Supreme Court of WA|2006-09-06|Before: Mr P

Kim Riley In His Capacity As Trustee of The Ker Trust v Jubilee Mines Nl [2006] WASC 199 (6 September 2006)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : KIM RILEY IN HIS CAPACITY AS TRUSTEE OF THE KER TRUST -v- JUBILEE MINES NL [2006] WASC 199

BETWEEN : KIM RILEY IN HIS CAPACITY AS TRUSTEE OF THE KER TRUST

Corporations law - Damages claim by a former shareholder - Failure to release information to ASX - Allegation of negligence in failure to release information - Claim of breach of ASX Listing Rules

Corporations Law, s 761, s 1001A, s 1001A(1), s 1001A(2), s 1001A(2)(b), s 1001D, s 1005

Adelaide Petroleum NL v Poseidon Ltd (1990) 98 ALR 431

Boughey v The Queen [1986] HCA 29; (1986) 161 CLR 10

David Securities Pty Ltd v Commonwealth Bank of Australia [1990] FCA 148; (1990) 93 ALR 271

Flavel v Roget 1 ACSR 595

TSC Industries Inc v Northway Inc [1976] USSC 119; (1976) 426 US 438

Australian Securities and Investments Commission v Southcorp Ltd (No 2) [2003] FCA 1369

Australian Telecommunications Commission v Krieg Enterprises Pty Ltd (1976) 14 SASR 303

Banque Commerciale SA en Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279

Callaghan v William C Lynch Pty Ltd [1962] NSWR 871

Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1

Goldsmith v Sandilands [2002] HCA 31; (2002) 190 ALR 370

Koufos v C Czarnikow Ltd (The Heron II) [1967] 3 All ER 686

Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305

Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494

Minister for Health v AS [2004] WASC 286; (2004) 29 WAR 517

Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 388

Poseidon Ltd & Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332

Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees' Union [1979] FCA 85; (1979) 42 FLR 331

Wardley Australia Ltd v State of Western Australia [1992] HCA 55; (1992) 175 CLR 514

Western Australia v Watson [1990] WAR 248

1 Over the years, there must have been thousands of speculative small cap (capitalisation) mining companies listed on the Australian Stock Exchange ("ASX"). The listing of these companies generally follows a fairly standard procedure. An individual or group of individuals sometimes called the promoters (or "mining entrepreneurs" until that description became tainted by the events of the 1970's and 1980's) put together a parcel of prospective mining tenements. Some early exploration work may have been done on these tenements but, generally speaking, they are greenfield sites which are prospective. The promoters then vend this parcel of tenements into a public company in exchange for a parcel of shares.

2 The next step is to secure an underwriter. The underwriter is generally a broking house or perhaps a small merchant bank. In exchange for a fee, the underwriter ensures that all of the shares to be issued to the public are taken up and that there is a sufficient spread of shareholders to comply with the ASX listing requirements. A prospectus is then prepared and lodged and an initial public offering ("IPO") is made.

3 The reasons why investors take up shares in such companies are many and varied. Perhaps the astute investor sees the tenements the company has as highly prospective. Perhaps the directors of the company have a track record of successful mining operations. Perhaps the commodity which is the focus of the company's activities is one that at the time of the float is attracting market interest. At present, companies which are focused on uranium are enjoying good support in the market. But whatever the reason an investor takes up shares in these speculative mining companies, it is not in anticipation of an income stream from dividends. Any income from mining activities, if it occurs at all, is a long way off.

4 Once funds are raised the company's shares are listed on the ASX. Then the hard work begins. The company must develop its tenements. Quite how it goes about doing that will depend upon the then state of the development of the tenements and the nature of the commodity for which the company is searching. But eventually, when all the preparatory work has been done, drilling will be undertaken. The aim of the drilling is to establish whether minerals are present and if they are at what depth and in what geological structure. When the drilling has been completed, the drill samples are assayed and the results are provided to the company. That is the moment of truth.

5 Drill results are the lifeblood of speculative mining companies. If the news is good the share price may well rise, attracting interest from other investors which might drive the share price even higher. Positive drill results and the market interest they excite might well provide the company with a window of opportunity to raise more cash for its activities. That is important because a lack of capital is the main inhibiting factor on the activities of junior explorers. Of course, poor drill results may have the effect of dragging the market down as disillusioned investors look elsewhere for their profits. Faced with poor drilling results, a company has no option but to re-focus its activities, husband its resources even more carefully, re-think its strategy and undertake further exploration work in the hope that next time the results will be positive.

6 In a circumstance where so much depends on what information is available to the public, it is important that market sensitive information is released by publicly listed companies as soon as reasonably practical after it is received. Of course, that applies to all listed companies not just to junior explorers. But in the case of junior explorers it is particularly important. Rumour plays a big part in share price fluctuations at this end of the market - the old saying is "buy on rumour, sell on fact". In a perfect market all price sensitive information would be released to all investors at the same time. But, of course, the market is not perfect. It is important, however, that information which might be price sensitive is released as soon as practical. The ASX is vigilant in ensuring this is done.

7 Deciding what information is market sensitive and how the information is released, is a matter for each individual company. As this case well illustrates, information which might be market sensitive to a junior explorer would have no effect at all on the share price of a major mining house. So the same information can be treated differently by two publicly listed companies. When in possession of information the company must weigh up whether its release to the market is warranted. The decision is a judgment call which is part and parcel of the responsibility of those running the company. Making the wrong call is one of the hazards of involvement with public companies.

8 This case concerns the alleged negligent failure by the defendant to release certain drill results. The plaintiff says that as a consequence of that failure, he has suffered loss and damage. As will become apparent, the focus in this case is remarkably narrow. Most of the facts are agreed. Before looking at the pleadings and the evidence, I will provide an overview to put the dispute in context.

9 The KER Trust ("the Trust") was established on 28 February 1985 (see exhibit 55). As at that date, the trustee was B M Riley Nominees Pty Ltd ("B M Riley Nominees"). From time to time, the trustee of the Trust has changed and at present Mr Kim Edward Riley ("Mr Riley") is the trustee. Nothing turns on these changes of trustee and that was not an issue in these proceedings.

10 Jubilee Gold Mines NL was listed on the ASX in 1987. In the late 1990's, the company changed its name by eliminating the word "Gold". Henceforth, I will refer to the company simply as the defendant, although, at all material times, it was actually known as Jubilee Gold Mines NL. Around about the same time a company known as Sir Samuel Mines NL ("Sir Samuel Mines") was also listed on the ASX. The defendant took over Sir Samuel Mines in November 1991. Sir Samuel Mines played no real part in these proceedings, although it is mentioned from time to time in the documents. Mr Kerry Harmanis ("Mr Harmanis") was appointed a director of the defendant and of Sir Samuel Mines at the time the two companies were listed. Mr Riley was appointed company secretary of both companies also at the date of listing.

11 In 1988, Mr Harmanis moved to Canada. (In his closing, counsel for the plaintiff pointed out that there was no direct evidence of this fact. Be that as it may, it is not a matter which is controversial or which has any effect on the outcome of this action. I simply mention it to provide background to what follows.) Also in 1988, one Mr Brian Saunders ("Mr Saunders") became managing director of both the defendant and Sir Samuel Mines. As at that date, Mr Saunders and Mr Riley effectively assumed day to day management of both companies.

12 In October 1989, Mr Riley sought an allotment of shares from the defendant as an incentive to his continuing in employment with the company. On 31 May 1991, the Trust was allotted 1,725,000 shares for no consideration.

13 In 1992, Mr Terry Streeter ("Mr Streeter") was appointed a director of the defendant. In September 1993, Mr William John Crossley ("Mr Crossley") was appointed as a director of the defendant and general manager in charge of production. It is clear from the 1992 and 1993 Annual Reports that at this time the defendant's focus was on gold and gold exploration. In particular, it was concentrating on what were known as its Kathleen Valley tenements. There is no suggestion that the defendant was prospecting for, or was interested in, nickel deposits.

