Consideration
94 I will deal with the "material information" issue only by reference to the misleading or deceptive conduct claim under s 12DA of the ASIC Act because, as I later explain, in my view it is appropriate to strike-out the disclosure duty and PGPA Act claims on the basis that the applicant has no standing to bring them. It is therefore unnecessary to determine the sufficiency of the pleading of the "material information" issue in relation to those claims.
95 I commence by noting that, in 2012, the Federal Parliament passed the Commonwealth Government Securities Legislation Amendment (Retail Trading) Act 2012 (Cth), which amended the Inscribed Stock Act and the Corporations Act. Relevantly, the purpose of the amendments was to allow for Commonwealth Government Securities, which include AGBs, to be traded on the ASX. In order to protect the interests of retail investors, the amendments required the AOFM to prepare Information Statements to be placed upon a dedicated website, which would operate in place of the product disclosure statements (PDS) which are usually provided to retail clients in relation to financial products: see Second Reading Speech for the Commonwealth Government Securities Legislation Amendment (Retail Trading) Bill 2012, 27 July 2012, Hon. David Bradbury MP, Assistant Treasurer and Minister Assisting for Deregulation.
96 In introducing the amendments, the Assistant Treasurer said:
…the government has committed to fostering a deep and liquid corporate bond market. Establishing a strong and liquid retail market in the premium, AAA-rated debt security - Commonwealth Government Securities (CGS) - is a critical step in the formation of a wider retail debt market, including corporate debt….
Making it easier for mums and dads to invest in the safest bonds in Australia is an important step in building up their familiarity with fixed income investments more generally. It will provide retail investors with a visible pricing benchmark for investments they may wish to make in corporate bonds.
The Commonwealth Government Securities Legislation Amendment (Retail Trading) Bill 2012 contains a number of measures to facilitate trading of CGS on financial markets that are accessible to retail investors.
97 With regard to the proposed amendments to the Corporations Act, the Assistant Treasurer said:
The second set of amendments in the bill will ensure that the investor protection and market integrity provisions in the Corporations Act 2001 (the Corporations Act) apply to retail CGS.
…
The amendments in the bill will also require information statements to be provided to retail clients when they are given personal advice about CGS depository interests. The information statements will take the place of the product disclosure statement that is usually required for a financial product. The government considers that tailor-made disclosure documents are appropriate for CGS depository interests because they are a particular type of safe and simple investment.
The AOFM will consequently produce information statements providing concise information on CGS depository interests. These documents will be made available to the public on a dedicated website, together with other information related to CGS. Financial advisors will be able to download and print out the information statements from this website and provide them to their clients when they recommend investing in CGS depository interests.
98 Part G of the Proposed 2FASOC alleges, in summary, that:
(a) the Commonwealth, through the Treasurer, the AOFM or otherwise, carries on the business of issuing AGBs and arranging for the issue of eAGBs. It does so for the purpose of borrowing money, on a continuous and repetitive basis, in the same way as a listed corporation might issue corporate bonds which are to be traded on the ASX; it has entered into commercial arrangements with third parties to facilitate those activities, and it has arranged for the eAGBs to be traded on the ASX in common with other financial products (at paragraph [87]);
(b) an eAGB is a "financial service" and a "financial product" for the purposes of Div 2 of Pt 2 of the ASIC Act (at [88] and [89]);
(c) at all material times, the Commonwealth, through the Treasurer, the AOFM or otherwise, has been providing a financial service for the purposes of Div 2 of Pt 2 of the ASIC Act by arranging and continuing to arrange for eAGBs to be used, and therefore it has been and continues to deal in a financial product (at [90]);
(d) at all material times the Commonwealth, through the Treasurer, the AOFM or otherwise, has published the Disclosure Documents in relation to eAGBs (at [91]), for the purpose of informing retail investors about eAGBs who would otherwise ordinarily have had the benefit of a PDS provided under Div 2 of Pt 7.9 of the Corporations Act (at [92]);
(e) pursuant to ss 1031D and 1031E of the Corporations Act, a PDS must include information about any significant risks associated with holding the product as a person would reasonably require for the purpose of making a decision (as a retail client) about whether to acquire the product, and any other information that might reasonably be expected to have a material influence on the decision of a reasonable person (as a retail client) as to whether to acquire the product (at [93]);
(f) at the material times:
(i) through the publication of the Disclosure Documents, the Commonwealth, through the Treasurer, the AOFM or otherwise, has disclosed information they were aware of, or ought to have been aware of, that might reasonably be expected to have a material influence on decisions by holders of eAGBs as to whether to hold or dispose of their current interests in eAGBs; and decisions by potential investors of eAGBs as to whether to purchase eAGBs (Material Information) (at [94]);
(ii) the respondents did not publish in the Disclosure Documents any Material Climate Change Information (at [95]);
(iii) there was a reasonable expectation by the applicant, represented persons and potential investors in eAGBs, that the respondents would disclose Material Climate Change Information in the Disclosure Documents (at [95A]); and
(iv) further or alternatively, by disclosing certain Material Information in the Disclosure Documents, but omitting any Material Climate Change Information, the Commonwealth represented that the Material Information relating to eAGBs was only that information contained in the Disclosure Documents (at [96]).
