An analysis of case involving director duties in the Corporations Act, 2001 (Cth)

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May 11, 2018 [Jubilee Mines NL v Riley [2009] WASCA 62] 2018 Holmes University (Student Details: ) [Jubilee Mines NL v Riley [2009] WASCA 62] An analysis of case involving director duties Introduction The Corporations Act, 2001 (Cth) is the most important legislation for any company in Australia. This discussion is mainly focused on the application of director duties as had been found in the case of Jubilee Mines NL v Riley [2009] WAS

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[Jubilee Mines NL v Riley [2009] WASCA 62]
An analysis of case involving director duties
2018
Holmes University
(Student Details: )

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May 11, 2018 [Jubilee Mines NL v Riley [2009] WASCA 62]
Introduction
The Corporations Act, 2001 (Cth) is the most important legislation for any company in Australia.
This legislation covers nearly all the aspects of the companies and sets out basic guidelines on
how the companies are to be managed. One of key aspects given under the quoted legislation is
the director duties. These duties have been set out under Part 2D.1 of this legislation (Williams,
Bingham and Shimeld, 2015). The director duties cover duty of good faith, use of position and
use of information, amongst the other duties. Where these duties are not followed by the
directors or the officers on whom these duties are levied, both civil and criminal liabilities can be
raised for the breaching person, depending upon the particular section being contravened
(Latimer, 2016). This legislation not only offers punishments but also puts forth defences where
the spirit of quoted legislation is followed, along with the words of the law. This discussion is
mainly focused on the application of director duties as had been found in the case of Jubilee
Mines NL v Riley [2009] WASCA 62. This was a case which covered the questions being raised
on the directors having fulfilled the duties imposed on them through the Corporations Act, along
with other matters.
Holmes University | / Introduction 2
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May 11, 2018 [Jubilee Mines NL v Riley [2009] WASCA 62]
Background of Jubilee Mines NL v Riley
Riley was a shareholder and a director of Jubilee Company, which was basically a small listed
gold exploration company (Duffy, 2012). Even though he had resigned from the post of director
in 1993, he continued to be a shareholder of the company. During the mid part of 1994, presence
of nickel was identified while drilling was being done on a Jubilee tenement. The managing
director and geologist of the company made a decision that the company would carry out no
further exploration at this particular tenement of company as the focus of the company was on
the gold related activities only. This was done without the co-directors of company being
informed or the ASX being informed of this decision, despite nickel having being found at this
tenement (Lavan, 2009).
The disclosure of drilling results was made after some years to the ASX. By that time, Riley had
sold off his shares ignoring the nickel data. He then claimed to have suffered damages as a result
of the company being in contravention of the continuous disclosure requirements with regards to
this nickel discovery. It was contended by Riley that even though the results of drilling did not
highlight or present commercially significant nickel resource. He claimed that only the resulted
had been indicated in the results but there was a lack of potential for a further exploration of
nickel being stated. This led to his claims in the court, which initially were presented before the
trial court and later on were appealed (Lavan, 2009). This involved contentions being raised
against directors for breaching their director duties, for not carrying out the proper disclosures
(CCH Australia, 2009).
Holmes University | / Introduction 3
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May 11, 2018 [Jubilee Mines NL v Riley [2009] WASCA 62]
Duties breached and reasons for it
The Corporations Act imposes some duties on the directors of all the companies working or
having its operations in Australia. Section 180 of this legislation provides that the directors are
required to fulfil the civil obligations of care and diligence in carrying out their duties and
powers, as a reasonable person would. Section 181 of this legislation provides that the directors
are required to fulfil the civil obligations of good faith, proper purpose and best interest of the
company. Section 182 of this legislation provides that the directors are required to fulfil the civil
obligations of using the position held by them in the company for proper purpose and in a
manner which does not cause any detriment to the company. Section 183 of this legislation
provides that the directors are required to fulfil the civil obligations of using the information held
by them in the company for proper purpose and in a manner which does not cause any detriment
to the company. Section 184 of this legislation provides that the directors are required to fulfil
the requirements of previous sections or can be held liable criminally. Section 191 of this
legislation provides that the directors are required to disclose all the material personal interest in
all the transactions.
Even though all these sections were not directly quoted in this case, the theme of these sections
were applied in this case. This is particularly true in context of section 183 of this legislation. For
the reasons of listing rules which were applicable in this case, the company got awareness
regarding the information, which the executive officer or the director of company reasonably
came in possession of, while they were performing the duties laid down under this legislation.
Even though Crossley and Cooke were executive officers in this case, they had the same duties,
which were provided above, as these duties are also applicable on officers of the company.
Based on this applicability, and following the listing rules, the company was aware of the
Holmes University | / Introduction 4