14 In October 1993, a tenement known as McFarlanes Find was pegged. It was not pegged by the defendant, but in circumstances not presently relevant, it passed into the defendant's hands soon after the tenement was granted. It is convenient at this point to refer to a map showing the location of the McFarlanes Find prospect which appears as Annexure "1" to these reasons. By reference to the map, it can be seen that the McFarlanes Find prospect is actually in two parts. Running between these two parts is a prospect known as Spinifex Park which, at all material times, was owned by Western Mining Corporation ("WMC"). (The purpose of this map is to do no more than locate the McFarlanes Find tenement and to show where it lies in relation to other nickel deposits which have some significance in this action.)

15 Mr Riley resigned as a director of the defendant on 31 December 1993. As at the date of his resignation, the Trust owned 797,000 fully paid shares in the defendant. It also owned a total of 2,625,000 partly paid shares. Details of the shareholding and the dates upon which the plaintiff disposed of the shares and the price received when they were sold appear as Annexure "2" to these reasons. The disposal of the shares by the plaintiff receives detailed consideration later in these reasons. For present purposes, it is enough to note the fact of the shareholding as at the date of Mr Riley's resignation.

16 In April 1994, Mr Harmanis consented to a Federal Court order requiring him to sell 1,923,111 shares in the defendant. This disposal was to be completed by 2 April 1995. The reasons why the order was made are not relevant to these proceedings. It is of some relevance to note, however, that a significant parcel of shares in the defendant had to be traded between April 1994 and April 1995.

17 Mr John Alexander Cooke ("Mr Cooke") joined the defendant in March 1994. Mr Cooke is a geologist and, along with Mr Crossley, he is a central player in this case. I will examine the evidence given by both Mr Cooke and Mr Crossley in detail below. However, it is worth noting that from the date of his appointment in March 1994 until early in 1995, Mr Crossley and Mr Cooke appear to have had the day to day running of the defendant.

18 In May 1994, Mr Crossley commenced negotiations to purchase the Bellevue Gold Mine ("Bellevue"). The problem with this purchase was funding - the defendant did not have sufficient assets in its own right to purchase Bellevue and it required a cash injection if the purchase was to be completed. In my view, the evidence establishes that throughout 1994 the defendant was preoccupied with the purchase of Bellevue and the challenges the purchase presented. In a very real sense, that purchase was the focus of the defendant's activities.

19 Early in August 1994, the defendant received a letter from WMC notifying that WMC had inadvertently drilled on the eastern portion of the defendant's McFarlanes Find tenement (exhibit 6). This letter lies at the heart of these proceedings and I will quote it in full:

"1 August 1994

Mr J. Cooke

Manager Geology

Jubilee Gold Mines NL

1st Floor, Sir Samuel House

33 Ord Street

WEST PERTH WA 6005

Dear John,

Thank you for making the time and effort to come into Western Mining Corporation's office to discuss your interest within P36/3989. As discussed, a limited exploration programme is in progress which will allow WMC to progress the discussions once the results are available.

Regarding another matter, as a result of WMC instigating a licensed survey of the eastern boundary of E53/24, which has a common boundary with Jubilee's E36/251, it has become apparent the boundary differs to that as marked on the plans held with the Department of Mines and Energy. The boundary discrepancy has originated from ACM lodging (as required under Section 65 of the Act) incompatible plans and descriptions of the areas being retained and relinquished. We have notified DOME of the current position and hopefully they have corrected their plans accordingly. As a result of the lease boundary moving some 200m to the west, WMC has inadvertantly [sic] completed some exploration activities within E36/251. A list of activities and details have been appended for your information. There are analytical results for five drill holes which are not available at the time of writing and will be forwarded to yourself as they become available.

All drill samples are held with WMC on site at Mt Keith but would be made available at the request of Jubilee Gold Mines.

We apologise for this error, however I am sure you will appreciate the issue, realising we do not routinely survey EL boundaries necessitating some reliance on the accuracy of DOME information.

If you would like to discuss any of the above in more detail please give me a ring. I will be back in the office on 17 August.

As per our discussions last week, I will contact you late in August regarding P36/3989.

Yours sincerely,

[Signed]

D.R. Miller

Exploration Manager - Western Region

Attachment"

20 The first paragraph of this letter suggests that discussions had taken place between the defendant and WMC prior to the letter being sent. If such discussions had taken place, it was about other matters and not about the drilling WMC had done on the defendant's tenement. This letter was the first that Mr Cooke or the defendant had heard about that drilling.

21 Accompanying the letter was a number of documents. The first of these documents provided a list of six holes which had been drilled by WMC and the coordinates for each of the holes. There then followed information under a sub-heading "LOGS OF HOLES". Under that sub-heading, there was reference to the six holes that had been drilled and what had been found. Again, because of the importance of this information, I will quote it in full:

Variably weathered, strongly foliated felsic volcanics.

Variably weathered strongly foliated felsic volcanics. Possible intrusive 76-102m.

Strongly foliated talc-carbonate-chlorite altered olivine peridotite.

Serpentine-rich mesocumulate textured olivine peridotite/dunite with variable carbonate alteration. 2-5% interstitial ± blebby sulphides disseminated throughout.

Variably weathered strongly foliated felsic volcanics.

Low MgO weakly weathered ultramafics. Minor ( *RC percussion holes"

22 Thereafter certain further information was provided with the letter. Assay results were provided for hole MKTD-89 and a "sample data sheet" was provided for MKTC-103. A "diamond drill core log" was provided for hole MKTD-101. There then followed a bundle of documents under the rubric "downhole electromagnetic survey data". The bulk of this data comprised figures which, it was common ground, would be meaningless to anyone but a geophysicist. No interpretation of this data was provided.

23 The letter was addressed to Mr Cooke and the evidence is that it was received by him in early August 1994. After the receipt of the letter, Mr Cooke phoned Mr David Miller ("Mr Miller"), the author of the letter. He asked for further information but nothing was forthcoming. On 8 September 1994, WMC wrote again to the defendant, this time enclosing assay data for five of the holes drilled on the defendant's tenement. These holes were MKTD-100, MKTD-101, MKTC-103, MKTC-104 and MKTC-109. The letter made reference to discussions already commencing between WMC and the defendant, but these discussions were in relation to a tenement at Kathleen Valley. After receiving the second letter, Mr Cooke directed Mr Crossley's attention to the information which had been disclosed. What followed from that discussion is a matter of some dispute and I will examine these events later in these reasons.

24 However, it is clear that after the receipt of the two letters, representatives of WMC met with Mr Cooke and Mr Crossley and the prospect of a tenement swap was discussed. What WMC proposed was that in exchange for the defendant giving them the McFarlanes Find tenement, a grab bag of tenements would be provided to the defendant. Mr Cooke and Mr Crossley found such a swap of little interest and took the proposal no further. That was the last discussion the defendant had with WMC concerning the McFarlanes Find tenement until June 1996.

25 These two letters from WMC to the defendant are central to this case. The plaintiff says that the letters contained information of a market sensitive nature which the defendant was obliged to release to the ASX. Further, the plaintiff says that in not releasing the information, the defendant was negligent. As a consequence of that negligence, the plaintiff alleges it has suffered loss and damage. Essentially, what is said by the plaintiff is that if the information contained in the letters had been released, he would not have sold his shares in the defendant when he did but would have retained them. He would then have sold them at a later date at a higher price. The damages claimed by the plaintiff are the difference between the price for which he actually sold the shares and the price he says he would have received had he kept them and sold them at a later date.

26 Clearly, it is necessary to look carefully at the contents of the letters. I will do that below. But first, the narrative should be completed. It is, however, worthy of note that the evidence discloses that at no stage did Mr Cooke or Mr Crossley discuss the WMC letters with other directors of the defendant. It was not until 1996 that the other directors of the defendant became aware of the existence of this correspondence.

