Consideration
70 There is no single immutable test for causation: Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3) (2006) 67 NSWLR 341 (Abigroup Contractors (No 3)) at [54] per Beazley JA (Ipp and Tobias JJA agreeing).
71 In recent times, the High Court has taken the position that where a court is required to decide whether loss or damage is occasioned "by" misleading or deceptive conduct, it is the purpose of the statute, as related to the circumstances of a particular case, which provides the answer to the question of causation; the statute is the primary source of the legal norms to be applied: Travel Compensation Fund v Tambree (2005) 224 CLR 627 (Travel Compensation Fund) [28], [30], [45] and [58]. It is the "subject, scope and objects" of the Act which determine causation and the purpose of the causal inquiry conditions the outcome of any application of common sense to its answer: Allianz at [41]-[42] and [96]-[100]. While the application of common law tests of causation can provide useful analogies, they cannot confine the statute: Marks v GIO at [41], [103]; Murphy v Overton Investments Pty Limited (2004) 216 CLR 388 at [44].
72 Contravention must be a cause of loss but it need not be the sole or most significant cause: Henville v Walker (2001) 206 CLR 459 at [14], [59]-[61], [106]-[109] and [163]; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at [33].
73 Where the impugned conduct is non-disclosure, causation may be found if disclosure would have caused action or inaction other than that which was taken: see Smith v Noss [2006] NSWCA 37 at [25] per Giles JA (Beazley and Ipp JJA agreeing); Smith v Moloney (2005) 92 SASR 498 at 514-5 per Besanko and Vanstone JJ; Abigroup Contractors (No 3) at [51]-[52] per Beazley JA (Ipp and Tobias JJA agreeing). See also Hodgson JA in Ingot at [82]-[83].
74 In the context of the FTA, the High Court (Gummow, Hayne, Heydon and Kiefel JJ) has endorsed the view that it may be artificial to speak of reliance in determining what action or inaction would have occurred if the true position had been known and that reliance is not a substitute for the essential question of causation: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 (Campbell v Backoffice) at [143]. These comments, however, need to be read in their whole context (footnotes omitted):
142 … The conclusion which Giles JA reached was founded upon the premise that "[i]f a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation". [Gould v Vaggelas (1984) 157 CLR 215 at 236 per Wilson J]
143 Three points may be made about this proposition. First, it is a proposition expressed in relation to the law of deceit, not the operation of statutory provisions for the award of damages suffered by contravention of consumer protection provisions proscribing misleading or deceptive conduct. Secondly, the proposition carries within it a number of subsidiary questions, such as what is a "material" representation, and when is a material representation "calculated" to induce entry into a contract. Thirdly, because the proposition is directed to the drawing of inferences, consideration of its application must always attend closely to all of the evidence that is adduced that bears upon the question being examined. With considerations of these kinds in mind, Giles JA was right to point out that reliance is not a substitute in the context of the Fair Trading Act for the essential question of causation. Moreover, it is also right to observe, as Giles JA said, that "[i]t may be artificial to speak of reliance in determining what action or inaction would have occurred if the true position had been known".
75 All relevant circumstances comprising acts, omissions and statements must be judged to determine whether misleading and deceptive conduct has occurred: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at [41]; it invites error to look at isolated parts of the conduct: Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 at [109] per McHugh J and Campbell v Backoffice at [102] per Gummow, Hayne, Heydon and Kiefel JJ.
76 Considerations of legal policy may enter into the selection of those causative factors which are determinative of liability. However, to accept that proposition is not to adopt the quite different proposition that in any given case the ultimate issue is whether the defendant ought to be held liable to pay damages for the harm suffered: Travel Compensation Fund at [46] per Gummow and Hayne JJ.
77 In this case, the compensation claimed in the draft consolidated statement of claim is for loss occasioned "by" alleged misleading or deceptive conduct under 1041H and 1041I of the Corporations Act, ss 12DA and 12GF of the ASIC Act and s 9 of the FTA (in [68]-[71D]), and "because of" alleged contraventions of ss 728 an 729 of the Corporations Act for false and misleading statements in and omissions from the September Prospectus ([47]-[53]) and the March Prospectus ([58F]-[58T]). Although the originating application makes a claim for compensation under s 1325 of the Corporations Act, that is not reflected in the draft consolidated statement of claim. There is no claim of contravention of Chapter 6CA of the Corporations Act.
