Recent Question/Assignment
United Agricultural Technologies Ltd (UAT) is a company which owns large agricultural holdings, 90% of which are cattle stations, all over Australia. It has a board of 8 directors, of which Tom Lam is a member. In January 2004 a horticulturist, Peter O’Malley, contacted UAT with an offer to sell it a patented genetically-modified corn seed (called THX 1138) which, he said, had the potential to increase crop yield 50% over what is currently obtained in this country. UAT’s board decided to reject the offer, stating that exploiting it would mean converting grazing land into arable fields, which would require expensive irrigation and ploughing.
Lam however remains convinced that the corn-seed option is a potential money-spinner and, without further reference to UAT, contacts O’Malley. He and O’Malley commission a report by an expert botanist, who says that the estimate of a 50% increase in yield is far too conservative, and that the yield increase is in fact likely to be 100% better than is currently obtainable. Lam resigns from UAT, but retains his 10% shareholding in that company. He and O’Malley form a company called L & O Ltd, which buys a farm in southern Queensland. Cultivation of THX 1138 commences. However it transpires that development costs are significant, and more capital is needed
Lam, who is very wealthy, consults his stockbroker with a view to deciding which of his substantial share portfolio to sell. He is about to instruct his stockbroker to sell his holding in BHP Ltd when he receives a copy of the monthly in-house veterinary report from UAT Ltd, which he has continued to receive because, due to an oversight by UAT’s company secretary, Lam was not removed from the UAT mailing list when he resigned as a Director. The report contains a pessimistic statement as to the likely effect of an outbreak of bovine encephalitis (BCE) on UAT’s herds. Lam sells his UAT shares for $ 3.30 each to Jeff Slaughter, and counts himself lucky to escape the crash to $ 1.05 each which occurs once UAT issues a public statement to the market, revising its profit predictions downwards because of the likely effect on the company of the outbreak of BCE.
Lam is also pleased at his decision to exploit TXH 1138 – crop yields exceed all expectations, and he and O’Malley make profits of $ 1 million in the first year of operation.
Advise Lam as to any liability arising out of the above facts, citing full authority for your answer
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