Misleading or deceptive statements in offer documents

Alex Eastwood, Australian Corporate News – Issue 11, 16 June 2004

This article considers a case1 in which the Federal Court of Australia found that a document can be misleading or deceptive even though each statement in it is literally true. In the case, the court noted that:

• readers of a document expect that important information will be at the beginning and that any other information that qualifies important information will also be disclosed prominently and at the beginning;
  
  
• using cross-referencing techniques such as “refer to section x for further details” or “see payment terms” is not recommended;
  
  
• price and terms of payment are of pre-eminent importance to an investor; and
  
  
• statements that investors should consult independent advisors do not help the authors of the document if the overall impression created upon a reading of the document is that it seems to be “straightforward”.

In New Zealand, there is potential civil liability under section 56 of the Securities Act 1978 (the Act) and potential criminal liability under section 58 of the Act for misstatements in advertisements or registered prospectuses.

In addition, if statements in an offer of securities are misleading or deceptive, a civil remedy may be available to investors against the persons responsible for those statements under section 9 of the Fair Trading Act, which provides:

“No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”.

Although the court was no doubt influenced by the finding that, in this case, the document had been intentionally designed to mislead offerees so as to maximise uninformed acceptances, the conclusions reached nevertheless seem sensible. Those conclusions would be likely to be followed by a New Zealand court, even in cases where the cause of the misleading or deceptive content was due to inadvertence rather than, as seems to have been the case here, a deliberate attempt to mislead.

1 National Exchange Pty Limited v ASIC (2004) 22 ACLC 609

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