27 On 31 October 1994, the defendant issued a prospectus seeking to raise money to allow it to purchase Bellevue (exhibit 48). The issue was underwritten by the broking house, Porter Western Capital Markets Pty Ltd ("Porter Western"). The underwriting agreement allowed Porter Western to withdraw the underwriting if the gold index fell below the 1900 level. By 22 November 1994, the gold index had fallen below 1900 and Porter Western advised the defendant of what it described as a "termination event". The brokers reserved the right to withdraw from the underwriting agreement. In fact, on 5 December 1994, Porter Western did terminate the agreement. An announcement was made by the defendant to the ASX immediately (exhibit 62). The result was the necessary funds to allow for purchase of Bellevue were not secured and the purchase did not proceed. There is no doubt that the failure of the capital raising and the defendant's consequent inability to purchase Bellevue was a significant blow to its prospects. The principal focus of its activities over the previous eight months was cut away.

28 By early 1995, the defendant was in dire straits. Its share price had slumped, it was running short of cash and it had no prospects of becoming a gold producer in the near future. In February 1995, a further prospectus was issued (exhibit 50). Mr Harmanis and Mr Streeter agreed to partially underwrite the February 1995 prospectus and to subscribe for $800,000 worth of shares. There seems little doubt that had the two directors not effectively put their own funds into the company, it would have been in a very difficult position indeed. As it was, it faced an uncertain future.

29 On 25 August 1995, the defendant entered into a joint venture agreement with Anaconda Nickel NL ("Anaconda"). This agreement allowed Anaconda to develop the lateritic nickel potential on one of the defendant's tenements, Yundamindra. The defendant retained the right to the gold and silver on that tenement. As part of this deal, 3,074,000 fully paid ordinary shares at 20 cents each were issued to Anaconda. The funds received by the defendant were used for exploration.

30 On 9 October 1995, Mr Crossley resigned as managing director of the defendant. Mr Harmanis was thereafter appointed managing director and had day to day control of the company's affairs.

31 On 7 February 1996, the defendant entered into an agreement with Forrestania Gold NL ("Forrestania") (exhibit 138). This agreement involved Forrestania taking a significant parcel of shares (11,700,000), all of which were issued at a discount. Further, Forrestania agreed to lend the defendant $1,000,000 for three years. This loan was unsecured, interest free and was convertible into ordinary fully paid shares in the defendant. Mr Kim Robinson ("Mr Robinson") and Mr Barry Eldridge ("Mr Eldridge") of Forrestania joined the board of the defendant. Both Mr Robinson and Mr Eldridge had significant experience in nickel exploration.

32 On 15 April 1996, the ASX wrote to the defendant noting a fluctuation in the defendant's share price and asking if there was any reason for such a fluctuation (exhibit 140). The defendant responded on the same day saying it had no idea why the share price might be fluctuating (exhibit 139).

33 In May 1996, discussions took place between WMC and the defendant. These discussions were between Mr Cooke and Dr Allan Trench ("Dr Trench"), an employee of WMC. WMC expressed an interest in the McFarlanes Find tenement and wanted equity in the tenement and/or a joint venture. On 4 June 1996, WMC wrote to the defendant providing its interpretation of the 1994 drill hole results and undertaking to provide cross sections of those results.

34 On 7 June 1996, a meeting took place between WMC and the defendant. Dr Trench and others from WMC were present and the defendant was represented by Mr Harmanis and Mr Cooke. At the meeting, WMC provided the promised cross sections. This was the first time they had been seen by Mr Harmanis and Mr Cooke. What took place at this meeting will be discussed further when considering the evidence. However, subsequent to the meeting, the defendant made an announcement to the ASX (exhibit 2). The meeting took place on 7 June and the announcement was made on 11 June. (Monday, 10 June was a holiday and the ASX was closed.)

35 This announcement was an important feature of this case and I will quote it in full:

"ANNOUNCEMENT

Significant sulphide nickel mineralisation has been located on Jubilee's McFarlanes Find Project, 8 kms north of the Company's Kathleen Valley Project.

The McFarlanes Find Project, covering 17km² sits adjacent to WMC's Mt Keith tenements and to the north of Dominion's Yakabindie Project (see map).

Following a boundary survey by the Department of Minerals and Energy it has been discovered that four diamond holes drilled by Western Mining in 1994 were collared inadvertently on Jubilee ground and that they intersected the southern extension of the Mt Keith sequence. Significant disseminated nickel mineralisation was encountered on Jubilee's ground including 14.75m @ 0.72% Ni and 15m @ 0.65% Ni within a broad envelope of 42.75m @ 0.55% Ni from 195m depth. The Mt Keith sequence dips eastward on to Jubilee ground and it is considered that significant potential exists for both massive and disseminated nickel sulphides over a five kilometre strike length in the Jubilee tenement. The Company plans to drill test this sequence in June/July.

The host sequence also continues south through Dominions Yakabindie property and subsequently outcrops on Jubilee's Kathleen Valley Project ground for a distance of 3 - 5 km strike length.

At Kathleen Valley the current drilling programme has been suspended due to heavy rain. To date 2800 metres of RC and 3000 metres of RAB have been completed. Assaying results on samples to date have also been delayed due to problems at the assay laboratory although some results have been received and are being assessed. However at Mossbecker West and Ilias South the rig was unable to reach target depth and a diamond rig has been engaged for late June to continue the holes to target.

At Nabberu extensive soil sampling is continuing with mapping to commence shortly in anticipation of commencement of RC/Diamond drilling in late June/early July as planned.

[Signed]

K K Harmanis

MANAGING DIRECTOR"

36 On 14 June 1996, the ASX commenced an investigation looking at why it was that the 1994 drill results had not been announced to the market (exhibit 116). On 17 June 1996, the defendant responded to the ASX enquiry. It would seem that the ASX was satisfied with the response because they took the matter no further.

37 In June and July 1996, the defendant undertook drilling on the McFarlanes Find prospect specifically looking for nickel. On 25 July 1996, after receiving the results from the drilling on the tenement, the defendant made a further announcement to the ASX (exhibit 155). Again, I will quote it in full:

"ANNOUNCEMENT

McFARLANES FIND

The Company advises completion of a stratigraphic diamond drillhole targeted at the nickel-bearing ultramafics at McFarlanes Find, 8km north of Kathleen Valley.

MFD 01 collar was located 105m east of the WMC diamond hole, MKTD 101, at the same initial angle. The hole penetrated ultramafics between 315m and 588m where it was terminated and returned the following intercepts:

Results of the WMC hole MKTD101 have previously been announced and comprised 14m @ 0.72% Ni from 195m and 15m @ 0.65% Ni from 230m within a 42.7m envelope of 0.55% Ni.

The Jubilee drillhole establishes that the Mt Keith nickel sequence dips eastward on to the Jubilee tenement and has enhanced the prospectivity of the Jubilee tenement. The results are being assessed. Further exploration will be targeted at locating higher grade sulphides to the south of MFD 01 where mineralisation is likely to be closer to the surface.

Jubilee is currently completing its rain interrupted drilling programme at Kathleen Valley and will commence drilling at Nabberu in August.

The Company's June quarterly report is due to be released on Monday 29 July 1996.

[Signed]

K K Harmanis

MANAGING DIRECTOR"

38 On 1 September 1997, the defendant announced to the ASX that it had received spectacular results from the drilling of its wholly owned Cosmos deposit (exhibit 32). The market reacted immediately with a dramatic rise in the company's share price. In fact, as it turned out, the Cosmos deposit lived up to its early promise and the defendant is now a significant nickel producer. Its present share price is reflective of that fact.

