Caason Investments Pty Ltd v Cao

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 269 of 2015

BETWEEN: CAASON INVESTMENTS PTY LIMITED (ACN 089 590 858)

JUDGES: GILMOUR, FOSTER AND EDELMAN JJ DATE: 3 September 2015 PLACE: SYDNEY

REASONS FOR JUDGMENT GILMOUR and FOSTER JJ 1 The Court on 29 June 2015, by a majority, granted leave to appeal and allowed the appeal from certain orders made by the primary judge on 6 March 2015. These are our reasons for so ordering. 2 The proceeding is a representative proceeding brought by the applicants, pursuant to Pt IVA of the Federal Court of Australia Act 1976 (Cth) (FCA Act), on behalf of themselves and group members (Group Members) who acquired shares (Arasor Shares) in Arasor International Ltd (Arasor) on or after 11 October 2006 and before 12 May 2008. The proceedings below were initially brought against two sets of respondent parties. 3 The application for leave to appeal before this Court, as the applicants submit, arises from the refusal of the primary judge to grant leave to amend the statement of claim so as to include pleadings of 'market-based' causation so described, as distinct from 'reliance-based' causation (the Rejected Amendments): Caason Investments Pty Ltd v Cao [2014] FCA 1410; (2014) 104 ACSR 67 (Reasons). 4 Until argument during the appeal all the parties to it had proceeded on the basis that there was such a refusal. However, the Court raised the question as to whether the primary judge's reasons did in fact amount to a refusal to so amend. One party on the respondents' side of the record took up the suggestion that the primary judge had not refused leave to amend on that ground but had done so principally on the ground that the statement of claim did not plead sufficient material facts. It was however, taken up only faintly. All other respondents disavowed any such suggestion. 5 It is common to the parties, and we agree, that critical parts of the primary judge's reasons are difficult to follow. Nonetheless, we agree with the written submissions of the parties that the primary judge concluded, in effect, as a matter of principle, that a claim based on s 729 of the Corporations Act 2001 (Cth) (Corporations Act), which does not plead reliance, is not viable: Reasons at [113]-[116], [120], [124]. 6 The applicants submit that this refusal of leave arose in circumstances where the theory of causation rejected was, in one part of the judgment, accepted as being open; has been the subject of frequent vigorous litigation in numerous proceedings for more than a decade, both in this Court and other courts around Australia; and has never been struck out as unarguable, and has never been rejected in a final judgment on a substantive or, indeed, interlocutory hearing. 7 The appeal is opposed by the respondents, other than the first and fifth respondents who have not appeared. 8 Regrettably, much of the appeal was taken up with argument, as to just what the primary judge's reasons in fact concluded: did they or did they not preclude the applicants from running their market-based causation case. 9 Whatever view one takes of the meaning of her Honour's reasons, the orders made in light of these reasons had the effect of shutting out the applicants from pleading market-based causation in respect to their Corporations Act ss 728-729 case. Moreover, the application for leave to appeal is made with respect to those particular orders made by the primary judge, not her reasons. 10 Had it been otherwise and the primary judge did not intend to deny the applicants the ability to run such a case, then there would have been no need for the appeal. If all that her Honour had decided was that insufficient facts had been pleaded to sustain such a pleading then that could have been cured by a grant of leave to the applicants to re-plead that part of their case. However, no leave to re-plead was given by the primary judge. Indeed such a course was not even canvassed. 11 In our view the primary judge did shut out the applicants from running that aspect of their case, as indeed all the parties thought she had. This was the effect of the orders made for reasons which we will explain. Furthermore, during case management hearings the principle issue identified in the appeal was the arguability of the point of principle, namely, market-based causation. This was put by one of the respondents and no other respondent eschewed this proposition. 12 As a pleading dispute, consideration needs to be given as to whether the applicants' contentions as to causation are arguable, not a determination as whether they will be ultimately vindicated as a correct application of principle in this case. 13 If leave to appeal is granted, the applicants seek orders allowing them to file a pleading incorporating the Rejected Amendments or, more accurately, the Rejected Amendments pleaded with greater precision (but which pleas incorporate the causation contentions rejected by the primary judge as being available). 14 We have, for ease of reference, set out the various iterations of the statement of claim that are the subject of these reasons: (1) The statements of claim for each of the two existing sets of proceedings, which commenced on 11 October 2012 and 28 February 2013 respectively, that were to be consolidated; (2) The proposed consolidated statement of claim the subject of the applicants' interlocutory application dated 21 March 2014, marked MFI-1, which contained the proposed amendments for the purposes of the applicants' application before the primary judge (MFI-1); (3) The consolidated statement of claim that was filed on 16 March 2015 pursuant to the orders of the primary judge made on 6 March 2015 (the 16 March CSOC); (4) The proposed amended consolidated statement of claim which the applicants contend, address and remedy any technical pleadings defects and represents the applicants' considered and up to date view of the case which they intend to take to the trial (as contemplated by Order 2 made by his Honour Justice Foster on 14 April 2015) (Proposed Amended CSOC). 15 The applicants recognised that by reason of successive amendment, the numbering in the Proposed Amended CSOC is unwieldy. Accordingly, a decision was made not to renumber the document now to allow for easier analysis of the primary judge's judgment. This renumbering will be attended to in due course such that it is sequential.

Leave to appeal 16 Although this is a pleading dispute, it is, as the applicants point out, an important one. It seems that the primary judge's decision has given rise to strike out applications being foreshadowed in three other extant FCA Act Pt IVA proceedings: (1) NSD 660 of 2014: Brian Jones v Treasury Wines Estates Limited; (2) VID 114 of 2014: Tobias Mitic v OZ Minerals Limited; (3) VID 406 of 2014: Earglow Pty Ltd v Newcrest Mining Ltd.. 17 Accordingly, the issue as to whether the applicants' contentions as to causation are arguable is, of itself, a point of importance. 18 The relevant principles on leave to appeal are well-established: first, whether in all the circumstances, the decision is attended with sufficient doubt to warrant it being reconsidered by the Full Court; second, to consider whether substantial injustice would result if leave were refused, supposing the decision to be wrong: Decor Corporation Pty Ltd v Dart Industries Inc) (1991) 33 FCR 397 at 398-399. We are satisfied, for the following reasons explained below, that both aspects of the test set out in Decor are satisfied.

Leave to amend 19 The power of the Court to grant or refuse leave must be exercised in the way that best promotes the Court's overarching purpose to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible: s 37M(3) of the FCA Act and the Federal Court Rules 2011 (Cth) (FCR): Bowen Energy Limited v 2KD Drilling Pty Ltd [2012] FCA 275 at [8], Australian Competition and Consumer Commission v Jutsen (No 2) [2010] FCA 982 at [12]-[13], Suzlon Energy Ltd v Bangad (2011) 196 FCR 259 at [19]; University of Sydney v ResMed Limited (No 5) [2012] FCA 232 at [14]. The applicants submit that by refusing to allow the Rejected Amendments, the primary judge mistook the task that she had to perform under rr 8.21 and 16.51 of the FCR. 20 The Court's power to grant leave to amend is broad and has the remedial objective of ensuring that any defect in the pleadings is cured and that the real questions in the controversy are properly agitated and to avoid a multiplicity of proceedings: Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175 at [14] (citing Dwyer v O'Mullen (1887) 13 VLR 933 at 939-940) and [71]. The object of the Court is not to punish parties for mistakes made in the conduct of their case, but to correct errors with the result that a decision can be made on the real matters in controversy: Clough and Rogers v Frog (1974) 4 ALR 615 at 618, citing Cropper v Smith (1884) 26 Ch D 700 at 710-711. 21 Leave to amend should be granted unless the proposed amendment is futile, such that the issue sought to be added is unlikely to succeed, the amendment is likely to be struck out or would cause substantial prejudice or injustice to the opposing party in a way that cannot be compensated by costs: Research in Motion Ltd v Samsung Electronics Australia Pty Ltd (2009) 176 FCR 66 at [21] to [22]; Medich v Bentley-Smythe Pty Ltd [2010] FCA 494 at [8]. Rule 16.21 of the FCR identifies the grounds on which pleadings may be stuck out.

The Rejected Amendments 22 The applicants' amendment application below was brought concurrently with an application to consolidate two existing sets of proceedings: one brought against the directors of Arasor, Messrs Cao, Mao, Marshall, SyCip, Kan, Neal and Surtees (Directors); the other was brought against members of a partnership trading as "Grant Thornton South Australian Partnership" (Grant Thornton). 23 Some of those amendments were uncontroversial or no longer remain controversial, whereas the proposed market-based causation amendments were controversial. As mentioned a consolidated statement of claim omitting the Rejected Amendments has now been filed consistently with the orders made by the primary judge: the 16 March CSOC. However it is by reference to MFI-1 that the Rejected Amendments may be seen. To avoid confusion we will refer to the proposed amended paragraphs in that consolidated statement of claim which contains the Rejected Amendments as MFI-1 [3], [51], [58L], [71B] and [71C]. 24 The question on the amendment application was whether a cause of action under s 729 of the Corporations Act was incapable of succeeding, or liable to be struck out if "reliance" was not pleaded as an element of causation.

The Group Member definition (Rejected Amendment MFI-1 [3]) 25 One proposed amendment by the applicants was to the definition of "Group Members" (Group Member definition): MFI-1 [3]. The applicants sought to delete [3.2] which restricted group membership to persons who "acquired Arasor Shares in reliance upon representations made by the Respondents". This criterion was, of course, relevant only to causation. It meant that even if later pleas of causation did not refer to reliance expressly, as a practical matter, Group Members could not avail themselves of them without proving reliance. This is so because without so proving, they would not be "Group Members". 26 The significance of this proposed amendment was, we have concluded, misunderstood by the primary judge.

