On 24 October 2019, Beach J of the Federal Court delivered judgment in TPT Patrol Pty Ltd ATF Amies Superannuation Fund v Myer Holdings Limited  FCA 1747 (Myer) where he held that, by failing to correct earnings representations by its then CEO on 11 September 2014 to media and analysts, Myer had breached its continuous disclosure obligations in the Corporations Act (and Listing Rules) and engaged in misleading and deceptive conduct.
In relation to the breach of Myer’s continuous disclosure obligations, the judge said that, notwithstanding Myer’s practice at the relevant time was not to issue any earnings guidance, the Myer CEO’s post-briefing discussion with analysts on 11 September 2014 to the effect that Myer’s FY2015 net profit after tax (NPAT) would likely exceed its FY2014 NPAT constituted “de facto” profit guidance. Further, Myer had an obligation to update the market from not later than 21 November 2014 (just after Myer’s AGM) as around that date, Myer’s own re-forecasting disclosed a belief by management that the actual performance was likely to be materially short of the informal guidance given by the CEO on 11 September 2014. This was so even though its performance was in line with the consensus view of market analysts. Myer’s obligation was to update the market if its own re-forecasting disclosed a materially different profit result from that disclosed to the market at the earlier time.
The claim for misleading or deceptive conduct was made on the basis that Myer shareholders who purchased shares on or after 11 September 2014 and who still held those shares at the time Myer announced its FY2015 NPAT (resulting in a substantial fall in its share price), had been misled by Myer’s failure to correct the “de facto” profit guidance between 11 September 2014 and 19 March 2015 and suffered loss by not disposing of those shares earlier. The Court found that there was a breach by Myer, but ultimately held that the class action plaintiff did not suffer any loss as the market had already factored in a net profit after tax for Myer which was well below the CEO’s “de facto” profit guidance on 11 September 2014.
Some noteworthy matters arising from the case:
- Listed companies should be wary of allowing their executives to have casual conversations with analysts, as analysts will take every opportunity to extract information from those executives.
- The obligation to update the market is not ameliorated even if the company’s internal guidance is in line with market analysts’ guidance and consensus. A company will need to measure its continuous disclosure obligations against the benchmark of previous guidance given by the company to the market. If informal guidance is provided outside of formal ASX disclosures, the information should be made generally available to the market by way of an ASX announcement immediately and updates provided if there is a change in expectations, even if the market appears to have already factored in those changes.
- The recognition of “market-based causation” in this case may encourage more securities class actions in future as shareholders do not need to prove that they purchased the relevant securities with express knowledge of or reliance upon the company’s misconduct. Historically, one of the difficulties with bringing shareholder class actions in Australia has been the requirement to prove causation between the breach of law by the company and the loss suffered by the plaintiff shareholders. The Myer decision is the first Australian judgment to expressly recognise the indirect form of “market-based” causation as a sufficient basis for establishing a claim for misleading and deceptive conduct. Simply put, the court recognised that shareholders can suffer loss when they acquire securities in a company at a time when the company’s contraventions of the law has caused the market as a whole to inflate the price of its securities, notwithstanding the particular plaintiff shareholders may not have been aware of or may not have relied upon the company’s misconduct when acquiring the relevant securities.
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