HA3021 Corporations Law Group Assignment Report - Holmes Institute

This report analyzes the case of R v Firns, focusing on the breach of director's duties, particularly concerning insider trading within the context of Australian Corporations Law. The assignment examines the facts of the case, including the roles of key individuals like Richard Hill and Ron Firns, and the impact of a Papua New Guinea regulation affecting a company's mining interests. It details the alleged breach of duties by directors related to insider trading, referencing specific sections of the Corporations Act 2001. The report discusses the court's decision, its reasoning, and the implications of the ruling, highlighting the distinction between readily available and readily observable information. Furthermore, the assignment considers the impact of the decision on the development of corporate law, particularly concerning director responsibilities and the evolution of insider trading regulations. The report concludes with an assessment of the case's significance and its relevance to contemporary corporate governance.

Running Head: BUSINESS AND CORPORATION LAW 0
Corporations Law
HA3021 Group Assignment
5/27/2019
Student’s Name

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Contents
Introduction........................................................................................................................2
Case Introduction...............................................................................................................2
Breach of Duties of Director..............................................................................................3
The decision of the court...................................................................................................4
Impact of the decision........................................................................................................5
Conclusion.........................................................................................................................5
Bibliography.......................................................................................................................6
Cases 6
Legislations 6
Books/Journal 6
Other Resources 6

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Introduction
It is well known that a company is not a natural person individual person as therefore
some individuals are always there who work on behalf of the company. A person who
deals with a company, deal with these individuals in actual. As these people conduct
their activities using the name of the company, hence it becomes necessary on their
part to act in a standard manner and no to do any inappropriate activity that may
adversely influence the interest of stakeholders and goodwill of the company. In the
world full of trade and commerce, people are using company structure for their
businesses and it has been reviewed that individuals associated with the company i.e.
directors or officers are not performing their duties in a manner they were expected to
do.
Every country has a separate piece of law that covers regulations’ and provisions
related to the company structure. In Australia, the company law covers under
Corporations Act 20011. This act provides liabilities of directors, promoters, officers, and
other people associated with the company. In addition to this, the same also stipulates
the penalty provisions at the event where they fail to perform these liabilities. In recent
times, courts of Australia dealt with many of the cases where directors or officers acted
going outside of the provided powers and faced civil and criminal penalties. For the
presentation of this report, one such case has been taken that is R v Firns2, which is
detailed below. In the presented report, discussion will be made on the facts of the
case, duties of directors, whether the duties have been breached or not and the
decision and reason of the same.
Case Introduction
In the chosen case, Carpenter Pacific Resources NL (hereinafter referred to as
Carpenter) was a company registered and traded on Australian Stock Exchange. The
company had two directors namely Richard Hill and Ron Firns3. Mr. The former one was
acting in the capacity of chairperson and company secretary whereas the later one was
holding the position of executive director. The company was engaged in the mining
business. Further Mr. James Kruse was appointed on the position of general manager.
In the year 1993, one of the subsidiaries of company Matu Mining Pty Ltd made an
application for exploration licenses. The issue of the case began when a new regulation
of Papua New Guinea came into effect. The new regulation named Mining (Transitional
Provisions) Regulation 1993 affected the right of holding company to explore gold in
SML 1 area.
1 Corporations Act 2001 (Cth).
2 R v Firns 51 NSWLR 548; 38 ACSR 223; [2001] NSWCCA 191
3 Wolters Kluwer, R v FIRNS, Court of Criminal Appeal (New South Wales), 21 May 2001,
iknow.cch.com.au < https://iknow.cch.com.au/document/atagUio379444sl10452973/r-v-firns>.

