ASX Update: Gold fools: Newcrest’s woes continue

Gold fools: Newcrest’s woes continue

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We recently wrote a blog about the importance of ASX listed entities maintaining satisfactory continuous disclosure practices and procedures following Newcrest Mining Limited’s (Newcrest) highly publicised breaches of its continuous disclosure obligations. On 2 July 2014 the Federal Court (Court) determined that Newcrest had on two occasions contravened its continuous disclosure obligations under the Corporations Act 2001 (Cth) and applied penalties of $1.2 million. The Australian Securities and Investments Commission (ASIC) and Newcrest had previously provided Joint Submissions to the Court which outlined their agreement on the proper penalties in relation to breaches that occurred between 28 May and 6 June 2013.

Newcrest’s time in court in 2014 has not ended there though. Slater & Gordon Lawyers (SGH) has commenced class action proceedings in Court on behalf of security holders who traded in Newcrest shares between 13 August 2012 and 6 June 2013, a wider range of dates than under the ASIC enforcement action. The class action alleges that Newcrest misled the market during the claim period by providing gold production guidance in August 2012 without reasonable grounds. It is also alleged that Newcrest breached its continuous disclosure obligations by failing to inform the market of price sensitive information.

On 7 June 2013, Newcrest informed the market that it would:

  • downgrade its forecast FY14 gold production;
  • write down all of the $3.8bn of goodwill on its balance sheet;
  • impair the carrying value of its mining operations by a total of $2.2bn; and
  • not declare a final dividend in FY13.

Newcrest’s share price fell by almost 20% following the disclosure of this information and subsequently, it announced an independent review of its disclosure and investor relations practices. Slater & Gordon is seeking compensation for the members of the class action who suffered loss or damage as a result of Newcrest’s alleged continuous disclosure contraventions, either because they acquired Newcrest shares which they would not have done, or they acquired them at a higher price then what they should have paid, had the market been properly informed.

Although Newcrest admitted to the disclosure breaches which formed the basis of the ASIC Settlement, it has said that it intends to ‘vigorously defend’ the class action. This latest court proceeding is emblematic of a new paradigm of class actions, where any breaches of corporate law may be subject to litigation-funder backed actions. Actions based on breaches of continuous disclosure obligations are currently in vogue, and are likely to continue in the current legal landscape.

As a side note, we admire Slater & Gordon’s audaciousness in taking on such a class action case as it is itself, an ASX listed entity. We hope any sermonising about continuous disclosure and shareholder rights do not come back to haunt it.

 

Win for Treasury Wine Estates and Leighton Holdings in class action

In a small win for Treasury Wine Estates Limited (TWE) and Leighton Holdings Limited (Leighton), the Supreme Court of Victoria has ruled that the solicitor for the lead class action plaintiff against each company is restrained from acting for that plaintiff. The solicitor in question is Mark Elliott, and the lead plaintiff, Melbourne City Investments Pty Ltd (MCI), happens to be an entity of which he is the sole shareholder and director.

MCI is a curious entity. According to the judgment, it owns small parcels of shares in TWE, Leighton and WorleyParsons Limited. These parcels were each acquired for less than $700 and this amount would be the most MCI could recover if the actions succeeded. On the facts, Justice Ferguson was prepared to draw the inference that:

  • MCI was created as a vehicle for class actions against these companies (for breaches of continuous disclosure obligations);
  • MCI would be the representative plaintiff in these class actions; and
  • Mr Elliott would act as MCI’s solicitor and earn legal fees from doing so.

Although Mr Elliott is acting on a ‘no win, no fee’ basis, Justice Fergurson noted that ‘it’s common knowledge that most litigation settles before judgment and that this is treated as a ‘win’ such that lawyers’ fees are paid’. Justice Ferguson ruled that, although the proceedings brought by MCI were not an abuse of process (that is, they were not brought for a predominately improper purpose), the proper administration of justice required that Mr Elliott be barred from acting as the solicitor for MCI. The factors that this decision was based on were:

  • a reasonable observer would conclude that Mr Elliott was the decision maker in the conduct of the proceedings both as MCI director and solicitor; and
  • ‘Mr Elliott is compromised in his role as a solicitor such that there would be a real risk that he could not give detached, independent and impartial advice’.

