R v Firns: A Case Study on Director Duties and Insider Trading

This presentation examines the case of R v Firns, which focuses on director duties and the issue of insider trading. It discusses the background of the case, the breach of director duties, and the judgement. The relevance of the case in establishing insider trading claims in Australia is also highlighted.

Commercial and
Corporations
Law
R V FIRNS [2001] NSWCCA 191

Introduction
 Directors are expected to make sure that they
comply with duties given under the
Corporations Act 2001 (Cth) (CA).
 Since directors have access to crucial
information about the company, they should
avoid using such information to engage in
insider trading.
 R v Firns is a relevant case in which the issue of
insider trading was raised.
 This case will be evaluated to understand the
role of director duties.

Case Background
 Carpenter Pacific Resources NL (Carpenter) was
an Australia-based mining company that owned
exploration licenses in Papua New Guinea
(PNG).
 The company was listed on the Australian
Securities Exchange (ASX) and it was managed
by two directors.
 One of the subsidiary of the company, Matu
Mining Pty Ltd (Matu) applied to receive
exploration license in PNG (Austlii, 2001).

Case Background
 The new regulations implemented by the government
restricted Matu’s exploration license.
 The company filed a lawsuit and the judgement of Supreme
Court was given in favour of the company.
 Ron Firns was a director of Carpenters and he was present
at the court when the Supreme Court provided its decision
in favour of Matu (Wolters Kluwer, 2001).

Case Background
 Firns called his son to purchase shares of
Carpenters and he purchased the shares under
his wife’s maiden name.
 The judgement was given on 9:30 a.m. on July
28, 1995 and Firns made the call at 10:08 a.m.
the same day.
 The shares were sold after a few days at a high
profit by Firns in which the issue of insider
trading was raised (Dutt and Sawyer, 2011).

Breach of Director Duties
 A lawsuit was filed in which it was claimed that
Firns has violated his duties as a director under
section 1002G (now given under section
1043A).
 The issue was whether the information shared
by him was considered as “generally available”
under section 1002B (now given under section
1042C).
 Section 1043A provides that a person should
not use any information which is not generally
available or which could have a material impact
on share prices (Legislation, 2001).

Breach of Director Duties
 Section 1042C provides that an information is
considered as generally available when it is
“readily observable manner” or reasonable time
has elapsed or it is made known to the world.
 It was argued that Firns used the information in
order to purchase the shares through his son
which constitute as insider trading (Austlii,
2001).
 Along with insider trading, directors are also
obligated to comply with various general duties.

Breach of Director Duties
 Section 180 provides that they should maintain
a degree of care and diligence when they use
their power and discharge their duties.
 Section 181 provides that directors should act
in good faith when they are taking business
decisions (AICD, 2019).
 They should not take any actions that prioritise
their personal benefits above the interest of the
organisation or its members.

Judgement
 In the first instance, Firns was found guilty of
violating its duties; however, the charges of
insider trading were removed by the court in
the appeal.
 The court provided that the judgement of the
Supreme Court of PNG comes under the
definition of “readily observable matter”.
 The information was considered as generally
available under section 1042C (Wolters Kluwer,
2001).

Judgement
 The court provided that there is difference
between information being readily available and
readily observable.
 Information can be readily available but not
observable by the shareholder and trading on
such information did not constitute as insider
trading.
 However, such decision might not prevail today
since the objective of Firns was to gain unfair
profit that violated section 180 and 181
(Lexology, 2015).

Relevance of the Case
 This is a relevant judgment since it provided
provisions regarding establishment of insider
trading claims in Australia.
 In this case, the court clearly defined that
information made generally available outside
Australia is considered as readily observable
matter (Dutt and Sawyer, 2011).
 It is possible that information is not observable
by shareholders; however, it still constitute as
generally available information.

Relevance of the Case
 However, the laws have become stricter in
Australia regarding director duties.
 The actions of Firns would have hold him liable
for violating section 180 and 181.
 He did not maintained a degree of care and
diligence and he make this decision to gain
profits for himself while harming the company
due to which he violated director duties
(Marshall and Ramsay, 2012).

Conclusion
 It is excepted from directors that they will not
use the confidential information with an
objective to purchase or sell shares of the
company.
 However, the use of generally available
information is valid, and they did not breach
their duties while using such information.
 They should also maintain a degree of care and
diligence and they should also act in good faith
to protect the interest of the company and its
members.

References
 AICD. (2019) General duties of directors. [PDF] Available at:
https://aicd.companydirectors.com.au/-/media/cd2/resources/director-
resources/director-tools/pdf/05446-6-2-duties-directors_general-duties-
directors_a4-web.ashx [Accessed 19/05/2019].
 Austlii. (2001) R v Firns [2001] NSWCCA 191 (21 May 2001). [Online] Available
at:
http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/nsw/NSWCCA/2001/191.ht
ml [Accessed 19/05/2019].
 Datt, K. and Sawyer, A. (2011) Listed Corporations and Disclosure: Australia and
New Zealand: A Contrasting Yet Convergering Dynamic. eJTR, 9, p.38.
 Legislation. (2001) Corporations Act 2001. [Online] Available at:
https://www.legislation.gov.au/Details/C2018C00031 [Accessed 19/05/2019].
 Lexology. (2015) Directors’ Duties. [Online] Available at:
https://www.lexology.com/library/detail.aspx?g=7d705ffd-b15d-44af-9be3-
cbda3462436a [Accessed 19/05/2019].
 Marshall, S. and Ramsay, I. (2012) Stakeholders and directors' duties: Law,
theory and evidence. UNSWLJ, 35, p.291.
 Wolters Kluwer. (2001) R v FIRNS, Court of Criminal Appeal (New South Wales),
21 May 2001. [Online] Available at:
https://iknow.cch.com.au/document/atagUio379444sl10452973/r-v-firns
[Accessed 19/05/2019].