(g) by reason of the matters at paragraphs [85]-[96], the Commonwealth, through the Treasurer, the AOFM or otherwise engaged in, and continues to engage in, conduct that is misleading or deceptive and/or likely to mislead or deceive (at [97]);
(h) the conduct alleged in paragraph [97] is conduct in trade or commerce within s 12DA of the ASIC Act (at [98]); and
(i) in the premises, at the material times, the Commonwealth has contravened and is continuing to contravene the prohibition on misleading or deceptive conduct in s 12DA of the ASIC Act (at [99]).
99 The respondents' complaints about the pleading of material information are not without force, but I am not persuaded that it is appropriate to strike-out this part of the pleading.
100 First, that is because pleadings are not an end in themselves, instead they are a means to the ultimate attainment of justice between the parties to litigation: Banque Commerciale S.A. (in liq) v Akhil Holdings Ltd [1990] HCA 11; 169 CLR 279 at 293 (Dawson J) citing Isaacs and Rich JJ in Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in liq) [1916] HCA 81; 22 CLR 490 at 517. Their main purposes include giving notice to the respondents of the case they have to meet, sufficiently for this early stage of the case, and to define the issues in aid of discovery. In that way they are intended to ensure procedural fairness.
101 As I recently said in Gall v Domino's Pizza Enterprises Ltd (No 2) [2021] FCA 345; 391 ALR 675 at [19]-[20], in modern times courts have often taken a less strict approach to the application of pleading principles, and prefer to use pre-trial disclosure of evidence, exchange of submissions and interventionist case management techniques to address some of the difficulties sometimes associated with pleadings. I respectfully agree with Martin CJ's approach in Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; 33 WAR 82 at [4]-[7], where his Honour said:
The purposes of pleadings are, I think, well known and include the definition of the issues to be determined in the case and enabling assessment of whether they give rise to an arguable cause of action or defence as the case may be, and apprising the other parties to the proceedings of the case that they have to meet.
In my view, the contemporary role of pleadings has to be viewed in the context of contemporary case management techniques and pre-trial directions. In this Court, those pre-trial directions will almost invariably include; first, a direction for the preparation of a trial bundle identifying the documents that are to be adduced in evidence in the course of the trial; second, the exchange well prior to trial of non-expert witness statements so that non-expert witnesses will customarily give their evidence-in-chief only by the adoption of that written statement; third, the exchange of expert reports well in advance of trial and a direction that those experts confer prior to trial; fourth, the exchange of chronologies; and fifth, the exchange of written submissions.
Those processes leave very little opportunity for surprise or ambush at trial and, it is my view, that pleadings today can be approached in that context and therefore in a rather more robust manner, than was historically the case; confident in the knowledge that other systems of pre-trial case management will exist and be implemented to aid in defining the issues and apprising the parties to the proceedings of the case that has to be met.