39 This, then, is an outline of the relevant events. It is appropriate at this point to consider the case as pleaded.

40 The plaintiff's amended statement of claim is dated 26 October 2000. Paragraphs 1 and 2 identify the parties and pleads that at all material times, the defendant was the owner of the McFarlanes Find tenement (exploration licence E36/251). By par 3, the plaintiff pleads that the defendant was subject to ASX listing rule 3A. It is said that the requirements of listing rule 3A(1) were imposed for the purpose of ensuring that market sensitive information was notified to the ASX.

41 In par 4 and par 5, reference is made to the two WMC letters of August and September 1994. Paragraph 6 pleads that at all material times from 5 September 1994 the defendant, through its directors, was aware that the McFarlanes Find tenement was located 12 kilometres to the south of WMC's Mt Keith nickel mine and approximately 2 kilometres from Dominion Mining Co Ltd's Yakabindie nickel project. It is said that both the mine and the project were based on low grade disseminated nickel mineralisation. It is further pleaded that WMC's Mt Keith nickel mine was "a substantial and profitable mine" and was either the largest or one of the largest low grade nickel sulphide ore deposits in the world.

42 Paragraph 7 pleads matters which it says were "included" in the August and September 1994 letters. Because of their importance, I will quote in full the matters referred to in par 7:

"(a) WMC had, while conducting a drilling program on its tenement E53/24, inadvertently drilled a number of holes on JBG's E36/251;

(b) the two tenements share a common boundary;

(c) one of the drillholes (MKTC-101) was drilled to a downhole final depth of 245 metres and a vertical depth of about 229 metres;

(d) the bottom 68.2 metres of that hole assayed 0.47 per cent nickel, with nickel sulphide mineralisation disseminated throughout the final 57.85m;

(e) within the 68 metre length were intercepts of 16.85 metres at 0.61 per cent and 19.0 metres at 0.60 per cent nickel, the latter of which was at the bottom of the drillhole, with the final 12.7 metres averaging 0.67 per cent nickel;

(f) the final 42.7 metres of the drillhole averaged 0.55 per cent nickel;

(g) none of the other drillholes reached or approached the 187 metre downhole depth and 170 metre vertical depth at which the disseminated sulphides were located in drillhole MKTC-101."

43 By par 8, it is pleaded that the defendant was aware of the matters pleaded in par 6 and par 7. Paragraph 9 then defines the "information" in par 7 as "the Information". By par 9(a), it is pleaded that a reasonable person would have expected the Information to have a material effect on the price or value of ordinary shares in the defendant. The reasons for that are set out in three further sub-paragraphs of par 9. They read as follows:

"(b) was evidence that the Mt Keith mineralised nickel sequence, which was the host of all the then known substantial nickel sulphide deposits in the Agnew-Wiluna belt, including those pleaded in paragraph 6(a) above, extended onto JBG's tenement E36/251;

(c) suggested potential for further extensions or repetitions of the Mt Keith mineralised nickel sequence further to the south on tenement E36/251;

(d) suggested that there was potentially commercially viable nickel mineralisation, warranting further exploratory drilling, on tenement E36/251."

44 By par 10, it is said that the defendant failed to notify the ASX of the Information until 10 June 1996. By par 11, it is said that this failure to notify the ASX was a contravention of listing rule 3A(1). By par 12, it is said that as between September 1994 and June 1996, the Information was not generally available and had it been so available it would have influenced persons who commonly invest in securities. It is said that the Information would have had a material effect on the price of the defendant's shares.

45 Paragraph 13 is the plea of negligence. It is said that "a reasonable company" would have known that the Information had the qualities and consequences pleaded in pars 9(b), 9(c) and 9(d) and would also have known that it would have affected the value of shares (as pleaded in par 9(a)) and therefore should have been notified to the ASX. Paragraph 14 is a plea that the defendant contravened the provisions of s 1001A(2) of the Corporations Law.

46 By par 15, it is pleaded that between 22 September 1994 and July 1995 Mrs Helen Christine Riley ("Mrs Riley") (the then trustee of the Trust) sold 3,172,000 shares for a gross consideration of $290,270.00. By par 16, the plaintiff pleads what he says would have happened had the Information been released to the ASX. It is worth quoting par 16 in full:

(a) the price of JBG Shares would thereupon have increased substantially;

(b) Mrs Riley would not have sold the shares in JBG as pleaded in paragraph 15 above;

(i) sold a parcel of 547,000 JBG Shares in or about September 1994 to February 1995 and would, thereby, have obtained a greater price for those shares than was in fact obtained;

(ii) retained the balance of the shares in JBG then owned by her until at least after follow up exploration had been done and the results notified to the ASX; and

(iii) sold those shares in early September 1997, when JBG shares traded at a price between $1.40 and $1.50 per share, and thereby received a total consideration of at least $3,571,425.00 nett [sic] of brokerage and stamp duty."

47 Paragraph 17 particularises the plaintiff's alleged loss. By par 17(a)(i), the plaintiff alleges a loss of $3,281,155.00 being the difference between the price actually received for the shares and the price the plaintiff says would have been received had the shares been sold in line with what is pleaded in par 16(c)(iii). By par 17(a)(ii), an amount is claimed which it is said represents "the extra sum which would have been obtained upon the sale of the shares referred to in para 16(c)(i)" had the Information been released to the ASX. In the pleading it is said that particulars of that amount would be given prior to trial. It would seem no particulars were given.

48 There is an alternative claim pleaded in par 17(b). That is a claim based on an increased share price for all of the shares held by the plaintiff. That too was to be particularised prior to trial, but again it would appear that no particulars were delivered. In any event, this alternative claim was not pursued. Damages were claimed under s 1005 of the Corporations Law.

49 By its amended defence, the defendant admits par 1 of the statement of claim (the identity of the plaintiff) and effectively admits par 2 - that is, its ownership of the McFarlanes Find tenement (despite the plea that is found in par 2(e) of the defence). By par 2(d), the defendant says that on 22 February 1996, the Department of Minerals and Energy approved the survey by WMC which resulted in the common boundary between the defendant's McFarlanes Find tenement and WMC's Spinifex Park tenement moving some 200 metres to the west of the previously recorded position. Doubtless that pleaded fact is true (although irrelevant). However, it is undeniable by virtue of the letter of 1 August 1996 from WMC to the defendant that the defendant became aware of the boundary shift in August 1994.

50 By par 3, the defendant admits the existence of the listing rule but points out that there are circumstances in which information is not to be released. Further consideration of this plea can await discussion of the terms of the listing rule.

51 Paragraph 4 of the amended defence deals with what are defined in the paragraph as the "WMC Letters". It is pleaded that the 1 August 1994 letter informed the defendant that the boundary between the parties' tenements was some 200 metres to the west of the location shown on the plans held by the Department of Minerals and Energy. It further said that the letter advised that six holes had been drilled on the defendant's tenement. As to the later letter, it is said by par 4(b) of the defence that certain data was provided. As to the electromagnetic survey data, it is said in par 4(b)(iii) that the data was "raw, unprocessed readings" with no interpretation.

52 By pars 5, 6 and 7 of its amended defence, the defendant sets out what it says is to be made of the information contained in the two WMC letters. Because of the importance of these paragraphs, I will quote them in full:

"5 With respect to the information ('1994 WMC Information') conveyed by WMC in WMC's letters and the enclosures with them:

(a) only one of the 6 holes drilled, being MKTD101, revealed anomalous nickel sulphide mineralisation on what WMC contended to be part of E36/251;

(b) hole MKTD101 passed through the area which WMC contended was part of E36/251 and into the area which WMC's survey indicated was covered by E53/24;

(c) the distance along the hole MKTD101 from the surface to the point at which it intersected the boundary line of E53/24 as indicated by WMC according to its survey (the down hole depth) was 245 metres and the vertical depth from the surface to that point was between 225 and 237m;

(d) the remaining 5 holes intersected a barren felsic volcanic sequence to the east of the Mt Keith ultramafic rock sequence;

(e) it did not contain or include any information with respect to the area which WMC's survey indicated was covered by E53/24;

(f) it did not contain or include cross sections or other interpretative material.