78 The context pleaded is (1) the financial reporting obligations under Part 2M.3 of the Corporations Act including the obligation of a listed company to prepare annual and interim financial statements, the obligation to have financial reports audited, and the obligation of directors to prepare and make a directors' report to be included in the annual financial statements; (2) the revenue recognition requirements of AASB 118 of the Australian Accounting Standards Board; and (3) the continuous disclosure obligations imposed on listed entities by ASX's Listing Rules and Chapter 6CA of the Corporations Act to make timely disclosure of information.
79 A key element of the market based causation argument is the continuous disclosure regime. It is convenient to set out the relevant provisions of Chapter 6CA, being ss 674, 676 and 677:
674 Continuous disclosure - listed disclosing entity bound by a disclosure requirement in market listing rules
Obligation to disclose in accordance with listing rules
(1) Subsection (2) applies to a listed disclosing entity if provisions of the listing rules of a listing market in relation to that entity require the entity to notify the market operator of information about specified events or matters as they arise for the purpose of the operator making that information available to participants in the market.
(2) If:
(a) this subsection applies to a listed disclosing entity; and
(b) the entity has information that those provisions require the entity to notify to the market operator; and
(c) that information:
(i) is not generally available; and
(ii) is information that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of ED securities of the entity;
the entity must notify the market operator of that information in accordance with those provisions.
(2A) A person who is involved in a listed disclosing entity's contravention of subsection (2) contravenes this subsection.
(2B) A person does not contravene subsection (2A) if the person proves that they:
(a) took all steps (if any) that were reasonable in the circumstances to ensure that the listed disclosing entity complied with its obligations under subsection (2); and
(b) after doing so, believed on reasonable grounds that the listed disclosing entity was complying with its obligations under that subsection.
…
(4) Nothing in subsection (2) is intended to affect or limit the situations in which action can be taken (otherwise than by way of a prosecution for an offence based on subsection (2)) in respect of a failure to comply with provisions referred to in subsection (1).
…
676 Sections 674 and 675 - when information is generally available
(1) This section has effect for the purposes of sections 674 and 675.
(2) Information is generally available if:
(a) it consists of readily observable matter; or
(b) without limiting the generality of paragraph (a), both of the following subparagraphs apply:
(i) it has been made known in a manner that would, or would be likely to, bring it to the attention of persons who commonly invest in securities of a kind whose price or value might be affected by the information; and
(ii) since it was so made known, a reasonable period for it to be disseminated among such persons has elapsed.
(3) Information is also generally available if it consists of deductions, conclusions or inferences made or drawn from either or both of the following:
(a) information referred to in paragraph (2)(a);
(b) information made known as mentioned in subparagraph (2)(b)(i).
677 Sections 674 and 675 - material effect on price or value
For the purposes of sections 674 and 675, a reasonable person would be taken to expect information to have a material effect on the price or value of ED securities of a disclosing entity if the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the ED securities.
80 I do not understand it to be contentious between the parties that Listing Rule 3.1 of the ASX Listing Rules imposed an obligation on Arasor as a listed entity to make disclosure to ASX once it become aware of information concerning it that a reasonable person would expect to have a material effect on the price or value of its securities, subject to carve outs which are not presently relevant, or that Arasor shares were "ED securities".
81 In Australian Securities and Investments Commission v Chemeq Limited (2006) 234 ALR 511, French J (as he then was) explained the background to the continuous disclosure regime. At [43], he referred to the report prepared by the Australian Companies and Securities Advisory Committee on referral from the Government, "Report on An Enhanced Statutory Disclosure System" (September 1991). The Committee concluded that a statutory system of continuous disclosure would promote confidence in the integrity of Australian capital markets and provide benefits to market participants and management in various ways. It would (among other things):
• overcome the inability of general market forces to guarantee adequate and timely disclosure by disclosing entities;
• encourage greater securities research by investors and advisors. This ensures that securities prices more closely, and quickly, reflect underlying economic values;
• assist potential equity or debt holders of disclosing entities to better evaluate their investment alternatives;
• lessen the possible distorting effects of rumour on securities prices;
• minimise the opportunities for insider trading or similar market abuses;
• reduce the time and costs involved in preparing takeover and prospectus documents.