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May 11, 2018 [Jubilee Mines NL v Riley [2009] WASCA 62]
information which reasonably came before Crossley or Cooke while they were fulfilling their
duties. A convergence of the listing rules and the director duties shows that there was a need to
make the relevant disclosures to ASX as soon as the nickel was identified. So, the directors of
ASX were required to inform ASX of not exploring the tenement further even when there was
clear presence of nickel, owing to the focus of company on gold related activities (Jade, 2018).
The continuous disclosure requirements, as were covered under the ASX Listing Rule 3.1,
coupled with the ones covered under the Corporations Act were required to be properly fulfilled
by the directors in this case (Dharmananda, 2018). There duty of care and of good faith required
them to act towards the good faith of the company. This was market sensitive information which
had to be disclosed, and by not doing so, neither the position held by the directors in company
was properly used, nor was the information attained by the co-directors made proper use of.
Even though there was nothing to show material personal interest of the directors in this case, the
information was sensitive enough to be disclosed before the ASX. Owing to the position held by
the directors, if they were uncertain regarding the information being market sensitive information
or not, they were required to make reference to ASX Guidance Note 8 (Muscillo and Dawson,
2018). The directors were required to pose two key questions in this case:
Could this information have an impact on the decision regarding the purchase or sale of
securities of the companies at the present market rate?
Could the director be exposed to any action regarding insider trading in case the purchase
or sale of securities of the companies at the present market rate as a result of this
information not having been disclosed in the market?
Holmes University | / Introduction 5
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May 11, 2018 [Jubilee Mines NL v Riley [2009] WASCA 62]
Where any of the questions resulted in a yes, there was a need to take the cautionary approach
and adequate steps should have been made to disclose this information before the relevant
authority. There were two broad categories in the company by not fulfilling the continuous
disclosure obligations, in terms of timely disclosure and accurate disclosure. The lack of this
disclosure was what allowed Riley to raise this claim (Muscillo and Dawson, 2018). Even though
the matter of director duty was not directly addressed in this case, this is the basis for claiming a
breach of director duties in this matter.
Analysis of decision given by Court
As a result of the continuous disclosure obligations, the plaintiff in the case of Riley v Jubliee
Mines NL (2006) 59 ACSR 252 was awarded 1.8 million as damages for the losses which
resulted from the failure in complying with the continuous disclosure requirements (Coffey,
2010; Blakiston and Chandler, 2006). Though, with the present case, 2009 saw the ruling of the
previous decision being overruled by the court. Martin CJ, in the appeal case, held that the
announcement made by the company in context of all the pertinent information relating to nickel
data was not something which had the probability of influencing the individuals who would
invest in the securities in common manner, while they were making the decision regarding the
purchase or sale of the shares of company. To put it more simply, the court did not consider that
this information was such which could fulfil the criteria or requirements of materiality (North,
2010).
When the case was at trial, Riley was successful and the court stated that the nickel results had to
be disclosed, which resulted in the aforementioned stated damages being awarded to Riley. On
this, Jubilee appealed, and this appeal was successful. The court held the view that the obligation
Holmes University | / Introduction 6
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May 11, 2018 [Jubilee Mines NL v Riley [2009] WASCA 62]
of the company in context of disclosure had to be evaluated with regards to the actual intentions
and not that of the supposed intentions of the company. Apart from this, the court held that the
company was not under the obligation of making the disclosures after the drilling results were
attained at the very least. Further, till the time such drilling results resulted in the position of the
company or any other party being altered, or where the company did decide to undertake the
exploratory drilling work, there was no need of making the drilling results disclosures. Only
when these presumed conditions turned into actual intentions, was the company required to
disclose the drilling results (Lavan, 2009).
Impact of this case
This is an important case as this case provides that the shareholders who seek to recover the
losses which are raised as a result of the continuous disclosure obligations being breached, they
have to show or establish the importance of undisclosed information to the company. Further,
this has to be assessed in context of the intents of the directors of such company and have to be
significant information for a prudent shareholder of the company. Even though this can be
treated as a surprising result, yet it does reflect upon the present state of law. Particularly in
context of officers and directors of the companies, this decision provides comfort. Where the
officers or directors of the company do not consider the information presented before them as
major or significant towards the operations of the company, their decision would be given proper
due consideration (Lavan, 2009).
The criteria which was employed for assessing the kind of information having a major impact
over the share prices of the company, particularly in light of the present economic climate and
which trigger the continuous disclosure obligations, this case certainly attracts more judicial
Holmes University | / Introduction 7

