R v Moses (8 July 2011) CRI 2009-004-1388 (High Court, Auckland) Heath J
The New Zealand High Court has recently considered similar issues to those raised in the Centro case. R v Moses involved charges against directors of Nathans Finance (NZ) Limited (Nathans) relating to allegations that there were a number of untrue statements in Nathans' prospectus and advertising about the company's actual financial position.
The directors argued that the statements were not, strictly speaking, untrue. The Court dismissed this argument instead focusing on "…the impression likely to be gained by a recipient of the relevant offer document…" rather than their literal truth. The directors also argued that they relied on certain advice given by a number of parties (including Nathans' professional advisers, the other directors, shareholders and the Registrar of Companies). The Court noted, in dismissing this argument, that "…the quality of any advice is only as good as the information provided to the professional, on the basis of which he or she is asked to advise. In considering the extent to which directors are entitled to rely on external advice, some assessment must be made of the prime information on which the adviser acted and whether he or she was on inquiry as to the accuracy of that information."
The case highlights the risks for directors in relying solely upon advisers and cautions that if a document creates a misleading impression (even if it is literally true), there may still be liability under the Securities Act 1978.