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As the regulation was in against of the company’s interest hence its subsidiary named
Matu Mining Pty Ltd, made a challenge to subjective regulation. The case was going in
the National Court of Papua New Guinea and in March 1994, the court dismissed the
same. The company further made an appeal to the Supreme Court of Papua New
Guinea against the decision of the lower court. On 28th July 1995, the supreme court
made the decision in favor of the company declaring the respective regulation invalid.
Mr. Hill further passed this news to another director of the company, Ron Firns shared
this news to his son (appellant of the case) who purchased 400,000 shares of Carpenter
in the name of his wife. Further, he also instructed his broker to purchase further
338000 shares, which were in favor of his friend Peter Coombes. Appellant sold these
shares on a very higher profit later on. Mr. Kruse also held liable for the conduct of
insider trading.
Breach of Duties of Director
Before moving ahead on the discussion of the duties that have been a breach, in this
case, this is to state that Corporations Act 2001 (CA 2001) also provided duties in
respect to officers of the company. A claim has been initiated against Mr. Kruse and Mr.
Firns where they have been accused of the conduct of insider trading. The act provides
certain provisions on the topic of insider trading which are contained under Division 3 of
part 7.10 of the act. Section 1002G (2) of Corporations Act says that a person who has
certain information of nature mentioned under section 1002G (1) (Section 1043A of CA
2001) must not subscribe or sell or purchase such securities and also must not procure
another person to do. Section 1002G (1) refers to that information which is not generally
available but if were then could make a significant influence on the price of shares and
securities of the corporation in the opinion of a reasonable person. Now the issue is to
determine whether the information is considered as generally available. Section 1002B
(section 1042C of CA 2001) answers this query. As per this section, information is
considered as generally available when the same carries readily observable matter, or
when the same has been made known in a general nature and reasonable period of its
dissemination has been elapsed. In a summarized way, it becomes the duty of a person
who holds insider information to not to proceed with any sale, purchase or other
arrangements of securities using such information for personal benefit or benefit of
others.
This duty seems to be breached in this case. The appellant of the case got the
information of favorable judgment from his father who holds the position of executive
director in the company He and his son had reason to believe that the prices of a share
of Carpenter are going to be increased in coming future. It was charged that the
information was not generally available. The information was of material nature as the
same had a direct influence on the prices of shares. At last, the appellant knew that the
information is material information and he purchased the shares in the name of a third
party i.e. his wife and a friend. As all the requirement mentioned in the above-discussed
sections are satisfied it is clear that the director Mr. Firns was liable to breach these
duties. Here appellant and another officer of the company Mr. Kruse charged for insider

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trading. Because in addition to Mr. Firns, Mr. Kruse also used the information for
personal benefit and purchased shares of the company with the help of a broker.
Management of the company informed Australian Stick Exchange about the decision of
the case after 3 days of the decision. However, in the decision of the case, it was given
that the information i.e. decision of the court could not be treated as insider information
as the same was readily available to the public and one could obverse the same. For
this reason, the court determined that directors did not perform their duties in the
contradiction of provisions of insider trading mentioned under the Corporations Act.
Prohibition of insider trading is one of the significant duties of directors as well as other
personnel of the company. In addition to this duty, some other duties are also there that
are applicable to directors/officers irrespective of the type and size of the organizations.
These duties are known as general duties, which one can find under section 180-183 of
CA 2001. Section 180 demands a good level of care and attentiveness in the behavior
of the company’s directors and employees4. Section 181 on the different side, stipulates
that it is desirable on the part of officers and directors to keep good faith in their
operations5. Section 182 of CA 2001 provides that being on such a higher position,
directors must not misuse their position for self-benefit or in a manner that may prove
adverse for the company and section 183, at last, prohibit the use of company’s
information for this purpose6. Hence, the case is quite old hence court did not consider
these sections while dealing with the same but in the current scenario, the duties seem
to be breached as Mr. Firns misused his position and also used the financial information
of the company for the benefits of his son.
The decision of the court
In the prior decision of the case, the court granted decision against Mr. Firns as he
holds insider information and used the same for the benefits of his son. Later on, the
decision has been reversed under the appeal made by Firns’s son. The court, later on,
stated that Firns did not breach any duty being a director as he did not perform any
insider trading. In order to discuss the reason behind the final decision of the case, this
is to state that in the opinion of the court, the subjective information was not secret or
confidential information and it had nature of readily observable matter since the same
was available to the public7. The decision of the Supreme Court where the same hold
Mining (Transitional Provisions) Regulation 1993 invalid was a piece of generally
available information that anyone could come across. In the support of its decision, the
4 John Lowry, "The Irreducible Core Of The Duty Of Care, Skill And Diligence Of Company Directors:
Australian Securities And Investments Commission V Healey" (2012) 75(2) The Modern Law Review.
5 Kumudini Heenetigala and Chitra Sriyani De Silva Lokuwaduge, "Directors Duties And Responsibilities
Towards Other Stakeholders: A Discussion Of Case Studies On Corporate Disasters" (2013) 8(1) Journal
of Business Systems, Governance and Ethics.
6 Australia, Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001,
related regulations (CCH Australia Limited, 2011) 221.
7 Stephen Bottomley et al, Contemporary Australian Corporate Law (Cambridge University Press, 2017)
516.

