In a judgment prefaced with an acknowledgement of its significant length, Lee J found that GetSwift Ltd, a publicly-listed technology company and ‘former market darling’,[1] had made selective and misleading ASX announcements to drive up its share price. This reflected a self-professed ‘do or die’[2] approach to commercial success by company directors who sought to exercise close control over the content and timing of announcements in order to create a positive market reaction.
Notably, this conduct was not only a contravention of the company’s continuous disclosure obligations and misleading and deceptive conduct, but also gave rise to liability for breaches of the directors’ duty of care and diligence. This reaffirmed the proposition in Cassimatis v ASIC[3] that the operation of the duty is not narrowly confined to business operations and profit margins, but rather extends to all obligations of the company, including the prevention of adverse regulatory findings.
Continuous disclosure obligations
Employing what Lee J described as a ‘public-relations-driven approach to corporate disclosure’,[4] GetSwift had announced consumer contracts with major companies as full subscription agreements, failing to disclose that many had not progressed past a trial stage and that GetSwift did not stand to gain a clear financial benefit. The directors had also strategically timed ASX announcements and marked announcements as price sensitive, ‘evincing an appreciation that the failure to release announcements of new client agreements would or could have a negative impact on investor expectations’.[5]
Lee J held that GetSwift and three of its directors had breached the disclosure obligations in s 674 of the Corporations Act. The directors had either drafted, directed or authorised the announcements, suggesting that they were aware of the contents of those announcements.[6] With respect to the requirement that the non-disclosed information be material, it was held that the concept was to be ‘understood by reference to common sense’.[7] Given that the public-relations approach to disclosure by GetSwift was intended to influence investor perceptions of share value, it was ‘not intuitively surprising’ that the information was likely to be material.[8]
In adopting this ‘common sense approach’,[9] His Honour indicated that share price changes, although a relevant factor, were not determinative of materiality, and that the subjective views of directors as to the impact of the announcements ‘should not be immediately dismissed as mere musings and may be of some (albeit limited) relevance to the extent they shed light on the objective basis upon which those views were formed’.[10]
Lee J accepted that for directors to have been knowingly involved in a breach of the Corporations Act under s 79, they must have known that the information was of a type that a reasonable person would have expected to have a material effect on the company’s share price.[11] His Honour found that three of the directors knew that there were ‘important qualifications’[12] on the announcements and were generally liable for the breaches of continuous disclosure obligations as a result of their involvement.
Misleading and deceptive conduct
In analysing the allegations of misleading and deceptive conduct, Lee J noted that in assessing representations by silence (here, the failure to qualify the announcements), there is a reasonable expectation that a company will not only comply with continuous disclosure obligations but also that it will ‘act consistently with the way in which it has represented to the market that it will act in relation to this obligation of disclosure, for example, by way of a continuous disclosure policy’.[13]
In particular, GetSwift had represented that agreements would only be announced when they had been entered into for a period of two to three years, a trial phase had already been completed[14] and the benefits were “secure, quantifiable, and measurable”.[15] Lee J held that GetSwift had engaged in misleading and deceptive conduct because a number announcements already made were related to agreements that were in fact not of this type and there were not reasonable grounds for conveying that the agreements would be of this type in the future.[16] The failure to qualify, withdraw or correct announcements was also considered to be a contravention.[17]
His Honour held that the relevant directors were acting ‘in their personal capacity as opposed to being merely part of the corporate organ’.[18] As such, both the company and two directors were found to have contravened s 1041H of the Corporations Act and s 12DA of the ASIC Act.[19]
Duty of care and diligence
Lee J held that three of the directors breached the statutory duty of care and diligence in s 180(1) by permitting contraventions of the Corporations Act where it was reasonably foreseeable that the conduct would harm the company by exposing it to the risk of legal proceedings.[20] Of significant interest is Lee J’s discussion of the interaction between contraventions of continuous disclosure obligations and breaches of the duty of care and diligence.
