)  That is a total of $127,500.  In addition, on the sale of the shares the plaintiff received $195,000.  (That amount includes $45,000 received by the plaintiff for the shares disposed of by agreement with the defendant which I have referred to above.)  That is a total receipt then by the plaintiff of an amount of $322,500.  That is to be deducted from the amount of $2,625,000, leaving a balance of $2,302,500.  To that figure is to be applied the 20 per cent discount for contingencies which I have referred to above.  That gives an amount of $1,842,000.

11. In reaching that figure, I have not taken into account stamp duty or the brokerage incurred on sale of the shares.  Given that I have applied a significant discount for contingencies and that I have adopted a discounted figure for the sale value of each share, I am not satisfied that any further discount is warranted.  I am mindful that assessing damages in circumstances such as this is not an exact science and that it is a matter of doing the best with the information available.

12. In total then, I have assessed the plaintiff's damages at $1,856,000.  There will be judgment for the plaintiff in that amount.  Doubtless the plaintiff will seek interest on the judgment.  The question of interest was not the subject of any submissions by the parties and I will hear further argument on that issue.

Postscript

1. I commenced these reasons by setting out some of the difficulties facing a junior explorer.  One of those difficulties is a lack of personnel and resources to undertake the day to day tasks expected of a listed company.  But every listed company is subject to the same disclosure requirements.  These reporting requirements are one of the obligations imposed in exchange for the benefits of being listed.  Particularly in an area of the market where rumour is rife, material information must be disclosed.

2. In reaching the conclusion that I have in this case, I have not been unmindful of the implications of the decision for listed junior explorers.  It is one thing for a Master sitting in Court for three weeks with the benefit of numerous expert witnesses and 12 years after the event to make a judgment that certain information should have been disclosed.  It is quite another for an under‑resourced cash poor junior explorer to reach the same conclusion in the course of its day to day operations.  The last thing that junior explorers need is to think that they must spend time and money obtaining expert geological and legal advice on whether or not information ought be released to the market.  That is not the thrust of this decision.  What is important is that material information should be released.  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.

3. During the course of his submissions, counsel for the defendant suggested that if all companies released information they held even if they thought it was of limited significance, the ASX would be swamped and the whole exercise would be counter‑productive.  While I doubt there is much chance of that occurring, it remains the case that the present rules aim for full disclosure and that is what should be made.  If the ASX comes to the conclusion that irrelevant information is being released by over‑cautious corporations, it can take whatever steps are necessary to remedy the position.

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