The recent unanimous judgment of the Full Federal Court in Australian Securities and Investments Commission v Narain [2008] FCAFC 120:

  • Highlights the importance of ensuring public statements are not misleading or deceptive.

  • Provides guidance where company officers may be held personally liable for misleading statements by the company.

ASIC commenced civil action against the managing director of Citrofresh International Ltd (Citrofresh), arising from an announcement by Citrofresh to ASX. The managing director had authorised the company secretary to release the announcement to the market.

The action was instigated under section 1041H(1) of the Corporations Act, which provides that a person must not engage in conduct, in relation to a financial product [in this case, shares] or financial service, that is misleading or deceptive or is likely to mislead or deceive.

In overturning the previous decision by a single judge based on a narrow interpretation of the term 'in relation to', the Full Court construed that term widely by holding that an indirect or less than substantial connection between the conduct and the financial product or service is sufficient and does not require any direct relationship to the product or service.

The Court also held that the managing director was personally liable for breaching section 1041H as he authorised the release of the statement to ASX.

The action was remitted to the primary judge to determine on the particular facts whether the announcement was misleading and whether by authorising the release the managing director breached his statutory director's duties.

The case illustrates that:

  • Listed companies should have clear protocols to ensure that releases to ASX are accurate and complete, as liability under section 1041H may arise from a statement without direct reference in the statement to the company's securities. This principle should also be borne in mind for all public announcements made by a company, including on its website, that could be considered to have any connection to the company's securities.

  • Any person may be personally liable under section 1041H if they are the authorised person who, with knowledge of the statement's contents, prepares, instructs or authorises release of a misleading or deceptive statement.

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