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.