The third contention
136 Independently of its first and second contentions, BHP Ltd contends that the causes of action pleaded on behalf of Group Members who acquired shares in BHP Plc (as distinct from BHP Ltd) are not viable and ought to be struck out. By paragraph 5 of its interlocutory application, BHP Ltd seeks:
An order pursuant to r 16.21 of the Federal Court Rules 2011 (Cth) that paragraphs 3(a)(ii), 3(a)(iii), 8, 71 to 80, 82(b) and 82(c) of the Consolidated Statement of Claim be struck out.
137 In its outline of submissions, BHP Ltd puts its argument solely on the basis that the pleading "fails to disclose a reasonable cause of action" (see r 16.21(1)(e) of the Federal Court Rules).
138 BHP Ltd submits, in summary, that the alleged contraventions by BHP Ltd, even if established, cannot have caused loss to persons acquiring shares in a different, foreign company (BHP Plc) on a foreign stock exchange.
139 The principles applicable to an application to strike-out a pleading or part of a pleading were considered by Kenny J in Polar Aviation Pty Limited v Civil Aviation Safety Authority (No 4) (2011) 203 FCR 293 (Polar Aviation) at [7]-[12] (in the context of the predecessor rule under the previous Rules of the Court). At [8], Kenny J stated that, in essence, the rule relates to the sufficiency of pleadings. Her Honour quoted the following passage from the judgment of the Full Court in Wride v Schulze [2004] FCAFC 216 (Wride) at [25]:
[T]he pleadings must disclose a reasonable cause of action against the party against whom the cause of action is brought and must state all material facts necessary to establish that cause of action and the relief sought. A "reasonable cause of action" for this purpose means one which has some chance of success if regard is had only to the allegations and the pleadings relied on by the applicant.
140 In Polar Aviation at [9], Kenny J set out a summary of principles, endorsed by the Full Court in Wride, drawn from the judgment of Beaumont J in Allstate Life Insurance Co v Australia & New Zealand Banking Group Limited (unreported, Federal Court of Australia, 13 September 1994). These principles included:
(5) Where a point of law has to be decided, and the judge is satisfied that this can be done by him appropriately, thereby avoiding the necessity of, and expense in going to trial, he is entitled to determine the point: cf Williams & Humbert v W & H Trade Marks [1986] AC 368.
141 Having set out those principles, Kenny J stated at [10] that it is generally accepted that the power to strike out a pleading under the relevant rule "must be exercised with caution and should only be exercised in the plain and obvious case". Her Honour also stated at [12]:
Notwithstanding the need for caution, where in a strike-out application, a point of law arises, which can appropriately be decided at the interlocutory stage, the judge is entitled to determine the point, thereby avoiding the need for and expense of a lengthy trial. For the reasons set out below, this is a case in which certain points of law should be decided at this stage, since their disposition does not depend on further evidence and findings of fact, and their resolution will limit any future trial.
142 The applicable principles were recently considered by the Victorian Court of Appeal in Uber Australia Pty Limited v Andrianakis [2020] VSCA 186. In the context of an application by the parties referred to as the Australian Uber entities for an order under r 23.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) that the statement of claim be struck out as either not disclosing a cause of action or being embarrassing, the Victorian Court of Appeal (Niall, Hargrave and Emerton JJA) stated at [35]:
Uber's contentions on ground 1 fail to grapple with the high hurdle it must cross, and the low bar confronting the plaintiff. When a defendant contends that a statement of claim should be struck out because it does not disclose a cause of action it is necessary for a defendant in the position of Uber to establish that it would be futile to allow the statement of claim to go forward, because it raises a claim that has no real prospect of success in the sense of being 'fanciful'. It follows that, where there is a contentious or debatable point of law which arises on a pleading, it is usually inappropriate for a trial judge or the Court of Appeal to determine the issue on a strike-out application, particularly where the answer may depend upon the factual context.
