Riley v Jubilee Mines Nl

[2009] HCATrans 168

[2009] HCATrans 168

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P7 of 2009

B e t w e e n -

KIM RILEY IN HIS CAPACITY AS TRUSTEE OF THE KER TRUST

Applicant

and

JUBILEE MINES NL (ACN 009 219 809)

Respondent

Application for special leave to appeal

FRENCH CJ
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO PERTH

ON FRIDAY, 31 JULY 2009, AT 10.56 AM

Copyright in the High Court of Australia

MR B.W. WALKER, QC:   May it please the Court, I appear with my learned friend MR N.J. OWENS, for the applicant.  (instructed by Slater & Gordon) 

MR M.J. McCUSKER, QC:   May it please the Court, I appear with my learned friend, MS A.M. LISCIA, for the respondent.  (instructed by Smyth & Thomas)

FRENCH CJ:   Mr Walker.

MR WALKER:   Your Honours, an appropriate setting for what we submit is the force of our claims for special leave can be given by the retrospective view of matters on behalf of Jubilee that you find in the first of the documents behind the tab marked “Evidence at Trial” in the applicant’s supplementary book of documents, that is the third tab.  On pages 9 and 10 of that supplementary bundle Jubilee’s then managing director is responding to what might be called a requisition from the stock exchange concerning a failure to have provided the very results in question. 

This is a document of mixed quality for us.  We readily concede there are matters of exculpation advanced by Mr Harmanis which obviously support the way in which our learned friends successfully put the matter below.  But we wish to draw to attention on page 10 matters which really cannot be avoided in an appreciation of the nature of the information in question.  In particular, in item 3 on page 10 about halfway down the page there is a reference to a later conclusion:

that the information was significant and should be reported to the market as soon as possible.  The significant turning point for the Company –

that is Jubilee –

was that it was now clear –

that is in 1996 –

that the mineralised sequence dipped into the eastern portion of Jubilee’s tenement and that the potential was considerable.

Your Honours may be familiar from earlier material to the significance between the eastern and western portions.  But then follows this sentence:

Perhaps in retrospect Jubilee could have come to this conclusion earlier.

Then following item 4, in seeking to ‑ ‑ ‑

FRENCH CJ:   Sorry, is that a conclusion about the inferences about mineralisation to be drawn from the earlier reports?

MR WALKER:   Yes.  That which was significant or constituted the significant turning point is something which, perhaps in retrospect, Jubilee could have come to earlier.  Then following item 4, in seeking to reassure or placate the requisitioner, Mr Harmanis says:

In summary obviously had Jubilee been aware of the significance –

that is the significance that perhaps in retrospect they could have come to earlier –

(or in possession of information which enabled it to appreciate the significance) at an earlier time it would have made an announcement at that time.

Now, that is without qualification and I say without qualification because, if I were to take your Honours, please, application book page 140 paragraph 90, the Chief Justice’s reasons very largely turned against us on the main point by what became known in argument and in reasons as a necessary qualification to an hypothesised announcement in 1994.

FRENCH CJ:   That is, that they were not going to do anything.

MR WALKER:   Namely, that they, the Company, in its then state of intention, would not be exploring.

FRENCH CJ:   There had been a change of circumstance in 1996 in terms of the funding of the company.

MR WALKER:   Yes, a commercial change of circumstance as well as what I will call a prospectivity change. 

CRENNAN J:   Part of the Chief Justice’s reasoning, though, seemed to turn on a different view of the facts, particularly in relation to Mr Crossley, that is to say, a different view taken by the Master.

MR WALKER:   Yes, although, with respect, there is no demonstration in the Chief Justice’s reasons of any error by the Master in coming to the conclusions he did.  It really is a matter of differences concerning inferences to be drawn from findings made.

CRENNAN J:   if you look at 144 paragraph 107 where the Chief Justice is dealing with Mr Crossley’s evidence, he suggested that it was “difficult to see any plausible basis upon which” the Master could have concluded as  he had.

MR WALKER:   Yes, and Justice McLure, of course, disagrees with the Chief Justice on that point.

CRENNAN J:   On that point.  Does that not indicate a difficulty with this being a vehicle for the point even if one accepts that it is a point of general public importance, that is to say, the point about whether or not there is an obligation in a continuous disclosure regime to disclose information despite not appreciating the significance of the information?