6 As to paragraph 6 of the amended statement of claim, the defendant:

(a) says that the area the subject of WMC's letters was approximately 12 kilometres south southeast of the centre of WMC's Mt Keith nickel mine;

(b) says that the said area was some 10 to 15 kilometres north northwest of Dominion Co Ltd's Yakabindie nickel project;

(c) says that WMC did not commence production at Mt Keith until September 1994 and that WMC's Mt Keith nickel deposit comprised large reserves of disseminated nickel sulphide ore;

(d) says that the Yakabindie nickel project was not in September 1994 (and still is not) a mine;

(e) otherwise denies the allegations in the said paragraph.

7 As to paragraph 7 of the amended statement of claim, the defendant:

7.1 repeats the matters pleaded in paragraphs 4 and 5 above;

7.2 says, with respect to sub paragraph 7(c), that in the 1994 WMC Information the drill hole was named 'MKTD101', not 'MKTC101' and that information did not disclose either the final vertical depth or final down hole depth of that hole and those depths could not be determined from that information although it disclosed that the down hole depth was well in excess of 245 metres;

7.3 says, with respect to sub paragraphs 7(d), (e) and (f) and the 1994 WMC Information in relation to drill hole MKTD 101:

(a) assay information was only provided in respect of material derived to a down hole depth of 245 metres and that assay information did not disclose what the 68.2 metre interval from and above the point being 245 metres down hole depth assayed;

(b) information as to the mineralogy of the final 57.85m of material derived from the hole was not provided but it could be discerned from the 1994 WMC Information that the 60 metre (not just 57.85m) interval from and above the point being 245 metres down hole depth contained disseminated nickel sulphides;

(c) it could be derived from the 1994 WMC Information that the 67.9 metres from 177.1 metres down hole depth to the end of the assay information provided by WMC at 245 metres down hole depth assayed 0.445 per cent nickel;

(d) it was not disclosed and it could not be derived from that the 1994 WMC Information what percentage of nickel was contained in the 68.2 metres from 177.1 metres down hole depth to the end of the assay information provided by WMC at 245 metres;".

53 By par 9 of the amended defence, the defendant denies that the information in par 7 of the amended statement of claim ought have led a reasonable person to expect its release would have a material effect on the defendant's share price. As an alternative to that plea, it is said that there was no breach of listing rule 3A because disclosure of such "indefinite and incomplete information" could damage the defendant's credibility in the market and adversely affect the share price. It is also said that the information did not suggest that there was "potential for commercially viable nickel operation".

54 By pars 10, 11 and 12 of the amended defence, the defendant admits it did not notify the ASX of the matters referred to in the WMC letters and joins issue with allegations in the amended statement of claim that it should have done so. By par 13 of the amended defence, the defendant denies any negligence in its failure to notify the ASX of the Information. Particulars of why it was not negligent are provided in pars 14, 15, 16 and 17. These again are important paragraphs and I will quote them in full:

"14 Upon receipt by the defendant of WMC's Letters and accompanying documents, they were read by Mr. John Cooke, the defendant's manager of exploration and an experienced geologist in the minerals exploration industry.

15 Mr. Cooke promptly brought both letters and accompanying documents to the attention of Mr. William Crossley, the defendant's managing director and a qualified mining engineer.

16 Soon thereafter Mr. Cooke and Mr. Crossley conferred about the significance of the information conveyed by WMC's Letters and accompanying documents and both reasonably took the view that although the 1994 WMC Information showed anomalous nickel values in respect of one of the holes drilled by WMC (MKTD101), it was not of any interest or significance to the defendant as the mineralisation indicated was too deep and of too low grade to suggest potential for a commercially viable nickel operation and there was no evidence as to whether its width was true or exaggerated.

17 Mr. Crossley, as managing director of the defendant, therefore did not regard the information as being of sufficient significance to warrant it being referred to the Board of the defendant or reported to the ASX."

55 The defendant concludes by denying that the plaintiff has suffered any loss and damage. Nothing specific is pleaded about share price fluctuations and no direct response is given to the allegation that the plaintiff would have held on to the shares and sold at a later date had the information been given to the market. Clearly, the defendant joined issue with the plaintiff on that question and, not surprisingly, quantification of the plaintiff's alleged loss was a substantial issue in the proceedings.

56 The ASX listing rules are a set of rules which govern the relationship between companies listed on the ASX and the ASX itself. At the relevant time, the ASX had adopted listing rules within the meaning of the then prevailing s 761 of the Corporations Law. For the purposes of this case, it is listing rule 3A which is relevant. That rule appears under the heading "NOTICES" and is in the following terms:

"A listed company shall immediately notify the Exchange of -

(1) any information concerning the company of which it is or becomes aware and which a reasonable person would expect to have a material effect on the price or value of securities of the company. This requirement does not apply if each of the following conditions is and remains satisfied:

(i) a reasonable person would not expect the information to be disclosed; and

(iii) one or more of the following conditions apply:

a. it would be a breach of a law to disclose the information;

b. the information is, or is part of, an incomplete proposal or negotiation;

c. the information comprises matters of supposition or is insufficiently definite to warrant disclosure;

d. the information is generated for the internal management purposes of the company; or

For the purpose of this Listing Rule the company becomes aware of information where a director or executive officer has, or ought reasonably to have, come into possession of the information in the course of the performance of duties as a director or executive officer."

57 At the relevant time, disclosure by listed entities was controlled by s 1001A of the Corporations Law. That section is in the following terms:

"(1) This section applies to a listed disclosing entity if the provisions of the listing rules of a securities exchange:

(b) require the entity to notify the securities exchange of information about specified events or matters as they arise for the purpose of the securities exchange making that information available to a stock market conducted by the securities exchange.

(2) The disclosing entity must not contravene those provisions by intentionally, recklessly or negligently failing to notify the securities exchange of information:

(b) that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of ED securities of the entity.

(3) A contravention of subsection (2) is only an offence if the failure concerned is intentional or reckless.

(4) ..."

58 Some guide is provided to the interpretation of s 1001A by s 1001D. It is in the following terms:

"For the purposes of sections 1001A and 1001B, a reasonable person would be taken to expect information to have a material effect on the price or value of securities if the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether or not to subscribe for, or buy or sell, the first-mentioned securities."

59 It is worth pausing at this point to consider the statutory provisions in some detail and how those provisions, taken together with the pleadings, define the issues to be determined in this case. The place to begin is with listing rule 3A. The rule requires information to be disclosed to the ASX if a reasonable person would expect the information to have a material effect on the price or value or securities. There are two concepts present in that requirement. The first is that it is from the point of view of a "reasonable person" that it is to be determined whether the information would have an effect on the price. It is not from the point of view of a stockbroker or a geologist or a seasoned trader, but of a reasonable person. Second, the information is only to be released if there is an expectation that it would have a "material effect" on the price or value of securities. So information that might be thought to cause a stock trading at $20 to jump by 1 cent would probably not be "material", whereas information that might cause a stock trading at 10 cents to jump by 1 cent, would be "material". This introduces the concept of relative values of the stock to which I referred earlier when contrasting the defendant with WMC.

60 Rule 3A(1)(i) is a rather strange exception. The primary requirement of the rule is that information should be released if a reasonable person would expect the information to materially affect the stock price. But if that same reasonable person would not expect the information to be disclosed, even if it would have a material effect on the stock price, then the rule will not operate. Whatever might be the proper interpretation of this exclusion, it is not relevant to this action.

61 The pleadings suggest that the defendant would rely on rule 3A(1)(iii)(c). In other words, it was said that the WMC information was "insufficiently definite". As it turned out, that argument was not really pressed. If anything, it was subsumed in the wider claim that the information was not of such significance that it should have been released.