143 To similar effect, in the context of an application for leave to amend a statement of claim, and in circumstances where there was no authority on the point and the construction for which the respondent (plaintiff) contended was at least arguable, Nettle JA stated in RSD Chartered Accountants v Bolitho (2014) 102 ACSR 528 at [17]-[18]:
[17] In those circumstances, the submission advanced by senior counsel for the applicant, that it was incumbent on the judge below, and now incumbent on this court on appeal, to determine the issue forthwith, is tantamount to saying that a court should be prepared on a strike out application to make a final decision on a debatable and contentious point of law on which there is as yet no authority.
[18] As appears from judgment of Williams J in Healey v Bank of New South Wales, which was recently referred to with approval by Croft J in Clarke v Great Southern Finance Pty Ltd, it would be wrong to do so. In cases where what is in issue is a seriously arguably novel point of law, and particularly where, as here, the answer may well depend upon the factual context, it is not the task of a judge at first instance or this court on appeal to undertake an exercise of that kind at this very early stage of the proceeding.
(Footnotes omitted.)
144 In the section of these reasons headed "The statement of claim", I have provided an outline of the statement of claim and have set out the paragraphs that are the subject of the strike-out application.
145 I now summarise BHP Ltd's submissions in support of the proposition that the claims made on behalf of shareholders of BHP Plc are not viable. In doing so, I omit the submissions (contained in BHP Ltd's written submissions) that have been overtaken by the amendments to the statement of claim made at the hearing.
146 BHP Ltd makes clear in its submissions that, for the purposes of the strike-out application (and for this purpose only) it assumes the correctness of all factual allegations in the pleading.
147 BHP Ltd deals separately with the claims based on s 674 of the Corporations Act and the misleading or deceptive conduct claims (s 1041H of the Corporations Act and s 12DA of the ASIC Act). BHP Ltd's submissions in relation to s 674 of the Corporations Act may be summarised as follows:
(a) Section 674 of the Corporations Act was introduced in order to enhance the efficiency and integrity of capital markets: see Grant-Taylor v Babcock & Brown Pty Limited (in liq) (2016) 245 FCR 402 at [92] per Allsop CJ, Gilmour and Beach JJ. The capital markets being spoken of are, self-evidently, Australia's capital markets. The purpose of s 674 is not to regulate or promote efficiency in capital markets in general; in particular, its purpose is not to regulate conduct in, or affecting, foreign financial markets. It is intended to operate to protect investors in Australian capital markets who trade in the securities of the disclosing entity.
(b) For there to be compensable loss suffered as a result of a breach by BHP Ltd of s 674, it must be loss that was within the contemplation of the statute: see Henville v Walker (2001) 206 CLR 459 at [101]-[102] per McHugh J.
(c) Attention must be directed to the legal framework in which the alleged cause of action arises. As Beach J stated in TPT Patrol Pty Limited as Trustee for Amies Superannuation Fund v Myer Holdings Limited (2019) 140 ACSR 38 (Myer) at [1640], any normative causation analysis with respect to continuous disclosure must start and finish with the statutory text of ss 674, 1317HA and 1325 considered in context and in the light of legislative purpose. That is, what legal responsibility does the statute seek to impose on a company for an investor's loss and damage flowing from a breach of the continuous disclosure provisions?
(d) Section 1317HA of the Corporations Act, which provides for compensation orders to be made for contravention of financial services penalty provisions (including s 674), is clearly directed to compensating investors in the disclosing entity in the financial markets to which disclosure is mandated by force of s 674. So too is the ancillary relief provision in s 1325 insofar as it applies to the continuous disclosure provisions in Chapter 6A of the Corporations Act. The statute is directed at ensuring that investors in these prescribed financial markets, who trade in shares in the disclosing entity (BHP Ltd), do not suffer loss by virtue of a breach of the ASX listing rules. The statute does not contemplate, on its terms, the recovery of damages for breach of s 674 by an investor who acquired shares in a different entity to the disclosing entity on a foreign capital market.