MR WALKER:   I hope not and for this reason.  It is not just an adventitious or incidental but important matter of fact about which there is this, as it were, embarrassing particularity that removes this case from a grant of special leave in paragraph 107.  It is inferential reasoning on the very point we seek to raise because the Chief Justice, in effect, says the failure properly to appreciate the significance of the data later understood nonetheless remains the factual reason why the qualification would have been expressed.  The Master and Justice McLure point out, no, the premise for the failure to explore was the inability to have appreciated that it was worth exploring.  Once one destroys that premise, then the notion that there had to be a qualification, which would have been a very odd announcement, is ‑ ‑ ‑

CRENNAN J:   I think, though, as the Chief Justice suggested, there was a concatenation of circumstances in relation to the earlier position which included not having funding, not concentrating on nickel or matters of that sort.

MR WALKER:   It is one thing to say we cannot explore, it is another thing to say, even if we could, we will not. 

CRENNAN J:   That gave rise to a suggestion, though, in the evidence, did it not, that if we were to have disclosed, we would have also have had to have disclosed we had no intention of pursuing the matter?

MR WALKER:   Your Honour, that, in our submission, was surplusage to what the Act required to be determined.  The market is to obtain the information for a number of reasons but classically in order to understand, for example, whether a presently undercapitalised company should be the subject of more capital, for example.  The notion that a miner, a junior miner, can release what might be promising, even just speculatively promising results ‑ ‑ ‑

FRENCH CJ:   The Master seemed to have some general views about what junior miners do in this respect.

MR WALKER:   Yes.  I do not want to treat them in a zoological sense, but clearly speculation is an important part of whether they are permitted to be listed and speculation ought to be based upon information and, in our submission, the facts that a miner may not have the funds to deal with what I will call a prospect, heightens rather than reduces the necessity for the market to be told about the prospect, not least because the market is one of the ways, of course, in which funding shortfalls can be addressed.

The notion that this information should be kept from people who might regard it as appropriate therefore to buy in, even obtain control, so as to supply the funding that the present controllers do not wish to advance in their own set of priorities, is central to the notion of a properly informed market. furthermore, if there is social function to be discerned in it, to an efficiently performing market.

FRENCH CJ:   How did Mr Crossley actually get the information?  He had not read the two letters, had he?

MR WALKER:   No.  Mr Crossley relied very heavily on Mr Cooke.

FRENCH CJ:   Yes, I know.

MR WALKER:   WMC had provided data which, after the event, arguably with the assistance of other material ‑ ‑ ‑

FRENCH CJ:   This is in the letters of 1994?

MR WALKER:   Yes.  Enabled one to regard this as very significant information for a company in this position.  That much, in our submission, seems to be beyond dispute.  That is why I opened with what Mr Harmanis wrote about it with all that had happened since 1994.  That is why paragraph 107 and related matters of difference between the Chief Justice and Justice McLure ought not to deter your Honours from a grant of special leave.  Rather, they make this an admirably plain vehicle to examine the very important question, should what may be mistaken or, as the Chief Justice himself put it in paragraph 90, flawed reasons or responses by the company possessing information dispense the company from releasing to the market for the consideration by people who may not have the same mistaken view, who may not commit the same flaws in reasoning, the very kind of information upon the basis of which, if you like, the arbitrage of differential perception of a company’s prospects, which is the market of buyers and sellers, can take place in an appropriately informed manner?

FRENCH CJ:   It almost invites a suggestion that the company is obliged to release to the market what it does not think is material on the possibility that somebody else might think it is.  I know that is not the words of the section.

MR WALKER:   Neither the section nor our argument goes that far.  What the section does not do, in our submission, and what any purposive approach to either the present section or the section as it then stood should make clear is this.  The obligation to disclose must ultimately be posited on the objective quality of the information, that the obligation does not decline or indeed disappear as people in control of a company are seen to be dull or unperceptive.  That, in our submission, is an invitation to all manner of subterfuge and inappropriate market practices.  “I was too stupid to see this matter upon the basis of which, oh my goodness, I seem to have made millions of dollars out of what happened later”, that, in our submission, is a prospect that anybody seeking to administer this law according to its ordinary meaning would abominate.