In my view, it follows that provided a pleading fulfils its basic functions of identifying the issues, disclosing an arguable cause of action or defence, as the case may be, and apprising the parties of the case that has to be met, the court ought properly be reluctant to allow the time and resources of the parties and the limited resources of the court to be spent extensively debating the application of technical pleadings rules that evolved in and derive from a very different case management environment.
That approach was echoed by the Full Court of this Court in Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15 at [13] (Greenwood, McKerracher and Reeves JJ).
102 It can be accepted that the pleading does not identify with specificity the material facts to show how, prior to the maturity dates of the applicant's eAGBs, the Physical Risk and/or the Transition Risk of climate change will or is likely to lead to:
(a) a material decrease in Commonwealth revenue and a material increase in Commonwealth expenditure; and
(b) a material adverse impact on the Commonwealth's financial position (by reference to the four matters alleged in sub-paragraphs [76.1]-[76.4]).
Nor does it identify with specificity the material facts to show how any material adverse impact on the four matters alleged in sub-paragraphs [76.1]-[76.4] will be or is likely to be material to the value at which eAGBs are traded on the ASX. Nor, subject to what I say below, does the pleading identify with specificity what it is that the applicant alleges should have been disclosed. The definition of Material Climate Change Information is pleaded in broad terms as information about the existence, nature and extent of the Physical Risk and Transition Risk of climate change and/or the effect or likely effect of those risks on the four matters alleged in sub-paragraphs [76.1]-[76.4], and/or the effect or likely effect of those risks on the value of eAGBs on the ASX. Each of those matters are pleaded in broad and general terms.
103 But it is important to keep in mind that the material facts are only required to be pleaded such that they are sufficient to provide the opposing party fair notice of the case to be made against them, and the matters above must be seen in the following context:
(a) First, the misleading or deceptive conduct claim is relatively straightforward. The basis for that claim is founded in well-established legal principles and is readily understandable. The claim also seems unlikely to be factually complex. Importantly, it is not a claim about an alleged insufficient disclosure of the risks of climate change and their effect or likely effect on the Commonwealth's financial position and on the value of eAGBs traded on the ASX. As Senior Counsel for the respondents accepted, the Disclosure Documents published by the respondents to the applicant and represented persons said nothing at all about any such risk. That puts the case in a different category to those misleading or deceptive conduct cases which are concerned with whether or not a risk has been sufficiently and accurately disclosed. The adequacy of the pleading of material information should be understood in that context;
(b) Second, the respondents' complaints about the pleading, and its cry that the pleading cannot be understood or properly responded to, are exaggerated. For example, it is straightforward to understand the basis of the applicant's claim in sub-paragraph [76.2] and paragraph [77] of the Proposed 2FASOC that, if the risks of climate change cause a material adverse impact on the Commonwealth's ability to maintain a AAA rating, there will or is likely to be a material impact (I infer a decrease) on the price at which eAGBs are traded on the ASX. The respondents suggested that the applicant had to plead material facts to show that the Commonwealth was or is likely to default on its obligations under the bonds, but the applicant's case does not involve a binary choice between the Commonwealth defaulting or the Commonwealth not defaulting. The proceeding alleges that, in the likely event that the consequences of climate change have material adverse impacts on the Commonwealth's financial position (as set out in subparagraphs [76.1]-[76.4]), the bond market is likely to factor that into the value of eAGBs on the ASX;
(c) Third, the respondents overstated the specificity with which the applicant was required to plead the Material Climate Change Information. The applicant's case is that the Disclosure Documents said nothing at all about climate change related risk, and/or its impact on the Commonwealth's financial position over the next 27-30 years and/or to the value of eAGBs on the ASX. That is a low bar for the applicant to jump. In any event, to make out her claim of misleading or deceptive conduct the applicant is not required to specify what the respondents should have said in the Disclosure Documents. She is only required to establish that what was actually disclosed was, in all the circumstances, misleading or deceptive or likely to mislead or deceive; and
(d) Fourth, there is a substantial asymmetry of information between the applicant and the respondents. The applicant submitted, and I accept, that she does not presently have information to put on more fulsome pleadings as to the material facts and is unable to equip herself with the information necessary to assess the nature or extent of the relevant risks. I accept her submission that while she can know (and does allege) that climate change presents Physical and Transition Risks, that those risks will or are likely to have consequences for the Commonwealth's financial position, and consequently the matters set out in sub-paragraphs [76.1]-[76.4] of the Proposed 2FASOC arise; she cannot however presently plead all of the material facts causally connecting those propositions. I also accept her submission that, under the relevant statutory framework, it is the respondents who have the responsibility to assess those risks and who are uniquely placed to be able to assess and provide information in relation to those risks. They are in a similar position to a corporation issuing a financial product which is required to provide a PDS.