(e) The applicants' causation pleading on behalf of investors in BHP Plc shares, particularly the repeated use of the words "influenced by", invokes the principle of indirect causation, but at a step removed from the usual way in which the principle is invoked in s 674 cases. The principle of indirect causation, as recognised by Beach J in Myer in relation to continuous disclosure, does not avail investors who acquired shares in BHP Plc on the LSE or JSE. In Myer, Beach J's analysis on causation proceeded on the assumption that the protection offered by s 674 is directed to ensuring "a well-informed market in a particular company's securities" (at [1649]; see also [1650]). He also cited, in his discussion of market based causation (see [1605]-[1608], [1665]), the dicta of McHugh J in Henville v Walker at [101]-[103], observing that McHugh J's "first category" of case "is not a bad analogy to the context I am considering" (at [1608]). That "first category" of case is where the defendant's act or omission sets in train a series of physical events which result in loss or damage. But, as McHugh J notes, "[e]xceptionally, however, the policy or rationale of the legal norm that has been breached will require the court to disregard the physical connection and to make a finding of no causal connection". McHugh J then refers, at [102], to Gorris v Scott (1874) LR 9 Ex 125. In other words, where an investor in a disclosing entity on the ASX suffers loss by reason of a share price fall set in train by the entity's failure to disclose material information to the ASX, that loss may be seen as falling within the first category of case. But investors in a non-disclosing entity on a foreign and different financial market fall within the exception; namely, where the damage is not contemplated by the legislation which gives rise to the cause of action.
(f) Further, and critically for present purposes, Beach J did not determine whether passive indirect causation sufficed to establish the necessary causal link; nor did he consider whether causation could be established where investors in a foreign market reacted to news released in the Australian market or to movements in the price of securities in the Australian market.
(g) The consequences of accepting that shareholders in an entity other than the disclosing entity - in particular, shareholders in entities trading on completely separate financial markets - can sue for damages for a breach of s 674 are significant. If the premise upon which the applicants seek to recover damages on behalf of the BHP Plc investors is accepted, there is no obvious limiting principle upon which the court can restrict its application to companies with a dual listing.
(h) For these reasons, even if one accepts, for the purposes of the application, that all of the facts alleged in the statement of claim are proved at trial, the s 674 claims of the LSE and JSE shareholders would fail in limine because the provisions they rely upon simply do not provide them with a cause of action.
148 BHP Ltd's submissions in relation to s 1041H of the Corporations Act and s 12DA of the ASIC Act can be summarised as follows:
(a) Section 1041H proscribes conduct "in this jurisdiction", "in relation to a financial product or a financial service", that is misleading and deceptive or likely to mislead or deceive. While the words "in this jurisdiction" do not mean that all of the relevant conduct must occur in this jurisdiction, it is significant that authority suggests that misleading and deceptive conduct is taken to have occurred where the relevant representation is received.
(b) The applicants appear to allege that the BHP Ltd's conduct occurred in this jurisdiction and was responded to in this jurisdiction by the Australian share market, which in turn influenced the share price of BHP LSE Shares and BHP JSE Shares. The difficulty with this claim is that foreign BHP Plc group members must have suffered loss and damage by reacting, not to the misleading conduct of BHP Ltd, but to the conduct of Australian share market investors. That is, it was the reaction of Australian share market investors to conduct by BHP Ltd in Australia which impacted the price of BHP LSE Shares and BHP JSE Shares on those foreign exchanges. This causal theory goes beyond the limits of market-based causation currently recognised under Australian law. Both first instance decisions in which market-based causation has been accepted in this country - Re HIH Insurance Limited (in liq) (2016) 335 ALR 320 (HIH Insurance) and Myer - involved the purchase of shares on the ASX only. In each case, it was accepted that the requirements of causation for a contravention of s 1041H could be established if group members acquired shares in the defendant/respondent, on the ASX, at a market price that was artificially inflated by reason of the disclosing company's misleading conduct. In HIH Insurance, Brereton J justified his conclusion that causation was established by drawing an analogy between the facts before him and the first class of case identified by McHugh J in Henville v Walker at [101].
