1. First judgment in a shareholder class action in Australia
  2. Court finds that Myer breached its continuous disclosure obligations but that shareholders did not suffer any loss
  3. Court confirms market-based theory of causation and loss in the context of a shareholder class action

Justice Beach of the Federal Court of Australia has handed down the first judgment in a shareholder class action in Australia in the Myer class action proceedings (TPT Patrol Pty Ltd as trustee for Amies Superannuation Fund v Myer Holdings Ltd).

Background

The Myer class action stemmed from statements made by Myer’s then CEO Bernie Brookes in September 2014 during calls with analysts and the media following the release of Myer’s FY14 results. In those calls, Mr Brookes said that Myer’s net profit after tax for FY15 was expected to be more than the $98.5m achieved in FY14.

In an interim update to the market in March 2015, Myer said that profits for FY15 would probably be less than in FY14, at between $75m and $80m. Myer shares fell roughly 10% on this announcement.

A group of shareholders who bought shares between September 2014 and March 2015 brought proceedings against Myer claiming that the FY15 profit forecast made in September 2014 was misleading or deceptive and Myer had breached its continuous disclosure obligations by failing to issue a corrective disclosure to the ASX.

Breach of continuous disclosure obligations

The shareholders were successful in establishing that Myer had contravened its continuous disclosure obligations for part of the period claimed and had engaged in misleading or deceptive conduct. Materially, the Court found that while Myer’s CEO had reasonable grounds for the FY15 profit forecast made in September 2014, by November 2014 Myer had enough information about deteriorating profits that it should have issued a corrective disclosure.

No loss

While the Court found there had been misleading or deceptive conduct and a breach of Myer’s continuous disclosure obligations, Justice Beach said that he was “not convinced that the applicant and group members have suffered any loss flowing from such contraventions” since the market had already priced into Myer’s share price a net profit after tax that was significantly below the forecast announced by Brookes. On that basis, according to Justice Beach, it is likely that any corrective statement, had it been made, would likely have had no material effect on the price of Myer shares.

Market-based theory of causation

Justice Beach accepted the availability of a market-based theory of causation and loss in the context of a shareholder class action. This means it is not necessary for each shareholder to prove they actually relied on the misleading or deceptive disclosure, so long as they can prove it inflated the share price.

Key lessons

The Myer decision represents a landmark class action decision and one that will be closely scrutinised not just by company Boards but by litigation funders, insurers, and plaintiffs and defendants lawyers.

By accepting the market-based causation theory it may reduce one road-block to potential class action proceedings by removing any requirement to demonstrate that each shareholder actually relied on the impugned disclosure.

Further, parties will need to carefully consider the question of loss in any proposed proceedings as the Myer decision shows that an updated disclosure which triggers a share price decline will not necessarily sustain a claim for damages.

Navigating continuous disclosure obligations is an increasingly complex area for company Boards and senior management.