82 At [45], French J noted that the legislative policy behind continuous disclosure was set out in the second reading speech of the Minister for Administrative Services introducing the Corporate Law Reform Bill (No 2) 1992 (Cth) into the Senate on 26 November 1992. He said, inter alia (Hansard, Senate, Parliamentary Debates, 26 November 1992, p 3581):
An effective disclosure system will often be a significant inhibition on questionable corporate conduct. Knowledge that such conduct will be quickly exposed to the glare of publicity, as well as criticism by shareholders and the financial press, makes it less likely to occur in the first place.
In essence, a well informed market leads to greater investor confidence and in turn to a greater willingness to invest in Australian business.
83 The Court of Appeal of the Supreme Court of New South Wales considered the legislative background and purpose of the continuous disclosure regime in James Hardie Industries NV v Australian Securities and Investments Commission (2010) 274 ALR 85 at [353]-[356]:
353 The legislative history of s 674 has been set out on other occasions: see, for example, Australian Securities and Investments Commission v Southcorp Ltd (No 2) (2003) 130 FCR 406; 203 ALR 627 ; 48 ACSR 187; [2003] FCA 1369 at [8]-[12] per Lindgren J; Australian Securities and Investments Commission v Chemeq Ltd (2006) 234 ALR 511; 58 ACSR 169; [2006] FCA 936 at [42]-[46] per French J; Fortescue Metals Group at [218]-[219] per Gilmour J; Jubilee Mines NL v Riley (2009) 253 ALR 673 ; 69 ACSR 659; [2009] WASCA 62 at [45]-[54] per Martin CJ. We respectfully adopt the historical narrative in these judgments.
354 The trial judge observed, at [1080], in respect of these provision, that:
[1080] The continuous disclosure provisions are intended, amongst other things, to prevent selective disclosure of market sensitive information (Australian Securities and Investments Commission v Southcorp Ltd (2003) 130 FCR 406; 203 ALR 627; 48 ACSR 187; [2003] FCA 1369 at [2]. Protective legislation should be construed beneficially to the public (Exicom Pty Ltd v Futuris Corporation Ltd (1995) 123 FLR 394 at 397; 18 ACSR 404 at 407), even if a distinction between "punitive" and "protective" proceedings or orders is elusive (Rich v Australian Securities and Investments Commission (2004) 220 CLR 129; 209 ALR 271; 50 ACSR 242 ; [2004] HCA 42 at [32]).
355 We agree with his Honour's comments. The continuous disclosure regime, contained in s 674 and the Listing Rules, is designed to enhance the integrity and efficiency of Australian capital markets by ensuring that the market is fully informed. The timely disclosure of market sensitive information is essential to maintaining and increasing the confidence of investors in Australian markets, and to improving the accountability of company management. It is also integral to minimising incidences of insider trading and other market distortions.
356 It is also to be noted that s 674 is remedial legislation to enhance the public interest and to protect individual investors. It should be construed beneficially "so as to give the fullest relief which the fair meaning of its language will allow": see Bull v Attorney-General (NSW) (1913) 17 CLR 370 at 384; [1913] HCA 60 per Isaacs J. This principle was applied in the cognate context of the insider trading provisions which have overlapping purposes: see Exicom Pty Ltd v Futuris Corporation Ltd (1995) 18 ACSR 404; 123 FLR 394, especially at ACSR 407; FLR 397 per Young J.
84 The "subject, scope and objects" of the whole of Chapter 6CA are relevant, not only s 674. Sections 676 and 677 focus on the availability to and the likely effect of information on investors. Section 676(2) sets out when information will be "generally available". The focus of s 676(2)(b) is ensuring that information is made known in a way that it will be brought to the attention of investors. Section 677 defines the materiality of the possible impact of information on the "price or value" of securities not by reference to movements in price but in terms of the information's capacity to "influence persons who commonly invest in securities in deciding whether to acquire or dispose" of them.
85 It is clear both from the language of Chapter 6CA and the extrinsic materials and case law referred to that the object of the continuous disclosure regime is the creation of a well-informed market for securities which are listed for quotation through timely disclosure of information by listed entities, having regard to the influence that information may have on people who commonly invest in securities of that kind, with policy objectives which include the reduction of volatility and more accurate price discovery relative to underlying economic value. The role of investors as participants in a market for securities or individually in the context of Chapter 6CA has not been the subject of judicial consideration.