Prospectus Claims (Rejected Amendments MFI-1 [51] and [58L]) 27 These claims and their legal context were well described by the applicants in their written submissions and we have adopted these in our reasons. 28 The first set of claims where the applicants sought to amend the causation pleas to introduce market-based causation were causes of action under s 729 of the Corporations Act, which provides: (1) A person who suffers loss or damage because an offer of securities under a disclosure document contravenes subsection 728(1) may recover the amount of the loss or damage from a person referred to in the following table if the loss or damage is one that the table makes the person liable for. This is so even if the person did not commit, and was not involved in, the contravention. 29 Section 728 prohibits offering securities under a disclosure document that contains a misleading or deceptive statement, or certain omissions. The table referred to in s 729(1) renders liable each director of the corporation making the offer (for loss or damage caused by any contravention of s 728(1)), and any person named in the disclosure document as having consented to statements included in it (for loss or damage caused by the inclusion of the statement in the disclosure document). 30 The applicants brought two claims under s 729 in relation to two prospectuses (Prospectus Claims): (a) September Prospectus Claims, being claims in respect of a prospectus issued on 14 September 2006 by Arasor which it is alleged contained: (i) misleading statements and omissions made by Arasor as issuer, for which the Directors are liable; and (ii) misleading statements made by Grant Thornton, for which that firm is liable. (b) March Prospectus Claims, being claims in respect of a further prospectus issued on 23 March 2007 by Arasor which it is alleged contained: (i) misleading statements (being a repetition of those misleading statements made in the September Prospectus, together with further misleading statements) and omissions, made by Arasor as issuer, for which the Directors are liable; and (ii) misleading statements (being a repetition of those misleading statements made in the September Prospectus, together with further misleading statements) made by Grant Thornton, for which that firm is liable. 31 Each of the Prospectus Claims then contained a causation plea proposed to be amended by the Rejected Amendments. These were: (a) in respect of the September Prospectus Claims, [51] pleaded "continuing reliance", which the Rejected Amendment MFI-1 [51] proposed to delete, a course her Honour refused: Reasons at [113]-[114]; (b) in respect of the March Prospectus Claims, MFI-1 [58L] did not plead reliance, but her Honour considered that it either "implies reliance without stating it", or did not "adequately [plead] causation in the absence of a claim of reliance", and (in effect) struck it out: Reasons at [120]-[124]. 32 The applicants submit, correctly in our view, that the approach taken by the primary judge to the requirements of the cause of action under s 729 also dictated the view she formed on the proposed amendment to the Group Member definition. In her Honour's mind it was inappropriate to delete the pleading of reliance in MFI-1 [3] for this reason: at [116] and [124]. 33 The applicants submit that the central question on appeal, insofar as the Prospectus Claims are concerned is, therefore, whether as a matter of principle, the primary judge should have rejected the Rejected Amendments on the basis that reliance is a necessary element of the cause of action under s 729 of the Corporations Act and therefore necessary to be pleaded by the applicants. 34 The respondents submit that the issue of substance is whether the learned primary judge erred in refusing to allow the proposed amendments to the case based on s 729. 35 The claim in respect of the September Prospectus, was considered by the primary judge at [109]-[116] of the Reasons. At [109], her Honour set out the paragraphs of the pleading ([50]-[53]) that alleged causation of loss in respect of the September Prospectus. We accept that the proposed pleading was inadequate because it simply pleaded causation as a bald conclusion. However, the respondents submit that the only thing saving the existing statement of claim was the pleading of reliance in [3] and [51]; that if the pleading of reliance was removed, as the applicants sought to do, then there was no pleading of any material fact giving rise to a causal connection between the alleged contravention of s 728 of the Corporations Act and the alleged loss pleaded at [52]. This they submit was the conclusion her Honour reached at [111]-[113] of the Reasons. This submission exposes the respondents' misconception as to the intended, albeit inadequate, effect of MFI-1 [51]. 36 The same reasoning is apt in relation to the March Prospectus, which her Honour dealt with at [117]-[125] of the Reasons. 37 There can be no doubt that the applicants were seeking to plead a reliance-based case, that is, certain Group Members actually relied on each of the Prospectuses, as well as the so-called market-based causation case in respect of those Group Members who acquired or retained their shares after the respective dates of allotment. 38 It is clear that the deficiency of the pleading in relation to the September Prospectus is implicitly accepted by the applicants in their Proposed Amended CSOC. It is to be remembered that this was not before the primary judge. The respondents accept that the Proposed Amended CSOC cures these defects. 39 As deficiently pleaded as they were, [50] and [51] were intended to cater for those two categories of claim respectively. However, as we mentioned, the primary judge refused to permit the amendments proposed by MFI-1 [51]. This meant that the phrase "continuing reliance" remained as part of the pleading. This was inimical to the intended market-based reliance case which the applicants wished to pursue. 40 That refusal at least, so it seems, with good reason, in our opinion, led all the parties to conclude that the primary judge had refused to permit an amendment which sought to delete from [51] the pleading of reliance in order to run the market-based causation case. 41 Were it otherwise, as we have observed, and it were simply a matter of re-pleading that part of the claim, as well as other deficient parts of the statement of claim, then this appeal would not have been necessary. 42 We reject the submission that what is now sought to be advanced is a completely new case in relation to the September Prospectus. It is a case pleaded deficiently before but now, in the Proposed Amended CSOC, it is accepted as being pleaded sufficiently. 43 When, following delivery of her Honour's reasons, the parties conferred as to the orders to be made, no party raised the prospect of re-pleading to cure the market-based causation pleading because everyone considered that it had been precluded by her Honour. 44 If the primary judge had understood that [51] was the market-based causation plea, then there is no reason to think that she would not have permitted the reliance plea to be deleted and given the applicants liberty to re-plead that part of the claim as being deficient in adequately pleading the facts relied upon to maintain the market-based causation plea. 45 Moreover, the question arises in respect to the primary judge's refusal to allow the removal of reliance as part of the plea in [51] as to what particular reliance her Honour determined was necessary as a matter of law and should be preserved. 46 It seems clear that the primary judge concluded, as the respondents submits she did and correctly so, that it was reliance on the 'disclosure document' under Corporations Act s 728 that was an essential element in the cause of action pleaded at [51]. That is to say that to successfully claim damages under s 729 in respect of a disclosure document contravening s 728 that proof of reliance on that document is necessary. 47 This analysis renders it plain that a case based in market-based reliance as a discrete alternative to the direct-reliance case under [50] was being excluded. No re-pleading, however otherwise sufficient, could overcome, such a conclusion. 48 The second, third and fourth respondents submit that the primary judge was correct to refuse leave for the amendments concerning the September Prospectus on the basis that the proposed pleading did not plead material facts establishing causation and that it is not in the nature of an appeal for this Court to give leave for amendments that are, in substance, new and were not advanced before the primary judge. 49 Ordinarily, such submissions would hold good. However, in this case, because, in effect, the applicants' case, based in market-based causation, was excluded this appeal became necessary. As we have observed, the deficiencies in the pleading before the primary judge could not be cured so as to reintroduce by re-pleading a claim which had been cut off, in effect, by her Honour's orders. 50 Accordingly, the pleading deficiencies were inextricably tied to the legal issue as to the viability, in the context of Corporations Act ss 728 and 729, of a market-based causation case. 51 That being so it is appropriate for this Court to consider the Proposed Amended CSOC.

Misleading or deceptive conduct claims (Rejected Amendments MFI-1 [71B] and [71C]) 52 As the applicants set out in their written submissions the second set of claims where the applicants sought to amend the causation pleas to introduce market-based causation were causes of action based on alleged misleading or deceptive conduct in contravention of s 1041H of the Corporations Act, s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) and s 9 of the Fair Trading Act 1999 (Vic) (and its cognates in other States) (Misleading or Deceptive Conduct Claims), comprised of: (a) representations allegedly made by the Directors that Arasor's 2006 Annual, 2007 Half-Yearly and 2007 Annual financial statements gave a true and fair view of the company's financial position, were in compliance with accounting standards and had been prepared with reasonable skill and care, and that there was a reasonable basis for so representing (Directors' Representations); and (b) representations allegedly made by Grant Thornton that it had exercised reasonable care and skill in forming the view that Arasor's relevant accounts gave a true and fair view of its financial position and complied with accounting standards, had complied with auditing standards in forming, and had reasonable grounds for, its audit opinions (Grant Thornton Conduct). 53 As the applicants have observed, each of these claims pleaded causation by direct-reliance in [71A]-[71D]. It was proposed that these direct-reliance pleas would be amended by the Rejected Amendments in MFI-1 [71B] and [71C], but which the primary judge refused in the form put forward, though indicating that it could not be said that "an appropriately pleaded [market-based causation] claim would have no reasonable prospect of success": Reasons at [106]. 54 In the context of the Misleading or Deceptive Conduct Claims, the primary judge held that it was not appropriate to permit the amendment of the Group Member definition as in MFI-1 [3], although she did indicate she might be prepared, in the context of the Misleading or Deceptive Conduct Claims, to permit an amendment which allowed persons who did not rely to be group members to the extent they did not have knowledge of the true position, and were not "indifferent to the truth": Reasons at [104] and [107]. 55 The applicants submit that in circumstances in which the primary judge was proposing to reject any amendment to the Group Member definition to allow persons who did not rely to be Group Members for the purposes of the Prospectus Claims (and this decision was being challenged), it would have introduced significant complexity, to attempt to amend the Group Member definition for the purposes only of the Misleading or Deceptive Conduct Claims, and then communicate this to Group Members in the context of the pending application for leave to appeal. Thus, the applicants have not yet applied to re-plead these claims consistently with her Honour's reasoning at [107] of the Reasons. 56 As the applicants correctly submit the question, on appeal, therefore is different to that which arises in respect of the Prospectus Claims. The question is whether what was proposed was "appropriately pleaded", and whether the form of pleading for which the applicants contend (as now incorporated in the Proposed Amended CSOC) ought be permitted to go forward.

The respondents' submissions 57 The respondents' submissions may be summarised as follows: (a) the applicable test on leave to amend is somehow different because of the enactment of s 31A of the FCA Act: (Proper Test Contention); (b) comments made in three cases, stand in the way of the applicants contending for market-based causation: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653 at [37]; Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 at [442] and Woodcroft-Brown v Timbercorp Securities Ltd (2013) 96 ACSR 307 at [227] (Ingot Contention); (c) section 729(2) (which refers to circumstances, absent here, where an acquirer is reliant on a profile statement), is a textual indication which necessitates individual reliance as a precondition to recovery in all s 729 cases: (Profile statement Contention); (d) the policy of Corporations Act Ch 6D being "to protect potential investors" is undermined by the applicants' argument (Policy Contention); (e) the criterion for group membership which mentions "reliance" is somehow relevant to the issue of the amendment (Group Member definition Contention).

Proper Test Contention 58 We accept the applicants' submission that FCA Act s 31A, which concerns summary judgment, does not affect the well-established approach to cases where proposed amendments raise contentious legal issues: the amendments "should be allowed unless they are obviously futile in the sense that they disclose no reasonable cause of action": Allstate Life Insurance Company v Australia and New Zealand Banking Group Ltd (1995) 58 FCR 26 at 36. We do not, contrary to the respondents' submissions, think that her Honour was pointing to a different test at [45]-[46] of the Reasons.

