Take me to the limit one more time: how far do disclosure obligations go?

The recent leak of New Zealand cabinet papers to Telecom NZ and the now infamous CD-ROM found in a Qantas lounge raise interesting questions about the limits of the obligation to disclose under ASX Listing Rule 3.1.

Are companies bound to disclose all materially price sensitive information irrespective of how it’s obtained? On its face the only relevant test is whether a reasonable person would expect to have a material effect on the company’s share price.

We normally expect that information that is disclosed to the market is produced according to the highest standards to ensure we have a fair and well-informed market. But are there circumstances where information that is defamatory, illegal or obtained in breach of confidence must be disclosed to the market?

To avoid the disclosure requirement, the information must meet three criteria. Firstly, a reasonable person would not expect the information to be disclosed. Secondly, the information is confidential. Thirdly, one of the following criteria apply: it would be a breach of a law to disclose the information or the information concerns an incomplete proposal or negotiation, the information is insufficiently definite, generated for internal management or the information is a trade secret.
But what if the information fits the first and third criteria, but is not considered confidential under the Listing Rule?

In the ASX’s view ‘confidential’ is a matter of fact. For example, confidentiality is retained when information is given to third parties in the ordinary course of business, but is lost once, whether inadvertently or deliberately, the information becomes known by others, in circumstances where the company loses control of the information (the recipient is not under an obligation to keep the information confidential). An example is a rumour circulating or media comment about the information where that rumour or comment is “reasonably specific.”

In a submission to ASX in 2002, The Australian Institute of Company Directors’ questioned the suitability of ASX to determine confidentiality as a fact, and stated that this should be a matter for the company to determine, after taking advice where necessary.

Of course this is not how the law would generally look at the question of confidential information. A lawyer will tell you that confidentiality is largely a question of the nature of the information and how it is obtained, largely regardless of whether it is known to others.

So, on the one hand ASX Listing Rule 3.1 states that information known by others over which the company has no control is not confidential. On the other hand, under the general law where confidential information has been knowingly obtained in breach of confidence the information remains confidential, even if it has been disclosed by the recipient. So clearly ASX Listing Rule 3.1 and the general law doctrine of confidential information cannot be easily reconciled.

The problem of ASX’s interpretation of confidential information being different to that under the general law is that there are serious consequences under the Corporations Act for failure to comply with the ASX disclosure obligations.
A listed company receiving significant material even illegally or improperly is faced with a dilemma, as no doubt the cabinet paper proved to be to the board of Telecom NZ. Either breach the disclosure rules or be sued or possible prosecuted; a rock and a very hard place!

It would seem the existing listing rules left as is create a strange situation where information illegally or improperly obtained, which by its nature cannot be verified to ensure its accuracy, must be disclosed to ensure a ‘fair and well-informed market’.

Thanks to Belinda Coombs for her assistance with this piece.