62 Section 1001A(2)(b) of the Corporations Law picks up almost word for word what is found in rule 3A. But its operation is dependant on the listing rule being contravened "intentionally, recklessly or negligently". The use of the word "intentionally" is somewhat confusing. The defendant's pleaded case is to the effect that the defendant, by its officers, considered the WMC information and decided not to release it to the ASX - in other words, they formed an intention not to so release the information. Both counsel agreed that whatever is meant by "intentionally", it did not apply to this case. The case was run by the plaintiff and defended by the defendant on the basis that it was alleged the defendant was negligent in failing to release the information.

63 Section 1001D deals with when information should be seen as having a material effect on the price of securities. The information must influence persons "who commonly invest in securities" in deciding whether to buy or sell. So it is not relevant to ask what a member of the general public might make of the information. Nor is it relevant to consider the information from the point of view of a stockbroker or a geologist or a mining entrepreneur. What is to be considered is the perspective of the person who "commonly", as opposed to occasionally or rarely, invests in securities. There are, of course, persons who commonly invest in securities but would not dream of investing in speculative mining stocks. Presumably such persons would never be in a position of deciding whether to buy or sell such shares. They simply do not trade in that area. So the notional person to be considered in this case is a person who commonly invests in small speculative miners.

64 Against that background, it is possible to define the issues. They are:

(1) Would a reasonable person expect the material found in the WMC letters to have had a material effect on the defendant's share price as at September or perhaps October 1994?

(2) If the answer to the above question is yes, was the failure of the defendant to notify the ASX negligent?

(3) If the answer to that question is yes, has the plaintiff suffered any loss or damage and, if so, how much?

65 Of course, each of these three issues has bound up in it a number of sub-issues. But, for present purposes, it is enough to state in broad terms what is to be determined in this action.

66 Before dealing with the evidence, I should return again to the WMC letters. They need to be put in context. WMC was at the time one of the largest nickel miners in the world. It was well known as such. It was certainly well known as such by both Mr Cooke and Mr Crossley. WMC had proved up a huge resource of low grade nickel at Mt Keith. As at September 1994, the ore reserve was measured at some 500,000,000 tonnes. It was anticipated that the Mt Keith mine would cost some $450,000,000 to develop and would have a life of anywhere between 20 and 50 years. By any measure, Mt Keith was a substantial undertaking.

67 To the south of McFarlanes Find lay the Yakabindie deposit of Dominion Mining. This too was a substantial deposit of low grade nickel which, as at 1994, was and even today, remains undeveloped. So anyone reasonably familiar with the area around the McFarlanes Find tenement - and certainly Mr Cooke and Mr Crossley - were aware that the tenement was in a nickel province and lay between two substantial and proven nickel resources.

68 The letters themselves indicated that WMC were drilling the Spinifex Park tenement which was a narrow section of land between the two parts of the McFarlanes Find tenement. WMC was not, as at September 1994, exclusively a nickel miner. But it is reasonable to suppose that they were drilling Spinifex Park to see whether it contained nickel. In other words, they were looking to see whether the reserves at Mt Keith extended south through Spinifex Park.

69 It is reasonable to ask why WMC wrote to the defendant at all bringing the fact of the drill holes to their attention. In part, it may be a reflection of WMC as a good corporate citizen. However, WMC had in the past run into difficulties by not disclosing to an adjoining tenement holder, information obtained about that tenement. This is referred to as the Ernest Henry case in mining circles. The facts of that case as set out by counsel for the plaintiff (page 911 of the transcript) are as follows:

"In 1987 WMC geophysicists in northwest Queensland walked over what appeared to be a significant electromagnetic anomaly with 50 per cent of the anomaly lying on an adjacent tenement. WMC approached the owners of the neighbouring tenement Savage Resources, and formed a joint venture for exploration and development.

Savage Resources consisted of three Sydney accountants who invested their time into these exploration tenements in Queensland. Savage were not made aware of the electromagnetic anomaly at the joint venture meetings.

At the signing of the joint venture agreement WMC quickly drilled the anomaly and discovered a $400,000,000 copper and gold deposit now known as Ernest Henry. Despite their junior role in the relationship, Savage quickly became suspicious of WMC's instant success at the boundary of the tenements and took WMC to Court.

The courts for whatever reason leaned in favour of Savage Resources and they were awarded 100 per cent of the whole deposit. WMC had failed to provide an honest and accurate assessment of work completed over the boundary of another company's tenements."

Clearly, WMC did not want a repeat of the events surrounding Ernest Henry.

70 The Ernest Henry case has passed into mining folklore. Perhaps it touches a chord with those involved in mining as the actions of WMC had about them an element of "claim jumping", always an emotive issue in the mining industry. But whatever the reason, in 1994, anyone involved in the mining industry would have at least had some knowledge of the Ernest Henry case and its ramifications. Certainly, the decision was known to both Mr Cooke and Mr Crossley.

71 I mention these matters because they provide the background to the receipt by the defendant of the WMC letters. One might expect that Mr Cooke, on receiving the letters, would have been put on his guard. From the most basic reading of the material accompanying the letter of 1 August 1994, it was apparent that the drill holes had intersected ultramafic rock, a known host for nickel. Further, there was some evidence of nickel sulphides. That is referred to in the logs of holes for MKTD-101 and MKTC-103. The assay results for MKTD-89 which accompanied the first letter did show some heightened nickel, although it may have been necessary to have some expertise in order to interpret the significance of the assay results.

72 The fact that the results of electromagnetic surveys were provided, without more, indicated that electromagnetic field work had been undertaken. That would hardly be surprising, as all the witnesses agreed it was nothing more or less than was to be expected when WMC were undertaking an exploration programme. But one might have thought that it would be worth obtaining some assessment of the electromagnetic data from a consultant geophysicist. In all, one might have expected the first letter to have heightened the awareness of Mr Cooke and the defendant to the possibility that WMC had discovered something of significance on the defendant's ground.

73 It is convenient to deal at this point with an argument over pleadings which erupted during the course of the trial. Counsel for the defendant made the point that there was nothing in the plaintiff's statement of claim which referred to the electromagnetic data. Counsel for the plaintiff insisted that the way the action was pleaded meant that the presence of the electromagnetic data was one factor which should have alerted the defendant to the significance of the WMC information. Counsel for the plaintiff then proposed that he file a reply. A document entitled "Minute of Proposed Reply" was tendered. It was in the following form:

"1 As to paragraphs 4(b)(iii) and 5(f) of the defence the plaintiff says that if, for the purpose of determining whether the Information pleaded in paragraph 7 of the statement of claim was required to be notified to the ASX, the defendant needed to know whether there was an electromagnetic feature or to prepare and draw conclusions from cross sections and the electromagnetic feature then:

1.1 The WMC letters included electromagnetic survey data for the holes drilled on the defendant's tenement and for drill hole MKTD 96 drilled solely on the WMC tenement;

1.2 The electromagnetic survey data contained information that showed for the drill holes drilled on the defendant's tenement and a hole drilled solely on WMC's adjoining tenement hole locations, hole depths, survey instructions to the geophysical staff concerning areas of high anomaly gradient and survey results for the drill holes in areas of high anomaly gradient.

1.3 The information in the electromagnetic survey data enabled the defendant to determine whether an electromagnetic feature was present on the WMC tenement;

1.4 The information to draw cross sections was contained in the WMC letters;

1.5 The defendant was able to determine that the Information pleaded in paragraph 7 of the statement of claim was required to be notified to the ASX notwithstanding that it had not been provided with an interpretation of the electromagnetic data, cross sections or other interpretative material.

2 The plaintiff otherwise joins issue with the defendant upon its defence."

74 Counsel for the defendant took strong objection to the terms of the reply. He made the point that it raised a separate issue upon which none of the defendant's experts had been asked to comment. It was his submission that it was too late in the day to raise what was, in effect, a fresh issue.