Ingot Contention 59 The applicants' market-based causation case argues causation in the specific context of an information effect in an actively traded market. 60 Neither Gardiner nor Woodcroft-Brown were market-based causation cases. Justice Handley in Gardiner, said at [442], in the context of a case where direct-reliance was pleaded, that a "plaintiff relying on a contravention of those sections [ss 995, 996(1), 1023B and 1024 of the Corporations Law] must establish that he relied on the misleading or deceptive conduct, or the false or misleading statement, or that he would have acted differently if the material omission had been disclosed". The Victorian Court of Appeal, in Woodcroft-Brown, another direct reliance case, adopted the whole of this passage at [227]. 61 The applicants' pleading, relevantly, is, as they observe, that they and those group members, dealing on-market, did act differently, in that they acquired Arasor Shares at a price higher than the price that would have prevailed but for the contraventions and/or retained the Arasor Shares in the different circumstances of an inflated market. The applicants further contend that a range of persons, being the market, acted differently. Thus, their causation case relies on the market of investors operating efficiently in that there are sufficient participants making decisions which cause the market to reflect information which was or ought to have been represented or disclosed to the market. 62 The applicants referred to the fact that both Ipp and Giles JJA in Ingot emphasised the distinction between where the plaintiff is a passive victim of misleading conduct and where the plaintiff acts or refrains from acting to his or her prejudice, whose conduct is brought about by the defendant's misleading conduct: at [12], [20]-[22] per Giles JA; at [617]-[618] per Ipp JA The plaintiff's conduct was itself, on the facts in that case, held to be a necessary link. There, the plaintiff sought to recover loss or damage following the issue of a prospectus, even though he knew the truth of the material misstatement or omission and was indifferent. That is not this case. As the Full Court of the Federal Court in ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1 said at [1375]-[1376] that "[t]here is no bright-line principle that it is insufficient for a plaintiff to prove that some other person relied on the alleged misleading conduct and that that person's reliance led to the plaintiff suffering loss. Ingot Capital Investments does not stand for that proposition." 63 Furthermore, the High Court (Gummow, Hayne, Heydon and Kiefel JJ) noted in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at [143], with respect to the New South Wales Court of Appeal decision below, that "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'" (footnotes omitted). 64 None of the three cases relied upon by the respondents support a submission that the applicants' causation case is unarguable. 65 Moreover, whilst there is no decision of the High Court or any intermediate Court of Appeal on the central legal issue there are single judge decisions which demonstrate sufficiently for present purposes that the applicants' market-based causation case is neither "futile" nor likely to be struck out (Allstate Life Insurance Company at [36]). 66 As the applicants correctly submit, Ferguson J (as her Honour then was) in the Supreme Court of Victoria in Bolitho v Banksia Securities Ltd [2014] VSC 8, when the identical question on an amendment application in respect of a claim under s 729 based on both misleading statements and omissions in a prospectus, rejected the proposition that the amendment should be declined because the claim must necessarily fail. Her Honour said at [51]: I do not think that the state of the law is so settled that Mr Bolitho's case outlined in [47] above has no reasonable prospect of success. 67 Similarly, as the applicants also submit, in Camping Warehouse Australia Pty Limited (formerly Mountain Buggy Australia Pty Limited) v Downer EDI Limited [2014] VSC 357, Sifris J said at [60], on an application to amend in a case which included a cause of action under s 674 of the Corporations Act (breach of the continuous disclosure requirements) and claims for relief under ss 1041I, 1317HA and 1325: The plaintiff has pleaded that the conduct in breach of the Act caused the loss in the sense of the reduced value of the shares. The essence of the claim is that the shares when acquired were overpriced directly because of such conduct. It cannot be accepted that this formulation is plainly hopeless or bound to fail. 68 These cases, in our opinion, and as the applicants submit, were not plainly wrong and ought to have been followed and the amendments to [3], [51], [58L], [71B] and [71C] ought to have been allowed. In any event, the provision sets out a test of causation: that a person suffers loss or damage "because an offer of securities under a disclosure document contravenes subsection 728(1)". The text does not refer to reliance. Accordingly, whilst reliance is a sufficient condition for establishing causation, it is not a necessary one: see for example Janssen-Cilag Pty Limited v Pfizer Pty Limited (1992) 37 FCR 526 at 529-530. 69 We also note the final judgment in Grant-Taylor v Babcock & Brown Limited (in liq) (2015) 104 ACSR 195 delivered after the decision of the primary judge. There, as the applicants have identified, Perram J at [219], in obiter, said that if it had been necessary to decide whether shareholders could recover when it was alleged they bought shares at an inflated price caused by a listed company's failure to disclose information to the market, as required by s 674(2), he would likely have accepted that they could. One factor referred to by his Honour as relevant was: (iv) … the underlying context of the alleged infringement. Here s 674 requires disclosure of market sensitive information where it would be expected to affect price (and where the listing rules also require disclosure). The provision assumes the existence of a price effect on the market in general. 70 The applicants also referred to the judgment of Beach J in Earglow Pty Ltd v Newcrest Mining Ltd [2015] FCA 328 at [79]-[102] where his Honour discussed a shareholder class action which raised market-based causation and importantly, examined, in detail, how such a case would or may be proved at an initial trial. It was, we accept, implicit in that analysis, that such a case was arguable. 71 As the applicants submit, quite arguably, although the cause of action provided by s 729 does not necessarily apply only in the case of capital raising by listed companies, at least where the company which is raising capital is, or intends to be listed, the policy considerations to which Perram J in Grant-Taylor referred, which supported market-based causation are equally applicable. Their further submission, which also has force, is that upon proper analysis, considered in context, the disclosure obligations upon a company which is proposing to raise capital and seek to be quoted on the official list of the Australian Stock Exchange (ASX) are almost exactly the same as the disclosure obligations arising by reason of continuous disclosure for already-listed companies. 72 There were further arguments made to support the submission that the market-based causation case was arguable but, in light of our other conclusions, it is neither necessary nor helpful to consider these upon an appeal from an interlocutory pleading judgement albeit one which reached a view on the legal question.

Profile statement Contention 73 The respondents submit that, as the learned primary judge recognised, the conclusion that reliance is an essential element of a ss 728-729 case is strengthened by the presence of s 729(2): A person who acquires securities as a result of an offer that was accompanied by a profile statement is taken to have acquired the securities in reliance on both the profile statement and the prospectus for the offer. 74 They submit that s 729(2) supports the conclusion that reliance is required for s 729(1), for the following two reasons. First, the evident purpose of the deeming provision is to allow a plaintiff who has relied on the profile statement to recover under s 729(1) where the misleading statement was contained in the associated prospectus. That would be unnecessary if the applicants' construction of s 729(1) were correct - the plaintiff would already satisfy the description of a person who suffered loss "because" the offer contravened s 728 simply by having subscribed under the offer. Second, it is implicit in s 729(2) that a person who acquires securities "as a result of" an offer that was accompanied by profile statement does so "in reliance" on the profile statement (and the deeming provision then extends the reliance to the prospectus). There is little difference between "because" in s 729(1) and "as a result of" in s 729(2). 75 As the applicants have submitted a profile statement is a document setting out limited key information about the company and the offer and can only be used where the Australian Securities and Investments Commission has approved their use. When ss 728 and 729 were enacted by the Corporate Law Economic Reform Program Act 1999 (Cth), para 8.12 of the Explanatory Memorandum to the Corporate Law Economic Reform Program Bill 1998 (Cth) stated the purpose was as follows: As a primary source of information for retail investors, the profile statement attracts liability for any failure to adequately address matters required to be disclosed in it (proposed section 728). However, to ensure that issuers continue to provide full disclosure in the associated prospectus, issuers will be liable to investors in relation to the prospectus regardless of whether an investor actually received a copy of the prospectus (proposed subsection 729(2)). 76 We accept the applicants' submission, without deciding the point, that a facilitation of proof provision (such as s 729(2)) specifically related to a type of non-capital market offering where an acquirer relies on limited information, is not a promising textual indication relevant to assessing what is required to be proved in a market context far removed from those circumstances. 77 Certainly, there is no textual support in s 729(1) that reliance on a disclosure document is an essential element for a successful claim to be made.

Policy Contention 78 There are no obvious policy considerations which suggest a different conclusion. 79 As to context, the applicants agree that the policy of Corporations Act Ch 6D is "to protect potential investors". They make the following submission. The disclosure obligations upon a company raising capital and seeking to be quoted are almost exactly the same as the disclosure obligations arising by reason of continuous disclosure. Pre-Quotation Disclosure involved disclosure of information material to the market of potential investors. Three points arise in relation to this. First, the materiality aspect presupposes that certain information does have a causative effect on the price or value of securities. Second, such information will, objectively, affect acquisition decisions of persons who commonly invest in shares. Third, the fact that the disclosure is to be made to the market operator (here the ASX) is designed to ensure that material information is, at all times, available to potential investors as a whole. 80 Indeed, the policy aim of Corporations Act Ch 6D of protecting investors is advanced in relation to these provisions. As the applicants submit, and arguably so, this is facilitated in this context, and not undermined, by an approach to causation, which recognises that disclosure of material information is made to a market of potential investors to which the market of potential investors reacts.

Group Member definition Contention 81 Interrelated with the controversial causation pleas was the Rejected Amendment MFI-1 [3] that restricted group membership to persons who "acquired Arasor Shares in reliance upon representations made by the Respondents". 82 We explained previously at [54] of these reasons, and as the applicants submit, that the primary judge in the context of the Misleading or Deceptive Conduct Claims, held that it was not appropriate to permit amendment of the Group Member definition, although she did indicate she might be prepared, in the context of the Misleading or Deceptive Conduct Claims, to permit an amendment which allowed persons who did not rely to be group members to the extent they did not have knowledge of the true position, and were not "indifferent to the truth". This reasoning, which we apprehend the respondents support, proceeds from a view that the Group Member definition had to reflect the pleading of reliance or elements of particular causes of action. This is to misunderstand the purpose and effect of MFI-1 [3] and the amendments proposed in relation to it. 83 The Group Member definition required by FCA Act s 33H for the purposes of the representative proceeding is, as the applicants submit correctly, in effect, simply a list of persons named by identity or by reference to identifiable characteristics. We accept the applicants' submission that it has nothing to do with the substantive claim or cause of action of a Group Member.

Date of effect of the amendment 84 The applicants do not seek to depart from the concession made below that any amendment to the group definition should date from when the interlocutory application was filed (21 March 2014). The respondents propose this date. We propose to so order. This seems to us to be the appropriate date rather than the date on which the applicants served their Proposed Amended CSOC, being 29 April 2015, as was the sixth respondent's submissions.

Conclusion and orders 85 We accept the applicants' submission that it cannot be said that the Rejected Amendments, which reflect the causation theory were incapable of succeeding, or liable to be struck out. The primary judge rejected the other bases upon which it was contended that the proposed amendments should not be allowed: delay, lack of utility, and limitations issues. Accordingly, there was no basis for rejecting the proposed amendments. 86 The primary judge ought not to have refused to grant leave to make the Rejected Amendments. We would grant leave to appeal, allow the appeal and make the following orders: (1) The application for leave to appeal be granted and the Draft Notice of Appeal stand as the Notice of Appeal. (2) The appeal be allowed. (3) Orders 4 and 5 of the Orders of the Court made on 6 March 2015 in proceedings NSD 1558/2012 and NSD 341/2013 be set aside. (4) In lieu thereof, there be an order that the plaintiffs have leave to file and serve the Amended Consolidated Statement of Claim found at Tab 3 of Part A of the Application Book. (5) Order 6 of the Orders of the Court made on 6 March 2015 in proceedings NSD 1558/2012 and NSD 341/2013 be varied so as to add at the end of the Order the words "and the Amended Consolidated Statement of Claim". (6) Those Group Members who have become Group Members by reason of the deletion of paragraph 3.2 of the Consolidated Statement of Claim are taken to have become Group Members from the date of filing of the Interlocutory Application, namely 21 March 2014. (7) The parties have leave to file, within 14 days of delivery of the Reasons in this Appeal, Outlines of Written Submissions, not exceeding two (2) pages, on the question of costs of the Interlocutory Application, which will thereafter be decided on the papers. (8) The respondents, other than the first and fifth respondents, pay the appellants' costs of the Appeal, to be taxed if not agreed. I certify that the preceding eighty-six (86) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Gilmour and Foster.