That, of course, is far more extreme a position than anything that arises in this case, but the point at issue in this case very directly raises, in a way that has continuing currency bearing in mind what we have pointed out about subsection 674(2B) of the Corporations Act which has reasonable steps being required of people, which stands very similar to the negligence that was in the form of the section in question.  What all of that makes very important is an understanding of the extent to which flawed or mistaken views about the significance of information will dispense the holder of that information from the obligation, as we would put it, to allows others – participants in the market – to evaluate for themselves perhaps free of mistakes and flaws, the worth of that information so far as it reflects on the prospects of the company.

That, in our submission, is a choice raised by wording, which I stress continues to have current application, which in our submission, has simply not been addressed by this Court analogously or indirectly in any way that is useful for guidance in future cases.  The reasoning in the Court of Appeal, of course there was a decision and there is a ratio, but the reasoning in the Court of Appeal includes that of Justice McLure, who with great respect, on this point powerfully indicates the merits of the argument for which we contend.  Now, that is the passage that your Honours will have picked up starting on page 166 in the application book, paragraph 187 through to page 168, paragraph 191.  In particular, in paragraphs 189 and 190, and I focus on 190 on page 167, there is the endorsement by her Honour of the Master’s conclusion that:

the finding as to the appellant’s lack of awareness of the true significance of the WMC information undermined the appellant’s evidence (which was not accepted) that it would not have conducted further exploration drilling on the tenement.

In our submission, there is an essential inconsistency between the premise as to significance of the information which leads to the Chief Justice considering an announcement, and the assumption that because of the actual failure to appreciate significance that that announcement would need to be accompanied by what might be called an “antidote” in the terms of the company having no intention to explore.  That, in our submission, is not a factual matter that makes this inappropriate for special leave, it focuses the facts of this matter, this specific case, very directly and completely on the matter of principle that we seek to raise.  Your Honours, those are the reasons why there should be a grant of special leave.

FRENCH CJ:   Thank you, Mr Walker.  Yes, Mr McCusker.

MR McCUSKER:   May it please your Honours, my learned friend referred to there being serious flaws, I think, flawed or unreasonable.  The first thing to consider is, what was meant in the context by what Mr Cooke understood the information to say, and it was common ground and never in dispute that his view, which was correct, was that the data had potential relevance to further exploration and that was the sole significance as found by the Master of the WMC letters.  They provided some basis for potential further exploration, but they did not of themselves, the data, suggest any commercial, viable nickel deposit on a tenement.

Your Honour referred to the concatenation of circumstances.  As at August 1994 the position of the company, as you have no doubt seen, was that it was in dire straits financially, it was trying to raise funds for the purpose of acquiring a gold mine at Boddington, which ultimately it failed to do.  It had no funds available for exploration for nickel, was not interested in nickel, and the tenement on which this inadvertent drilling by WMC had taken place was not a tenement acquired for the purpose of nickel exploration.  The view, that is, the assessment by Mr Cooke was not a flawed assessment, he was correct.  The retrospective view urged upon you by my learned friend, Mr Walker, was a retrospective view which was not shared by Mr Cooke, as he said in his evidence.  He was proved to be right, of course, because ultimately when drilling did take place following that announcement by the company under the new management of Mr Harmanis, it was found there was not anything of any commercial significance and the impact of the results of the drilling was zero.  So that is the first thing to really appreciate, that when it was ‑ ‑ ‑

FRENCH CJ:   That outcome does not affect the scope of the duty, does it?

MR McCUSKER:   No, it does not, your Honour, but the duty was a duty under the statute to make a disclosure of not one simple matter which was positive, although the Master said, apparently based on some cynical view or experience, that junior explorers do not commonly release negative information, nevertheless the duty of a company is to release all relevant information, so the company made an assessment which was not challenged, that this was of no commercial value, it was low‑grade and at great depth.  On that basis, Mr Cooke made, what her Honour Justice McLure said was a reasonable assessment, it could not be said to be unreasonable, and that it did not warrant expenditure of the meagre funds of the company on drilling exploration for nickel.

The evidence at the trial was that when it was put to the experts, who were called for the present applicant, what if an announcement had been made which gave all of the picture and not simply confined to the results as portrayed in the WMC letters, all the experts said, in effect that would not have had any effect, it would not have been of any importance to investors because they would look at the whole picture and see that there really was not anything of any value.  Disclosure is an important matter and the Chief Justice made a point of that of course, in his reasons.