104 Having regard to the substantial asymmetry of information between the parties, if the pleading is struck-out at this stage I consider there is a real risk that the applicant will be unable to materially improve the pleading and therefore continue the case.
105 The authorities indicate that asymmetry of information between the parties is a relevant consideration in exercising the discretion to strike-out a pleading or dismiss a case. In Murphy v State of Victoria & Anor [2014] VSCA 238; 289 FLR 337, it was alleged that the State of Victoria had engaged in misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law in Schedule 2 of the Competition and Consumer Act 2010 (Cth), through representations in documents it published seeking to justify the economic benefits of the proposed East-West Link toll road. The Victorian Court of Appeal (Nettle AP, Santamaria and Beach JJA) said (at [35]):
… It is one thing to make an allegation without any basis for it - which is plainly impermissible - and quite another to make allegations - as the appellant did in this case - which ex facie were soundly based on the best particulars which could be given until after discovery (and which, it should be noted, were not sought to be struck out as being something else). In a case like this, where ex hypothesi the documents needed to prove the appellant's allegations were within the respondents' exclusive possession or power, and the respondents refused to produce them, the appellant not only had no option other than to plead his case as he did but was perfectly entitled to do so. The propriety of so proceeding is established by a long line of authority dating back to the nineteenth century.
(Emphasis added).
106 The Honours went on to say (at [37]) that:
…to foreclose a plaintiff's opportunity of obtaining discovery from the State in order to prove a case which is ex facie implied by so many of the documents as are presently available to him would be to subvert the justice process.
107 Similarly to Murphy, in circumstances where the Information Statements published by the respondents said nothing at all about any material risks to the Commonwealth's financial position and the value of eAGBs associated with climate change, and having regard to the publicly available material to which I was taken in the hearing, the existence of a case may be implied. The applicant relied upon four publicly available documents, described briefly below:
(a) a report by FTSE Russell, titled "Anticipating the climate change risks for sovereign bonds Part 1: Insight of macroeconomic impacts" dated March 2021;
(b) a report by FTSE Russell, titled "Anticipating the climate change risks for sovereign bonds Part 2: Insights on financial impacts" dated June 2021 (Part 2 of the FTSE Russell report). Amongst other things it states that in a "disorderly transition" scenario in which appropriate climate change policy is not introduced until 2030, leading to deeper emission reductions than in an "orderly transition" scenario, Australia faces a 156% increase in its debt to GDP ratio. The report also states that in a "hothouse world" scenario in which GHG emissions increase until 2080 and global warming exceeds 3°C, Australia faces a 21% increase in the ratio of debt to GDP, but has zero risk of defaulting on its debt obligations at 2050;
(c) an article in the Australian Financial Review, headed "Ratings agencies will drive government climate disclosures, says AOFM" dated 9 June 2021 (the AFR article). The article summarised a speech made to economists by the third respondent, the AOFM CEO, in which he is reported to have said that "over the next few years…there would be an increased focus from fixed income investors about what governments are doing to react to the [climate change] challenges ahead"; and
(d) the 2021 Intergenerational Report, dated June 2021, published by the Commonwealth Department of Treasury, which states:
Climate change is expected to have physical effects and transition effects on Australia's economy. Physical effects are impacts caused directly by a changing climate. Transition effects relate to the impacts of global and domestic efforts to reduce greenhouse gas emissions. This includes the costs of Australia's own mitigation efforts, as well as changes to demands for our exports due to mitigation actions by our trading partners. There could also be impacts on global capital flows.