Associate: Dated: 3 September 2015 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 269 of 2015

BETWEEN: CAASON INVESTMENTS PTY LIMITED ACN 089 590 858

JUDGES: GILMOUR, FOSTER AND EDELMAN JJ DATE: 3 September 2015 PLACE: SYDNEY

Introduction 87 This appeal, for which leave was granted at the conclusion of the hearing, concerned a decision by the primary judge to refuse the appellants leave to amend their statement of claim in relation to various aspects of what was described as "market based causation claims". The parties raised broadly two points. They were (i) a point of appellate procedure concerning whether an appeal can be allowed without the demonstration of any error in any orders by the primary judge based on the material before her, and (ii) an alleged error in the primary judge's reasons concerning a point of statutory construction about causation. 88 At no stage during this appeal did the appellants make any substantial submission pointing to any error in an order by the primary judge. This was because none was in error. One ground for the orders of the primary judge refusing leave for the proposed amendments was that the amendments were defectively pleaded. That ground for the orders was not challenged. Instead, the assumption of the appellants, shared by the respondents, was that the primary judge had erred in her Honour's reasons because the parties thought that she had also refused the appellants leave to replead parts of their statement of claim a proper or non-defective form. This assumption was the focus of the appeal. 89 The assumption of the parties was probably the reason why the primary judge was not asked by the appellants to make an order granting leave to replead the relevant market based causation issues in a non-defective form. The usual manner in which such an order would have been sought would be by an application to amend accompanied by a properly pleaded minute of proposed amendments. But the properly drafted minute of proposed amendments which included all the matters concerning market based causation, was filed on this appeal. It was never seen by the primary judge. Nor was the primary judge asked to take the unusual step of granting leave to replead a statement of claim in a form which she had not seen. The basis for this appeal was essentially that the primary judge had effectively refused leave to replead in relevant respects by her reasons. 90 In written submissions, the respondents correctly submitted that there was no error made in the primary judge's orders in relation to the proposed amendments. The appellants did not attempt to defend the form of those amendments on this appeal. They were right not to do so. Instead, in written submissions in reply, the appellants effectively accepted that the primary judge had not made any order that precluded them from amending their claim to plead market based causation in relevant respects but said that this "rather misses the point of what this application was all about and why it was referred [to a Full Court]". They asserted that this application had been referred to a Full Court because the technical pleading defects were not the only reason why the amendments were refused. 91 Since there was no order of the primary judge that was said to be erroneous, the appellants asserted that the reasons of the primary judge had precluded them from pleading market based causation in a central respect. Unless this appeal is to be dismissed simply on the basis that there was no error on the face of the orders of the primary judge it is essential to engage with her Honour's reasons. 92 Even though I would dismiss this appeal on the basis that there was no error in her Honour's orders, I consider that there was also no error in the primary judge's reasons. This appeal would have been unnecessary if the appellants had brought a properly pleaded claim based on marked based causation before the primary judge. Contrary to the assumption made by all counsel up until the hearing of this appeal, her Honour's reasons did not prevent the appellants from bringing such a properly pleaded claim. Any ambiguity in her Honour's reasons for decision was resolved by supplementary oral reasons that she gave at the time of delivery of her written reasons (when senior counsel who appeared on this appeal were not present). Those supplementary reasons were included in electronic form and partly in hard copy in the appeal book but the Full Court was not referred to them during the hearing. 93 The point concerning causation, about which the appellants incorrectly assumed the primary judge had erred, relates to what was described as "market based causation". A market based causation case is not a special sub-category of causation. It is, simply put, an example of indirect causation. One circumstance of market based causation, albeit inadequately pleaded before the primary judge, involves an alleged disclosure of misleading information to the market in a disclosure statement. That misleading information causes the listed price of securities being inflated which, in turn, causes an alleged loss because the investor purchases the securities at a higher price than he or she would otherwise have paid. The primary judge's reasons, properly understood, did not exclude the possibility of a claim based on market based causation. 94 The respondents initially sought to draw a bright line between (i) market based causation, and (ii) a circumstance described as "reliance based causation". They submitted that a claim for loss suffered under s 729(1) of the Corporations Act 2001 (Cth) was only possible by proof of reliance based on allegedly "direct" causation. In the example above, reliance based causation could involve the investor relying directly on the false information to purchase securities that he or she would otherwise not have purchased. 95 There is no sharp contrast between these two examples of causation. Both types of causation might be indirect. For instance, it might be an investor's financial advisor, rather than the investor, who relies on the false information when advising the investor to invest. More fundamentally, in the "reliance" based causation case, the investor's reliance on the information is the reason why (i) he or she purchases the securities which, in turn, will indirectly be the reason why (ii) when the market falls, the loss is suffered. 96 In oral submissions on the appeal, senior counsel for the second to fourth respondents conceded that any reliance restriction must be a matter independent of causation, arising even if causation was satisfied (appeal ts 45). As I explain below, that concession has the effect that the legal argument of market based causation has reasonable prospects of success and should be allowed to proceed to trial, as the primary judge accepted. Whether market based causation is established as a matter of fact is a different question which will require expert evidence.

Summary and background to the proposed amendments in this appeal 97 The appellants' proposed amended statement of claim sought to bring claims based on: (1) misleading or deceptive conduct in contravention of (i) s 1041H of the Corporations Act, (ii) s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth), and (iii) s 9 of the Fair Trading Act 1999 (Vic) causing losses; and (2) conduct in contravention of s 728 of the Corporations Act causing losses which relied upon claims based on (i) a September 2006 prospectus, and (ii) a March 2007 prospectus . 98 Before the primary judge, the respondents resisted the amendment application on two bases. First, the respondents made a pleading submission: the proposed pleading was inadequate to reveal to the respondents the case which the respondents had to meet in relation to causation. Secondly, the respondents made a substantive legal submission: any pleading of causation was required to include a pleading of reliance; a plea of "market based causation" must inevitably fail. 99 The primary judge delivered reasons for decision which refused leave to amend six paragraphs of the statement of claim as proposed. But she foreshadowed that leave might be given to amend the statement of claim in some respects. 100 Both the appellants and the respondents misunderstood the primary judge's reasons. They correctly understood that her Honour had permitted them to bring a properly pleaded market based causation claim in respect of the misleading or deceptive conduct claims, but they thought that her Honour had implicitly (but not expressly) denied that a properly pleaded market based causation claim could ever be brought for a claim based on contravention of s 728. Stated in these terms, this conclusion is very surprising. As I explain below, it was not what her Honour decided in her written reasons. And doubts should have been resolved by the supplementary oral reasons delivered by her Honour when she handed down her written reasons. Nevertheless, the appellants proceeded on the assumption that they could not plead a market based causation claim for breaches of s 728. 101 The appellants sought leave from the primary judge to file a Consolidated Statement of Claim which rectified the pleading defects in the proposed statement of claim which had been before her Honour. Leave was granted. Because of the appellants' assumption that they had been precluded from pleading market based causation in relation to the alleged breaches of s 728, these matters were not pleaded in the Consolidated Statement of Claim. 102 The appellants also sought leave to appeal from orders including (i) her Honour's decisions granting the leave that the appellants themselves had sought (ie to file the Consolidated Statement of Claim), and (ii) her Honour's order "to otherwise dismiss the appellants' interlocutory application for leave to amend in terms of the proposed pleading" (ie the primary judge's refusal to grant leave to amend the six paragraphs of the proposed pleading before her). 103 On this appeal, the appellants did not challenge her Honour's reasoning that the paragraphs about which she had refused leave to plead were defective. The effect of their application for leave to appeal was therefore that they challenged (i) an order of her Honour that had been made on their own application and which was not the subject of any error, and (ii) an order of her Honour refusing leave to amend a pleading which they did not dispute was defective. This was an appeal against the primary judge's reasons rather than against her orders. 104 Faced with the formidable task of effectively appealing against the reasons of the primary judge rather than the orders, and prompted by a sensible submission made by one of the counsel for the appellants at a directions hearing for the appeal (see appeal ts 58), the appellants filed a proposed Amended Consolidated Statement of Claim which rectified the pleading defects . But the proposed Amended Consolidated Statement of Claim was not filed before the primary judge. It was filed in the appeal. The appellants relied on the Amended Consolidated Statement of Claim effectively to argue that the primary judge had erred by failing to permit the proposed amendments in that proposed Amended Consolidated Statement of Claim that the primary judge had not seen. 105 The assumption upon which this appeal was conducted was that the primary judge would necessarily have rejected the amendments in the Amended Consolidated Statement of Claim concerning market based causation in relation to the alleged breaches of s 728. Both the appellants and the respondents assumed that this was the effect of her Honour's reasons. Even if it were possible to appeal against reasons rather than orders, this assumption was wrong.