My learned friend has not touched on the question of negligence, and of course negligence was an issue which was dealt with by Justice McLure who found that there was not negligence, it was a matter raised on the appeal because the Master considered that there was negligence in the nondisclosure.  The other two justices in the Court of Appeal found it unnecessary to deal with the question of negligence, but the question of negligence is one which is not longer a live issue, that is not longer in its statutory terms a live issue currently because the statute has been amended as we pointed out.  Section 674(2B) has replaced what was the provision relating to negligence and says that:

A person does not contravene subsection (2A) if the person proves they:

(a)took all [reasonable] steps . . . 

(b)after doing so, believed on reasonable grounds –

There is a different statutory regime which the resolution of this issue of negligence which will still be before this Court if the application for leave is granted, will not resolve any current issue under the statute because it is a different provision entirely.  My learned friend has not touched on the question of damages.  The question of damages was dealt with very briefly in the court below by Chief Justice Martin, not by Justice McLure who saw no reason to deal with it, but the question of damages is a very important one, and was in the trial.  The evidence was that if there had been an announcement in 1994 there would not have been any follow‑up drilling.

If the company had announced what appeared in the WMC letters and said, it is a great depth, low grade and does not indicate a commercial mine, if it announced all of that and said, therefore we do not propose to drill, then Mr Riley conceded he would have sold his shares and would therefore have not held the shares until, fortuitously, the time he says, when the company, Jubilee, made a nickel discovery remote from its present tenement called Cosmos which considerably boosted the price of the shares.  He conceded he would not have held them all that time, he would have sold the shares as he did because there would have been nothing in the announcement then made to have caused him to hang on.  He was selling the shares because he needed the money for his living expenses, he said.

An alternative possibility, of course, was that the company made the announcement but did not say that it was not proposing to carry out exploratory drilling.  It just did not say anything about that.  Again Mr Riley, when questioned on this, said, well, after a period had elapsed and nothing had happened he would have proceeded to sell his shares.  A third possibility, theoretically, although not based on the evidence, was that Jubilee would have, in fact, done what they did in 1996 and that is drill another hole and find there was nothing of any value and did not drill any further holes.  Again, when that was put to Mr Riley, he said he would have sold shares had that occurred.

So they are the only three realistic possibilities, the third one being theoretical rather than based on evidence because there would not have been any drilling on the basis of Mr Cooke’s and Mr Crossley’s evidence.  In every one of those cases Mr Riley conceded that in those events he would not have sold his shares, therefore, he could not recover the damages.  The Chief Justice dealt with that very briefly, and very briefly, indeed, in fact, in two paragraphs, but said his conclusion was that the most Mr Riley might have claimed, given all those scenarios, a $14,000 loss, which is quite insignificant compared with the award of damages made. 

So, your Honours, for those reasons we say first there is nothing of particular importance about this matter to warrant the grant of special leave.  Second, there are issues of fact which would certainly have to be traversed in considerable detail.  The issue of damages and the issue of negligence are two matters which would certainly need to be resolved and they were not dealt with.  The issue of negligence is not dealt with by, other than

Justice McLure, the issue of damages dealt with not by Justice McLure, but with the other two justices.

The overall position, when one looks at, is such that it would be an extraordinary outcome if the applicant were to have recovered damages, as he did at first instance, on the basis of the nondisclosure by the company of information of this nature on the assumption that it was only disclosed if it made the announcement, good tidings and not the other circumstances which would result, of course, in a totally negative or neutral outcome so far as investors were concerned.  May it please your Honours, they are our submissions.

FRENCH CJ:   Thank you, Mr McCusker.  Mr Walker.

MR WALKER:   Your Honours, as to the last point, the law does not and should not produce an outcome to the effect that there is information which ought to be disclosed but it ought to be disclosed in such a way that it does not have the quality which means that it ought to have been disclosed.  That is the problem with the shift from the premise that the information had significance requiring disclosure to nonetheless continue to embrace the flawed appreciation of its significance as producing no intention to explore.  It has the absurd effect of saying that you have to disclose this information because it has significance, but you have to disclose it accompanied by a statement which deprives it of significance, that is, of any pricing materiality.  That is not how this law is intended to operate.

CRENNAN J:   What about Mr McCusker’s points which seem to me to go to the suitability of this case as a vehicle in which to ventilate the question of principle and that is the issues of negligence and damages?

MR WALKER:   Yes.  May I address them slightly sideways?

CRENNAN J:   Yes.

MR WALKER:   I want to come with two references that my friend went to, or that we were going to answer my friend, in order to put a context for that.  Even the Chief Justice, application book page 133, paragraph 66, last two sentences:

the drilling data suggested . . . future exploration potential. 