(c) The only way in which BHP Plc shareholders could establish the requisite connection on the causal theory referred to in paragraph (b) above is under this first class of case referred to by McHugh J, because the second - where a person acts to his or detriment following conduct by the defendant - is not in play (given there is no allegation that a BHP Plc shareholder acted in a particular way). But while BHP Ltd shareholders may be in a similar position to the shareholders in HIH Insurance and Myer for the purposes of relying on physical event causation, the BHP Plc shareholders run into difficulty with the two limitations expressly identified by McHugh J in Henville v Walker: remoteness and whether the policy or rationale of the legal norm breached requires a disregarding of the physical connection.
(d) The question is whether, if factual causation can be established by BHP Plc shareholders for a breach of s 1041H, it is nevertheless open to the Court to impose legal responsibility on BHP Ltd for a breach of that provision where the investors claiming loss acquired shares on a foreign exchange allegedly influenced by price movements on the ASX. In answering that question attention again must be directed to Gorris v Scott and the proposition that there will be no relevant causal connection in circumstances where damage was outside the contemplation of the statute.
(e) The proscription in s 1041H applies to conduct in relation to a "financial product" (defined in s 763A) or a "financial service" (defined in s 766A). Financial products include securities, and statements to investors in a market for a company's securities can be conduct in relation to financial products. In publishing information on the ASX, BHP Ltd engaged in conduct in relation to its own securities listed on the ASX. In making those disclosures on the ASX it cannot have engaged in, and did not engage in, any conduct "in relation to" BHP Plc securities listed on the LSE or JSE.
(f) While it is accepted that persons overseas can suffer loss caused "by" a company or person engaging in misleading or deceptive within Australia (eg, by publishing misleading financial statements on the ASX), that is in circumstances where there is a sufficient cause or reason linking the conduct in Australia with the recoverable loss or damage. But that sufficient cause or reason is absent insofar as the BHP Plc shareholders are concerned in this proceeding. The loss and damage allegedly suffered by reason of BHP Ltd's publication of misleading statements on the ASX was not suffered because BHP Ltd engaged in misleading or deceptive conduct "in relation to" BHP Plc shares; rather, the loss was allegedly suffered because the BHP Ltd share price fell, which in turn caused the BHP Plc share price to fall. That is not loss and damage suffered "by" the misleading or deceptive conduct of BHP Ltd in Australia.
(g) It is notable that the objects of the Ch 7 of the Corporations Act (which contains s 1041H) are relevantly identified in s 760A in terms of the promotion of confident and informed decision making by consumers of financial products and fair, orderly and transparent markets for financial products (plainly, a reference to markets within Australia subject to the Act's regulation).
(h) The foregoing analysis applies mutatis mutandis to the claim under s 12DA of the ASIC Act. The ASIC Act is expressly confined in its application to Australia. Accordingly, the proscription on misleading conduct in relation to "financial services" in s 12DA must be taken to be financial services provided within Australia (and does not extend to securities listed on a foreign stock exchange). Moreover, the compensatory provision in s 12GF imports the same causal test as s 1041I, namely "by conduct of another person".
(i) The claims brought by the applicants on behalf of the BHP Plc shareholders in misleading or deceptive conduct are novel claims. BHP Ltd is not aware of any previous action in which investors who acquired shares on a foreign exchange in a different entity to the defendant has sought, much less recovered, damages for misleading or deceptive conduct. While novelty in and of itself is not sufficient to ground a strike-out, even if the facts alleged in the statement of claim are proved at trial, on their proper construction ss 1041H and 1041I of the Corporations Act (or ss 12DA and 12GF of the ASIC Act) do not extend to confer a cause of action on investors in the position of the BHP Plc shareholders.
149 BHP Ltd's strike-out application faces a substantial hurdle in that it seeks to have the Court determine, at a preliminary stage, and without a full factual context, a complex and novel question of statutory construction, namely whether the losses claimed to have been suffered by the shareholders of BHP Plc are within the contemplation of the relevant statutory provisions. The thrust of the authorities on strike-out applications, discussed above, is against the determination of such issues on a strike-out application. I will make some observations about whether the claims are at least arguable, and then return to this point.