86 Section 1041H prohibits misleading or deceptive conduct in relation to a financial product or a financial service and s 1041I is an analogue of s 82 of the TPA. While conduct contravening s 728 is expressly excluded, s 1041H supports recovery for conduct which affects an individual (for instance, an individual dealing with a broker) and investors generally in a particular security. It has been suggested by the authors at (963) that s 1041H has a function of market protection and this is the legislative focus of the Corporations Act. The authors say that with that legislative focus, it is contrary to logic to require proof of individual reliance. Whether that interpretation operates to promote efficient securities markets in which investors and consumers can participate with confidence is a proper subject for argument at trial.
87 The entitlement to recover loss or damage occasioned "by" misleading and deceptive conduct under s 82 of the TPA does not depend on the person claiming damage having relied on the conduct; reliance by a third party on a misrepresentation can be a sufficient "link in the causal chain" between contravention and loss for the purposes of s 82 of the TPA. Janssen-Cilag at 529-530 is authority for that proposition; see also ABN AMRO v Bathurst City Council at [1376].
88 Although Lockhart J's comment in Janssen-Cilag at 529-530 set out at [58] above is quoted by advocates of market based causation theory as authority for the proposition that reliance is not required to demonstrate causation where damage must have been occasioned "by" contravening conduct, that proposition was found wanting by Lander J (with whom Hill and Jacobson JJ agreed) in Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd (2003) 134 FCR 522 (Ford Motor Company v Arrowcrest Group) at [112]-[123]:
112 To say that the impugned conduct need not be the sole cause of the change does not assist in determining the appropriate test for causation.
113 Ford relied upon four authorities for its contention that it was unnecessary to prove reliance to show causation.
114 In Janssen-Cilag Pty Ltd v Pfizer Pty Ltd the applicant and respondent were competitors in the pharmaceutical industry. The applicant claimed that it suffered loss or damage by reason of consumers relying upon the misleading and deceptive conduct of the respondent. In that case Lockhart J held that the applicant could establish causation for the purposes of s 82 of the TPA if it could prove that consumers relied upon the respondent's misleading and deceptive conduct to the detriment of the applicant's market share.
115 That case is not authority for the proposition that causation can be established without proof of reliance. It is authority for the proposition that the applicant need not establish that it relied upon the respondent's conduct, but can establish liability by proof that others did, as a result of which the applicant suffered loss.
116 That case is not authority for Ford's contention. Indeed if anything it supports the respondent's contention that reliance is a necessary element to establish causation when the conduct complained of is constituted by misrepresentations. The applicant could not have established its case in Janssen-Cilag Pty Ltd v Pfizer Pty Ltd without proof that there was reliance by the consumers.
117 In Hampic Pty Ltd v Adams a cleaner contracted dermatitis by using a cleaning agent which did not carry an appropriate warning on the label. The cleaner had not seen the label so had not herself relied upon any information disclosed on the label. However the cleaner succeeded at first instance and on appeal (New South Wales Court of Appeal) because the respondent's supervisor had read the label and distributed the product to the cleaner in accordance with the label's instructions.
118 Again, this was not a case of no reliance, but a case of reliance on the conduct by a person apart from the applicant in circumstances where that reliance caused the applicant damage. The applicant only succeeded because there was reliance, albeit by someone apart from the applicant.
119 McCarthy v McIntyre is another case where the applicant established that a third party's reliance on the misrepresentation caused the applicant's damage. In that case a Bank relied on false trading figures in deciding to advance the applicants a loan which was used by the applicants to purchase a business from the respondent.
120 Marks v GIO Australia Holdings Ltd, was a case where the appellants had relied upon the respondents' representations. Although the appellants established reliance they failed because they failed to establish that they had thereby suffered damage. Marks v GIO Australia Holdings Ltd was concerned with the measure of damages in claims under ss 82 and 87 of the TPA. In his reasons at [101] Gummow J referred to Lockhart J's reasons in Janssen-Cilag Pty Ltd v Pfizer Pty Ltd with approval and in particular Lockhart J's dicta that 'the cases … do not impose some general requirement that damage can be recovered only where the applicant himself relies upon the conduct of the respondent … '.
