For energy companies listed on the ASX, the obligation to comply with the continuous disclosure regime can give rise to difficult judgements under real time pressure. There have been a number of recent developments which we briefly summarise below. We also provide links to more detailed consideration of those developments for those with an interest or key responsibility in the area.
Proposed new ASX Listing Rules and Guidance Notes
The ASX has recently proposed a revised Guidance Note on the continuous disclosure rules, intended to provide listed entities with clearer, more detailed information to assist them in understanding and complying with their continuous disclosure obligations.
ASX Listing Rule 3.1 requires listed entities to immediately inform ASX of any information concerning the entity that a reasonable person would expect to have a material effect on the price or value of the entity’s securities. Various exceptions apply including trade secrets.
In a recent podcast1, Herbert Smith Freehills Partner Tony Damian highlights three of the key areas of welcome clarification:
- the draft Guidance Note explains that the requirement to disclose market sensitive information “immediately” does not mean instantaneously, it means promptly and without delay;
- it includes more detailed guidance on the confidentiality exception; and
- ASX indicates that trading halts will be available where an entity indicates to ASX that it needs time to prepare and issue a market sensitive announcement.
The following example is provided by ASX by way of illustration: information that an entity has investigated and decided not to pursue a particular business opportunity may not be market sensitive, if the market has no knowledge or expectation that the entity is considering the opportunity. However, if the entity has previously announced that it was intending to pursue the opportunity, the fact that it has changed its mind may well be significant.
ASX has also released proposed new Listing Rules and Guidance Notes for Reserves and Resources Reporting for Mining and Oil & Gas Companies.
One key proposal for oil and gas companies is the requirement to report in accordance with the Society of Petroleum Engineers – Petroleum Resources Management System (SPE-PRMS)2.
Fortescue: High Court decision on misleading conduct and continuous disclosure
The High Court’s recent decision3 in the appeal by Andrew Forrest and Fortescue Metals Group has been well publicised. The central issue was whether certain statements by Fortescue about its contracts with Chinese counterparties were misleading or deceptive.
The High Court considered that statements by Fortescue that it had entered into “binding contracts” with certain Chinese state-owned entities were not misleading simply because the contracts would not have been enforceable under Australian law.
The Court considered that a reasonable member of the commercial community would not necessarily have been led to believe that the agreements contained all of the necessary elements for enforcement in Australia. Indeed, it would not have been unreasonable for the audience to assume that the agreements were governed by foreign law.
The appeal also touched on the continuous disclosure regime.
ASIC argued that, if Fortescue’s statements were misleading, Fortescue was bound by the continuous disclosure regime to correct the position. This argument was ultimately overtaken by the Court’s conclusion that the statements were not misleading in the first place, and the Court did not take the opportunity to provide any real guidance on the operation of the regime.
Notwithstanding the outcome, the judgment provides a useful reminder that listed entities are required to correct any statements that are inaccurate, or become inaccurate due to later events.
Take-out points for Australian listed entities
- The draft Guidance Note is worth reviewing by those responsible for discharging continuous disclosure obligations. It emphasises the importance of context in disclosure decisions and content.
- The continuous disclosure rules require prior statements to be updated if they have become inaccurate. A periodic review of prior statements might be considered.
- Be very careful when describing contractual relationships to the market. Complex contractual and joint venture relationships are a core feature of the energy sector. While the High Court adopted an interpretation of “binding contracts” in the Fortescue case which resulted in the failure of ASIC’s allegations, the opportunity for expensive and distracting judicial and regulatory scrutiny could be avoided by ensuring disclosures are timely, accurate and complete.