Australia: Disclaimers in investor roadshows: why they are not bullet proof

What you need to know

• When a company in search of new funding is preparing to undertake an investor roadshow, disclaimers are routinely included in the presentation as a means of alerting potential investors to various risks or uncertainties in the investment opportunity.
• What some may not realise is that a disclaimer will not automatically prevent liability for misleading content, and some circumstances may call for more than a standard disclaimer to ensure potential investors are fully and properly informed.
• There is no one-size-fits-all approach to developing an appropriate disclaimer, but there are several key questions that should be carefully considered by any company on the verge of rolling out an investor roadshow.

Investor roadshows are frequently rolled out by various companies, from start-ups to well-established corporates in need of funding.

Naturally, every company will want to put its best foot forward and present as compelling a case as possible to attract investors to their business. But from the company's perspective, it's critical to ensure that investors are properly informed about an investment opportunity. This is where disclaimers, also referred to as 'safe harbour statements', come into play.

We have seen a range of approaches to the use of disclaimer slides in investor roadshows, including where the presenter:

• shows a densely worded slide while commenting, "there's the safe harbour statement"
• quickly displays the disclaimer slide with an air of exasperation before moving on to what they call the 'real' presentation
• comments in a humorous tone "ignore everything I say" while displaying the disclaimer slide.

These examples suggest that underlying attitudes towards disclaimers range from seeing these slides as an overly-complex annoyance to regarding them as a charm to ward off future liability.

While disclaimers in investor slide decks are not 'bullet proof', they are vital to include and great care should be taken when drafting and using them. In Australia, the cost of getting things wrong can be significant.

What are disclaimers and why are they used?

Typically, an investor roadshow slide deck will begin with a slide containing a disclaimer about the risks and uncertainties inherent in any forecasts and forward-looking statements used in the presentation. Those forecasts may relate to future activity (for example, anticipated milestones in the process of developing a therapeutic product) or future revenue (or an indication of when revenue might flow) to generate positive interest in a company's securities.

The purpose of a disclaimer is to remind investors that forecasts or forward-looking statements do not equate to assurances, and to put investors in a position to make an informed decision, while balancing any risks in the investment opportunity. From the company's perspective, a properly drafted disclaimer is critical to help protect the company if any forecasts or future-looking statements do not prove true.

When is a disclaimer not enough?

The inclusion of a disclaimer will not automatically negate the existence of a duty of care owed to potential investors or prevent liability for misleading content.

For example, a disclaimer will not overcome the impact of a statement likely to induce a person to acquire or dispose of shares in circumstances where:

• the statement has not been made on reasonable grounds (i.e. there must be a proper and supportable basis for making the statement),¹ or
• the statement is found to be or is likely to be false, misleading or deceptive.²

The question of whether a duty of care or liability exists will be determined by an examination of all facts and circumstances by a court.

The consequences of getting things wrong when using disclaimers in investor roadshows can be significant. For directors and officers in Australia, it is important to remember that they can be held to have breached their common law or statutory duties³ (and could be fined or imprisoned or both) if they approve and allow the release of a statement that was (or was likely to be) false, misleading or deceptive and is capable of having an adverse effect on the company or the market.

An Australian case study

One of the most well-known cases in Australia involving a disclaimer in an investor presentation is James Hardie,⁴ where the final slide in the slide deck contained a standard form disclaimer about the risks and uncertainties inherent in forward-looking statements.

In that case the NSW Court of Appeal held that the disclaimer was not sufficient to exempt liability for misleading statements in the presentation. At the time the slides were lodged with ASX, the company knew (or ought to have known) that there were significant qualifications to the statement that asbestos liabilities were fully funded (and these qualifications were not included in the slide deck). The Court declared that the company had engaged in misleading and deceptive conduct in breach of the Corporations Act 2001 (Cth).

Overseas approaches to disclaimers

In England, the Court of Appeal in Taberna⁵ recently reaffirmed the importance of a robust disclaimer in a slide deck. It held that disclaimers in slide decks which are not binding in contract could nevertheless be effective to both disclaim responsibility and exclude liability for misrepresentations. The Court of Appeal held it was possible to limit the scope of a representation or exclude it all together by making clear that no representation was in fact being made upon which there could be any reliance.

Similarly, in the United States, 'safe harbour statements'⁶ provide protection where forward-looking statements have been identified and have been accompanied by cautionary statements setting out factors which may cause actual results to differ from those projected in the forward-looking statements.

The differing approaches in Australia and other countries illustrate the need to understand the laws of each jurisdiction in which an investor roadshow is held. It should not be assumed that, because disclaimers in slide decks are given greater weight in some jurisdictions (such as England and the United States), the same principles will apply in Australia.

Good practice guidelines for investor roadshows in Australia

The form of a disclaimer in an investor roadshow will depend on the company's circumstances, including the stage at which investment is sought.

While there is no one-size-fits-all approach, here are some key questions to consider before an investor roadshow is rolled out:

1. Are all statements in the presentation accurate at the time they are made?
2. Have all statements been made on reasonable grounds, on a proper and supportable basis?
3. Where forecasts or forward-looking statements are based on assumptions or qualifications, have they been made explicitly clear?
4. Has it been made clear that the company does not endorse or express a view about the accuracy of forward-looking statements or forecasts?
5. Has the complete picture been provided to potential investors?

In some cases, the answers to these questions will mean that a company needs to do more than include one standard disclaimer slide in a slide deck. For example, it may be necessary to draw specific attention to additional information or documents rather than assume investors will conduct their own investigations. For a company's position to be protected as best as possible, it's important not to take any shortcuts and to ensure potential investors are fully and properly informed.

Footnotes

¹ James Hardie Industries NV v ASIC [2010] NSWCA 332 at 173.

² Prohibited under sections 1041E and 1041H of the Corporations Act 2001 (Cth).

³ Sections 180 to 184 Corporations Act 2001 (Cth).

⁴ James Hardie Industries NV v ASIC [2010] NSWCA 332.

⁵ Taberna Europe CDO II Plc v Selskabet AF 1 (formerly known as Roskilde Bank A/S) [2016] EWCA Civ 1262.

⁶ Enacted under the Private Securities Litigation Reform Act 1995.

This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article. Authors listed may not be admitted in all states and territories