In a recent decision, the Federal Court has re-emphasised the
care that must be taken by company officers when making public
statements on behalf of their company.
What you need to know:
Investing in a company's shares can expose an investor to
financial risk, and any loss incurred cannot necessarily be
attributed to public company financial statements;
If in any doubt about investing in any public company, it is
prudent to seek financial advice before investing;
Company directors, secretaries and board members need to be
extremely careful with statements they make on behalf of their
company's financial status; and
Misleading statements can carry personal liability.
Madgwicks Senior Associate, Sazz Nasimi
and Lawyer, Amelia
Strano successfully defended their client (Client
X), against a claim in damages for misleading and
deceptive conduct in the Federal Court.
The applicant, a New Zealand company
(Investor), claimed that when it made its first
and second share purchases in a metal recycling company
(Metal Recycling Company), it had relied on public
statements made by or on behalf of the Metal Recycling Company by
Client X, the managing director and CEO of the Metal Recycling
Company and the company secretary and CFO of the Metal Recycling
The Court considered that of the numerous statements alleged to
be misleading and deceptive, only two were misleading and deceptive
conduct of the Metal Recycling Company and Client X. Critically,
however, the Court was not satisfied that the Investor proved
resulting loss from the misleading and deceptive conduct and as a
result, dismissed the proceedings.
Ultimately, the Investor's claim was unsuccessful as it
failed to prove on the balance of probabilities that it would have
sold its shares on the day, or a day soon after proper disclosure
of the true position of the Metal Recycling Company had been
During the hearing, the managing director of the Investor gave
evidence that he relied on optimistic statements about a return to
profitability in FY2010. Although the metal recycling company did
not return to profitability in FY2010, the managing director failed
to say that the Investor's investment in the Metal Recycling
Company would not have been made or maintained if the Metal
Recycling Company's expected return to profitability did not
occur until FY2011. Importantly, the managing director also failed
to say that the investment in the metal recycling company was
strictly a short-term investment.
Amelia Strano, lawyer at Madgwicks, noted the significance of
the case: "the protections against misleading and
deceptive conduct provide an important means of seeking
compensation in commercial disputes. It is critical, however, that
a claimant proves the loss suffered. A failure to successfully do
so can leave a claimant without an award of damages despite having
proved that the conduct was misleading and deceptive and was relied
This case demonstrates the importance for company directors,
secretaries and board members to be extremely careful about
statements they make on behalf of companies. If a statement is
found to be misleading and deceptive there is the potential that it
may carry personal liability to the person making the
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.Madgwicks is a member
of Meritas, one of the world's largest law firm
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Do not depart from the contract terms, or encourage the other party to do so, unless you plan to alter the contract.
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