24/10/2019

The Federal Court decision by Justice Beach in the Myer Holdings Ltd securities class action confirmed that shareholders affected by continuous disclosure breaches don’t need to establish individual reliance.

In essence, the decision means that class action lawyers and funders now have a much clearer path to awards of damages of much greater magnitude.  The decision is only likely to add further heat to the already boiling Australian class action landscape. That said, Beach J did add some other evidentiary complexity to the manner in which those claims can be made.

Myer Holdings is the first shareholder class action to go to final judgment in Australia and the first case to definitively decide that ‘market-based causation’ is available to shareholders when bringing a claim alleging a company’s failure to disclose price sensitive information in accordance with the continuous disclosure regime under the Corporations Act and the ASX Listing Rules.

The Federal Court found that Myer Holdings breached ss 674 and 1041H of the Corporations Act, but in a twist that will keep class action lawyers busy in the weeks ahead, Beach J held that there was no evidence that the contraventions of the continuous disclosure regime by Myer Holdings caused any loss or damage to the applicant or group members because – as Beach J found - despite failing to keep the market updated, the hard-edged scepticism of market analysts and market makers at the time of the contraventions had already deflated the share price previously inflated by the Myer CEO’s comments in September 2014.

Justice Beach also made a number of key findings and observations that will provide important guidance on the disclosure of market sensitive information for ASX listed entities, including:

  • Analyst reports are not “generally available information” and ASX listed companies cannot rely on analyst reports to prove that undisclosed material information was “generally available” under s 676 of the Corporations Act.
  • The Court rejected Myer’s approach to determining materiality for the purpose of complying with its continuous disclosure obligations.  Importantly, the Court found that measuring NPAT against consensus was not a sufficient benchmark to assess materiality and whether to disclose.  Beach J described that approach as “the antithesis of the legislative policy” and that “it is anomalous for the company to justify not making a disclosure on the basis of no divergence with consensus where the consensus itself is foundationally based on the company’s own disclosures of financial information.”

Key Implications

  • ASX listed companies may need to review their continuous disclosure policies to ensure they are not at risk of falling foul of Justice Beach’s findings on materiality and using consensus as a benchmark.
  • The potential damages recoverable from continuous disclosure class actions have now arguably materially increased with the effect that funders of class actions and class action lawyers will now be even more attracted to those kinds of actions.
  • We will likely see an increase in shareholder class actions in light of this important decision.
  • For listed entities, their directors, officers and insurers, the already significant exposure to such actions has now materially increased.