75 I refused to allow the plaintiff to amend in terms of the minute. In my view, it does raise a fresh issue about which expert evidence would be necessary. Expert evidence orders had been made back in 2002 and no expert had analysed the electromagnetic data. It was now too late to raise something altogether new.

76 But that is not to say the electromagnetic data is to be ignored. It is the fact that it accompanied the first letter. As I have said, without making any attempt to understand the data or have it analysed, Mr Cooke and the defendant surely should have had some heightened awareness of its significance.

77 The second letter had attached to it the assay results. Some of the results for MKTD-101 leap off the page. For instance, there is a 2 metre intersection which runs at 1.33 per cent nickel and another 2 metre intersection which runs at 1.153 per cent nickel. The Mt Keith deposit was at a grade of 0.5 per cent. These figures are not difficult to spot and, even to the untrained eye, they look significant. Quite how significant is the question at the heart of this case.

78 However, what must be borne in mind is all of the background facts known to Mr Cooke and Mr Crossley and the fact of the two WMC letters and what, even to the uninitiated, they contain. All of the evidence of all of the witnesses needs to be set against that background.

Kim Edward Riley (witness statement exhibit 53)

79 Mr Riley was born in Perth and graduated from the University of Western Australia with a bachelor of commerce degree in 1975. He became a member of the Australian Society of Accountants in 1976 but relinquished his membership in 2000. He became an associate member of the Securities Institute of Australia in 1991 and relinquished that membership in 2000. After graduating from university, he worked in a number of different jobs focusing mainly on financial and administration work. This work included company secretarial and accountancy work. He is married to Mrs Riley, who also gave evidence in these proceedings. For a time, Mrs Riley was the trustee of the Trust.

80 On 25 January 1987, Mr Riley was appointed on an interim basis company secretary of Sir Samuel Mines. At the time, the defendant was not listed on the ASX. Mr Riley commenced full-time employment as company secretary of Sir Samuel Mines on 6 July 1987. He was appointed company secretary of the defendant on 5 November 1987. On 13 January 1988, he was appointed a director of both the defendant and Sir Samuel Mines as an alternative to Mr Harmanis. Mr Harmanis was, at the time, a substantial shareholder in both companies. On 4 July 1989, Mr Riley was appointed managing director of Sir Samuel Mines. Somewhere between 1 November 1990 and 4 July 1991, Mr Riley was appointed the managing director of the defendant. On 17 November 1991, the defendant took over Sir Samuel Mines and that company became a wholly owned subsidiary of the defendant. After the takeover, Mr Riley became company secretary and managing director of both the defendant and Sir Samuel Mines.

81 From about March 1993, Mr Riley's relationship with Mr Harmanis began to deteriorate. By September 1993, Mr Riley felt that he could no longer work for the defendant. On 1 December 1993, Mr Riley gave written notice of his resignation as a director of both the defendant and Sir Samuel Mines. This resignation took effect on 31 December 1993. The circumstances in which Mr Riley departed company with the defendant were not relevant to this action.

82 In the period from about 11 June 1987 to 21 September 1993, the Trust acquired fully paid shares in the defendant. Between about 23 June 1988 and 6 December 1989, Mr Riley also acquired a number of shares in both the defendant and Sir Samuel Mines in his own name. Between 1 September 1988 and 4 January 1990, Mr Riley transferred 1,800,000 partly paid shares in Sir Samuel Mines to the Trust. Between about 16 October 1989 and 4 January 1990, Mr Riley transferred 1,725,000 partly paid shares in the defendant to the Trust. As a result of the takeover of Sir Samuel Mines by the defendant on 17 November 1991, Sir Samuel Mines shares were exchanged for shares in the defendant. The Sir Samuel Mines shareholders received three of the defendant's shares for every four Sir Samuel Mines shares they held. As at the date of Mr Riley's resignation from the defendant, the Trust owned 797,000 fully paid shares. It also owned 1,500,000 partly paid shares with 4 cents unpaid on each share and 1,125,000 partly paid shares with 6 cents unpaid on each share.

83 The Trust was established in 1985. The main purpose of the Trust was to hold property and investments on behalf of Mr Riley, his wife and their two children. These four individuals are the beneficiaries of the Trust. From the commencement of the Trust until 28 June 1999, Mr Riley was the appointor under the trust deed. From the commencement of the Trust until 18 August 1985, B M Riley Nominees was the trustee. B M Riley Nominees was controlled by Mr Riley's brother, Bruce Maxwell Riley. By deed of appointment dated 18 August 1985, B M Riley Nominees retired as trustee, and Harnay Pty Ltd ("Harnay") was appointed as trustee. Harnay was controlled by Mr Riley. By deed of appointment dated 28 June 1994, Harnay retired as trustee and Mrs Riley was appointed as trustee. By deed of appointment dated 28 June 1999, Mr Riley retired as appointor and appointed Mr Craig Derel Sproule ("Mr Sproule") as the new appointor of the Trust. By deed of variation dated 15 April 2006, the office of the appointor was abolished. By deed of appointment dated 29 June 1999, Mrs Riley retired as trustee and Mr Sproule appointed Mr Riley as the trustee. He remained as trustee as at the date of trial.

84 Mr Riley said in his evidence that irrespective of the identity of the trustee, it was he who monitored the trust share portfolio. Most days he checked the trading price of the Trust's shares. Occasionally, he would speak with stockbrokers seeking their advice as to which shares the Trust should acquire. Whenever possible he attended functions that gave him the opportunity to speak with different people who worked for or with the companies in which the Trust held shares or in which the Trust was considering investing. Mr Riley also kept abreast of press reports about shares in which the Trust invested. Occasionally, Mr Riley would visit the ASX.

85 The decisions of the trustee to hold, buy or sell shares were made on the basis of, and in accordance with, Mr Riley's advice and recommendations. His strategy for the Trust was to invest in companies primarily in the resource sector that had the potential to return significant capital gains in the longer term, being ever mindful of opportunities to profit through short term trading.

86 After he resigned from the defendant in December 1993, Mr Riley said he decided to take a break from paid employment. Between December 1993 and July 1995, he undertook significant renovations to his family home. In addition, he evaluated a number of business opportunities. However, throughout this period, he was not in any paid employment. In July 1995 Mr Riley took up a position as manager with Polymetals Pty Ltd.

87 During the 18 months when Mr Riley was not in paid employment, he used the proceeds of the sale of shares in the defendant to fund his living expenses. That became apparent from cross-examination: transcript, pages 383 - 384. Mr Riley indicated that while as at the date he left the defendant's employment he intended to take some time off, he did not originally intend to take 18 months. He maintained, and I accept, that had he wished to do so he would have been able to find paid employment. He confirmed that position in re-examination: transcript, page 394.

88 Mr Riley says that when he resigned from the defendant it was his intention that the Trust should sell the 797,000 fully paid shares in the defendant in parcels as and when they were needed to provide income for his family. He said that it was his intention that the 2,625,000 partly paid shares should be retained by the Trust as a long term investment. He said that the accounts for the Trust showed the partly paid shares being treated as capital and the fully paid shares being treated as trading stock. The accounts of the Trust were not in evidence.

89 In June 1994, Mr Riley became aware that on 24 June 1994 the defendant announced to the ASX that it had reached agreement to acquire 100 per cent of the Bellevue Gold Project. The acquisition was to take place on 15 August 1994. The funding for the acquisition was to be a combination of project financing and placement of shares. On or shortly after 15 August 1994, Mr Riley became aware of the defendant's announcement to the ASX that the Bellevue No. 1 deal would not be completed on 15 August 1994. The announcement said that alternative arrangements were being negotiated. Mr Riley became aware on or about 30 September 1994 of the defendant's announcement to the ASX of an amended deal to acquire the Bellevue Gold Project. On or about 5 December 1994, Mr Riley became aware from the defendant's ASX announcement that the Bellevue No. 2 deal had fallen over and the acquisition would not be completed.