150 The claims made on behalf of BHP Plc shareholders arise in the unusual factual context of BHP Ltd and BHP Plc operating as a single economic entity in accordance with their dual listed company structure. Some features of that structure are pleaded in the statement of claim.
151 Relevantly, in paragraphs 9 and 10 it is pleaded that at all material times BHP Ltd and BHP Plc had a dual listed company structure pursuant to which they operated as if they were a single unified economic entity (referred to as "BHP" in the statement of claim). In particular, it is alleged in paragraph 10 that BHP Ltd and BHP Plc operated through identical boards of directors which comprised the same individuals, and a single unified management team, including a single Group Management Committee, being BHP's most senior executive body. It is also alleged that the economic and voting interests in BHP resulting from holding one share in BHP Ltd were equivalent to the economic and voting interests resulting from holding one share in BHP Plc. The particulars to paragraphs 10(a) and 10(c) refer to specific provisions of the DLC Structure Sharing Agreement. Further detail as to the dual listed company structure is provided by the DLC Structure Sharing Agreement, a copy of which is in evidence. The relevant provisions of that agreement have been summarised earlier in these reasons.
152 The causal chain between the alleged non-disclosures and misleading or deceptive representations made by BHP Ltd and the loss and damage suffered by BHP Plc shareholders is pleaded in sections L.2 and L.3 of the statement of claim. The applicants allege that the causal chain in respect of Group Members who purchased BHP Plc shares on the LSE was that:
(a) the BHP LSE Share Market was a market in which the price at which BHP LSE Shares traded on the LSE was (and was reasonably expected to have been) influenced by material information concerning BHP that became publicly available to the BHP LSE Share Market (and material information concerning BHP disclosed by BHP Ltd to the ASX became publicly available to the BHP LSE Share Market) (paragraphs 71 and 72); and
(b) further and alternatively, that the BHP LSE Share Market was a market in which the price at which BHP LSE Shares traded on the LSE was influenced by the price and/or movements in the price of BHP ASX Shares (paragraph 73).
153 By reason of these matters, it is said that BHP Ltd's contraventions of the relevant statutory provisions caused the price at which BHP LSE Shares traded on the LSE to be higher than their true value and/or the market price that would have prevailed but for the contraventions (or any of them) (paragraph 74). Alternatively, it is alleged that some of the Group Members would not have acquired an interest in the BHP LSE Shares if the contraventions that had occurred at the time of their acquisition (or any of them) had not occurred (paragraph 75).
154 Analogous allegations with respect to the way in which Group Members who acquired an interest in BHP Plc shares on the JSE suffered loss or damage as a consequence of BHP Ltd's contraventions of the relevant statutory provisions are pleaded at paragraphs 76-80 of the statement of claim.
155 Thus, a claim of causation is pleaded between the conduct of BHP Ltd in this jurisdiction and the impact on the price of BHP Plc securities listed on the LSE and the JSE, such that (it is alleged) BHP Plc shareholders suffered loss.
156 The question is whether the pleaded facts, at least arguably, establish a causal link for the purposes of the relevant statutory provisions between BHP Ltd's alleged contraventions and the losses claimed to have been suffered by BHP Plc shareholders who purchased their securities on the LSE or the JSE.
157 Textually, the words of the relevant provisions requiring a causal connection are expressed in general terms, making it difficult for BHP Ltd to establish, on a strike-out application, that the pleaded causal link is not even arguable:
(a) Insofar as contraventions of s 674 of the Corporations Act are relied upon, s 1317HA(1) provides that the Court may order compensation if the liable person has contravened a financial services civil penalty provision (which includes s 674) and the damage "resulted from" the contravention. Further, s 1325 provides for compensation for loss and damage suffered "because of" conduct engaged in in contravention of s 674. These provisions do not contain words of limitation with respect to the class of persons who may recover compensation for loss or damage which "resulted from" or was suffered "because of" a disclosing entity's contraventions. They are not in terms restricted to loss or damage suffered by reason of investing in shares acquired on the ASX. Indeed, there is nothing in the text that requires the loss or damage to relate to a person's share trading at all.