The six paragraphs of the proposed amendments which her Honour refused leave to amend 106 The draft notice of appeal sought leave to appeal relying on the orders of her Honour refusing leave to amend six of the paragraphs of the proposed pleading before her. Those paragraphs are set out below, but several points should be made. First, the paragraphs were those which attempted to allege market based causation in relation to both the misleading or deceptive conduct claims and the s 729 claims. Secondly, there was no challenge on this appeal to the primary judge's reasoning that these paragraphs did not adequately reveal to the respondents the case that the respondents were required to answer or that there were defects in the pleading of alternative cases. The appellants did not challenge the respondents' submission that all of these paragraphs were defective. 107 The six paragraphs which her Honour refused leave to amend can be described as follows: (1) [3] (definition of the group), (2) [51] (causation concerning s 729(1) in the September 2006 prospectus), (3) [58L] (causation concerning s 729(1) in the March 2007 prospectus), (4) [71B], [71C.1(b)], and [71C.3] (causation concerning misleading or deceptive conduct). 108 This appeal focused upon the refusal by the primary judge to allow an amendment to [51] and [58L]. The reason for this focus was that it was common ground that the primary judge's reasons in relation to the other paragraphs had not precluded them from being re-pleaded properly as market based causation claims. 109 The paragraphs and the marked up amendments were as follows below, including [50] to give context to the pleading in [51]: 3. The group members (Group Members) to whom this proceeding relates are those persons who: 3.1 acquired interests in Arasor Shares on or after 11 October 2006 and before 12 May 2008 (the Period); and 3.2 acquired Arasor Shares in reliance upon representations made by the Respondents; and 3.33.2 suffered losses or damage by or resulting from the wrongful conduct of the Respondents as pleaded below. (the Group Members) Particulars Particulars of the Group Members' share acquisitions will be provided after the determination of the initial trial of common issues. … 51. 50. The September Prospectus Directors' Statements, and the September Prospectus Director Forecasts, the September Prospectus Omissions, and the September Prospectus Grant Thornton Statements, (or the conduct that occurred which is pleaded in each of the paragraphs giving rise to the defined representations and/or statements) were a cause of the Applicants and the Group Members acquiring shares in Arasor Shares. 52.51. Further, or alternatively, the Applicants and the Group Members, in continuing reliance on the September Prospectus Directors' Statements, the September Prospectus Director Forecasts, the September Prospectus Omissions, and the September Prospectus Grant Thornton Statements (or the conduct that occurred which is pleaded in each of the paragraphs giving rise to the defined representations and/or statements) were a cause, after the allocation under the September Prospectus, of the Applicants and Group Members: 52.151.1 retaininged some or all of their interests in Arasor Shares; and/or 52.251.2 acquiringed further interests in Arasor Shares. … 58L. The omission of the material referred to in subparagraphs 55.1, 55.2 and/or 55.3 in breach of s 710 of the Corporations Act (Omitted Material): 58L.1 resulted in the March Prospectus being issued in the form it was issued which would not have occurred but for the omission of the Omitted Material; 58L.2 was a cause of the Second Applicant and some Group Members acquiring Arasor Shares under the March Prospectus (which only occurred because the March Prospectus was issued in the form it was issued); 58L.3 was a cause of the Applicants and some Group Members retaining some or all of their interests in Arasor Shares; and/or 58L.4 was a cause of the Applicants and some Group Members acquiring interests in Arasor Shares at a price substantially greater than: i. their true value; and/or ii. the market price that would have prevailed but for the contravention pleaded in paragraph 58K above. Particulars Particulars of the identity of those Group Members who purchased and/or retained because of the contravention pleaded in paragraph 58K above will be provided after the initial trial; particulars of the price or value of Arasor Shares that would have prevailed but for the contravention pleaded in paragraph 58K above will be provided at the time of service of expert evidence. The omission of the material referred to in paragraph 58H to 58I and/or paragraph 58H above, was a cause of: 58L.1 the Second Applicant and Group Members acquiring Arasor Shares under the March Prospectus; 58L.2 the Applicants and Group Members retaining some or all of their interests in Arasor Shares; and/or 58L.3 the Applicants and Group Members acquiring interests in Arasor Shares at a price substantially greater than: their true value; and/or the market price that would have prevailed but for the contraventions pleaded in paragraph 58K, above. ... 71B. The Applicants and Group Members acquired interests in Arasor Shares in a market: 71B.1 172B.1 regulated by the Listing Rules; 71B.2 172B.2 where the price or value of the Arasor Shares would reasonably be expected to have been informed or affected by information disclosed in accordance with the Listing Rules; 71B.3 172B.3 being a market where a reasonable person would expect that misleading and deceptive statements would have a material effect on the price or value of the Arasor Shares; and 71B.4 172B.4 being a market where the Directors' Representations and the Grant Thornton Conduct caused the market price for the Arasor Shares to be substantially greater than: (a) their true value; and/or (b) the market price that would have prevailed but for the contraventions pleaded in this sub-paragraph. 71C. Each of the Directors' Representations and the Grant Thornton Conduct were: 71C.1 a cause of the Applicants acquiring Arasor Shares at the price they acquired them and/or retaining some or all of their interests in Arasor Shares, in that the Applicants: (a) relied directly upon the Directors' Representations and/or the Grant Thornton Conduct in making a decision to purchase and/or retain the Arasor Shares; and/or (b) purchased the Arasor Shares at the price they acquired them being a market price that was inflated for the reasons pleaded in paragraph 71B.4; 71C.2 a cause of some Group Members making a decision to purchase and/or retain the Arasor Shares, being those of the Group Members who relied directly upon the Directors' Representations and/or the Grant Thornton Conduct in making a decision to purchase and/or retain the Arasor Shares; and 71C.3 a cause of all Group Members purchasing the Arasor Shares at the price they acquired them being a market price that was inflated for the reasons pleaded in paragraph 71B.4. Particulars Any allegation of direct reliance made by any Group Member (being those Group Members identified in paragraph 71C.2 above) will be made when and if Group Members are required to plead and particularise their claims following the determination of the common issues at an initial trial of the Applicants' claim. Each of the Directors' Representations and the Grant Thornton Conduct were a cause of the Applicants and the Group Members acquiring Arasor Shares and/or retaining some or all of their interests in Arasor Shares. Particulars Any allegation of direct reliance on any of the Directors' Representations and/or the Grant Thornton Conduct will be made at the time the Group Members are required to particularise their claims following the determination of the common issues at an initial trial. 110 Although there was no challenge to the primary judge's reasoning that all of these paragraphs were not properly pleaded, it suffices simply to illustrate why her Honour's conclusion was undoubtedly correct. 111 First, there are the obvious defects in [50] read together with the removal of [3.2]. Senior counsel for the appellants said that [50] was intended to be a "direct reliance" case and [51] was a "market based causation case" (appeal ts 17, 76). But it is impossible to see how [50] could be a plea that the losses had been suffered by "direct reliance" without mentioning the word "reliance". It might possibly have been argued that it was unnecessary to mention reliance in [50] since the group was defined in [3.2] to include only those who had acquired Arasor shares in reliance upon the representations. On this appeal, senior counsel for the appellants conceded that [50] had not pleaded "direct reliance" (appeal ts 5). 112 Secondly, there are the defects in [51] and [58L]. If [51] and [58L] were intended to be a market based causation plea then where was the plea that the relevant conduct had affected the market price? How was the market price said to have been affected? The causal mechanism cannot simply be divined simply from the words "a cause". As I explain later in these reasons, even the words "a cause" are ambiguous. 113 Thirdly, it is noteworthy that [71B] and [71C] contained alternative causal mechanisms of (i) direct reliance and (ii) market based causation. But [50] and [51] did not. Senior counsel for the appellants submitted on this appeal that [50] and [51] had been intended to raise the two causal mechanisms as alternatives. But no natural reading of those paragraphs could permit a reliance alternative, particularly in the absence of any pleading of reliance in [50] or [51] and the proposed removal of the reference to reliance in [3]. The effect of this would be that if a market based causation claim failed (either in law or in fact) then there would be no alternative pleading in [50] or [51] based on direct reliance. There could be serious prejudice to group members if [50] and [51] were amended as proposed because if market based causation was not successful then it seemed from the proposed pleading that no alternative would be available to those group members who had relied on the prospectus. As I explain below, it was this prejudice, in light of the defective proposed pleading, that led the primary judge to refuse the proposed amendment to [3].

The false assumption upon which this application for leave to appeal was commenced 114 As I have explained, the appellants effectively argued this appeal on the basis that the primary judge erred in reasons she gave, not orders which she made. It could not have been submitted that her Honour erred by not permitting the appellants to file a new statement of claim which she was not given. The assumption upon which this appeal was conducted was that the primary judge would necessarily have rejected the amendments in the new statement of claim concerning s 729. The appellants assumed this because they thought that her Honour had given reasons to this effect. This assumption was wrong. Unfortunately, this assumption was shared by the respondents. 115 As I explain below, the first assumption must be rejected. The primary judge did not prohibit any amendment to the s 729 claims which relied on market based causation. Her Honour's rejection of the amendments before her were all concerned essentially with matters concerning the deficiency of the pleading. As senior counsel for the appellants properly conceded, if this assumption is rejected then the appropriate order would be for the application for leave to appeal to be dismissed (appeal ts 15). 116 Even if her Honour's reasons had also prohibited an amendment to the s 729 claims, the deficiencies of the pleading were not challenged on this appeal. The appellants have not demonstrated any error in her Honour's orders. The appeal should have been dismissed for this reason. Apart from instances in which further evidence is admitted, or where there is a change in the law, a common law appeal by way of rehearing has required demonstration of error since 31 Edw III c 12: Blackstone W, Commentaries on the Laws of England (University of Chicago Press, 1979) Vol 3, p 46. Since there had been no change in the law or further evidence in this case then, as Allsop J said in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424, 435 [22], it is plain from what the High Court has said in CDJ v VAJ [[1998] HCA 76; (1998) 197 CLR 172] at 180 [111]; in Allesch v Maunz [[2000] HCA 40; (2000) 203 CLR 172] at 180 [22]; in Coal & Allied Operations v Australian Industrial Relations Commission [[2000] HCA 47; (2000) 203 CLR 194] at 203-204 [14] and in Crampton v R [[2000] HCA 60;] 206 CLR 161 at 213 [147]; 176 ALR 369 at 405 [147] (citing Attorney General v Sillem (1864) 10 HLC 704 at 724 per Lord Westbury LC and Victorian Stevedoring & General Contracting Co Pty Ltd v Dignan [[1931] HCA 34;] (1931) 46 CLR 73 at 109 per Dixon J) that the task of a court on an appeal by way of rehearing is the correction of error. 117 My conclusion that the appeal should have been dismissed because her Honour made no error in her orders does not address the legal issue which was the substance of submissions on the appeal. This is whether it is arguable that a claim for losses suffered as a result of s 728 can be brought based on s 729 of the Corporations Act. Although it is not essential to my reasons, I address this question below in deference to the very detailed submissions on this point by counsel on this appeal. As I explain, the respondents initially resisted the submissions of the appellants on the assumption that reliance was an element of causation. Once this assumption was abandoned during the oral hearing it became inevitable that the respondents' legal arguments on this point would fail. However, it is necessary first to explain why the assumption about the primary judge's reasons was incorrect. It is necessary to explain this point because the appellants sought orders allowing the appeal on the basis of alleged errors in her Honour's reasons.

