Reference no: EM133031850

Question - KaBoom Ltd is an Australian aerospace company which plans to be the first provider of suborbital spaceflights to the paying public. It is in fierce competition with Virginia Galactica Ltd. To accelerate its plans, KaBoom Ltd is raising $100,000,000 from potential investors through the subscription and issue of new shares. Consequently, KaBoom Ltd prepares a prospectus under Chapter 6D (Note: you may assume that no exemptions to disclosure are available and a prospectus must be issued by KaBoom Ltd for the issue). KaBoom Ltd approaches Maria, an expert engineer who has designed space shuttles for NASA in the past, to provide comments on the designs of the spaceships that KaBoom Ltd has commissioned.

Maria gave her consent for the following statement to be included in the prospectus:

The design of the spaceship is innovative and will allow KaBoom Ltd to be the first provider of sub-orbital spaceflights to the public in the world.

It allows 50,000ft air release which will minimise fuel use and maximise safety;

The design will allow for the creation of environmentally friendly spaceships as thespaceships will have hybrid rocket engines.

KaBoom Lt will have profits of $20,000,000 in 5 years. (the "Profitability Statement")

While Maria provided this review, she did not actually look at the designs that were sent to her by the directors of KaBoom Ltd as she was going through an acrimonious divorce and did not have the time to assess the designs. She assumed that the designs were good as they were created by her friend, Oblivious, who has no connection with KaBoom Ltd. The shares were subscribed for and issued at $5 per share. Based on Maria's comments in the prospectus, Nieiviah, like a number of other investors, subscribed for some of the shares in KaBoom Ltd. A month after the issue of the shares, a news reporter wrote an article that revealed that the designs that Maria referred to in the prospectus were faulty (Note: you may assume the article is correct in every respect). It also stated that the designs were not new as they were based on old spaceship technology that has been around for 20 years. Further, the correct air release figures for the designed model were 25,000ft and the proposed engines were not hybrid engines. Consequently, the price of the shares dropped to 3 cents per share.

Advise Maria on her liability for her statements in the prospectus and the likelihood and prospects of an action being brought against her and any statutory defence she may have. How might Maria have worded the Profitability Statement differently to reduce her liability for that statement?