A reduction in real GDP associated with climate change would have a fiscal impact through reducing taxation revenue, as well as increasing pressure on expenditure. Other revenue sources such as fuel excise and mining royalties could also be affected by changes in demand and consumption related to a global transition away from fossil fuel use.
Any reduction in GDP is likely to be unevenly distributed across sectors and regions. The agricultural sector is particularly vulnerable to the physical effects of climate change, the resources sector is particularly vulnerable to the transition effects, and the financial sector is vulnerable to both.
The parties did not agree as to the effect of the documents and each sought to put its own slant on them. However, for the purposes of a strike-out application it is appropriate to take them at their highest for the applicant.
108 As I have said, the respondents likened the present case to a securities class action. In such cases information asymmetry often results in some obscurity in the pleading prior to the completion of discovery, and the courts deal with any procedural unfairness to the respondent by requiring the applicant to provide a revised pleading after discovery, and/or through other case management orders. As Lee J observed (in the context of discussing the issue of state of mind/knowledge) in Klemweb Nominees Pty Ltd (as trustee for the Klemweb Superannuation Fund) v BHP Group Limited [2019] FCAFC 107; 369 ALR 583 at [84]:
…Securities class actions necessarily involve allegations of misleading conduct or non-disclosure of one form or another. Speaking very generally, the central issue in the case is often: what did officers of the listed entity know and when did they know it? The answer to the question is often (but not always) somewhat nubilated at the commencement of a proceeding. The case usually commences with an information asymmetry between the parties which dissipates as it passes through interlocutory stages, including the service of evidence and discovery.
109 Beach J made similar remarks in Webster (Trustee) v Murray Goulburn Co-Operative Co. Limited (No 2) [2017] FCA 1260 at [6] where his Honour said:
…Given information asymmetry as between the parties concerning the state of mind of one of them, where the pleadings are at an early stage and before discovery, so long as some particulars of knowledge are given so as to demonstrate that the plea of knowledge is not wholly speculative, it may be appropriate to allow a plea of knowledge to go forward on the basis that full particulars of knowledge will be provided after discovery, reserving to the other party the right to seek a strike out or summary dismissal of the pleaded cause of action relying upon that knowledge at that later stage if that turns out not to be the case.
Notwithstanding the somewhat different context, in my view their Honours' remarks remain apposite in relation to the misleading or deceptive conduct claim.
110 In the present case the forward-looking nature of the allegations accentuates the information asymmetry between the parties. That information asymmetry arises in circumstances where the respondents are in the best position to assess and may have already assessed whether and if so, to what extent and in what manner, in the period 7 July 2020 to the maturity date of the relevant eAGBs (2047 and 2050), the Physical and Transition Risks of climate change will or are likely to have a material adverse impact on the Commonwealth's financial position as alleged in subparagraphs [76.1]-[76.4] and on the value at which eAGBs are traded on the ASX.
111 Second, I do not accept the respondents' contention that the applicant failed to grapple with the temporal aspects of the claims. To a large extent that deficiency in the pleading was rectified by the Proposed 2FASOC. The class description now only includes represented persons who acquired eAGBs with the specified codes in the period between 7 July 2020 and 6 August 2021, which bonds have the same maturity dates as the applicant's eAGBs. The Material Climate Change Information which the applicant alleges the respondents failed to disclose, concerns the risks pleaded at paragraph [77A] in the approximately 27-30 year period between the acquisition of those bonds and those maturity dates.
112 I accept the respondents' contention that the Proposed 2FASOC does not plead when, within that 27-30 year period that, for example:
(a) the significant additional Commonwealth expenditure (alleged at paragraph [63]) will be required;
(b) the financial viability of the particularly vulnerable industries and communities (alleged at paragraph [64]) will be or will likely be negatively affected, and when those negative effects will lead to a reduction in Commonwealth revenue from those industries and communities (at [64B]);
(c) the increase in Commonwealth expenditure will or will likely commence because of delay in implementing the Net Zero Measures (alleged at paragraph [75]);
(d) the material adverse impact on the Commonwealth's financial position (alleged at paragraph [76]) will or will likely occur; and
(e) the above matters are or are likely to be material to the value of the eAGBs on the market (at [77]).