As my friend correctly says, with respect, that is common ground –

room for differing views . . . could not be said to have been insufficiently definite to warrant disclosure. 

Now, that is disclosure because a reasonable person might expect would have materiality for price.

CRENNAN J:   Materiality.

MR WALKER:   Page 141 in paragraph 94, the Chief Justice uses the lack of appreciation of “the significance of the information” – see the last two sentences – which he finds and which is important to our case, of course, but then says that:

leads inevitably to the conclusion that, as a matter of fact, Jubilee had no intention of undertaking exploratory drilling –

In our submission, Justice McLure’s answer to that is convincing.  Once one reverses, that is, supposes that it is no answer to a disclosure obligation to say, “I did not know it was important”, then it is absolutely no answer to say, “But if I had disclosed it, I would have added a rider based on the fact that I did not think it had to be disclosed at all”.  That, in our submission, is the contradiction in terms, the inconsistency correctly identified by Justice McLure and it means that these matters of fact are right at the heart of the issue of principle.

Your Honours, in relation to negligence, that would arise, I suppose, were special leave to be granted, as a contention on the part of the respondent to the appeal.  The difficulty that we have identified with the negligence point is that Justice McLure dealt with that in a passage which, in effect, has the outcome that there cannot be negligent disclosure by a corporation if the corporation has operating people ‑ ‑ ‑

FRENCH CJ:   Negligent nondisclosure.

MR WALKER:   There cannot be negligent nondisclosure, I am so sorry – if the people that the company deploys to consider the material do not have the capacity to appreciate its significance.  It would not be negligent for a person who cannot appreciate the significance of something because they cannot do cross‑sections or electromagnetic analyses or whatever.  It would not be negligent because they would be judged by their relevant standards.  It is corporation’s negligence in not disclosing.  It is not the officer’s negligence in failing to appreciate some loose‑leaf material and her Honour has asked the wrong question of the wrong party. 

That is our answer to the negligence point, which is not ratio against us.  It would need to be put up against us in a notice of contention.  That is our answer about negligence.  It does not remove this case as an appropriate grant of special leave.  Again, it focuses on the need to understand the

statute as it applies to the actions of a corporation which includes but is not exhaustively stated by reference to one of its employees.

As to damages, at page 150 of the application book in paragraph 129 one finds the sum total of the learned Chief Justice’s dealing with this matter.  In our submission, that cannot, with respect, seriously be seen as an expression of judicial reasons for upholding an appeal on damages.  His Honour himself says that the scenario essential to an appreciation of the view of damages “is not appropriately addressed in detail in this judgment”.  It is not addressed at all in the succeeding sentence which simply says that “would nevertheless have upheld Jubilee’s challenge”.

That scenario, which is different, is the very thing which divided Justice McLure and the Chief Justice.  So it is instructive to see at page 170 in paragraph 197 how Justice McLure referred to the damages issue.  As my learned friend says, her Honour did not deal with it.  However, she does say of it:

The appellant’s causation submissions are based on the assumption that any breach of duty to disclose in 1994 had no relevant causal connection with its intention not to conduct any further exploratory drilling on the tenement.

So the damages question too comes down to what we identify as this central, flawed and logical problem of the company being able to dispense with a duty and break a chain of causation by saying we did not appreciate the significance and therefore we had no intention to explore.

FRENCH CJ:   Thank you.  The Court will adjourn briefly to consider the matter.

AT 11.28 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.33 AM:

FRENCH CJ:   This application concerns the interpretation of provisions of the Corporations Law mandating disclosure of information to the Australian Stock Exchange by a publicly listed company.  While the question of whether a company must disclose information even if it does not appreciate its significance might be said to be a question of general public importance, the extent to which this case turned on its facts means that it is not a suitable vehicle for a grant of special leave. 

Special leave will be refused. 

MR McCUSKER:   If it please the Court, I ask for an order for costs.

FRENCH CJ:   Yes.  Can you resist that, Mr Walker?

MR WALKER:   No.

FRENCH CJ:   Yes.  There will be an order for costs accordingly.

MR WALKER:   If it please the Court.

MR McCUSKER:   Thank you, your Honour.

FRENCH CJ:   The Court will now adjourn briefly to reconstitute.

AT 11.34 AM THE MATTER WAS CONCLUDED