(b) Insofar as contraventions of s 1041H of the Corporations Act are relied upon, s 1041I provides that damages may be recovered by a person who suffers loss or damage "by conduct" of another person that was engaged in in contravention of (relevantly) s 1041H. Likewise, insofar as contraventions of s 12DA of the ASIC Act are relied upon, s 12GF provides that damages may be recovered by a person who suffers loss or damage "by conduct" of another person that was engaged in in contravention of (relevantly) s 12DA. In Marks v GIO Australia Holdings Limited (1998) 196 CLR 494, McHugh, Hayne and Callinan JJ observed (at [38]) that s 82 of the Trade Practices Act 1974 (Cth), which referred to recovery of loss or damage suffered "by conduct of another person" in contravention of relevant provisions of the Act, required the identification of a causal connection between the loss or damage alleged to have been suffered and the contravening conduct, but that it should not be limited by drawing some analogy with the law of contract, tort or equitable remedies. Nothing in the text of s 1041I (read with s 1041H) or of s 12GF (read with s 12DA) precludes the recovery of loss or damage by BHP Plc shareholders on the basis alleged in the statement of claim. The provisions do not in terms require the aggrieved party to have suffered loss as a result of their investment in the financial product in relation to which the contravention occurred. All that is required on the face of the provisions is that the aggrieved party demonstrate a causal relationship between the misconduct and the loss.
158 BHP Ltd's submissions draw a distinction between factual causation and legal causation. It does not appear to be disputed (for the purposes of the present interlocutory application) that the pleaded facts are sufficient to establish factual causation. But it is submitted that they are insufficient to establish legal causation because the damage alleged was "outside the contemplation of the statute" (Henville v Walker at [102] per McHugh J). This is not a question that can be decided in the abstract as a matter of statutory construction alone. It requires consideration of the subject-matter, scope and purpose of the relevant statutory provision as related to the circumstances of the particular case: see Travel Compensation Fund v Tambree (2005) 224 CLR 627 at [30] per Gleeson CJ, at [45] per Gummow and Hayne JJ. The circumstances here include the dual listed company structure under which BHP Ltd and BHP Plc operated (as pleaded in paragraphs 9 and 10 of the statement of claim, as supplemented by the DLC Structure Sharing Agreement), the fact that the markets for BHP LSE Shares and BHP JSE Shares were, and were reasonably expected to be, influenced by material information concerning BHP that became publicly available (as pleaded in paragraphs 71 and 76), the fact that material information concerning BHP disclosed by BHP Ltd to the ASX became publicly available to the markets for BHP LSE Shares and BHP JSE Shares (as pleaded in paragraphs 72 and 77), and the fact that the markets for BHP LSE Shares and BHP JSE Shares were markets in which the price at which BHP LSE Shares and BHP JSE Shares traded was influenced by the price and/or movements in the price of BHP ASX Shares (as pleaded in paragraphs 73 and 78). The dual listed company structure presents an unusual circumstance; the position of a shareholder of BHP Plc (vis-à-vis BHP Ltd) is arguably quite different from the position of a shareholder of a third party company. Significantly, as alleged in paragraph 10 of the statement of claim, BHP Ltd and BHP Plc operated "as if they were a single unified economic entity". In light of these matters, I consider it to be at least arguable that the pleaded facts establish a causal link for the purposes of the relevant statutory provisions between BHP Ltd's alleged contraventions and the losses claimed to have been suffered by shareholders of BHP Plc.
159 Beyond this, I do not consider it appropriate to determine, at this stage, whether the losses claimed to have been suffered by the shareholders of BHP Plc are within the contemplation of the relevant statutory provisions. I consider it appropriate for the issue of causation to be decided at trial, in a full factual context, rather than on a strike-out application, on the basis of the bare facts in the pleading. This is not to say that the points raised by BHP Ltd do not have considerable force; it is rather to say that the nature of the issues is such that they are appropriately dealt with at trial rather than on a strike-out application.
160 For these reasons, I reject BHP Ltd's strike-out application.