Changes made to the Federal Court Rules in early January 2023 with respect to the access to court documents have provoked continued media commentary concerning the effect that the changes will have on the adequate disclosure of court proceedings, particularly proceedings brought by regulatory authorities.
This ongoing debate has prompted us to focus on the extent of disclosure that an ASX listed company subject to material Court or Takeover Panel proceedings should provide under its continuous disclosure obligations in accordance with Listing Rule 3.1 and sections 674 and 674A of the Corporations Act.
What the Federal Court Rules now say about non-party access, and why it matters for continuous disclosure
On 13 January 2023, the Federal Court Legislation Amendment Rules 2022 took effect, limiting the ability of a non-party to a court proceeding to inspect certain court documents, including a statement of claim and defence, until “after the first directions hearing or the hearing itself (whichever is earlier)” unless the non-party obtains leave from the Court. Previously, a non-party was entitled to inspect court documents of this kind as soon as they were filed and without obtaining leave of the Court.
The amendment is less restrictive than the equivalent position in the NSW Supreme Court. In that Court, the general position is that non-parties may access Court documents once i) all parties have filed pleadings with the Court and ii) the matter has had its first hearing. Comparatively, in the Victoria Supreme Court and ACT Supreme Court, a non-party may inspect certain documents (including a statement of claim and defence) without leave of the Court. In the WA Supreme Court, leave of the Court is required to inspect court documents.
The question is whether, if information relating to Court proceedings may not be readily available, an ASX-listed entity subject to material court proceedings has a higher onus to comply with its continuous disclosure obligations, and must disclose not only the existence of those court proceedings but also:
- the potential impact which the court proceedings might have on the listed entity;
- the value of its securities where that is material; and
- the amount of potential fines or penalties that might become payable.
While a listed entity may disclose that court proceedings have been commenced, and no doubt "will be vigorously defended", it may not provide an adequate picture of the court proceedings which enable the market to fully assess the potential impact of the proceeding. The continuous disclosure obligation may therefore create a "disclosure dilemma" for the listed entity, as the announcement may need to contain information that would negatively affect the share price and reduce investor confidence in the listed entity, which it may prefer not to do.
Any failure by the listed entity to make the requisite disclosure will undoubtedly increase the class action risk which that the listed entity faces. Further, when a listed entity approaches its D&O insurers to renew cover, the listed entity will likely be required to satisfy the insurers that it continues to have robust policies and procedures to promptly make fulsome disclosure in this new environment.
The environment may encourage regulators including ASIC, ASX and AUSTRAC to provide a greater level of detail when they announce that court proceedings have been commenced which concern an entity whose securities are traded on the ASX.
Therefore, although the changes to the Federal Court Rules and the rules which are applicable in other States and Territories, are fully understandable, the consequential impact on the need for an ASX listed entity to ensure that trading in its securities on the ASX takes place in a fully informed market, must be recognised.
The Takeovers Panel's approach – a model for other regulatory bodies?
Recently the Takeovers Panel expressed concern at disclosure in the media of confidential information in an application made to it, namely the identity of the sitting Panel members in a matter involving a contested control transaction. Takeover Panel proceedings are conducted in confidence and the Panel seeks to ensure that this confidentiality is maintained. In addition of course, Takeover Panel proceedings are generally dealt with more expeditiously than Court proceedings, generally only involving a matter of weeks.
As a consequence, the existence of Takeover Panel proceedings may not present the same issues except in the unlikely event where the proceedings become protracted.
When the Panel receives an application, it provides a media release detailing the parties, the claim, brief facts, allegations, and desired orders. Once receiving an application, the Panel conducts proceedings and provides an outcome within weeks, with an additional media release immediately once the proceedings are completed to be accompanied by detailed reasons thereafter.
The procedure adopted by the Takeovers Panel appears to provide an appropriate balance between the need to ensure that the market is fully informed as to what the outcome of the proceedings might be and the need to enable the proceedings to be conducted in an efficient and expeditious manner.