The primary judge did not exclude a plea of market based causation 118 A central assumption upon which this appeal was brought was that the primary judge had excluded any plea by the appellants of liability under s 729(1) of the Corporations Act based upon market based causation. During the hearing of this appeal, I questioned this assumption with counsel for each of the parties. Although senior counsel for the second to fourth respondents declined to analyse very closely the primary judge's judgment (appeal ts 36), it is particularly necessary in this case to examine closely the primary judge's reasons in circumstances in which this appeal was conducted effectively as an appeal from reasons (which were said to be in error) rather than orders (which were not). 119 For reasons I explain below, the primary judge did not exclude any claim that relied upon market based causation. This means that the primary judge made no error in her reasons. 120 First, perhaps the most compelling indication that the primary judge did not exclude the possibility of a properly pleaded claim for market based causation of loss relying on s 729(1) is that her Honour never said so. 121 The main reason why the appellants seem to have drawn the inference that her Honour had excluded this claim was because she expressly contemplated a repleaded claim for losses arising from misleading or deceptive conduct based on market based causation. Her Honour said that subject to the form of the pleading, and to addressing the pleading problems she had identified and to limitation issues, "it may be appropriate to permit the misleading or deceptive conduct claim to proceed to a hearing" [107]. However, there is an obvious reason for the absence of a similarly express statement in relation to the s 729(1) claims. That is that some of the s 729(1) claims were themselves also based on misleading or deceptive conduct. Section 729(1) allows for recovery of loss or damage where there has been a contravention of s 728(1). Section 728(1) prohibits matters including the offer of securities under a disclosure document if there is a misleading or deceptive statement in the disclosure document. It would have been remarkable for her Honour to have held, without further explanation, that misleading or deceptive conduct claims arising from one section of the Corporations Act could be pleaded with a claim based on market based causation but those arising from another section of the Corporations Act could not. In the words of the appellants themselves, for the primary judge to have excluded the possibility of market based causation in relation to s 729(1) would have been "inconsistent without there being any real reason identified as to why such inconsistency should exist". 122 Secondly, there is another serious flaw in the appellants' submission that the primary judge's reasons had impliedly created some inconsistency by permitting a pleading of market based causation for misleading or deceptive conduct claims but denying it for a s 729(1) pleading. The flaw is that much of the primary judge's discussion of causation was concerned with both the misleading or deceptive conduct claims and the s 729(1) claims: see [70] - [95]. Further, her Honour's discussion of s 729(1) cross-referenced her discussion of principles concerning the causation claims for misleading or deceptive conduct. For instance, when discussion the pleading at [58L] the primary judge said that "[t]he claim in [58L] is based on omissions. As noted at [73]-[74], it may be artificial to speak of reliance in determining what action or inaction would have occurred if the true position had been known" [120]. At [73]-[74], the primary judge said that "reliance is not a substitute for the essential question of causation". The appellants' assumption was that in the same paragraph in which her Honour had cross-referenced this statement, her Honour was saying that reliance was a necessary substitute for causation. That cannot be correct. 123 Thirdly, the appellants submitted that what her Honour "should have done" was to follow the decision of Ferguson J in relation to a market based causation claim in Bolitho v Banksia Securities Ltd [2014] VSC 8. That case had been relied upon at the hearing before the primary judge (ts 27) by counsel for the appellants who emphasised the conclusion of Ferguson J at [51]: "I would not refuse [the] application for leave on the basis that it will necessarily fail". The primary judge did exactly what the appellants submitted on this appeal that she ought to have done. The primary judge expressly approved the decision in Bolitho [114]. It is very difficult to see how the primary judge could be taken to have rejected the possibility of a claim for market based causation in paragraphs of a judgment in which the only authority cited was a case which accepted the possibility of a market based causation claim. 124 Fourthly, four of the six paragraphs upon which the appellants' assumption was based ([113]-[116]) were not read by the appellants in the context of [112] which was the essential paragraph in understanding her Honour's conclusions in [113]-[116]. It is necessary to set out five of those paragraphs of the primary judge in full: [112] The second to fourth respondents submitted that the proposed amendments are nonsensical to the extent that they relate to group members who acquired Arasor shares in the initial public offering since the price or value of those shares cannot have been affected by information disclosed in accordance with the Listing Rules. The applicants say that the Listing Rules did apply and the difference between the strike price under the IPO and the price which would otherwise have prevailed is a matter for expert evidence. [113] There are a number of difficulties with the applicants' response. While expert evidence might demonstrate the difference between the "real value" of an Arasor share and the price at which it was offered under the September Prospectus that would only go to demonstrate loss, not causation. There is no pleading of a contravention of the Listing Rules or of their relevance to these claims. There is no pleading of how the price at which Arasor shares sold under the September Prospectus was established, but if it was a fixed price initial public offering, it would not be usual for there to have been trading in a market operated by ASX which would have established a "market price" ahead of allocation of entitlements at the end of the offer period under the Prospectus. [114] Further, a claim for compensation under s 729(1) of the Corporations Act based on misleading or deceptive statements which does not plead reliance or some causal connection over and above the mere making of the statements faces significant and likely insurmountable hurdles. The weight of intermediate court authority against the viability of such a claim cited by the respondents is formidable despite the fact that aspects of those cases might be distinguishable, as discussed in Bolitho v Banksia Securities Ltd [2014] VSC 8 per Ferguson J. [115] There are a number of features of Part 6D.3 which indicate that the disclosure document is integral to the investor's decision to invest and the liability regime is predicated on that central feature. Section 727(1) forbids the making of an offer or circulation of an application form for an offer of securities "that needs disclosure to investors" unless the disclosure document for the offer has been lodged with ASIC. Section 727(2) prohibits making an offer or circulating an application form in relation to an offer of securities that "needs disclosure to investors" under Part 6D.2 unless the offer or application form is included in or accompanied by the disclosure document. Further, s 729(2) deems a person who acquires securities as a result of an offer that was accompanied by a profile statement to have acquired the securities in reliance on both the profile statement and prospectus for the offer which suggests that reliance has relevance to claims under s 729 generally. [116] Unlike [71C], there is no alternative pleading in either of [50] or [51] which would preserve a claim based on reliance for group members who currently have a cause of action. Were I to grant leave to the amendments now proposed and it was ultimately determined that the alleged representations and omissions were indeed misleading, but reliance must be demonstrated in claims of this kind, those group members who are able to prove reliance would be deprived of a viable claim. This is not a prospect which can be discounted given the novelty of the applicants' claims if the proposed amendments are made. No evidence was provided by the applicants that they had consulted with any group members about such an amendment to their claims. Since more than six years have passed since the allotment of shares under the September Prospectus there is a significant possibility that many claims would be statute barred should any of those group members now seek to prosecute a claim. Albeit that the applicants filed originating applications in the Proceedings at what might arguably have been the end of the limitation period in any event, and matters identified in the previous three paragraphs might be addressed in evidence which establishes causation, in view of this prejudice to group members I do not consider that it would be appropriate to grant leave to delete the pleading of reliance in [51] or from [3] insofar as it relates to these claims. 125 There are two important points of context about these paragraphs. The first point of context is that these paragraphs are concerned with [50] and [51] of the proposed statement of claim. Those paragraphs concerned statements or omissions in a September 2006 prospectus for the initial public offering of shares in Arasor in connection with its admission to the official list of the Australian Stock Exchange. As I have already explained, neither of those paragraphs included a pleading of reliance as part of the causal sequence. Her Honour introduced her discussion quoted above by asserting, correctly, that [50] and [51] "simply plead a conclusion" [111]. The primary judge's discussion which follows is concerned with the form of the proposed pleading. 126 The second point of context is that these paragraphs are addressing the submission by the second to fourth respondents. That submission also concerned a point about the form of the pleading rather than a fundamental point about market based causation. In [112], her Honour sets out the submission by the respondents that might be expressed as follows: Assuming that market based causation is legitimate, it is nonsense to say that information which was provided lawfully (ie under the Listing Rules) could have affected the price of the Arasor shares in a way which permits those Group Members to recover. 127 At [113], the primary judge accepts this submission. The whole of her reasons at [113] are based on the premise that a market based causation case can be brought. The primary judge's point is that if such a market based causation case were brought then it would need to explain how the information provided under the Listing Rules affected the price of the shares. Senior counsel for the appellants conceded on this appeal that no market based causation claim could be brought in such a case (appeal ts 13). 128 Then [114] is expressed to be a further problem for the form of the appellants' pleading. Her Honour explains that there are insurmountable problems for a claim "which does not plead reliance or some causal connection over and above the mere making of the statements" (emphasis added). The obvious reference to "some other causal connection" is to other (non-reliance) causation cases including a market-based causation case. As I have mentioned, her Honour also mentions the Bolitho decision which permitted a market based causation case to go to trial. 129 The primary judge then moves on to a different issue in [115] and [116]. In [115] she considers reasons why reliance may be necessary for a claim under s 729(1). Her Honour does not decide the point, nor does she contradict all of her reasoning in the previous paragraphs. The importance of the point concerning the possibility that a court might conclude that reliance is necessary is explained in [116]. If, at trial, it were "ultimately determined" that reliance must be demonstrated then those group members who are able to prove reliance would be deprived of a viable claim. The primary judge is making another point about the defective form of the pleading. As I have explained above, the point is that the proposed amendments to the s 729(1) claim were not expressed as offering alternative claims of market based causation as well as a claim based on reliance. The amendments could potentially have the effect of excluding the existing reliance claims of some group members. This was her Honour's reason for refusing to allow the amendment to [3] in light of the defects in the proposed pleading. 130 Fifthly, there is the primary judge's discussion of the appellants' proposed s 729(1) claims that are concerned with alleged statements and omissions in the post-listing short form prospectus in March 2007. A central aspect of that discussion involved the proposed [58L] which was a paragraph concerned with omissions from the March 2007 prospectus. The primary judge observed at [120] 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". This would be a particularly odd statement to make in reasons which were concerned with insisting that a claim that did not plead reliance was incapable of succeeding or futile. The primary judge was not insisting that reliance must be pleaded. Instead, her Honour was saying that although it may be artificial to speak of "reliance" upon an omission, without any reference to reliance [58L] contains no other causal connection (such as market based causation). 131 Sixthly, this point is reinforced by the next two paragraphs where the primary judge directly addresses the possibilities of causal links other than those based on reliance. She asks at [121]: Why did the March prospectus matter if not because it was relied on? More needs to be pleaded so that links in the chain of causation are adequately exposed and the respondents know the case they have to answer. 132 Then, at [122], the primary judge describes the inadequacy of [58L.3] by asking rhetorically what the causal nexus was between the omissions and the decision by group members to retain their shares. Tellingly, only the first of the options posed was reliance: how did the alleged omissions cause the applicants and some group members to retain their shares? Because they relied on the truth of the March Prospectus? Because they would expect publicity to alert them of a need to sell if the omitted material had been disclosed? In some other way? As currently pleaded, [58L.3] pleads only a conclusion. 133 Seventhly, her Honour concludes her discussion of the March 2007 prospectus by saying at [124] that she was not persuaded that the March Prospectus plea "adequately pleads causation in the absence of a claim of reliance and having regard to its terms" (emphasis added). If her Honour's reasons were suggesting that a claim for reliance was essential for a claim of causation then why talk of the "adequacy" of the pleading in the absence of reliance? How could causation ever be adequately pleaded in the absence of a claim for reliance? Why would one ever need to consider the terms of the plea in the absence of reliance to determine whether there was an adequate plea of causation? 134 Eighthly, any doubt that the appellants had about whether her Honour's reasons had deprived them of the opportunity to plead market based causation for a claim relying on s 729(1) should have been removed when her Honour gave supplementary oral reasons when she delivered her written reasons for decision. Senior counsel who argued the application for each of the parties before the primary judge were not present at the handing down of the written reasons for decision and, it appears, had not been fully apprised of her Honour's remarks (see appeal ts 70). Although a reference to the transcript of the oral reasons was included in the index to the appeal books it was not reproduced in full in hard copy. 135 The supplementary oral reasons delivered by her Honour added to the written reasons by explaining the particular paragraphs for which leave to amend was granted and refused. There was nothing inappropriate about this course in this case. It was really the reverse of the more usual scenario where oral reasons are revised in a later delivery of written reasons. Speaking of that scenario, the New South Wales Court of Appeal in Bar-Mordecai v Rotman [2000] NSWCA 123 [194] quoted from an extrajudicial statement by Gleeson CJ that A judicial officer revising a transcript of reasons for a decision is entitled to alter the transcript where, because of a slip, the reasons as expressed do not reflect what the judicial officer meant to say; or where there is some infelicity of expression which the judicial officer desires to remedy. There is no reason, in law or in policy, why a judicial officer who delivers a judgment ex tempore should be strictly bound to the precise manner in which the reasons were expressed. On the contrary, judges and magistrates are encouraged, where it is possible and appropriate to do so, to decide cases promptly and to give their judgments immediately. It would not advance that policy to prevent them from later improving the manner of expression of their reasons, provided, of course, that they do not alter the substance. 136 Although it is unusual for written reasons to be supplemented by oral reasons, there is no reason why supplementary oral reasons cannot be delivered to clarify written reasons particularly when additional oral reasons are delivered contemporaneously with the handing down of written reasons. For an example see Theta Developments Pty Ltd v Leonardis [2002] FCAFC 170; (2002) 59 IPR 368, 373 [23] (Wilcox and French JJ referring without disapproval to the approach of Williams J). 137 In this case, the primary judge commenced her oral statements at the time of delivery of written reasons with the statement that (ts 2): I'm going to talk to you for a little while about it, because there are some complexities in this, and there are going to be some timetabling issues at the end of it. So it might be worth doing a little bit more than, "Here are my reasons." 138 Her Honour concluded her delivery of the oral remarks with the comment that they were "by way of explanation" (ts 3). 139 Her Honour orally explained her conclusions in relation to the "market based causation" claims concerning misleading or deceptive conduct. She said that she did not regard the law as so settled that such a claim may not be arguable. She said that the proposed statement of claim did not contain sufficient pleading of material facts to allow the respondents or the court to understand how the alleged misrepresentations are said to have caused the market price of Arasor shares to have inflated. The pleading defect was that the appellants were required to identify the market. 140 In relation to the misleading and deceptive conduct claims, her Honour then explained her conclusion was that she would (1) refuse leave to amend the statement of claim so as to remove the criterion of reliance, as it applies to the misleading and deceptive conduct claims; and (2) refuse leave to make the proposed pleading in [71C.1(b)] and [71C.3] (erroneously described as [71C.2]). 141 The difference between the refused amendments at [71C.1(b)] and [71C.3] and the permitted amendments at [71C.1(a)] and [71C.2] was that the latter pleadings alleged that the appellants had relied directly on representations and conduct in purchasing the Arasor shares. 142 Her Honour then explained her conclusion in relation to the s 729 claims. She said (ts 2-3): In relation to the claims made under section 720 [sic: 729] of the Corporations Act in relation to the September prospectus and the March prospectus, I'm not satisfied that the applicants should be granted leave to amend the pleadings by removing the pleading of reliance. I am concerned that, in the absence of an alternate pleading of the kind encapsulated in 71C.1(a) and 71C.2, the group members will be deprive[d] of a viable claim in light of the very significant uncertainty attendant on market-based causation claims, and I have no evidence that the group members have been consulted in relation to any such amendments. [Emphasis added] 143 In other words, leave was refused to remove the pleadings of reliance for both the misleading or deceptive conduct claims and for the s 729 claims. In relation to the latter leave was refused because a plea of market based causation could deprive some group members who currently had a reliance based claim of a viable claim if the market based causation claim ultimately failed. There was no evidence that those group members had been consulted. 144 When the primary judge's written and oral reasons are considered as a whole, they point only to the conclusion that her Honour was not excluding a claim under s 729(1) which was based upon marked based causation. The parties to this appeal laboured under the mistaken assumption that her Honour had reached this conclusion. Acting on that mistaken assumption, and in order to agitate a decision on this legal issue, this appeal was brought, effectively from her Honour's reasons, and despite the absence of error.