90 By February 1995, Mr Riley had formed the view that the defendant's share price would continue to fall (it had been falling since the announcement of the failure of the Bellevue deals) and would stay low for an indefinite period. Mr Riley says that there were five factors which led him to form this view. First, the Bellevue deals had failed in two manifestations, suggesting an inability on the part of the defendant to excite the market sufficiently to raise the necessary capital to complete the deal. Second, the defendant had failed to get its major gold resource project at Kathleen Valley into production. Thirdly, the defendant did not have any other mineral exploration potential including nickel. Fourthly, the defendant had a cash shortage and did not have any disclosed future revenue earning prospects. Finally, and perhaps most importantly, the defendant's share price was moving downwards.

91 Having put all these factors together and formed an adverse view of the defendant's prospects, Mr Riley decided in February 1995 that the Trust should forthwith sell all its shares. That is what was done. Annexure "2" shows the sales. As a number of the shares held by the plaintiff were partly paid, it was necessary to make payment of the money outstanding on the shares before the fully paid shares could be sold on the market. Annexure "2" shows payments made to obtain the fully paid shares.

92 Mr Riley said that he has since become aware that in August and September 1994, the defendant received the WMC information. He first became aware of that information when the defendant made its announcement to the ASX in June 1996. (I should say at this point that the defendant disputed that the information available in 1994 was the same as the information available in 1996. This is an issue I will canvass below. However, it is the plaintiff's position - and it was certainly Mr Riley's position - that the information available to the defendant in 1994 was precisely the same as the information available in 1996.)

93 Mr Riley then goes on to say what would have been the effect of his being made aware of the WMC information in September 1994. Because of the importance of this point, I will quote par 84 of Mr Riley's witness statement in full:

"If Jubilee had released the WMC Information to the ASX in or around September 1994 then I would not have advised the Trust to dispose of its Jubilee shares in the way that it did."

94 Mr Riley says that as he read the financial press most days, it was likely that he would have become aware of any announcement to the ASX by the defendant within 24 hours of the announcement being made. As at late 1994, he knew that the defendant's McFarlanes Find project adjoined WMC's Mt Keith tenement and that Mt Keith contained one of the largest low grade nickel sulphide ore reserves in the world. He says that he would have concluded that the WMC information was evidence that the Mt Keith mineralised nickel sequence extended on to the defendant's McFarlanes Find tenement and that the McFarlanes Find tenement might contain commercially viable nickel mineralisation or, at the very least, the tenement required further exploratory drilling to establish whether the tenement contained commercially viable nickel mineralisation.

95 Having said that he would have retained the shares sold in 1995, the question then was when he would have sold. Mr Riley says that in September 1997, he learned that the defendant's share price was approaching $1.50. This was after the June 1996 announcement and before any announcement related to the Cosmos discovery. Mr Riley says that he regarded something around $1.50 as being "a very good price for the defendant's shares" and that he would have sold: see pars 100, 101 and 102 of Mr Riley's witness statement. He also says that he advised others who he knew had shares in the defendant to sell.

96 Two things emerged from the cross-examination of Mr Riley. First, he was well aware that the defendant was in 1994 focused on exploring for gold. The defendant had not mentioned looking for nickel and there was no indication it would reassess its priorities: transcript, pages 361 - 362. Second, Mr Riley clearly regarded the WMC information as significant. Watching him give his evidence, he seemed to me to be a well informed investor with perhaps slightly more knowledge of the mining industry than most. But none of his responses to questions under cross-examination led me to the conclusion that in any circumstances he would have regarded the WMC information as anything other than positive: transcript, pages 366 - 369; 385 - 388.

97 I accept Mr Riley as an honest witness. He gave his evidence in a straightforward manner. He responded directly and, in my view, honestly, to all questions put to him in cross-examination. This can, perhaps, be highlighted by an exchange which took place during the course of cross-examination. As I have mentioned above, it was the defendant's position that had it made an announcement to the ASX in 1994 subsequent to the receipt of the WMC information, it would have had to advise the ASX that it would not be undertaking any more drilling. Watching Mr Riley (and other witnesses to whom this proposition was put), it was clear that they were nonplussed by the idea that the defendant would announce what they regarded as positive results and then by the terms of the announcement undermine the prospect of a favourable market response. The exchange went as follows (transcript, pages 376 - 378):

"Yes, that's what I'm putting to you. If in September 94 they said simply, 'There's the information. It might be significant but we're not doing anything about it. We're sticking with gold. We're not going to do further exploration. We're not going to do further drilling,' surely would you - as a prudent investment adviser you would then say to the trust or the trustee, 'Sell those shares'? --- Yes. I would have had to strongly consider that; yes.

You would more than strongly consider it; you would give that advice, wouldn't you? --- I would have to strongly consider it.

Can you answer the question? Would you have advised the trustee to sell the shares? I appreciate it's an answer against your interest, but that is the reality? --- I am trying to put it into context, please, sir, in the 1994-95 market as well. It has got the WMC information.

The market has got that but it has also ---?--- That's the same information that is in 1996 ---

It has got the WMC information of 1994, which is not the same? --- No, but the relevant aspects of it, sir, in 1996 are disclosed, such as the ---

In 1996, Mr Riley, as you I think more or less pointed out, the company said it was going to do drilling and exploration, which it did? --- Yes.

But I'm putting to you: suppose in 1994, September 94, the company said, 'That's what we've got from WMC. We don't think there is anything in it but there it is and we're not going to do exploration, we're not going to do drilling, we are sticking with gold and we've got limited funds for that.' Would you agree that faced with that, standing back as an independent adviser to the trust, you would be negligent if you didn't say to the trust, 'Sell the Jubilee shares'? --- Yes, I likely would have recommended that if there was going to be no exploration on the nickel and there was no further nickel information available, then yes."

98 What that section of transcript does not show is the care Mr Riley gave to answering the question. He paused, clearly considering what he regarded as an unlikely possibility and then answered the question in an honest and straightforward fashion. That was typical of his evidence and it, among other things, convinced me that he was a witness of truth.

Helen Christine Riley (witness statement exhibit 53)

99 Mrs Riley was called to give evidence essentially to confirm the dates on which the defendant's shares were sold by the Trust. She was the trustee during relevant periods. Mrs Riley was not cross-examined and her evidence was uncontroversial.

100 Dr Trench is presently an employee of Woodside Petroleum. He is also a non-executive director of three listed companies - Herron Resources NL, Pioneer Nickel NL and Navigator Resources NL. In 1996, Dr Trench was working for WMC. In May or June 1996, he was working at the Leinster nickel operation as senior exploration geophysicist. Dr Trench has a doctorate in geophysics, an honours degree in geology, a masters of business administration and a masters degree in mineral economics.

Kim Riley In His Capacity As Trustee of The Ker Trust v Jubilee Mines Nl [2006] WASC 199

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (484 paragraphs)

Kim Riley In His Capacity As Trustee of The Ker Trust v Jubilee Mines Nl [2006] WASC 199 (6 September 2006)

Kim Edward Riley (witness statement exhibit 53)

Helen Christine Riley (witness statement exhibit 53)

John Alexander Cooke (exhibits 162, 170 & 206)

William John Crossley (exhibits 177 & 177A)

Julian Fraser Harvey Barnes (exhibits 172, 173 & 174)

Noel Ripley Sheppy (MFI 121, exhibits 202 & 205)

John Alexander Cooke (recalled exhibit 206)

Defendant's treatment of WMC information in September / October 1994

Would a reasonable person expect if the WMC information were generally available, that it would have a material effect on the price of the defendant's shares?

Was the contravention of the disclosure rules negligent?

Parties

Cases Cited (16)