121 But that statement cannot be taken out of its context. Gummow J referred to Lockhart J's reasons for the proposition at [102]:
These considerations, reflecting the apparent scope and purpose of the statute, militate against the presence of any legislative intention that before the court comes to assess the amount for which applicants are to be compensated under s 82 it first must identify any relevant general common law rules or analogies, understand the reasons that led to their development, and then seek to adapt or adopt them consistently with the scope and purpose of the legislation.
122 Marks v GIO Australia Holdings Ltd is not an authority for the proposition that in a misrepresentation case the applicant need not establish that he or she was induced to act upon the misrepresentations and that the applicant can otherwise establish an entitlement to damages.
123 None of the cases relied upon support Ford's contention that causation can be established in a misrepresentation case without proof that the misrepresentations were relied upon. They support a different (but irrelevant proposition for the purpose of this case) that an applicant may establish causation in such a case by proving that a third party relied upon the misrepresentations and that party's reliance caused the applicant's damage.
89 The damage in Janssen-Cilag flowed from reliance by third parties on a misrepresentation, not from the misrepresentation per se. The same can be said of the Councils in ABN Amro v Bathurst City Council.
90 Even though the Councils were unaware of ABN Amro's representations to the intermediary, LGFS, reliance by LGFS on the ABN Amro representations concerning the AAA rating, and reliance by the Councils on the AAA rating, were essential elements of the Full Court's reasoning that the ABN Amro representations were "links in the causal chain" by which the Councils suffered losses arising from their investment in Rembrandt notes: see [1377]-[1380]:
1377 The PA Councils are entitled to rely upon ABN Amro's conduct in disseminating and promoting the rating to LGFS as a step in the chain of causation that led to their losses. Part of that chain of causation was the PA councils' reliance upon the AAA rating, which they would never have received had it not been provided by ABN Amro to LGFS, which would not have happened if LGFS had not relied upon the ABN representations: see [923]ff. Here, unlike the position in Ingot Capital Investments, there was no suggestion that the PA Councils actually knew that the AAA rating was not based on reasonable grounds and was not the product of the exercise of reasonable care and skill or that they were indifferent to the rating.
…
1379 In this context, it must be recalled that ABN Amro represented to LGFS that the rating could be relied upon and that the rating meant that the CPDO had an extremely strong capacity to meet its obligations (see [881]-[905] above) and that LGFS relied on those representations: see [923]ff above and J[3098]. The ABN Representations were "decisive considerations" in LGFS' decision to purchase the Rembrandt notes from ABN Amro and to sell them to the PA Councils on the basis of the AAA rating: see [919]-[933] above and at J[3171]-[3174]. The rating carried with it the S&P representations: see [723] above. That was a decisive consideration for the PA Councils in acquiring the Rembrandt notes: see Part 2, Sections 1 and 7 and Part 8, Section 2.2 above.
1380 The primary judge did not find that the PA Councils knew that ABN Amro made the ABN Representations. Instead, it was LGFS' reliance on those representations which, in turn, caused the PA Councils to rely on the rating. Therefore, the ABN Representations to LGFS, and LGFS' reliance upon them, were a material cause of the PA Councils' decision to invest in the Rembrandt notes: Ingot Capital Investments at 659-660[12]. Consistent with the earlier principles, there did not need to be a direct inducement by ABN Amro, it was sufficient that ABN Amro's representation was material to the decision of the PA Councils to invest, in the sense that "the representation was a link in the causal chain": Ingot Capital Investments at 660[13]. It was: see Part 2, Sections 1 and 7 and Part 8, Section 2.2 above.
91 The Full Court's decision in ABN Amro v Bathurst City Council on this issue is consistent with the decisions in De Bortoli at first instance (see at [60]-[63] in particular) and in the Full Court at [63] and supports the statement in Finishing Services Pty Ltd v Lactos Fresh Pty Ltd [2006] FCAFC 177 at [31] that the authorities require there to be a "sufficient and direct link" or a "requisite element of proximity" between the contravention and the loss in order for the necessary causation to be shown.
92 The reasoning of the Full Court in ABN Amro v Bathurst City Council may reveal scope for exploring the limits of when and how the "reliance" link in the causal chain may be found to have occurred to support a claim for compensation for loss "brought about by virtue of" misleading or deceptive conduct based on s 82 of the TPA and its analogues, but it does not support a case that reliance in some form is not a necessary element in causation.