A market based causation plea has reasonable prospects of success as a matter of law 145 In deference to the full and substantial submissions made by senior counsel for the appellants and senior counsel for the second to fourth respondents, I explain below why the primary judge was correct not to exclude the possibility of a properly pleaded claim under s 729(1) of the Corporations Act which relies upon market based causation. 146 The court has a broad power to grant leave to amend under Federal Court Rules 2011 (Cth) r 8.21. The power to grant leave must be exercised in the way that best promotes the Court's overarching purpose to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible: Federal Court of Australia Act 1976 (Cth) s 37M(3). 147 In Medich v Bentley-Smythe Pty Ltd [2010] FCA 494 at [8], Stone J explained the "general principle that leave to amend should be granted unless the proposed amendment is obviously futile or would cause substantial prejudice or injustice which could not be compensated for". Her Honour also said that the court must take into account "the nature of the proposed amendment, whether it is made in good faith, the stage in the proceedings at which leave is sought, the nature of the prejudice that may be caused and the means by which such prejudice might be redressed". It is not necessary in this case to determine whether there is any general principle as expressed (see Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175). It suffices to say that it was common ground in this case that an amendment should be allowed in the form of the proposed amended statement of claim provided on this appeal, if the causation claim was reasonably arguable. 148 The reasoning below addresses only whether the legal issues concerning market based causation are reasonably arguable. Even if those legal arguments are ultimately accepted (which need not be determined in this appeal) there will remain significant questions of fact, including some which will require expert evidence, before liability can be established. 149 Section 729(1) allows for recovery of loss or damage where there has been a contravention of s 728(1). Section 728(1) prohibits matters including (a)(i) the offer of securities under a disclosure document if there is a misleading or deceptive statement in the disclosure document, or (b) if there is an omission from the disclosure document of material that is required by various other sections of the Corporations Act. 150 Section 729(1) provides as follows: Right to compensation (1) A person who suffers loss or damage because an offer of securities under a disclosure document contravenes subsection 728(1) may recover the amount of the loss or damage from a person referred to in the following table if the loss or damage is one that the table makes the person liable for. This is so even if the person did not commit, and was not involved in, the contravention. 151 The table following s 729 provides for the liability of various categories of people for the purposes of s 729(1). In relation to the directors in this case, they are alleged to fall within a category who alleged to be "liable for loss or damage caused by" any contravention of s 728(1) in relation to the disclosure document. In relation to the auditors, they fall within a category of people who are alleged to be "liable for loss or damage caused by" the inclusion of the statement in the disclosure document. 152 Section 729 therefore provides two tests for causation that must be satisfied in this case before liability can be imposed. The first test is that the a person must suffer loss or damage "because" an offer of securities under a disclosure document contravenes s 728(1). The second is that the loss or damage must be "caused by" (i) a contravention of s 728(1) (in the case of the conduct of the directors) or (ii) the inclusion of the statement in the disclosure document (in the case of the conduct of the auditors). There was no substantial submission made on this appeal about any difference between the two tests for causation arising from the words "because" and "caused by". It was assumed that the causal test in both was the same. The sole question agitated was whether the causal requirement in s 729(1) included a necessary requirement of reliance by the appellants on a disclosure document. There are four significant reasons why it is at least reasonably arguable that it does not. 153 First, and fundamentally, it is necessary to reiterate, as the primary judge did, that reliance is not a substitute for the essential question of causation: Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304, 351 [143] (Gummow, Hayne, Heydon & Kiefel JJ). The usual manner in which the concept of causation is used is to describe a metaphysical relationship between an event and an outcome. The relevant event and outcome can be easily identified when considering whether a person suffered loss or damage because an offer of securities under a disclosure document contravenes s 728(1). The relevant event is the contravention of s 728(1). The relevant outcome is the suffering of loss or damage. As a matter of ordinary language, there is nothing in the word "because" that requires that the metaphysical causal relationship between the event and the outcome can only be proved by reliance by the appellants on a disclosure document. 154 The concept of market based causation involves a causal relationship albeit one without reliance by the plaintiff investor on a disclosure document. The plea is that a misleading statement or omission in a disclosure document causes the market price for the securities to be inflated so that the investor purchases securities at a price which is greater than the investor would otherwise have paid. The investor then suffers loss including when the release of the omitted information or the correction of the misleading statements causes the market price of the securities to fall. None of these causal links requires the investor to rely on the disclosure document. 155 It is at least arguable that as a technique of causation without reliance, market based causation is not unusual. A common example of causation without reliance is cases that involve misleading conduct by one trader which leads to customers being diverted from another trader: Janssen-Cilag Pty Ltd v Pfizer Pty Ltd [1992] FCA 437; (1992) 37 FCR 526. 156 Secondly, another significant reason why it is arguable that reliance is not a necessary element of the requirements of causation in s 729(1) is because s 729(1) permits liability in cases of omissions. A contravention of s 728(1), and hence potential liability under s 729(1), can occur if there is "an omission from the disclosure of material" required under various sections of the Corporations Act (see s 728(1)(b)). In this case, the appellants rely upon omissions as some of the conduct in contravention of s 728. But, it is at best a strain of language to speak of "reliance" upon an omission. As Mr Beach QC (as his Honour was then) observed, how does the investor "rely" on "an omission from the disclosure document" to "suffer loss or damage" when the investor is not aware of the omission? (See Beach J, "Class actions: Some causation questions" (2011) 85 ALJ 579, 584). 157 Thirdly, as I explained in my introduction to these reasons, the respondents initially sought to draw a bright line between (i) market based causation and (ii) a circumstance described as "reliance based causation". But there may not be any sharp contrast between these two examples of causation. As I explained in the introduction, both types of causation might be indirect. 158 Fourthly, as a matter of authority, the concept of market based causation has not been expressly rejected in any case and in some cases it has been allowed to proceed to trial or implicitly endorsed as arguable: see Camping Warehouse Australia Pty Ltd v Downer EDI Ltd [2014] VSC 357; Bolitho v Banksia Securities Ltd [2014] VSC 8; Earglow Pty Ltd v Newcrest Mining Ltd [2015] FCA 328; ABN AMRO NV v Bathurst Regional Council (2014) 224 FCR 1, 272 [1375] -[1376] (the Court).

Whether there is a reliance restriction separate from causation 159 In oral submissions on the appeal, senior counsel for the second to fourth respondents conceded that any reliance restriction must be a matter independent of causation, arising even if causation was satisfied (appeal ts 45). To reiterate, this concession means that the reference to a "reliance restriction" is shorthand for a requirement that the investor relied upon the information in the disclosure document in addition to the requirement of causation. 160 If the requirement of causation in s 729(1) does not include a reliance restriction then it is necessary to identify the source of such a restriction. There are three possibilities. None was explored in any detail in submissions. The first possibility is that the reliance restriction arises as an independent matter of construction of the words of s 729(1). The second possibility, which in Australia is independent of the first, is that the reliance restriction arises as a matter of implication into s 729(1). The third possibility is that the reliance restriction arises as a result of the "policy of the statute". 161 It is neither necessary nor appropriate to determine finally whether any of these possibilities can apply to introduce a reliance restriction to claims based on s 729(1). It is not necessary to do so because of the conclusions I have reached that there was no error in the primary judge's orders nor was there an error in her Honour's reasons as the appellant alleged. It is not appropriate to determine this issue because the nature of this appeal only raises the question of whether the appellants could have reasonable prospects of successfully resisting such a claim. In the absence of full argument on any of these points, I consider that the appellants have at least reasonable prospects of resisting any of these bases for a reliance restriction.