Lee J accepted the propositions advanced by Thawley J in Cassimatis v ASIC that the balancing exercise that directors must undertake in fulfilling their duty of care and diligence requires them to consider not only commercial considerations and monetary consequences, but ‘all of the interests of the corporation’,[21] which includes its continued existence and its interest in complying with the law. Although commercial activity permits a company to take risks that individuals may be unwilling to assume, ‘the company fiction does not facilitate unlawful risky activity without personal responsibility.’[22]
However, Lee J observed that the liability of a director under s 180(1) does not follow automatically from the company’s contravention of the Corporations Act. Instead, it arises ‘where the director’s failure to exercise reasonable care and diligence has caused, or allowed, the company to contravene the Corporations Act, at least where it was reasonably foreseeable that such contravention might harm the company’s interests’.[23] Specifically, the analysis concerns whether and to what extent the company’s interests were jeopardised, whether the risks outweighed the potential benefits, and whether reasonable steps could have avoided the risks.[24]
Lee J made two further points of note. Firstly, he rejected the contention that if a director did not personally contravene the continuous disclosure requirements they could not be liable under s 180(1). This was because the director could still have failed in their duty to prevent the company’s contravention.[25] Secondly, he held that ASIC did not need to establish that the directors’ knowledge satisfied all the elements of the contraventions themselves. Rather, it had to establish that a reasonable director exercising reasonable care and diligence would have appreciated the risks of the company contravening the requirements and the risk of harm from that contravention.[26] However, where directors do have the knowledge to satisfy the contravention, a conclusion of breach ‘is all the more compelling’.[27]
Observations
The decision in GetSwift gives important consideration to the interaction between a listed corporation’s continuous disclosure obligations and the personal duties of its directors. The decision reaffirms that company directors can be held personally liable for their failure to meet the statutory standard of care and diligence required by s 180(1) of the Corporations Acts where they have allowed the company to breach other provisions of the Corporations Act.
However, liability under s 180(1) is not simply derivative of the corporation’s contravention and does not automatically follow upon a finding of breach against the company. Instead, the court will apply the well-established balancing approach to weigh the risk of foreseeable harm to the company against the potential benefits expected to accrue from the conduct in question.[28] Critically, in applying that test, the court will have regard to ‘all of the interests of the corporation’, which extend beyond commercial and monetary consequences.
ASIC is now seeking pecuniary penalty orders against GetSwift and its directors, as well as orders disqualifying the directors from managing corporations.[29] The GetSwift saga and the decision of Lee J should cause company directors to carefully consider whether continuous disclosure obligations are being met. Inadequate approaches to disclosure that expose the company to prosecution by corporate regulators may place the company and its directors at risk of adverse findings.
[1] Australian Securities and Investments Commission v GetSwift Limited (Liability Hearing) [2021] FCA 1384 at [3] (‘ASIC v GetSwift’).
[2] Ibid at [11].
[3] Cassimatis v ASIC (2020) 275 FCR 533.
[4] ASIC v GetSwift at [1144].
[5] Ibid at [9].
[6] Ibid at [1111].
[7] Ibid at [1144].
[8] Ibid at [1144].
[9] Ibid at [1240].
[10] Ibid at [1264].
[11] Ibid at [1806].
[12] Ibid at [1912].
[13] Ibid at [2118].
[14] Ibid at [2194].
[15] Ibid at [2188].
[16] Ibid at [2202]–[2203].
[17] Ibid at [2207]–[2208].
[18] Ibid at [2128].
[19] Ibid [2212].
[20] See, eg, ibid at [2577].
[21] Ibid at [2529].
[22] Ibid at [2529].
[23] Ibid at [2538].
[24] Ibid at [2538].
[25] Ibid at [2541].
[26] Ibid at [2558]–[2559].
[27] Ibid at [2559].
[28] Ibid at [2528]–[2529], citing Vrisakis v Australian Securities Commission (1993) 9 WAR 395 (at 449–450 per Ipp J); Australian Securities and Investments Commission (ASIC) v Maxwell [2006] NSWSC 1052; (2006) 59; ACSR 373 (at [102] per Brereton J).
[29] ASIC, 21-298MR ASIC successful in Federal Court against GetSwift and its directors Bane Hunter, Joel Macdonald and Brett Eagle.
