Question 8:

Metal Search N.L. sought to raise capital by the issue of 2 million fully paid shares. The initial price per share was 50 cents.A prospectus was issued and came into the possession of William, who filled in the attached application form for 5,000 shares, which he was all allotted in due course.

When the shares were first listed on the Stock Exchange they traded at between $3.00 and $3.50, but some two weeks later the price suddenly fell to 20 cents. It soon became apparent that the optimistic report of the consultant geologist contained in the prospectus had no basis in fact, and subsequent drilling had revealed the particular claims to be worthless.

In addition, the claim by the directors in the prospectus that Metal Search N.L. was about to acquire an interest in leases in a sought-after area, turned out to be false.

William now wishes to know what legal rights (if any) he may have against:

1. the company
2. the geologist
3. the directors.

Required:

Advise William, giving reasons for your answer.

Explain the legal defences available to the issuers if a legal action is brought against them for a breach of s728?