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court further argued that the terms readily available and readily observable are different
from each other. It means it is possible that a piece of information is readily available
but not observable for the public. Section 1042A makes it focus on the information that
is not generally available and not on the information that is not observable. In this case,
the decision of the court was available to the general public as soon as it was delivered
by the supreme court but not observable and hence Firns could not hold liable for
pursuing insider trading8.
If the decision would have been provided under CA 2001 then the decision could be
something else as the liabilities are strict under this new act. Director could hold liable
for the breach of general duties.
Impact of the decision
This is one of the significant decisions provided in the cases related to the director’s
duty. As mentioned above, insider trading is one of the important areas of study when it
comes to director duty. The decision of the case provided the difference between the
two terms namely readily available and readily observable, which was not known or
identified before this case. The case provided that directors had a safeguard in that
situation where the information is available and not observable. The decision played an
important role in the development of CA 2001 as it highlighted the requirement of
additional duties to make the directors liable in that situation where they gain some
benefits, which were not available to the public. In the prior corporations act, the general
duties were not there and hence action of Firns held ‘not in breach’9. Nevertheless, in
actual, he breached other duties that he was expected to perform. Although he does not
commit insider trading yet he acted in an unfair manner as he shared the information of
the company to an outsider in a speedy manner. Hence, this would not be wrongful to
state that the decision of the case reflected the need for additional provisions in order to
held the directors and officers of the company liable.
Conclusion
In a conclusion manner, this is to state that directors have a duty to not to be engaged
in insider trading in the earlier act and in CA 2001 as well. In the presented report, the
focus has been made on one of the important cases of the history of insider trading
provisions. In the case, the court held that directors did not breach their duty. In the
presented report, the reason and justification behind this decision have also been
summarized. Nevertheless, the decision does not seems to be correct in the resent era
where expectations from directors reached to the next level and duties of directors is a
topic of daily discussion. The decision made it relies that there was a need of some
more strict provisions and the current provisions were not enough to held directors liable
in the circumstances where they act in an unfair, unjust or dishonest manner.
8 Paul A. U Ali and Greg N Gregoriou, Insider Trading (CRC Press, 2009).
9 Juliette Overland, Corporate Liability for Insider Trading (Routledge, 2019).

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Bibliography
Cases
R v Firns 51 NSWLR 548; 38 ACSR 223; [2001] NSWCCA 191
Legislations
Corporations Act 2001 (Cth).
Books/Journal
Ali, Paul A. U and Greg N Gregoriou, Insider Trading (CRC Press, 2009)
Australia, Australian Corporations & Securities Legislation 2011: Corporations Act 2001,
ASIC Act 2001, related regulations (CCH Australia Limited, 2011)
Bottomley, Stephen et al, Contemporary Australian Corporate Law(Cambridge
University Press, 2017)
Heenetigala, Kumudini and Chitra Sriyani De Silva Lokuwaduge, "Directors Duties And
Responsibilities Towards Other Stakeholders: A Discussion Of Case Studies On
Corporate Disasters" (2013) 8(1) Journal of Business Systems, Governance and Ethics
Lowry, John, "The Irreducible Core Of The Duty Of Care, Skill And Diligence Of
Company Directors: Australian Securities And Investments Commission V Healey"
(2012) 75(2) The Modern Law Review
Overland, Juliette, Corporate Liability For Insider Trading (Routledge, 2019)
Other Resources
Wolters Kluwer, R v FIRNS, Court of Criminal Appeal (New South Wales), 21 May
2001, iknow.cch.com.au <
https://iknow.cch.com.au/document/atagUio379444sl10452973/r-v-firns>.