113 Two things can, however, be said about that:
(a) for the purpose of the application I am not persuaded that the applicant must establish precisely when, within the approximate 27-30 year period until the maturity date of the bonds, those matters will or are likely to occur. The applicant's case is that the respondents have provided no information at all to investors in eAGBs about any risks of material adverse impacts on the Commonwealth's financial position and to the value of the relevant eAGBs as a result of climate change. For the purpose of the application I proceed on the basis that it may be enough for the applicant to show that if there is a real risk of any such occurrence, at any point during the period up to the maturity date of the bonds, the respondents were obliged to disclose the risk(s); and
(b) even if it is accepted that the pleading is deficient in this regard, that does not establish that it is appropriate to be struck-out at this early stage, having regard to the asymmetry of information. As I have said, the applicant is not presently in a position to plead such matters, it cannot equip itself to get that information, and any assessments made in that regard, if they exist, are only in the respondents' control.
114 Third, I can see little force in the respondents' contention that the pleading seeks to require the Commonwealth to identify and disclose to potential investors in eAGBs every possible event, economic change, or government policy that could ever occur over the space of thirty years, that might lead to a significant increase in Commonwealth expenditure or decrease in Commonwealth revenue. That is not the applicant's case. Paragraphs [77A.1] and [77A.2] of the Proposed 2FASOC allege that the respondents were required to disclose information about:
(a) the existence, nature and extent of the Physical and Transition Risks of climate change (being, in effect, a likely material increase in Commonwealth expenditure and decrease in Commonwealth revenue as a result of the impacts of climate change); and/or
(b) the effect or likely effect of those risks on the Commonwealth's financial position by reference to the four matters identified in paragraphs [76.1]-[76.4] and/or on the value of eAGBs.
It is alleged that such information was required to be disclosed because it is information that will inform holders of eAGBs about significant risks associated with holding the bonds and which might reasonably be expected to have a material influence on decisions to acquire, hold or dispose of the bonds.
115 Fourth, I do not accept the respondents' contention that the case pleaded is no more than that there is a material risk that the market price of the bonds might change, which risk cannot to be said to be a risk that was not disclosed by the respondents. It is uncontroversial that the Information Statements and AGB Website disclosed only two risks in relation to eTBs, being changes in market price and conversion by the Australian government; and three risks in relation to the eTIBs, being changes in market price, conversion by the Australian government and deflation. Disclosure of a risk that the price at which eAGBs are traded on the ASX may change for reasons which are unstated, is not the same thing as disclosing a risk that the market price might be materially reduced as a result of a particular identified risk, here, climate change.
116 Nor do I accept the respondents' contention that the pleading fails to grapple with the fact that, if what affects the price at which eAGBs trade on the ASX is the information pleaded in the 2FASOC, then that information must already be publicly known (if it is true), because the applicant has pleaded it. First, as I have said, the information symmetry between the parties means that the applicant does not presently have sufficient information to assess and plead the full nature or extent of the alleged risks or provide all of the material facts comprising the Material Climate Change Information that she alleges should have been disclosed. Second, I accept the respondents' complaint that the pleading is too general at present and the allegations are based on information which is publicly available. But the applicant's case is that it was misleading or deceptive for the respondents not to have explained the risks of which the respondents were or ought to have been aware of, and the material facts in relation to those risks. Fundamentally, it is that more detailed information which the applicant does not presently have and which the applicant contends is likely, if disclosed, to have a material effect on the value of eAGBs on the ASX. Third, this is not really a pleading complaint. Boiled down, it is a contention that the applicant's case is weak and, absent a summary judgment application, the merits of the case are a matter for trial.
117 For these reasons, I decline to strike-out the misleading or deceptive conduct claim.