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May 11, 2018 [Jubilee Mines NL v Riley [2009] WASCA 62]
scrutiny (Lavan, 2009). In terms of providing guidance on what aspects have to be considered in
considering any material as material enough to be disclosed under the listing requirements and
under the Corporations Act, this case is again substantial.
Conclusion
Thus, on the basis of the analysis of case of Jubilee Mines NL v Riley, it can be concluded that
continuous disclosure requirements are a crucial part of director duties. This case predominately
revolved around the directors not making disclosure regarding the nickel which was found
during exploration activities, as they wanted to focus on the key business of the company, which
was of gold exploration. This resulted in the shareholder of the company raising a case against
the company for breaching the continuous disclosure requirements. Despite the case not deciding
on directors having breached their director duties or not, the present analysis highlighted the
manner in which such breach could have been established, in case the lawsuit made before the
court covered these aspects. However, the decision given by the court in this matter, particularly
the one during the appeal from the trial court decision, proves that the breach of director duties,
as explained above, would not have been established before the court. This is due to the fact that
the supposed intentions of the company were not to be given as per this case, resulting in the
non-disclosure not resulting in the director duties being breached in this case.
Holmes University | / Introduction 8
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May 11, 2018 [Jubilee Mines NL v Riley [2009] WASCA 62]
References
Blakiston, M., and Chandler, D. (2006) Damages Awarded to Former Shareholder for Negligent,
Delayed Disclosure. Australian Resources & Energy LJ, 25, 344.
CCH Australia. (2009) JUBILEE MINES NL v RILEY, Supreme Court of Western Australia,
Court of Appeal, 18 March 2009. [online] Available from:
https://iknow.cch.com.au/document/atagUio1506654sl216007758/jubilee-mines-nl-v-riley-
supreme-court-of-western-australia-court-of-appeal-18-march-2009 [Accessed 11/05/18]
Coffey, J. (2010) Regulatory Challenges In Enforcing Securities Law: The Fyffes And Fortescue
Cases. Journal of the Australasian Law Teachers Association, 3.
Corporations Act, 2001 (Cth)
Dharmananda, B. (2018) Market Disclosure Obligations And Directors’ Duties. [online]
Available from: http://www.wabar.asn.au/images/Market%20Disclosure%20Obligations%20and
%20Directors'%20Duties%20(Brahma%20Dharmananda).pdf [Accessed 11/05/18]
Duffy, M. (2012) Testing Good Securities Disclosure: Tales of the Reasonable Investor. Monash
University Law Review, 38(2).
Jade. (2018) JUBILEE MINES NL -v- RILEY [2009] WASCA 62. [online] Available from:
https://jade.io/article/91142 [Accessed 11/05/18]
Jubilee Mines NL v Riley [2009] WASCA 62
Latimer, P. (2016) Australian Business Law 2016. 35th ed. Oxford: Oxford University Press.
Holmes University | / Introduction 9
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May 11, 2018 [Jubilee Mines NL v Riley [2009] WASCA 62]
Lavan. (2009) Continuous disclosure obligations - what is 'material' depends on the disclosing
entity's intentions. [online] Available from:
https://www.lavan.com.au/advice/corporate_services/continuous_disclosure_obligations_what_is
_material_depends_on_the_disclosin [Accessed 11/05/18]
Muscillo, M., and Dawson, L. (2018) Continuous disclosure - lessons from Forge Group
Limited. [online] Available from: http://www.findlaw.com.au/articles/5412/continuous-
disclosure---lessons-from-forge-group-l.aspx [Accessed 11/05/18]
North, G. (2010) A call for a bold and effective corporate disclosure regulatory framework.
Company and Securities Law Journal, 28, 340.
Riley v Jubliee Mines NL (2006) 59 ACSR 252
Williams, B. R., Bingham, S., and Shimeld, S. (2015) Corporate governance, the GFC and
independent directors. Managerial Auditing Journal, 30(4/5), pp. 324-346.
Holmes University | / Introduction 10
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