The reliance restriction as a matter of construction 162 The possibility that a reliance restriction arises as a matter of construction of the words of s 729(1) may depend upon whether the words "because" or "liable for loss or damage caused by" include both a causation requirement and a requirement that the loss or damage is within the scope of liability for consequences. 163 As Professor Stapleton has explained, there is a distinction between causation and the scope of liability for consequences, although for decades these two concepts have often been conflated in the single label "causation": see Stapleton J, "Cause-in-Fact and the Scope of Liability for Consequences" (2003) 119 LQR 388. Some of the most distinguished philosophers of causation have treated the concept of causation as including the scope of liability for consequences: Hart HLA and Honoré AM, Causation in the Law (2nd ed, Oxford University Press, 1985). And the concept of a scope of liability for consequences is one which is treated in civil liability legislation as closely allied to causation: Civil Liability Act 2002 (WA) s 5C; Civil Liability Act 2002 (NSW), s 5D; Civil Liability Act 2003 (Qld), s 11; Civil Liability Act 1936 (SA), s 34; Wrongs Act 1958 (Vic), s 51; Civil Liability Act 2002 (Tas), s 13; Civil Law (Wrongs) Act 2002 (ACT), s 45. 164 Senior counsel for the second to fourth respondents gave an example which might provide support for a conclusion that the text of s 729(1), construed in context and with regard to purpose, incorporates some limitations based on a scope of liability for consequences within the words "because" or "liable for loss or damage caused by". The example concerns a circumstance in which an investor knows of an omission in a disclosure document but nevertheless purchases shares at a price which is inflated by the market due to the omission. When the omitted information is disclosed the market price falls and the investor suffers a loss. It was common ground on this appeal that the investor cannot recover the amount by which the market price had been inflated: see Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235; (2008) Aust Contract R ¶90-274 [442] (Handley JA); Woodcroft-Brown v Timbercorp Securities Ltd [2013] VSCA 284; (2013) 96 ACSR 307, 353 [227] (the Court). 165 In this example given by senior counsel for the second to fourth respondents, the requirements for causation are otherwise satisfied. It is not to the point that the appellants in this appeal say that they do not seek to recover compensation if any of them was aware of relevant omitted information. The point is that for this example if recovery were sought, and if it is not possible, then there may be further restrictions beyond merely causation contained in the words "because" or "liable for loss or damage caused by". The reason for such a restriction may be that it is outside the scope of liability for compensation if the investor is aware of omitted information at the time of the investment. 166 It is sufficient for the purposes of this appeal to say that it is reasonably arguable that a circumstance that is within the scope of liability for compensation is where (i) the investor suffers loss by market based causation arising from an infringement of s 728(1), but (ii) does not rely on the disclosure document and (iii) is not aware of the omitted or misleading nature of the information. 167 One reason why it is reasonably arguable that a reliance restriction is not a requirement for the scope of liability for compensation is because of the difficulty in any expression of a concept of "reliance" in the context of omissions. I have discussed this point above at [156]. Another reason is the ambiguity in the concept of reliance, a point I discuss below at [185]. 168 The submissions of the respondents did not seek to articulate any matter which is outside the scope of liability for compensation in terms which were more precise that a blunt reliance requirement. If a more precise limitation were formulated then it would need to focus closely on the terms of s 729(1) itself, in their context and having regard to the statutory purpose. 169 The second to fourth respondents submitted that the provisions of Chapter 6D of the Corporations Act, into which s 729(1) falls, have the "evident purpose … to protect investors by allowing them to make informed decisions about their investments". It was submitted that this purpose required that s 729(1) be limited by a requirement that the appellants rely on the disclosure document. But the purpose might be said to have the opposite effect. In Grant-Taylor v Babcock & Brown Ltd (in liq) [2015] FCA 149; (2015) 104 ACSR 195, 238 [219(iv)], Perram J gave this purpose as a reason why, if it been necessary to reach a view, he would have agreed with the plaintiffs' submissions concerning market based causation. 170 Two further matters should be mentioned about s 729(2). 171 The first is that the profile statement (which is a disclosure document) described in s 729(2) is a document which provides particular information about a company and cannot be used without ASIC approval. ASIC approval has been provided for the use of profile statements for managed investment schemes "which are not quoted or to be quoted on a stock market or securities exchange": ASIC Class Order 00/166 (12 February 2000); Corporations Act, s 709(2),s 709(3). 172 The second point is that even if the deeming provision in s 729(2) were applied to cases (such as this case) where the securities are traded on an exchange, it would not necessarily mean that s 729(1) could only be satisfied by proof of reliance which would be deemed to be proved in those cases falling within s 729(2). It might instead have the effect of facilitating the recovery of additional loss that might flow from proving that loss has been caused by an investor's reliance upon a disclosure document. For instance, it is possible that an investor who succeeds in proving a market based causation argument might be limited to recovery of that loss which is the difference between the market price of the securities and the "true" or lower value at which they would otherwise have been purchased. In contrast it is also possible that an investor who succeeds in proving that he or she relied upon a disclosure document to purchase securities that he or she would not otherwise have purchased might be able to recover the full amount of the capital investment, and possibly any additional consequential loss.

The reliance restriction as a matter of implication 173 At one point in oral submissions, the submission by senior counsel for the second to fourth respondents appeared to be that s 729(1) should be read as though it contained the words in italics by implication: A person who suffers loss or damage because an offer of securities under a disclosure document contravenes subsection 728(1) and the person relies on that disclosure document… 174 There are two significant obstacles faced by this submission. 175 First, the immediate difficulty with the submission is the obstacles that are presented to the implication of words into a statute: Taylor v Owners - Strata Plan No 11564 [2014] HCA 9; (2014) 88 ALJR 473, 483 [38] (French CJ, Crennan and Bell JJ) and the discussion in SZOXP v Minister for Immigration and Border Protection [2015] FCAFC 69 [19]-[20] (the Court). 176 Secondly, senior counsel for the second to fourth respondents submitted that the same concept of reliance could be implied into s 729(1) as that which had been expressly included in s 729(2) which provides: A person who acquires securities as a result of an offer that was accompanied by a profile statement is taken to have acquired the securities in reliance on both the profile statement and the prospectus for the offer. 177 But the express inclusion of reliance in s 729(2) militates against an implication that reliance is required in s 729(1). It demonstrates a use of the term "reliance" when that concept was intended to apply. 178 These difficulties become even more acute when they are coupled with the problem discussed above in the discussion concerning construction which is how a person can "rely" on an omission? And, as I explain below, there are also issues concerning what precisely is meant by "reliance"?

The reliance restriction as a matter of the policy of the statute 179 If there is no textual foothold to find this reliance restriction by construction or implication in s 729(1) the submission that reliance is a necessary restriction would need to be based in a more controversial approach to statutory interpretation. That approach is one commonly described as the "equity of the statute". It is an approach which "fell deeply into disfavour in England and the United States with the rise of legal positivism in the last century … Nevertheless, the doctrines survived in equity": Nelson v Nelson [1995] HCA 25; (1995) 184 CLR 538, 553 (Deane and Gummow JJ). 180 In Nelson v Nelson, Deane and Gummow JJ described one aspect of the doctrine of the equity of the statute as where "the policy of the statute, as so perceived, might operate upon additional facts, matters and circumstances beyond the apparent reach of the terms of the statute. In addition, cases within the terms of the statute but not within its mischief might be placed outside its operation" (553). 181 More recently, a majority of the High Court of Australia applied this approach in the context of rules concerning illegality or unenforceable contracts. In dissent, Heydon J considered that the restrictions of the statute cannot travel beyond those which arise by construction or implication. In contrast with the decision of the majority, his Honour said that the "policy and purpose" of the statute "depend solely on the meaning of its language" (emphasis added): Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 498, 549 [124]. 182 No submission was made that the reliance restriction could arise as a result of the application of the policy of the statute, independently of any construction or implication foothold. It is not necessary to consider this possibility further.

Other causal issues 183 The conclusion of this Court is that the appellants, by the pleading filed on appeal but not before the primary judge, have now adequately pleaded their case concerning causation in a form suitable for trial. But there will still be difficulties likely to arise from the current pleading of causation. 184 One potential problem with the Amended Consolidated Statement of Claim which was filed with leave at the conclusion of this hearing is the lack of clarity that remains in the nature of the causal connection that is required to satisfy the requirements of the words of s 729: "loss or damage because an offer of securities under a disclosure document contravenes s 728(1)" and "liable for loss or damage caused by". At different points in the Amended Consolidated Statement of Claim, there are different assumptions concerning the causal test which would satisfy these statutory tests for causation. In some places it is assumed that it is sufficient if a disclosure document makes a contribution to an inflated market price, or is one reason why a group member chooses to invest. Is this a plea that the "contribution" or "reason" is a sufficient cause even if the market price would have been set at that level in any event, or even if the group member would have chosen to invest in any event? If so, questions may arise concerning whether an event (eg a relevant omission or misleading statement) can ever be a "cause" of an outcome (the loss) if the outcome would have occurred anyway? In other words, is it possible to construe a phrase such as "caused by" to include an expanded scope for liability disclosed in the phrase used in different contexts by the High Court of "caused or materially contributed" (see Amaca Pty Ltd v Booth [2011] HCA 53; (2011) 246 CLR 36, 62 [70] (Gummow, Hayne and Crennan JJ) quoting Wakelin v London & South Western Railway Co (1886) 12 App Cas 41, 47 (Lord Watson) cf 91 [149] (Heydon J))? If so, what is meant by "contributed" in the pleading (see, eg, Steel S 'On when Fairchild applies' (2015) 131 Law Quarterly Review 363, 364)? 185 Another related potential difficulty arises due to the potential ambiguity in the use of "reliance" in the Amended Consolidated Statement of Claim. The appellants say that one causal link between a misleading statement in a disclosure document (contravening s 728(1)(a)) and loss arises where the investor relies on the disclosure document in purchasing the shares. But what is meant by the pleading of "reliance"? Does it mean (as I have assumed in these reasons) that the investor would not have purchased the shares (and therefore suffered the loss) but for the misleading statement? Or does it mean that the misleading statement was one reason for the investor's decision to purchase the shares even if shares would have been purchased in any event? 186 None of these matters was argued on this appeal. I mention them only to highlight that the difficult questions of causation in cases like this will not be limited to resolving the legal and factual questions involved in market based causation.

Conclusion 187 For the reasons above, I consider that it is at least arguable that reliance is not a required element of a claim for loss suffered under s 729(1) of the Corporations Act. A claim for loss which relies on s 729(1) can, at least arguably, rely upon market based causation. This was the only issue of substance on this appeal and the appellants' submissions on this point must be accepted. However, I would have dismissed the appeal on the basis that no error was shown in the primary judge's orders. The appellants, properly, did not attempt to establish error in the central basis for her Honour's orders which was that their pleading was deficient. The primary judge committed no error by failing to grant an application for leave to replead that was never made in proper form. Nor was there any error in her Honour's reasons. The parties' assumption that the primary judge held the contrary was incorrect. Her reasons do not reveal such an assumption. 188 The incorrect assumption by the parties may have arisen because, as senior counsel for the appellants submitted, the primary judge's reasons concerning causation were not expressed in clear terms. But the lack of clarity should not be attributed to the primary judge's writing style or expression. A lack of clarity of expression about the metaphysical concept of causation is almost inevitable. As the High Court of Australia said in ACQ Pty Ltd v Cook [2009] HCA 28; (2009) 237 CLR 656, 661 [14], the field of causation "is one of the most difficult in the law". It is unsurprising that one of the most brilliant treatises ever published in this area, by two of the most eloquent legal philosophers ever to write in English, has been the subject of vast debate, including about the meaning of various passages. The very subject matter of her Honour's reasons - causation - meant that it was necessary for counsel to consider those reasons closely, and to reflect upon them carefully, particularly including the oral supplementary reasons delivered by her Honour. If, after careful reflection, the appellants still had doubts about whether they had been excluded from bringing a s 729(1) claim based on market based causation then they should have sought leave from the primary judge, not the Full Court, to file the Amended Consolidated Statement of Claim. 189 At the hearing of the appeal I was concerned about the delay to the progress of this matter caused by interlocutory disputes. If the majority had not made orders immediately after the oral argument on the appeal then it is likely that reasons would have been delivered on the issue of substance very shortly after the appeal to progress of this matter rapidly without the misunderstanding by the parties of her Honour's reasons. The primary judge could then have made orders for the filing of the proposed Amended Consolidated Statement of Claim (ie the new statement of claim filed in this appeal). Those orders would have been made because the respondents accepted that the pleading was no longer deficient. I certify that the preceding one hundred and three (103) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edelman.