Boardroom Briefing Buzz - Special Edition 2019

Boardroom Buzz
First Securities Class Action Judgment: deception, no loss and other helpful tips

The first class action by shareholders in a listed company has gone to judgment, bypassing the usual settlement scenario, but liability did not equate to damages.

The Facts: the CEO of Myer told analysts, at a briefing in September 2014, that he expected Net Profit After Tax (NPAT) in FY15 would exceed $98.5M. In the following March, Myer announced to the ASX that the NPAT would fall well short of the CEO’s forecast and immediately afterwards the Myer share price dropped by 10%.

The Fight: shareholders alleged they purchased shares at an inflated price during that time period from the September representation to the March announcement. Myer, the shareholders claimed:  did not have a reasonable basis for the September representation; breached its continuous disclosure obligations because it did not later disclose that the NPAT would be lower; and engaged in misleading conduct by not making that disclosure. 

The Finding: the Federal Court held that from the November, Myer knew the NPAT would be lower than represented by the CEO in September and Myer had contravened its continuous disclosure obligations and engaged in misleading and deceptive conduct by failing to correct the September representation.  The shareholders, however, were not entitled to damages as there was no proof that the company’s misconduct and contraventions had inflated the share price because of the hard-edged scepticism of market analysts…at the time of the contraventions had already deflated (the CEO’s) inflated views. 

Shareholders do not need to prove direct individual reliance on company statements to support their allegations of loss, said the Federal Court. It was enough that there had been general reliance by the market in purchasing shares (or market-based causation). The Federal Court also had much to say about the company’s continuous disclosure obligations including that just because a company’s views do not differ from market consensus does not do away with the obligation on the company to make a market disclosure. Directors and officers need to take care when presenting at briefings.

The Fallout: Some say the case will not have a material impact on class action activity although the case is a standout demonstration of corporate nerve; contraventions do not necessarily lead to damages. If you are looking for a case to read on your Christmas break, this case is essential board-time reading, particularly on the all-important continuous disclosure obligations. 

TPT Patrol Pty Ltd as Trustee for Amies Superannuation Fund v Myer [2019] FCA 1747

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