The upshot of this ruling is that Mr Elliott cannot act as the solicitor for MCI in this class action. Meaning that MCI must either engage separate representation (for fees), or a different lead plaintiff would need to be substituted in this action.

Although, in the scheme of this action, this victory does not represent a big win for the defendant listed entities, it is a rebuff to what could be said to be opportunistic lawyers. The ruling means that a strategy which involves incorporating a company for the purpose of class actions is not without hurdles. Justice Ferguson found that the proceedings themselves did not bring the administration of justice or the legal profession into disrepute, meaning that, with some procedural adjustments, they could continue.

For TWE and Leighton, this victory may prove futile, as the proceedings against them continue.

 

Pitfalls and protesters: Whitehaven Coal hoaxer sentenced

Anti-coal campaigner Jonathan Moylan has been sentenced in the NSW Supreme Court. He is to serve a a suspended sentence of 1 year and 8 months, on condition that he be of good behaviour for two years.

Mr Moylan earned the ire of market participants, shareholders and journalists when, on 7 January 2013, he published a false media release in the name of ANZ banking Group Limited (ANZ) informing the market that the bank had purportedly withdrawn a $1.2 billion loan facility from Whitehaven Coal Limited’s (Whitehaven) Maules Creek Coal Project. In doing so, Mr Moylan contravened s 104E(1) Corporation Act 2001 (Cth), an offence which carries a maximum penalty of 10 years imprisonment, or a fine of $765,000, or both. He also impersonated an ANZ officer and fielded enquiries as such from journalists.

Those actions had serious repercussions. In the period between the release and the subsequent hold on trading in Whitehaven’s shares, 2,881,334 shares were traded – more than 20 times the average volume of trades. The persons who made these trades were investors, brokers acting for self-managed super funds, managed funds and other wholesale investors. There was a 8.7% reduction in Whitehaven’s share price, which represented a reduction to the market capitalisation of Whitehaven of $300 million.

It was of considerable interest in this case that the offence was unique. As Justice Davies stated in his judgment, ‘persons ordinarily charged under this section have tended to disseminate false information for the purpose of receiving some gain for themselves or for some company which they are involved’.  However the section has the capacity to extend beyond those types of cases and in Mr Moylan’s case, his motivations were for personal political reasons, rather than personal financial gain.

In his Honour’s judgment, Justice Davies considered a statement made by Mr Moylan’s barrister, to the effect that ‘the journalists more than the Offender ought to be held to account for the ultimate effect on the market [of the false press release]. In rejecting this submission, Justice Davies said that ‘it is quite hypocritical of the Offender to point the finger at them when he set up the false media release intending… that at least some of them would accept it as genuine’.

Mr Moylan will be required to be of good behaviour for the next two years, which includes not committing any further offences. Mr Moylan was required to pay a $1000 surety and he is now asking for community donations to recompense him for this payment via his website.

ASX entities should take note of the risks of such activism and fraudulent behaviour. Although the law properly provides a deterrent to such actions, Mr Moylan’s actions demonstrate the relative ease at which individuals can sabotage an ASX entitiy’s formal communications and disclosure processes. To commit his offence Mr Moylan purchased the domain name ‘anzcorporate.com’ and created an email address ‘media@anzcorporate.com’. He also downloaded the ANZ logo. An ASX entity’s intellectual property is one of its most important assets and Mr Moylan’s actions should sound an alarm-bell for entities to check their own intellectual property inventories and re-visit, or develop, their current policies and procedures in place to protect it.

ASX entities are required to formally manage risk, and in light of Mr Moylan’s case there are some measures which should be considered as part of good corporate practice:

  • as a control for possible misinformation, entities should remember that official ASX market announcements are the ‘front door’ of information for investors;
  • assess inherent risks to IP protection and implement policies to address those risks;
  • entities should consider the political risks associated with their activities; and
  • entities should have in place a means by which to quickly and effectively execute their obligations to manage their listings on the ASX, such as the use of the trading halt.

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